Written by Leonard Vinz O. Ignacio, 26 April 2007
Corporate restructuring is the reorganisation of a company to make it more efficient and profitable.
It is not an exact science. There are no specific rules that can be laid down, for every situation is a case unto itself.
In fact, any corporate reorganisation has to do with recasting of the whole financial structure of a corporation which may involve “internal” capital readjustment in one corporation or an “external” reorganisation which involves major changes in the financial structure of two or related corporations. (The Corporation Code of the Philippines, 1994, Rosario N. Lopez, p. 919)
Corporate restructuring may also involve an “equity” level acquisition, wherein the purchaser takes control and ownership of the business by purchasing the shareholdings of the corporate owner. It may also involve an “assets-only” level acquisition, wherein the purchaser is only interested in the raw assets and properties of the business, perhaps to be used to establish his own business enterprise or to be used for his on-going business enterprise. (Philippine Corporate Law, 2001, Cesar L. Villanueva, pp. 593 -594)
It is also inevitable in any corporate restructuring that there will be personnel reduction or transfer/absorption. In these different restructuring scenarios, when will separation pay be granted?
The Labour Code provides for separation pay in dismissals for authorised causes such as: a) reduction of personnel due to installation of labor-saving devices; b) reduction of personnel due to redundancy; c) retrenchment to prevent losses; d) closure of establishment or cessation of operations; and e) disease. (Articles 283-284, Labour Code of the Philippines)
In an “equity” level restructuring, wherein an individual or a corporation takes control and ownership of an existing business by purchasing the shareholdings of the present corporate owner, no separation pay is granted to the employees.
This is so because in this scenario, there will be no closure of establishment or cessation of operations of the existing business, thus no termination of employment.
In fact, the sale of business or change in the ownership or management of the business, is not one of the just or authorised causes for termination of employment provided by law (Junio vs. NLRC, G.R. No. L-57767, January 31, 1984), thus no separation pay will be granted.
However, in an “assets-only” level acquisition, wherein an individual or a corporation is only interested in the raw assets and properties of the existing business, perhaps to be used to establish his/their own business enterprise or to be used for his/their on-going business enterprise, separation pay is granted to the employees.
In this scenario, naturally the existing business will have to close its establishment or ceased its operations, when it sells all its assets and properties (ie. buildings, real properties, machineries and equipments, etc.), thus Article 283 of the Labour Code will be applicable.
Please note that as a general rule, there is no law requiring a bona fide purchaser of the assets of an existing business to absorb in its employ, the employees of the latter and to continue employing them. (Yu vs. NLRC, G.R. Nos. 111810-11, June 16, 1995; Associated Labor Unions-VINCOMTU vs. NLRC, G.R. No. 74841, December 29, 1991)
The most that the purchasing company can do, for reasons of public policy and social justice, is to give preference to the qualified separated employees of the selling company who in its judgment, are necessary in the continued operation of the business establishment. (Abasolo vs. NLRC, G.R. No. 118475, November 29, 2000; San Felipe Neri School of Mandaluyonng, Inc. vs. NLRC, G.R. No. 78350, September 11, 1991)
Absorption of employees
In this particular case, the author believes that for those employees who will be absorbed by purchaser, without diminution of benefits or loss of service years (i.e. affected employees will expect that their years of service with the selling company be tacked in with the years of their stay with the purchasing company), separation benefits may not be due.
This condition (i.e. continuity of employment) must, however, be expressly stipulated in the Deed of Sale of the business following the implication in the case of San Felipe Neri School of Mandaluyong, Inc. vs. NLRC, supra. Moreover, the transferring employees must individually and voluntarily agree on the terms of their transfer/absorption. If the employees are not satisfied with the terms of their transfer/absorption, they may choose to stay with their present employers without resigning. If they will be retrenched thereby for being redundant, they will be entitled to separation pay.
In all corporate restructuring scenarios, whether undertaken through “equity” level restructuring or “asset-only” level acquisition, the employment status of the employees of the acquired entity is bound to be affected.
However, in most restructuring cases, more emphasis has been given to the tax and business issues with the labour implications being relegated as a minor or side issue.
Thus, in determining the efficient scheme to implement the restructuring, the labour issue should also be an equally important factor to consider given the fact that employees are guaranteed security of tenure under the Constitution.
