Government Take-Over of Private Businesses: The COVID-19 Crisis

Both chambers of Congress separately approved a proposed law, granting the President emergency powers to effectively address the Coronavirus Disease 2019 (COVID-10) outbreak in the Philippines. One of the more controversial components of the proposed law is the grant of power to take over private businesses. This power, however, is not new.

The State has the inherent power of eminent domain, which is the power of the State to take private property for public use. The limitation to the power of eminent domain is found in the Constitution, thus: “No private property shall be taken for public use without just compensation” (Section 9, Article III). This limitation provides for two essential requirements: (1) the purpose of taking must be for public use; and (2) just compensation must be given to the owner of the private property. The protection over private property is bolstered by the Constitutional provision that “[n]o person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws” [Section 1, Article III].

The power of eminent domain is exercised by filing an expropriation proceeding in court. This is a tedious process which may last for years. This is obviously not suited for national emergencies, when time is of the essence. For this purpose, the Constitution provides that:

In times of national emergency, when the public interest so requires, the State may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest. [Section 17, Article XII (National Economy and Patrimony)]

This power may be invoked and exercised by the President, but it must be emphasized that this power is limited to the declaration of a national emergency. The actual exercise the power to take over private companies requires the prior grant by Congress. The provisions of Section 17, Article XII must be read together with the provisions of Section 23(2), Article VI [for more discussion on the interplay of these provisions, see: Emergency Powers of the President]. For the Covid-19 crisis, the government requested the passage of a law from Congress, pursuant to the latter’s power under the Constitution

In times of war or other national emergency, the Congress may, by law, authorize the President, for a limited period and subject to such restrictions as it may prescribe, to exercise powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by resolution of the Congress, such powers shall cease upon the next adjournment thereof. [Section 23 (2), Article VI (The Legislative Department)]

The last two provisions are part of the “police power” of the State, which is separate from the power of eminent domain. The payment of just compensation to the owner of a private property or business is required in eminent domain, but not in police power. However, considering the trend of mingling police power and eminent domain, there is always an issue whether the “take over” or “taking” requires the payment of just compensation. 

[See: Full List of Emergency Powers Granted to the President under the Bayanihan to Heal As One Act (Republic Act No. 11469)]

According to the Philippine Supreme Court, there is compensable taking when the following conditions concur: (1) the expropriator must enter a private property; (2) the entry must be for more than a momentary period; (3) the entry must be under warrant or color of legal authority; (4) the property must be devoted to public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of the property for public use must be in such a way as to oust the owner and deprive him of beneficial enjoyment of the property. 

In other words, if the take over is for “more than a momentary period” and in “such a way as to oust the owner and deprive him of beneficial enjoyment” of the business or property, the government is required to pay just compensation to the owner. 

We are yet to see the final text of the law passed by Congress to address the Covid-19 national emergency, but this is not the first time such kind of law is passed [update: R.A. 11469 was passed on 24 March 2020; see discussion below]. On 20 December 1989, President Corazon C. Aquino signed Republic Act No. 6826, declaring a State of National emergency on the ground or rebellion and granting emergency powers to the President. Among the emergency powers granted is the power:

To temporarily take over or direct the operation of any privately-owned public utility or business affected with public interest that violates the herein declared national policy: Provided, however, That to the extent feasible, management shall be retained, under the direction and supervision of the President or her duly designated representative who shall render a full accounting to the President of the operations of the utility or business taken over: Provided, further, That whenever the President shall determine that the further use or operation by the Government of any such public service or enterprise is no longer necessary under existing conditions, the same shall be restored to the person entitled to the possession thereof;

This power gives the President the authority to take over a private business or simply direct its operation, retaining the existing management, and restoring the business to its private owners when no longer necessary to address the declared national emergency. During the deliberations at the House of Representatives for the Covid-19 measures, the bill sponsor stated that the intent is to give the government operational control over the private business, primarily hospitals. It was also raised that there might be no need to exercise the power because the private sector has been very cooperative with the government in addressing the Covid-19 crisis.

[Addendum: 25 May 2020] To address the Coronavirus Disease 2019 (COVID-19) crisis, Congress declared a State of National Emergency through Republic Act No. 11469, also known as the “Bayanihan to Heal As One Act,” and granted emergency powers to the President, including the power to direct the operation of private businesses. The specific grant reads in full:

(h) Consistent with Section 17, Article XII of the Constitution, when the public interest so requires, direct the operation of any privately-owned hospitals and medical and health facilities including passenger vessels and, other establishments, to house health workers, serve as quarantine areas, quarantine centers, medical relief and aid distribution locations, or other temporary medical facilities; and public transportation to ferry health, emergency, and frontline personnel and other persons: Provided, however, That the management and operation of the foregoing enterprises shall be retained by the owners of the enterprise, who shall render a full accounting to the President or his duly authorized representative of the operations of the utility or business as basis for appropriate compensation; Provided, further, That reasonable compensation for  any additional damage  or costs incurred by the owner or the possessor of the subject property solely on account of complying with the directive shall be given to the person entitled to the possession of such private properties or businesses after the situation has stabilized or at the soonest time practicable: Provided, finally, That if the foregoing enterprises unjustifiably refuse or signify that they are no longer capable of operating their enterprises for the purpose stated herein, the President may take over their operations subject to the limits and safeguards enshrined in the Constitution;

There are a number of limitations provided under R.A. 11469. These limitations include:

1. Duration. The authority is valid only for three (3) months after effectivity of the law, unless extended by Congress. The powers granted under R.A. 11469 may also be withdrawn sooner by means of a concurrent resolution of Congress or ended by Presidential Proclamation.

2. Scope of authority. The President may only direct the operation of the private entity, with the management and operation retained by the owners of the enterprise. This is a recognition of the fact that, so far, private businesses are fully cooperative with the government. 

However, if the covered entities unjustifiably refuse or signify that they are no longer capable of operating their enterprises for the specified purposes, the President may take over their operations subject to the limits and safeguards enshrined in the Constitution.

Worse, the owners and possessors of these entities or facilities may be criminally charged for their unjustifiable refuse to operate pursuant to the directive of the President. The imposable penalty is imprisonment of two (2) months or a fine of not less than P10,000 but not more than P1,000,000, or both, such imprisonment and fine, at the discretion of the court. 

[See: Fake News and Other Acts Punishable during the Covid-19 Crisis]

3. Businesses covered; specific purpose. Not all businesses are covered. Only the following businesses are covered, for the following purposes: privately-owned hospitals and medical and health facilities, including passenger vessels and, other establishments, to house health workers, serve as quarantine areas, quarantine centers, medical relief and aid distribution locations, or other temporary medical facilities; and public transportation to ferry health, emergency, and frontline personnel and other persons.

4. Compensation. The government will pay the appropriate compensation.

5. Congressional oversight. The President, during Monday of every week, shall submit a weekly report to Congress of all acts performed pursuant to R.A. 11469 during the immediately preceding week.

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