Solidary Liability of Owners in Labor Cases

In case of dismissals, directors and officers of corporations may only be held solidarily liable with the corporation if they acted in bad faith or with malice.

In Mandaue Dinghow Dimsum House, Co., Inc. vs. National Labor Relations Commission[ 571 Phil. 108 (2008)], the Supreme Court (SC) held that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Because of this, the doctrine of piercing the veil of corporate fiction must be exercised with caution.

In Malayang Samahan ng mga Manggagawa sa M. Greenfield vs. Ramos, corporate directors and officers are solidarily liable with the corporation for the termination of employees done with malice or bad faith. It has been held that bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of the nature of fraud.

In MAM Realty Development Corporation v. National Labor Relations Commission [314 Phil. 838 (1995], acorporation, being a juridical entity, may act only through its directors, officers and employees.

Acquire Mastery of HR/Labor Doctrines, Rules and Principles with Atty. Elvin’s HR Bundle Books at Discounted Rate

Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent.

Solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases:

1. When directors and trustees or, in appropriate cases, the officers of a corporation —

(a) vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

2. When a director or officer has consented to the issuance of watered stock or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.
3. When the director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarity liable with the Corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

In labor cases, corporate directors and officers are solidarily liable with the corporation for the termination of employment of employees done with malice or in bad faith.

If the employee’s dismissal was not shown to have been done in bad faith or with malice, no solidary liability can attach. In a case where the documents submitted by the company and officers reveal that the company may have indeed been suffering business losses and that even Regional Trial Court has even granted its Petition for Corporate Rehabilitation, there can be no solidary liability.

While even if the employer and its officers, in a labor case, failed to show that they applied fair and reasonable criteria in selecting the employees to be entrenched, it does not mean that the dismissals were automatically done in bad faith or with malice. They may have simply failed to strictly comply or to sufficiently prove compliance with the stringent rules for a valid retrenchment. As such, bad faith or malice must still be proved.

Where the complaining employee failed to present clear and convincing evidence that the company and its officers acted in bad faith or with malice, or that they breached any duty or were motivated by ill will, no soliary liability can attach.

Absent proof, the corporation’s separate and distinct personality must be respected.

Learn how to Validly Terminate Employee in the Philippines with this Tutorial Video of Atty. Elvin

Read more on procedural due process discussion by Atty. Elvin:

Read more on procedural due process by Atty. Villanueva:

Twin Requirements of Notice and Hearing

Procedural Due Process for Other Types of Employment