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VOL.

480, JANUARY 25, 2006 171


Industrial Timber Corporation vs. Ababon

*
G.R. No. 164518. January 25, 2006.

INDUSTRIAL TIMBER CORPORATION, INDUSTRIAL


PLYWOOD GROUP CORPORATION, TOMAS TANGSOC,
JR., LORENZO TANGSOC and TOMAS TAN, petitioners,
vs. VIRGILIO ABABON, IGNACIO ABACAJEN,
ANGELINA ABAY-ABAY, EDITH ABREA, SAMUEL
ABREA, BIENVENIDO ACILO, RODRIGO ACILO,
VICTOR ACILO, ARTURO ADVINCULA, GERTRUDES
AMPARO, VIRGILIO ANTONIO, MILA ARQUITA,
PRUDENCIO ARQUITA, ALBERT ATON, WARLITA
AUTIDA, ALICIA AWITAN, LEOPOLDO AYATON,
ARTURO BALBOTEN, DANILO BANATE, LOLITA
BATAN, RAMIL BUTALON, CARMILITA CAINGLES,
VICENTE CAHARIAN, BENEDICTA CAJIPE, FELIPE
CALLANO, ALFREDO CARILLO, NILA CARILLO,
ALGER CORBETA, GREGORIO DABALOS, TERESITA
DABALOS, VENERANDO DALAUTA, RICARDO
DANGCULOS, MONTANO DAPROSA, LUISITO DIAZ,
FELIZARDO DUMULAO, EDITHA DUMANON,
ALFREDO FAELNAR, RAUL FORTUN, MAXIMO
GALLA, ANGELES GALUPO, PERFECTO GAMBE,
VERGINITA GANGCA, RUPERTO GORGONIO, ROMEO
HERRERO, SERGIO HORO-HORO, FRANCISCO
IBARRA, ABRAHAM JALE, DANDY LABITAD,
ANTONINA LAMBANG, ERNESTO LAUSA, VICTORIA
LOOD, NEMESIO LOPE, JR., ESCARLITO MADLOS,
MARCOS MAKINANO, REMEGIO MAKINANO,
VICENTE MAKINANO, REYNALDO MASUHAY, HELEN
MARATAS, ELIZABETH MENDOZA, GUILBERTA
MONTEROSO, GILDA NAVALTA, PILAR NAVARRO,
SIMPORIANO NUÑEZ, JR., ELISEO ORONGAN,
ARMANDO OROPA, ASUNCION OROPA, JOSE EDWIN
OROPA, BALDEMAR PAGALAN, BARTOLOME
PAGALAN, DAMASO PALOMA, MANALO PLAZA,
JEREMIAS PELAEZ, FRANCISCO PICARDAL,
HERMINIA
_______________

* FIRST DIVISION.

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172 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon

PUBLICO, ROMULO QUINTOS, FIDEL QUITA,


FELICIANO RANADA, RODOLFO RARU, LEAN
CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL
TAGUPA, VICTOR TAGUPA, BRIGIDA TABANAO,
PEDRO TABANAO, ROBERTO TABANAO, MARIA TAN,
RONNIE TAN, TOLENTINO TEE, ROGELIO TAMADA,
MINDA TUMAOB and ROBERTO TUTOR, respondents.

