A Collection of Case Digests

Philippine Geothermal, Inc. Employees Union v. Unocal Philippines – Effect of Merger on Employees of Absorbed Corporation

G.R. No. 190187; 28 September 2016

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The Philippine Geothermal, Inc. Employees Union, Petitioner,  v. Unocal Philippines, Inc. (now known as Chevron Geothermal Philippines Holdings, Inc.), Respondent; G.R. No. 190187; 28 September 2016

Facts:

Philippine Geothermal, Inc. Employees Union is a legitimate labor union that stands as the bargaining agent of the rank-and-file employees of Unocal Philippines.

Unocal Philippines, formerly known as Philippine Geothermal, Inc., is a foreign corporation incorporated under the laws of the State of California, United States of America, licensed to do business in the Philippines for the “exploration and development of geothermal resources as alternative sources of energy.” It is a wholly owned subsidiary of Union Oil Company of California (Unocal California), which, in turn, is a wholly owned subsidiary of Union Oil Corporation (Unocal Corporation).

On April 4, 2005, Unocal Corporation executed an Agreement and Plan of Merger (Merger Agreement) with Chevron Texaco Corporation (Chevron) and Blue Merger Sub, Inc. (Blue Merger). Blue Merger is a wholly owned subsidiary of Chevron. Under the Merger Agreement, Unocal Corporation merged with Blue Merger, and Blue Merger became the surviving corporation. Chevron then became the parent corporation of the merged corporation. After the merger, Blue Merger, as the surviving corporation, changed its name to Unocal Corporation.

On October 20, 2006, the Union wrote Unocal Philippines asking for the separation benefits provided for under the Collective Bargaining Agreement executed on Jauary 31, 2006. According to the Union, the Merger Agreement of Unocal Corporation, Blue Merger, and Chevron resulted in the closure and cessation of operations of Unocal Philippines and the implied dismissal of its employees.

Unocal Philippines refused the Union’s request and asserted that the employee-members were not terminated and that the merger did not result in its closure or the cessation of its operations.

On February 5, 2007, the parties agreed to submit their dispute for voluntary arbitration before the Department of Labor and Employment, with the Secretary of Labor and Employment as Voluntary Arbitrator.

After the parties submitted their respective position papers, the Secretary of Labor rendered the Decision on January 15, 2008 ruling that the Union’s members were impliedly terminated from employment as a result of the Merger Agreement. The Secretary of Labor found that the merger resulted in new contracts and a new employer for the Union’s members. The new contracts allegedly required the employees’ consent; otherwise, there was no employment contract to speak of. Thus, the Secretary of Labor awarded the Union separation pay under the Collective Bargaining Agreement.

Unocal Philippines filed before the Court of Appeals a Petition for Review questioning the Secretary of Labor’s Decision.

In the Decision dated July 23, 2009, the Court of Appeals granted the appeal of Unocal Philippines and reversed the Decision of the Secretary of Labor.

On November 9, 2009, the Court of Appeals denied the Union’s Motion for Reconsideration.

Issue:

Whether the merger resulted in the implied dismissal of the Respondent’s employees.

Ruling:

No.

Whether or not respondent is a party to the Merger Agreement, there is no implied dismissal of its employees as a consequence of the merger.

A merger is a consolidation of two or more corporations, which results in one or more corporations being absorbed into one surviving corporation. The separate existence of the absorbed corporation ceases, and the surviving corporation “retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s).

If respondent is a subsidiary of Unocal California, which, in turn, is a subsidiary of Unocal Corporation, then the merger of Unocal Corporation with Blue Merger and Chevron does not affect respondent or any of its employees. Respondent has a separate and distinct personality from its parent corporation.

Nonetheless, if respondent is indeed a party to the merger, the merger still does not result in the dismissal of its employees.

The effects of a merger are provided under Section 80 of the Corporation Code.

Although this provision 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 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.

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.

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.” The surviving corporation likewise acquires all the liabilities and obligations of the absorbed corporation as if it had itself incurred these liabilities or obligations.

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.