Dear PAO,

I am an employee who was previously under probation. I recently received permanent status. However, my permanent status is threatened by the news that our employer is being absorbed in a company merger. May I know the consequence of such merger to my employment contract?

Amid

Dear Amid,

The employment contracts of an absorbed corporation are automatically assumed by the surviving corporation in cases of merger or consolidation. To elucidate this point, allow us to lead your attention to our pertinent laws and jurisprudence.

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Succinctly, Section 79 of Republic Act 11232, otherwise known as the "Revised Corporation Code of the Philippines" reads:

"Section 79. Effects of Merger or Consolidation. – The merger of consolidation shall have the following effects:

"(a) The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

"(b) The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

"(c) The surviving or the consolidated corporation shall possess all the right, privileges, immunities and franchises of each constituent corporation; and all real or personal property, all receivables due on whatever account, including subscriptions to shares and other choses in action, and every other interest of, belonging to, or due to each constituents corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation as though such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any constituent corporation may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of such constituent corporations shall not be impaired by the merger or consolidation. (Emphasis and underscoring supplied)

A reading of the aforementioned provision of law dictates that the obligations of a constituent corporation shall be assumed by the surviving or consolidated corporation in cases of merger or consolidation. Apart from the wordings of our laws, equally worth mentioning are the words of the Supreme Court in the case of The Philippine Geothermal, Inc. v. Chevron (GR 190187, Sept. 28, 2016) penned by Associate Justice Marvic Leonen, when it was held that the surviving corporation becomes bound by the employment contracts entered into by the absorbed corporation, viz:

"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.

"x x x

"x x x Thus, this Court ruled that the surviving corporation automatically assumes the employment contracts of the absorbed corporation. The absorbed corporation's employees are not impliedly dismissed, but become part of the manpower complement of the surviving corporation.

"The merger of Unocal Corporation with Blue Merger and Chevron does not result in an implied termination of the employment of petitioner's members. Assuming respondent is a party to the merger, its employment contracts are deemed to subsist and continue by "the combined operation of the Corporation Code and the Labor Code under the backdrop of the labor and social justice provisions of the Constitution." (Emphasis and underscoring supplied)

Applying the foregoing law and jurisprudence to your query, the surviving company is duty bound to honor the contracts entered into by the absorbed company. As such, your employment contract shall be carried over to the surviving corporation. To this end, apart from honoring the employment contract — you may only be terminated upon causes provided by law given that you already attained regular status.

We hope that we were able to answer your queries. This advice is based solely on the facts you have narrated and our appreciation of the same. Our opinion may vary when other facts are changed or elaborated.

Editor's note: Dear PAO is a daily column of the Public Attorney's Office. Questions for Chief Acosta may be sent to [email protected]