G.R. No. 164965. January 25, 2006.*

VIRGILIO ABABON, IGNACIO ABACAJEN, ANGELINA


ABAY-ABAY, EDITH ABREA, SAMUEL ABREA,
BIENVENIDO ACILO, RODRIGO ACILO, VICTOR
ACILO, ARTURO ADVINCULA, GERTRUDES AMPARO,
MILA ARQUITA, VIRGILIO ANTONIO, PRUDENCIO
ARQUITA, ALBERT ATON, WARLITA AUDITA, ALICIA
AWITAN, LEOPOLDO AYATON, ARTURO BALBOTEN,
DANILO BANATE, LOLITA BATAN, RAMIL BUTALON,
CARMELITA CAINGLES, VICENTE CAHARIAN,
BENEDICTA CAJIPE, FELIPE CALLANO, ALFREDO
CARILLO, NILA CARILLO, ALGIER CORBETA,
GREGORIO DABALOS, TERESITA DABALOS,
VENERANDO DALAUTA, RICARDO DANGCULOS,
MONTANO DAPROSA, LUISITO DIAZ, FELIZARDO
DUMULAO, EDITHA DUMANON, ALFREDO FAELNAR,
RAUL FORTUN, MAXIMO GALLA, ANGELES GALUPO,
PERFECTO GAMBE, VIRGINITA GANGCA, RUPERTO
GORGONIO, ROMEO HERRERO, SERGIO HORHORO,
FRANCISCO IBARRA, ABRAHAM JALE, DANDY
LABITAD, ANTONINA LAMBANG, ERNESTO LAUSA,
VICTORIA LOOD, NEMESIO LOPE, JR., ESCARLITO
MADLOS, MARCOS MAKINANO, REMEGIO
MAKINANO, VICENTE MAKINANO, REYNALDO
MAHUSAY, HELEN MARATAS, ELIZABETH
MENDOZA, GUILBERTA MONTEROSO, GILDA
NAVALTA, PILAR NAVARRO, SIMPORIANO NUÑEZ,
JR., ELISEO ORONGAN, ARMANDO OROPA,
ASUNCION OROPA, JOSE EDWIN OROPA, BALDEMAR
PAGALAN, BARTOLOME PAGALAN, DAMASO
PALOMA,

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VOL. 480, JANUARY 25, 2006 173


Industrial Timber Corporation vs. Ababon

MANALO PLAZA, JEREMIAS PELAEZ, FRANCISCO


PICARDAL, HERMINIA PUBLICO, ROMULO QUINTOS,
FIDEL QUITA, FELICIANO RANADA, RODOLFO RARU,
LEAN CILDRIC RODRIGUEZ, SAMUEL SAROMINES,
NATIVIDAD SIGNAR, CHERRIE SON, SAMUEL
TAGUPA, VICTOR TAGUPA, BRIGIDA TABANAO,
PEDRO TABANAO, ROBERTO TABANAO, MARIA TAN,
RONNIE TAN, TOLENTINO TEE, ROGELIO TAMADA,
MINDA TUMAOB, and ROBERTO TUTOR, petitioners, vs.
THE HONORABLE COURT OF APPEALS, INDUSTRIAL
TIMBER CORPORATION, INDUSTRIAL PLYWOOD
GROUP CORPORATION, TOMAS TANGSOC, JR.,
LORENZO TANGSOC and TOMAS TAN, respondents.

Remedial Law; Judgments; Rule that once a judgment has


become final and executory, it can no longer be disturbed, altered
or modified admits of exceptions in cases of special and exceptional
nature.—Once a judgment has become final and executory, it can
no longer be disturbed, altered or modified. However, this rule
admits of exceptions in cases of special and exceptional nature as
we held in Industrial Timber Corporation v. National Labor
Relations Commission, 233 SCRA 597 (1994).
Same; Same; Facts and circumstances of these consolidated
cases warrants liberality in the application of technical rules and
procedure.—A careful scrutiny of the facts and circumstances of
these consolidated cases warrants liberality in the application of
technical rules and procedure. We agree with the NLRC that
substantial justice is best served by allowing the petition for relief
despite procedural defect of filing the motion for reconsideration
three days late, for to rule otherwise, a greater injustice would be
done to ITC by ordering it to reinstate the employees to their
former positions that no longer exist due to valid and legitimate
cessation of business and pay huge judgment award.
Same; Same; In any proceeding before the Commission or any
of the Labor Arbiters, the rules of evidence prevailing in courts of
law or equity shall not be controlling.—Under Article 218 (c) of
the Labor Code, the NLRC may, in the exercise of its appellate
powers, correct, amend, or waive any error, defect or irregularity
whether in sub-

