Effect of merger on employment contracts

Although Section 80 of the Corporation Code does not explicitly state the merger's effect on the employees of the absorbed corporation, Bank of the Philippine Islands v. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank[1] has ruled that the surviving corporation automatically assumes the employment contracts of the absorbed corporation, such that the absorbed corporation's employees become part of the manpower complement of the surviving corporation.In said BPI case, the Supreme Court agreed with Justice Brion's dissenting opinion that it is more in keeping with the dictates of social justice and the State policy of according full protection to labor to deem employment contracts as automatically assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the merger plan. According to Justice Brion, "Not to be forgotten is that the affected employees managed, operated and worked on the transferred assets and properties as their means of livelihood; they constituted a basic component of their corporation during its existence. In a merger and consolidation situation, they cannot be treated without consideration of the applicable constitutional declarations and directives, or, worse, be simply disregarded. If they are so treated, it is up to this Court to read and interpret the law so that they are treated in accordance with the legal requirements of mergers and consolidation, read in light of the social justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving corporation to take responsibility for the affected employees and to absorb them into its workforce where no appropriate provision for the merged corporation's human resources component is made in the Merger Plan."[2]

The rationale for this ruling is anchored on the nature and effects of a merger as provided under Section 80 of the Corporation Code, as well as the policies on work and labor enshrined in the Constitution.[3]

To reiterate, Section 80 of the Corporation Code provides that the surviving corporation shall possess all the rights, privileges, properties, and receivables due of the absorbed corporation. Moreover, all interests of, belonging to, or due to the absorbed corporation "shall be taken and deemed to be transferred to and vested in such surviving or consolidated corporation without further act or deed."[4] The surviving corporation likewise acquires all the liabilities and obligations of the absorbed corporation as if it had itself incurred these liabilities or obligations.[5]

This acquisition of all assets, interests, and liabilities of the absorbed corporation necessarily includes the rights and obligations of the absorbed corporation under its employment contracts. Consequently, the surviving corporation becomes bound by the employment contracts entered into by the absorbed corporation. These employment contracts are not terminated. They subsist unless their termination is allowed by law.

Justice BruibAssociate Justice Arturo D. Brion's dissenting opinion[6] was premised on the constitutional protection afforded to labor and the public interest carried by employment contracts:

An employment contract or contract of service essentially has value because it embodies work — the means of adding value to basic raw materials and the processes for producing goods, materials and services that become the lifeblood of corporations and, ultimately, of the nation. Viewed from this perspective, the employment contract or contract of service is not an ordinary agreement that can be viewed in strictly contractual sense. It embodies work and production and carries with it a very significant element of public interest; thus, the Constitution, no less, accords full recognition and protection to workers and their contribution to production. xxx

These constitutional statements and directives, aside from telling us to consider work, labor and employment beyond purely contractual terms, also provide us directions on how our considerations should be made, i.e., with an eye on the interests they represent — the individual, the corporate, and more importantly, the national.[7]

[1] 674 Phil. 609, 617-618 (2011) [Per J. Leonardo-De Castro, En Banc].

[2] Id. at 617-618.

[3] Id.

[4] CORP. CODE, sec. 80.

[5] CORP. CODE, sec. 80.

[6] 642 Phil. 47, 138-158 (2010) [Per J. Leonardo-De Castro, En Banc].

[7] Id. at 145-147.