CASE DIGEST: SME Bank v. De Guzman

G.R. No. 184517 : October 8, 2013


FACTS: Respondent employees Elicerio Gaspar (Elicerio), Ricardo Gaspar, Jr. (Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu (Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba (Liberato) were employees of Small and Medium Enterprise Bank, Incorporated (SME Bank).Originally, the principal shareholders and corporate directors of the bank were Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr. (De Guzman).

SME Bank experienced financial difficulties. To remedy the situation, the bank officials proposed its sale to Samson.

Accordingly, negotiations ensued, Letter Agreements were sent to Agustin and De Guzman, conditioning that it shall guarantee the peaceful turn over of all assets as well as the peaceful transition of management of the bank and shall terminate/retire the employees we mutually agree upon, upon transfer of shares in favor of groups nominees; and all retirement benefits, if any of the above officers/stockholders/board of directors are hereby waived upon consummation of the above sale. The retirement benefits of the rank and file employees including the managers shall be honored by the new management. Thereafter, the Letter Agreement was accepted.

Simeon Espiritu (Espiritu), then the general manager of SME Bank, held a meeting with all the employees and persuaded them to tender their resignations,with the promise that they would be rehired upon reapplication. His directive was allegedly done at the behest of petitioner Olga Samson.

Relying on this representation, Elicerio,Ricardo,Fidel,Simeon, Jr.,and Liberatotendered their resignations. As for Eufemia, she first tendered a resignation letterand then a retirement letter.

Agustin and De Guzman signified their conformity to the Letter Agreements and sold 86.365% of the shares of stock of SME Bank to spouses Abelardo and Olga Samson. Spouses Samson then became the principal shareholders of SME Bank, while Aurelio Villaflor, Jr. was appointed bank president. As it turned out, respondent employees, except for Simeon, Jr.,were not rehired. After a month in service, Simeon, Jr. again resigned on October 2001.

Respondent-employees demanded the payment of their respective separation pays, but their requests were denied. Aggrieved by the loss of their jobs, respondent employees filed a Complaint before NLRC and sued SME Bank, spouses Abelardo and Olga Samson and Aurelio Villaflor (the Samson Group). Subsequently, they amended their Complaint to include Agustin and De Guzman as respondents to the case.

The labor arbiter ruled that the buyer of an enterprise is not bound to absorb its employees, unless there is an express stipulation to the contrary. However, he also found that respondent employees were illegally dismissed, because they had involuntarily executed their resignation letters after relying on representations that they would be given their separation benefits and rehired by the new management. Accordingly, the labor arbiter decided the case against Agustin and De Guzman, but dismissed the Complaint against the Samson Group.

Respondent employees questioned the labor arbiters failure to award backwages, while Agustin and De Guzman contended that they should not be held liable for the payment of the employees claims.

The NLRC found that there was only a mere transfer of shares and therefore, a mere change of management. As the change of management was not a valid ground to terminate respondent bank employees, the NLRC ruled that they had indeed been illegally dismissed. It further ruled that Agustin, De Guzman and the Samson Group should be held jointly and severally liable for the employees separation pay and backwages.

On appeal, the CA affirmed the decision of the NLRC.

ISSUE: Whether or not the respondents were illegally dismissed.

HELD: The decision of the Court of Appeals is overruled.


Here, the records show that Elicerio, Ricardo, Fidel, and Liberato only tendered resignation letters because they were led to believe that, upon reapplication, they would be reemployed by the new management.As it turned out, except for Simeon, Jr., they were not rehired by the new management. Their reliance on the representation that they would be reemployed gives credence to their argument that they merely submitted courtesy resignation letters because it was demanded of them, and that they had no real intention of leaving their posts. We therefore conclude that Elicerio, Ricardo, Fidel, and Liberato did not voluntarily resign from their work; rather, they were terminated from their employment.

Retirement, like resignation, should be an act completely voluntary on the part of the employee. If the intent to retire is not clearly established or if the retirement is involuntary, it is to be treated as a discharge. De Leon v. NLRC, 188 Phil. 666 (1980).

In San Miguel Corporation v. NLRC, 354 Phil. 815 (1998),we have explained that involuntary retirement is tantamount to dismissal, as employees can only choose the means and methods of terminating their employment, but are powerless as to the status of their employment and have no choice but to leave the company.

This rule squarely applies to Eufemias case. Indeed, she could only choose between resignation and retirement, but was made to understand that she had no choice but to leave SME Bank. Thus, we conclude that, similar to her other co-employees, she was illegally dismissed from employment.


The law permits an employer to dismiss its employees in the event of closure of the business establishment. However, the employer is required to serve written notices on the worker and the Department of Labor at least one month before the intended date of closure.Moreover, the dismissed employees are entitled to separation pay, except if the closure was due to serious business losses or financial reverses.However, to be exempt from making such payment, the employer must justify the closure by presenting convincing evidence that it actually suffered serious financial reverses. Indino v. NLRC, 258 Phil. 792, 799 (1989).


Petitioner bank also argues that, there being a transfer of the business establishment, the innocent transferees no longer have any obligation to continue employing respondent employees, and that the most that they can do is to give preference to the qualified separated employees; hence, the employees were validly dismissed.

The argument is misleading and unmeritorious. Contrary to petitioner banks argument, there was no transfer of the business establishment to speak of, but merely a change in the new majority shareholders of the corporation.

There are two types of corporate acquisitions : asset sales and stock sales.In asset sales, the corporate entitysells all or substantially all of its assetsto another entity. In stock sales, the individual or corporate shareholderssell a controlling block of stockto new or existing shareholders.

In contrast with asset sales, in which the assets of the selling corporation are transferred to another entity, the transaction in stock sales takes place at the shareholder level. Because the corporation possesses a personality separate and distinct from that of its shareholders, a shift in the composition of its shareholders will not affect its existence and continuity. Thus, notwithstanding the stock sale, the corporation continues to be the employer of its people and continues to be liable for the payment of their just claims. Furthermore, the corporation or its new majority share holders are not entitled to lawfully dismiss corporate employees absent a just or authorized cause.

In the case at bar, the Letter Agreements show that their main object is the acquisition by the Samson Group of 86.365% of the shares of stock of SME Bank.Hence, this case involves a stock sale, whereby the transferee acquires the controlling shares of stock of the corporation. Thus, following the rule in stock sales, respondent employees may not be dismissed except for just or authorized causes under the Labor Code.

The right to security of tenure guarantees the right of employees to continue in their employment absent a just or authorized cause for termination.

It is thus erroneous on the part of the corporation to consider the employees as terminated from their employment when the sole reason for so doing is a change of management by reason of the stock sale. The conformity of the employees to the corporations act of considering them as terminated and their subsequent acceptance of separation pay does not remove the taint of illegal dismissal. Acceptance of separation pay does not bar the employees from subsequently contesting the legality of their dismissal, nor does it estop them from challenging the legality of their separation from the service. Sari-sari Group of Companies, Inc. v. Piglas Kamao, G.R. No. 164624, 11 August 2008