174

174 SUPREME COURT REPORTS ANNOTATED

Industrial Timber Corporation vs. Ababon

stance or in form. Further, Article 221 of the same code provides


that in any proceeding before the Commission or any of the Labor
Arbiters, the rules of evidence prevailing in courts of law or equity
shall not be controlling and it is the spirit and intention of this
Code that the Commission and its members and the Labor
Arbiters shall use every and all reasonable means to ascertain the
facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process.
Labor Law; Management Prerogative; One of the rights
accorded an employer is the right to close an establishment or
undertaking; The only limitation being that the closure must not
be for the purpose of circumventing the provisions on termination
of employment embodied in the Labor Code.—Work is a necessity
that has economic significance deserving legal protection. The
social justice and protection to labor provisions in the
Constitution dictate so. On the other hand, employers are also
accorded rights and privileges to assure their self-determination
and independence, and reasonable return of capital. This mass of
privileges comprises the so-called management prerogatives.
Although they may be broad and unlimited in scope, the State has
the right to determine whether an employer’s privilege is
exercised in a manner that complies with the legal requirements
and does not offend the protected rights of labor. One of the rights
accorded an employer is the right to close an establishment or
undertaking. The right to close the operation of an establishment
or undertaking is one of the authorized causes in terminating
employment of workers, the only limitation being that the closure
must not be for the purpose of circumventing the provisions on
termination of employment embodied in the Labor Code.
Same; Same; It would be stretching the intent and spirit of the
law if a court interferes with management’s prerogative to close or
cease its business operations just because the business is not
suffering from any loss or because of the desire to provide the
workers continued employment.—A reading of the foregoing law
shows that a partial or total closure or cessation of operations of
establishment or undertaking may either be due to serious
business losses or financial reverses or otherwise. Under the first
kind, the employer must sufficiently and convincingly prove its
allegation of substantial losses, while under the second kind, the
employer can lawfully close shop anytime as long as cessation of
or withdrawal from business opera-

175

VOL. 480, JANUARY 25, 2006 175

Industrial Timber Corporation vs. Ababon

tions was bona fide in character and not impelled by a motive to


defeat or circumvent the tenurial rights of employees, and as long
as he pays his employees their termination pay in the amount
corresponding to their length of service. Just as no law forces
anyone to go into business, no law can compel anybody to
continue the same. It would be stretching the intent and spirit of
the law if a court interferes with management’s prerogative to
close or cease its business operations just because the business is
not suffering from any loss or because of the desire to provide the
workers continued employment.
Same; Same; Requirements necessary for a valid cessation of
business operations.—Under Article 283 of the Labor Code, three
requirements are necessary for a valid cessation of business
operations: (a) service of a written notice to the employees and to
the DOLE at least one month before the intended date thereof; (b)
the cessation of business must be bona fide in character; and (c)
payment to the employees of termination pay amounting to one
month pay or at least one-half month pay for every year of service,
whichever is higher.
Same; Same; While an employer is under no obligation to
conduct hearings before effecting termination of employment due to
authorized cause, the law requires that it must notify the DOLE
and its employees at least one month before the intended date of
closure.—Although the closure was done in good faith and for
valid reasons, we find that ITC did not comply with the notice
requirement. While an employer is under no obligation to conduct
hearings before effecting termination of employment due to
authorized cause, however, the law requires that it must notify
the DOLE and its employees at least one month before the
intended date of closure.

PETITIONS for review on certiorari of the decision and


resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
          Gutierrez, Sundiam, Villanueva & Doronila for
Industrial Timber Corp., et al.
     Wilfred D. Asis for Virgilio Ababon, et al.
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176 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon

YNARES-SANTIAGO, J.:

Before us are two petitions for review under Rule 45 of the


Rules of Court. 1
G.R. No. 164518 assails the October 21,
2002 Decision of the Court of Appeals, in CA-G.R. 2SP No.
51966, which set aside the May 24, 1995 Decision of the
National Labor Relations Commission3
(NLRC), as well as
the July 16, 2004 Resolution denying its motion for
reconsideration. G.R. No. 164965 assails only the July 16,
2004 Resolution of the Court of Appeals which denied their
partial motion for reconsideration. These cases were
consolidated because they arose out of the same facts set
forth below.
Industrial Plywood Group Corporation (IPGC) is the
owner of a plywood plant located at Agusan, Pequeño,
Butuan City, leased to Industrial Timber Corporation
4
(ITC)
on August 30, 1985 for a period of five years. Thereafter,
ITC commenced operation of the plywood plant and hired
387 workers.
On March 16, 1990, ITC notified the Department of
Labor and Employment (DOLE) and its workers that
effective March 19, 1990 it will undergo a “no plant
operation” due to lack of raw materials 5
and will resume
only after it can secure logs for milling.
Meanwhile, IPGC notified ITC of the expiration of the
lease contract in August 1990 and its intention not to
renew the same.
On June 26, 1990, ITC notified the DOLE and its
workers of the plant’s shutdown due to the non-renewal of
anti-

