In the Philippine corporate landscape, the movement of human capital between affiliated entities—often referred to as "sister companies"—is a common strategic maneuver. However, from a labor law perspective, there is no such thing as an automatic "transfer" that preserves the status quo without careful documentation. Because each corporation possesses a separate and distinct juridical personality, moving an employee from one to another involves specific legal hurdles to avoid claims of illegal dismissal or unfair labor practices.
1. The Principle of Distinct Juridical Personality
Under the Doctrine of Separate Juridical Personality, a parent company and its subsidiary, or two companies owned by the same stockholders, are treated as individual legal entities. Consequently, an employee of Company A is not automatically an employee of Company B.
To transfer an employee legally, the employer must choose between two primary methods: Management Prerogative (Lateral Transfer) or Tripartite Consent (Transfer via Resignation/New Hire).
2. Transfer via Management Prerogative
The Supreme Court recognizes the employer’s right to transfer an employee from one area of operation to another, provided there is no demotion in rank or diminution of pay.
Requirements for Validity:
- Bona Fide Business Necessity: The transfer must be prompted by legitimate business requirements (e.g., filling a vacancy, reorganization).
- No "Constructive Dismissal": The transfer must not be used as a tool to ridicule or punish the employee. If the transfer is unreasonable, inconvenient, or involves a demotion in rank or pay, it may be deemed a constructive dismissal.
- Compliance with the Employment Contract: The original contract should ideally contain a "mobility clause" allowing the employer to assign the employee to other affiliates or branches.
The "Single Enterprise" Exception:
If the two companies are so interconnected that they operate as one (Piercing the Veil of Corporate Fiction), the transfer is simpler. However, this is a high legal bar to meet and is usually determined by courts, not the companies themselves.
3. The Tripartite Agreement Method (The "Seamless" Transfer)
The most legally sound way to transfer an employee to a sister company is through a voluntary arrangement involving the Transferor (Old Company), the Transferee (New Company), and the Employee.
The Procedure:
- Notice of Transfer: The employee is informed of the opportunity or requirement to move.
- Consent: The employee must provide written consent. In the Philippines, you cannot force an employee to work for a different legal entity against their will.
- Recognition of Seniority: To ensure the employee is not disadvantaged, the New Company typically signs an undertaking to recognize the years of service (seniority) earned in the Old Company. This is crucial for retirement pay and 13th-month pay computations.
- The Tripartite Agreement: A formal document is signed where:
- The Old Company "releases" the employee.
- The New Company "assumes" the employer obligations.
- The Employee "accepts" the new appointment.
4. Labor Standards and Benefits
When transferring employees to a sister company, several financial and statutory factors must be addressed to remain compliant with the Labor Code of the Philippines:
| Feature | Legal Requirement |
|---|---|
| Rank and Salary | Must be equal to or higher than the previous position to avoid constructive dismissal claims. |
| Seniority/Longevity | If not carried over, the Old Company must pay out separation pay or retirement benefits before the move. |
| Leave Credits | Usually transferred to the New Company or converted to cash by the Old Company upon exit. |
| Probationary Period | Generally, a transferred employee should not be put back on "probation" if they are performing the same role, as they are considered regular employees. |
5. Potential Legal Pitfalls
Constructive Dismissal
If an employee is transferred to a sister company where the environment is hostile, the location is significantly further without compensation, or the duties are menial compared to their previous role, the employee can file for illegal dismissal. The burden of proof lies with the employer to show the transfer was for a "valid and legitimate ground."
Piercing the Corporate Veil
If companies move employees back and forth to evade taxes, bypass CBA (Collective Bargaining Agreement) obligations, or circumvent the right to self-organization, the Department of Labor and Employment (DOLE) may treat the sister companies as a single employer, making both solidarily liable for all labor claims.
6. Procedural Checklist for HR and Legal
- Review the Employment Contract: Check for mobility and transferability clauses.
- Draft a Formal Offer/Transfer Letter: Clearly state that the transfer is to a separate legal entity.
- Execute a Waiver and Quitclaim (Optional): If the employee is being paid out by Company A before moving to Company B, a quitclaim regarding Company A’s liabilities is standard.
- Update Statutory Records: Ensure SSS, PhilHealth, and Pag-IBIG contributions are correctly transitioned to the new employer's ID number.
- Issue a New Appointment Letter: Clearly defining the start date and the recognition of prior service.