E. Razon v. Secretary of Labor

 E. Razon v. Secretary of Labor

G.R. No. 85867

May 13, 1993

DOCTRINE: Purchaser is not required to absorb employees of the selling corporation. There is no law that requires the purchaser to absorb the employees of the selling corporation.


E. Razon, Inc. (ERI) and the government, through the Philippine Ports Authority (PPA) executed a management contract covering all the piers in South Harbor, Manila for a term of 5 years renewable for another 5 years. ERI became MPSI in 1978. The PPA then executed a new contract with ERI/MPSI for a term of 8 years beginning July 1, 1980. Two years before the expiration of the 8-year term, the PPA cancelled the management contract for alleged violations thereof. PPA took over the cargo-handling operations of MPSI. Two days later, the PPA issued a permit to Marina Port Services, Inc. (MARINA). Paragraph 7 of the permit provides “Labor and personnel of previous operator, except those positions of trust and confidence, shall be absorbed by grantee. Labor or employees benefits provided for under existing CBA shall likewise be honored.” Weeks later, the bulk of the 2,700 employees concerned discovered that they had been rehired by MARINA as new employees. Hence, they clamored for the payment of their separation pay but both the MARINA and ERI/MPSI refused to be liable therefor.


Whether or not MARINA took the place of the ERI/MPSI as an employer as if there had been no interruption in the ER-EE relationship between ERI/MPSI and its employees and therefore MARINA should assume all responsibilities of ERI/MPSI.


No. By virtue of Paragraph 7, security guards of the MPSI did become employees of MARINA, the undeniable fact is that, by the termination of its management contract with the PPA, ERI/MPSI ceased to be an employer. Admittedly, the consequent separation from the employment of its employees was not of the ERI/MPSI’s own making. However, it may not validly lay such consequence on the lap of MARINA which, like itself, had no hand in the termination of the management contract by the PPA. The fact that a couple of days later, the PPA, without public bidding, issued to MARINA, a permit to operate, does not imply that MARINA stepped into the shoes of ERI/MPSI as if there were absolute identity between them. Parenthetically, the issue of the legality of the cancellation of MPSI’s permit to operate was laid to rest in E. Razon, Inc. v. Philippine Ports Authority.

By absorbing ERI/MPSI employees and honoring the terms and conditions in the CBA between, ERI/MPSI and the employees, MARINA did not assume the responsibility of ERI/MPSI to pay separation pay to its employees. Paragraph 7, insofar as it refers to employees’ benefits, should be applied prospectively with respect to MARINA. The latter might have been impelled not only by compassion for the employees but also by their tested skills in hiring them back upon their separation from the employment of ERI/MPSI. It should be recalled, however, there is no law that requires the purchaser to absorb the employees of the selling corporation. As such, when MARINA rehired the ERI/MPSI employees, it had all the right to consider them as new ones. On the other hand, ERI/MPSI, to whom years of service had been rendered by its suddenly jobless employees, had the corresponding obligation to grant them what is theirs under the law and the CBA. After all, a CBA is the law between the parties and compliance therewith is mandated by the express policy of the law.

The situation in this case is completely different from that obtaining in Filipinas Port Services, Inc. v. NLRC, where the petitioner was obligated "not only to absorb the workers of the dissolved companies but also to include the length of service earned by the absorbed employees with their former employers as well" because said case involved a merger of different companies into a single company as a result of the PPA's integration of stevedoring/arrastre services. On the other hand, in the case at bar, there is no privity of contract between ERI/MPSI and MARINA so as to make the latter a common or even substitute employer that it should be burdened with the obligations of the former.

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