_______________

1 Rollo (G.R. No. 164518), pp. 41-52. Penned by Associate Justice


Edgardo P. Cruz and concurred in by Associate Justices Oswaldo D.
Agcaoili and Amelita G. Tolentino.
2 Id., at pp. 85-101. Penned by Commissioner Musib M. Buat and
concurred in by Leon G. Gonzaga, Jr. Commissioner Oscar N. Abella,
dissented.
3 Id., at pp. 53-54.
4 CA Rollo, pp. 130-131.
5 Id., at p. 121.

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Industrial Timber Corporation vs. Ababon

6
pollution permit that expired in April 1990. This fact and
the alleged lack of logs for milling constrained ITC to lay
off all its workers until further notice. This was followed by
a final notice of closure or cessation of business operations
on August 17, 1990 with an advice for all the workers 7
to
collect the benefits due them under the law and CBA.
On October 15, 1990, IPGC took over the plywood plant
after it was issued a Wood8
Processing Plant Permit No.
WPR-1004-081791-042, which included the anti-pollution
permit, by the Department of Environment and Natural
Resources (DENR) coincidentally on the same day the ITC
ceased operation of the plant.
This prompted Virgilio Ababon, et al. to file a complaint
against ITC and IPGC for illegal dismissal, unfair labor
practice and damages. They alleged, among others, that the
cessation of ITC’s operation was intended to bust the union
and that both corporations are one and the same entity
being controlled by one owner.
On January 20, 1992, after requiring both parties to
submit their respective position papers, Labor Arbiter
Irving A. Petilla rendered a decision which refused to
pierce the veil of corporate fiction for lack of evidence to
prove that it was used to perpetuate fraud or illegal act;
upheld the validity of the closure; and ordered ITC to pay
separation pay of ½ month for every year of service. The
dispositive portion of the decision reads:

“PREMISES CONSIDERED, judgment is hereby rendered


ordering respondent Industrial Timber Corporation (ITC) to pay
herein ninety-seven individual complainants their separation pay
at the rate of one-half (1/2) month’s pay for every year of service, a
fraction of at least six (6) months to be considered as one whole
year, reckoned until August 1990.

_______________

6 Id., at p. 122.
7 Id., at p. 123.
8 Id., at p. 124.
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178 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon

All other claims of complainants are hereby ordered DISMISSED


for want of merit. 9
SO ORDERED.”

Ababon, et al. appealed to the NLRC. On May 20, 1993, the


NLRC set aside the decision of the Labor Arbiter and
ordered the reinstatement of the employees to their former
positions, and the 10payment of full back wages, damages
and attorney’s fees.
ITC and IPGC filed a Motion for Reconsideration 11
through JRS, a private courier, on June 24, 1993.
However, it was dismissed for being filed out of time
having been filed only on the date of actual receipt by the
NLRC on June 29, 1993, 12
three days after the last day of the
reglamentary period.
13
Thus, they filed a Petition for Relief
from Resolution, which was treated as a second motion for
reconsideration by the NLRC and dismissed 14for lack of
merit in a Resolution dated September 29, 1994.
From said dismissal, petitioners
15
filed a Notice of Appeal
with the Supreme Court. Subsequently, they filed a
Motion for 16Reconsideration/Second Petition for Relief with
the NLRC.
On December 7, 1994, the Supreme Court dismissed the
Notice of Appeal17 for being a wrong mode of appeal from the
NLRC decision. On the other hand, the NLRC granted the
Second Petition for Relief and set aside all its prior decision

_______________

9 Rollo (G.R. No. 164518), p. 68.


10 Id., at pp. 83-84. Penned by Commissioner Oscar N. Abella and
concurred in by Commissioners Leon G. Gonzaga, Jr. and Musib M. Buat.
11 CA Rollo, pp. 214-222.
12 Id., at pp. 223-225.
13 Id., at pp. 227-235.
14 Id., at pp. 236-240.
15 Id., at pp. 256-259, docketed as G.R. No. 117825.
16 Id., at p. 241.
17 Id., at p. 260.

