Lowe Inc vs CA

In its 30 June 2003 Resolution, the NLRC set

aside the Labor Arbiter’s 15 August 2002
FACTS Decision and declared that Mutuc was
illegally dismissed by Lowe. The NLRC added
Lowe, an advertising agency, is a corporation that Lowe failed to adopt any fair and
duly organized and existing under the laws of reasonable criteria in declaring Mutuc’s
the Philippines. Petitioner Maria Elizabeth position redundant . The NLRC concluded that
“Mariles” L. Gustilo (Gustilo) is the Chief Lowe used redundancy as a guise to get rid of
Executive Officer and President of Lowe, Mutuc even if there was no basis to declare
while petitioner Raul M. Castro (Castro) is the her position redundant. Both Lowe and Mutuc
Executive Creative Director of Lowe. Gustilo filed petitions for certiorari before the Court
and Castro were included in the complaint for of Appeals.
illegal dismissal in their capacity as officers of
Lowe. the Court of Appeals dismissed Lowe’s
petition and affirmed the NLRC’s 30 June
On 23 June 2000, at the height of the influx of 2003 Resolution. In its 13 March 2006
advertising projects, Lowe hired Mutuc as a Decision, the Court of Appeals granted
Creative Director to help out the four other Mutuc’s petition and modified the award of
Creative Directors of Lowe. Mutuc was given backwages. The Court of Appeals agreed with
a salary of P100,000 a month. On 26 the NLRC that Lowe failed to prove two
February 2001, Mutuc became a regular requisites of a valid redundancy program,
employee of Lowe. namely: (1) good faith in abolishing the
redundant position, and (2) fair and
Most of Lowe’s clients reduced their reasonable criteria in ascertaining which
advertising budget. In response to the positions were to be declared redundant. The
situation, Lowe implemented cost-cutting Court of Appeals also said that Lowe should
measures including a redundancy program. not have made Mutuc a regular employee if
On 31 October 2001, Lowe terminated she was incompetent and if her performance
Mutuc’s services because her position was was below par. Moreover, Mutuc’s backwages
declared redundant. should be computed from the time she was
unlawfully dismissed until the decision of the
Subsequently, Mutuc filed a complaint for Court of Appeals becomes final.
illegal dismissal, nonpayment of 13th month
pay with prayer for the award of moral and ISSUES
exemplary ddamages plus attorney’s fees
against Lowe. WON THE COURT OF THE COURT OF APPEALS
DECIDED A QUESTION OF SUBSTANCE IN A
On 15 August 2002, the Labor Arbiter WAY NOT IN ACCORD WITH THE LAW IN
dismissed Mutuc’s complaint and ruled that AFFIRMING THE RULING OF THE NLRC
Lowe validly dismissed Mutuc from the HOLDING THE INDIVIDUAL PETITIONERS
service. RAUL CASTRO AND MARILES GUSTILO LIABLE
TO THE PRIVATE RESPONDENT WHEN THE
The Labor Arbiter ruled that Lowe satisfied SAID CORPORATE OFFICERS HAVE
the requisites for a valid implementation of a PERSONALITIES THAT ARE DISTINCT AND
redundancy program, namely: (1) there was SEPARATE FROM LOWE, AND WHEN THERE IS
notice to Mutuc and the Department of Labor EVEN NO EVIDENCE IN THE RECORDS
and Employment (DOLE); (2) there was an SHOWING THAT THEY EFFECTED THE
offer to pay separation pay, which Mutuc TERMINATION OF THE PRIVATE RESPONDENT
refused to receive since she did not want to WITH MALICE OR BAD FAITH.
process her clearance; (3) that Lowe was
motivated by good faith in declaring Mutuc’s RULING
position redundant; and (4) that the criteria
used by Lowe, which were seniority and Redundancy, which is one of the authorized
efficiency, to determine which position was causes for the dismissal of an employee.
redundant, were fair and reasonable. Redundancy exists when the service of an
employee is in excess of what is reasonably
the Labor Arbiter ruled that Gustilo and demanded by the actual requirements of the
Castro could not be held liable for the business.for a valid implementation of a
monetary awards to Mutuc since they were redundancy program, the employer must
merely acting in the performance of their comply with the following requisites: (1)
duties and there was no showing that they written notice served on both the employee
acted deliberately or maliciously to evade any and the DOLE at least one month prior to the
obligation to Mutuc. intended date of termination; (2) payment of
separation pay equivalent to at least one
month pay or at least one month pay for which are distinct and separate from
every year of service, whichever is higher; (3) that of Lowe’s. Hence, in the absence of
good faith in abolishing the redundant any evidence showing that they acted with
position; and (4) fair and reasonable criteria in malice or in bad faith in declaring Mutuc’s
ascertaining what positions are to be declared position redundant, Gustilo and Castro are
redundant. not personally liable for the monetary awards
to Mutuc.
Among the accepted criteria in implementing
a redundancy program are: (1) preferred Hence, LA decision is hereby affirmed.
status; (2) efficiency; and (3) seniority.

We agree with the Labor Arbiter that

Lowe employed fair and reasonable
criteria in declaring Mutuc’s position
redundant. Mutuc, who was hired only on
23 June 2000, did not deny that she was the
most junior of all the executices of Lowe.
Mutuc also did not present contrary evidence
to disprove that she was the least efficient
and least competent among all the Creative
Directors.

The determination of the continuing

necessity of a particular officer or position in
a business corporation is a management
prerogative, and the courts will not interfere
unless arbitrary or malicious action on the
part of management is shown. Since
Mutuc’s dismissal is for an authorized
cause, she is not entitled to backwages.

It is settled that in the absence of

malice, bad faith, or specific provision of
law, a director or an officer of a
corporation cannot be made personally
liable for corporate liabilities. In Mcleod
v. NLRC, we said:

To reiterate, a corporation is a juridical

entity with legal personality separate and
distinct from those acting for and in its behalf
and, in general, from the people comprising
it. The rule is that obligations incurred
by the corporation, acting through its
directors, officers, and employees are
its sole liabilities. Personal liability of
corporate directors, trustees or officers
attaches only when (1) they assent to a
patently unlawful act of the corporation, or
when they are guilty of bad faith or
gross negligence in directing its affairs,
or when there is a conflict of interest resulting
in damages to the corporation, its
stockholders or other persons; (2) they
consent to the issuance of watered down
stocks or when, having knowledge of such
issuance, do not forthwith file with the
corporate secretary their written objection;
(3) they agree to hold themselves personally
and solidarily liable with the corporation; or
(4) they are made by specific provision of law
personally answerable for their corporate
action. (Emphasis supplied)

Gustilo and Castro, as corporate

officers of Lowe, have personalities