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VOL. 480, JANUARY 25, 2006 179
Industrial Timber Corporation vs. Ababon

and resolutions. The dispositive portion of the May 24,


1995 decision reads:

“WHEREFORE, the decision of this Commission dated May 10,


1993 and its subsequent resolutions dated June 22, 1994 and
September 29, 1994 are Set Aside and Vacated. Accordingly, the
appeal of complainants is Dismissed for lack of merit and the
decision of the Labor Arbiter dated January 20, 1992 is
Reinstated and hereby
18
Affirmed.
SO ORDERED.”

On October 2, 1995, Virgilio Ababon, et al. filed a Petition


for Certiorari with the
19
Supreme Court, which was docketed
as G.R. No. 121977. However, pursuant to our ruling in
St. Martin’s Funeral Home v. NLRC, we referred the
petition to the
20
Court of Appeals for appropriate action and
disposition.
On October 21, 2002, the Court of Appeals rendered a
decision setting aside the May 24, 1995 decision of the
NLRC and reinstated its May 20, 1993 decision and
September 29, 1993 resolution, thus:

“WHEREFORE, the petition is GRANTED. The decision dated


May 24, 1995 of the National Labor Relations Commission is
ANNULLED and SET ASIDE, with the result that its decision
dated May 20, 1993 and resolution dated September 29, 1994 are
REINSTATED. 21
SO ORDERED.”

Both parties filed their respective motions for


reconsideration which were denied, hence, the present
consolidated petitions for review based on the following
assigned errors:

_______________

18 Rollo (G.R. No. 164518), p. 100.


19 CA Rollo, pp. 4-26.
20 Id., at p. 610.
21 Rollo (G.R. No. 164518), p. 52.

180

180 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon
In G.R. No. 164518

THE COURT OF APPEALS ERRED IN LIBERALLY APPLYING


THE RULES OF PROCEDURE WITH RESPECT TO
RESPONDENTS BUT BEING
22
RIGID IN ITS APPLICATION AS
REGARDS PETITIONERS.

In G.R. No. 164965

WITH DUE RESPECT, THE COURT OF APPEALS


COMMITTED A REVERSIBLE ERROR WHEN IT REFUSED TO
APPLY SECTION 279 OF THE LABOR CODE AS AMENDED
BY RA 6715 TO MODIFY THE DECISION OF 20 MAY
23
1993
WITH RESPECT TO BACKWAGES FOR PETITIONERS.

ITC and IPGC contend that the Court of Appeals erred in


reversing the May 24, 1995 decision of the NLRC since its
May 20, 1993 decision had become immutable for their
failure to file motion for reconsideration within the
reglementary period. While they admit filing their motion
for reconsideration out of time due to excusable negligence
of their counsel’s secretary, however, they advance that the
Court of Appeals should have relaxed the rules of
technicality in the paramount interest of justice, as it had
done so in favor of the employees, and ruled on the merits
of the case; after all, the delay was just three days.
Ordinarily, once a judgment has become final and
executory, it can no longer be disturbed, altered or
modified. However, this rule admits of exceptions in cases
of special and exceptional nature as we held in Industrial
Timber Corporation
24
v. National Labor Relations
Commission:

“It is true that after a judgment has become final and executory,
it can no longer be modified or otherwise disturbed. However, this
principle admits of exceptions, as where facts and circumstances

_______________

22 Id., at p. 21.
23 Rollo (G.R. No. 164965), p. 22.
24 G.R. No. 111985, June 30, 1994, 233 SCRA 597, 601.

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Industrial Timber Corporation vs. Ababon
transpire which render its execution impossible or unjust and it
therefore becomes necessary, ‘in the interest of justice, to direct
its modification in order to harmonize the disposition with the
prevailing circumstances.’ ”

A careful scrutiny of the facts and circumstances of these


consolidated cases warrants liberality in the application of
technical rules and procedure. We agree with the NLRC
that substantial justice is best served by allowing the
petition for relief despite procedural defect of filing the
motion for reconsideration three days late, for to rule
otherwise, a greater injustice would be done to ITC by
ordering it to reinstate the employees to their former
positions that no longer exist due to valid and legitimate
25
cessation of business and pay huge judgment award.
Moreover, under Article 218(c) of the Labor Code, the
NLRC may, in the exercise of its appellate powers, correct,
amend, or waive any error, defect or irregularity whether in
substance or in form. Further, Article 221 of the same code
provides that in any proceeding before the Commission or
any of the Labor Arbiters, the rules of evidence prevailing
in courts of law or equity shall not be controlling and it is
the spirit and intention of this Code that the Commission
and its members and the Labor Arbiters shall use every and
all reasonable means to ascertain the facts in each case
speedily and objectively and without regard to technicalities
26
of law or procedure, all in the interest of due process.
Also, the rule under Section 14 of Rule VII of the New
Rules of Procedure of the NLRC that a motion for
reconsideration of any order, resolution or decision of the
Commission shall not be entertained except when based on
palpable or patent errors, provided that the motion is under
oath and filed within 10 calendar days from receipt of the
order, resolution or decision should not be interpreted as to
sacrifice substantial

_______________

25 Rollo (G.R. No. 164518), p. 93.


26 See Mayon Hotel & Restaurant v. Adana, G.R. No. 157634, May 16,
2005, 458 SCRA 609, 628.

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182 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon
justice to technicality. It should be borne in mind that the
real purpose behind the limitation of the period is to
forestall or avoid an unreasonable delay in the
administration of justice, from which the NLRC absolved
ITC and IPGC because the filing of their motion for
reconsideration three days later than the prescribed period
was due to excusable negligence. Indeed, the “Court has
the power to except a particular case from the operation of
the rule whenever the purposes of justice requires it
because what should guide judicial action is that a party is
given the fullest opportunity to establish the merits of his
action or defense rather than for27 him to lose life, honor, or
property on mere technicalities.”
We now come to the main issues of whether Ababon, et
al. were illegally dismissed due to the closure of ITC’s
business; and whether they are entitled to separation pay,
backwages, and other monetary awards.
Work is a necessity that has economic significance
deserving legal protection. The social justice and protection
to labor provisions in the Constitution dictate so. On the
other hand, employers are also accorded rights and
privileges to assure their self-determination and
independence, and reasonable return of capital. This mass
of privileges comprises the so-called management
prerogatives. Although they may be broad and unlimited in
scope, the State has the right to determine whether an
employer’s privilege is exercised in a manner that complies
with the legal requirements and does not offend the
protected rights of labor. One of the rights accorded an
employer is 28 the right to close an establishment or
undertaking.
The right to close the operation of an establishment or
undertaking is one of the authorized causes in terminating
employment of workers, the only limitation being that the
clo-

_______________

27 Philippine Commercial Industrial Bank v. Cabrera, G.R. No. 160368,


March 31, 2005, 454 SCRA 792, 801.
28 Capitol Medical Center, Inc. v. Meris, G.R. No. 155098, September
16, 2005, 470 SCRA 125, SC E-Library.

183

VOL. 480, JANUARY 25, 2006 183


Industrial Timber Corporation vs. Ababon
sure must not be for the purpose of circumventing the
provisions on termination of employment embodied in the
Labor Code.
Article 283 of the Labor Code provides:

“ART. 283. Closure of establishment and reduction of personnel.—


The employer may also terminate the employment of any
employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless
the closing is for the purpose of circumventing the provisions of
this Title, by serving a written notice on the workers and the
Ministry of Labor and Employment at least one (1) month before
the intended date thereof. In case of termination due to the
installation of labor saving devices or redundancy, the worker
affected thereby shall be entitled to a separation pay equivalent to
at least his one (1) month pay or to at least one (1) month pay for
every year of service, whichever is higher. In case of retrenchment
to prevent losses and in cases of closures or cessation of
operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or to at least one-half (1/2) month
pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1) whole year.”

A reading of the foregoing law shows that a partial or total


closure or cessation of operations of establishment or
undertaking may either be due to serious business losses or
financial reverses or otherwise. Under the first kind, the
employer must sufficiently and 29
convincingly prove its
allegation of substantial losses, while under the second
30
kind, the employer can lawfully close shop anytime as
long as cessation of or withdrawal from business operations
was bona fide in character and not impelled by a motive to
defeat or circumvent the

_______________

29 Alabang Country Club, Inc. v. National Labor Relations Commission,


G.R. No. 157611, August 9, 2005, 466 SCRA 329, SC E-Library.
30 Id.

184

184 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon

31
31
tenurial rights of employees, and as long as he pays his
employees their termination pay in 32
the amount
corresponding to their length of service. Just as no law
forces anyone to go into business, no law can compel
anybody to continue the same. It would be stretching the
intent and spirit of the law if a court interferes with
management’s prerogative to close or cease its business
operations just because the business is not suffering from
any loss or because of33the desire to provide the workers
continued employment.
In sum, under Article 283 of the Labor Code, three
requirements are necessary for a valid cessation of
business operations: (a) service of a written notice to the
employees and to the DOLE at least one month before the
intended date thereof; (b) the cessation of business must be
bona fide in character; and (c) payment to the employees of
termination pay amounting to one month pay or at least
one-half month pay for every year of service, whichever is
higher.
In these consolidated cases, we find that ITC’s closure or
cessation of business was done in good faith and for valid
reasons.
The records reveal that the decision to permanently
close business operations was arrived at after a suspension
of operation for several months precipitated by lack of raw
materials used for milling operations, the expiration of the
anti-pollution permit in April 1990, and the termination of
the lease contract with IPGC in August 1990 over the
plywood plant at Agusan, Pequeño, Butuan City. We quote
with approval the observation of the Labor Arbiter:

“As borne out from the records, respondent ITC actually


underwent ‘no plant operation’ since 19 March 1990 due to lack of
log

_______________

31 Danzas Intercontinental, Inc. v. Daguman, G.R. No. 154368, April 15,


2005, 456 SCRA 382, 393.
32 Capitol Medical Center, Inc. v. Meris, supra note 28.
33 Alabang Country Club, Inc. v. National Labor Relations Commission,
supra note 29.

185

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Industrial Timber Corporation vs. Ababon
supply. This fact is admitted by complainants (Minutes of
hearing, 28 October 1991). Since then several subsequent
incidents prevented respondent ITC to resume its business
operations e.g. expiration and non-renewal of the wood processing
plant permit, anti-pollution permit, and the lease contract on the
plywood plant. Without the raw materials respondent ITC has
nothing to produce. Without the permits it cannot lawfully operate
the plant. And without the contract of lease respondent ITC has no
option 34but to cease operation and turn over the plant to the
lessor.” (Emphasis supplied)

Moreover, the lack of raw materials used for milling


operations was affirmed in Industrial Timber
35
Corporation
v. National Labor Relations Commission as one of the
reasons for the valid closure of ITC’s Butuan Logs Plant in
1989. In said case, we upheld the management prerogative
to close the plant as the only remedy available in order to
prevent imminent heavy losses on account of high
production costs, erratic supply of raw materials, depressed
prices and poor market conditions for its wood products.
In Shoppers Gain 36 Supermarket v. National Labor
Relations Commission, we held that the non-renewal of
petitioner corporation’s lease contract and its consequent
closure and cessation of operations may be considered an
event beyond petitioner’s control, in the nature of a force
majeure situation. As such, it amounts to an authorized
cause for termination of the private respondents.
Having established that ITC’s closure of the plywood
plant was done in good faith and that it was due to causes
beyond its control, the conclusion is inevitable that said
closure is valid. Consequently, Ababon, et al. could not
have been illegally dismissed to be entitled to full
backwages. Thus, we find it no longer necessary to discuss
the issue regarding the computation of their backwages.
However, they are entitled to

_______________

34 Rollo (G.R. No. 164518), p. 64.


35 339 Phil. 395, 401, 404-405; 273 SCRA 200, 207, 210 (1997).
36 328 Phil. 756, 771; 259 SCRA 411, 423 (1996).

186

186 SUPREME COURT REPORTS ANNOTATED


Industrial Timber Corporation vs. Ababon
separation pay equivalent to one month pay or at least one-
half month pay for every year of service, whichever is
higher.
Although the closure was done in good faith and for
valid reasons, we find that ITC did not comply with the
notice requirement. While an employer is under no
obligation to conduct hearings before effecting
37
termination
of employment due to authorized cause, however, the law
requires that it must notify the DOLE and its employees at
least one month before the intended date of closure.
In the case at bar, ITC notified its employees and the
DOLE of the ‘no plant operation’ on March 16, 1990 due to
lack of raw materials. This was followed by a ‘shut down’
notice dated June 26, 1990 due to the expiration of the
anti-pollution permit. However, this shutdown was only
temporary as ITC assured its employees that they could
return to work once the renewal is acted upon by the
DENR. On August 17, 1990, the ITC sent its employees a
final notice of closure or cessation of business operations to
take effect on the same day it was released. We find that
this falls short of the notice requirement for termination of
employment due to authorized cause considering that the
DOLE was not furnished and the notice should have been
furnished both the employees and the DOLE at least one
month before the intended date of closure.38
In Ariola v. Philex Mining Corporation, we held:

“In Agabon v. National Labor Relations Commission and Jaka


Food Processing Corporation v. Pacot, the Court sustained the
dismissals for just cause under Article 282 and for authorized
cause under Article 283 of the Labor Code, respectively, despite
non-compliance with the statutory requirement of notice and
hearing. The grounds for the dismissals in those cases, namely,
neglect of duty and retrenchment, remained valid because the
non-compliance with the

_______________

37 See Wiltshire File Co., Inc. v. National Labor Relations Commission,


G.R. No. 82249, February 7, 1991, 193 SCRA 665, 676.
38 G.R. No. 147756, August 9, 2005, 466 SCRA 152, SC E-Library.

187

VOL. 480, JANUARY 25, 2006 187


Industrial Timber Corporation vs. Ababon
notice and hearing requirement in the Labor Code did not
undermine the validity of the grounds for the dismissals. Indeed,
to invalidate a dismissal merely because of a procedural defect
creates absurdity and runs counter to public interest. We
explained in Agabon:

‘The unfairness of declaring illegal or ineffectual dismissals for valid or


authorized causes but not complying with statutory due process may
have far-reaching consequences.
This would encourage frivolous suits, where even the most notorious
violators of company policy are rewarded by invoking due process. This
also creates absurd situations where there is a just or authorized cause
for dismissal but a procedural infirmity invalidates the termination. Let
us take for example a case where the employee is caught stealing or
threatens the lives of his co-employees or has become a criminal, who has
fled and cannot be found, or where serious business losses demand that
operations be ceased in less than a month. Invalidating the dismissal
would not serve public interest. It could also discourage investments that
can generate employment in the local economy.’ ”

Where the dismissal is based on an authorized cause under


Article 283 of the Labor Code but the employer failed to
comply with the notice requirement, the sanction should be
stiff as the dismissal process was initiated by the
employer’s exercise of his management prerogative, as
opposed to a dismissal based on a just cause under Article
282 with the same procedural infirmity where the sanction
to be imposed upon the employer should be tempered as the
dismissal process was, in 39
effect, initiated by an act
imputable to the employee.
In light of the factual circumstances of the cases at bar,
we deem it wise and reasonable to award P50,000.00 to
each employee as nominal damages.
WHEREFORE, in view of the foregoing, the October 21,
2002 Decision of the Court of Appeals in CA-G.R. SP No.
51966, which set aside the May 24, 1995 Decision of the

_______________

39 San Miguel Corporation v. Aballa, G.R. No. 149011, June 28, 2005,
461 SCRA 392, 431.

188

188 SUPREME COURT REPORTS ANNOTATED


Rivera vs. People
NLRC, as well as the July 16, 2004 Resolution denying
ITC’s motion for reconsideration, are hereby REVERSED.
The May 24, 1995 Decision of the NLRC reinstating the
decision of the Labor Arbiter finding the closure or
cessation of ITC’s business valid, is AFFIRMED with the
MODIFICATIONS that ITC is ordered to pay separation
pay equivalent to one month pay or to at least one-half
month pay for every year of service, whichever is higher,
and P50,000.00 as nominal damages to each employee.
SO ORDERED.

          Panganiban (C.J., Chairman), Austria-Martinez,


Callejo, Sr. and Chico-Nazario, JJ., concur.

Judgment and resolution reversed, that of the National


Labor Relations Commission affirmed with modifications.

Note.—The court could modify or alter a judgment even


after the same has become executory. (Roehr vs. Rodriguez,
404 SCRA 495 [2003])

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