[G.R. No. 131235.

November 16, 1999]

UST FACULTY UNION (USTFU), GIL Y. GAMILLA, CORAZON QUI, NORMA CALAGUAS, IRMA POTENCIANO,
LUZ DE GUZMAN, REMEDIOS GARCIA, RENE ARNEJO, EDITHA OCAMPO, CESAR REYES, CELSO NIERRA,
GLICERIA BALDRES, MA. LOURDES MEDINA, HIDELITA GABO, MAFEL YSRAEL, LAURA ABARA, NATIVIDAD
SANTOS, FERDINAND LIMOS, CARMELITA ESPINA, ZENAIDA FAMORCA, PHILIP AGUINALDO, BENEDICTA
ALAVA and LEONCIO CASAL, petitioners vs. Dir. BENEDICTO ERNESTO R. BITONIO JR. of the Bureau of
Labor Relations, Med-Arbiter TOMAS F. FALCONITIN of The National Capital Region, Department of Labor
and Employment (DOLE), EDUARDO J. MARIO JR., MA. MELVYN ALAMIS, NORMA COLLANTES, URBANO
ALABAGIA, RONALDO ASUNCION, ZENAIDA BURGOS, ANTHONY CURA, FULVIO M. GUERRERO, MYRNA
HILARIO, TERESITA MEER, FERNANDO PEDROSA, NILDA REDOBLADO, RENE SISON, EVELYN TIROL and
ROSIE ALCANTARA, respondents.

DECISION

PANGANIBAN, J.:

There is a right way to do the right thing at the right time for the right reasons,[1] and in the present
case, in the right forum by the right parties. While grievances against union leaders constitute legitimate
complaints deserving appropriate redress, action thereon should be made in the proper forum at the
proper time and after observance of proper procedures. Similarly, the election of union officers should
be conducted in accordance with the provisions of the unions constitution and bylaws, as well as the
Philippine Constitution and the Labor Code. Specifically, while all legitimate faculty members of the
University of Santo Tomas (UST) belonging to a collective bargaining unit may take part in a duly
convened certification election, only bona fide members of the UST Faculty Union (USTFU) may
participate and vote in a legally called election for union officers. Mob hysteria, however well-
intentioned, is not a substitute for the rule of law.

The Case

The Petition for Certiorari before us assails the August 15, 1997 Resolution[2] of Director Benedicto
Ernesto R. Bitonio Jr. of the Bureau of Labor Relations (BLR) in BLR Case No. A-8-49-97, which affirmed
the February 11, 1997 Decision of Med-Arbiter Tomas F. Falconitin. The med-arbiters Decision disposed
as follows:
WHEREFORE, premises considered, judgment is hereby rendered declaring the election of USTFU officers
conducted on October 4, 1996 and its election results as null and void ab initio.

Accordingly, respondents Gil Gamilla, et al are hereby ordered to cease and desist from acting and
performing the duties and functions of the legitimate officers of [the] University of Santo Tomas Faculty
Union (USTFU) pursuant to [the] unions constitution and by-laws (CBL).

The Temporary Restraining Order (TRO ) issued by this Office on December 11, 1996 in connection with
the instant petition, is hereby made and declared permanent.[3]

Likewise challenged is the October 30, 1997 Resolution[4]of Director Bitonio, which denied petitioners
Motion for Reconsideration.

The Facts

The factual antecedents of the case are summarized in the assailed Resolution as follows:

Petitioners-appellees [herein Private Respondents] Marino, et. al. (appellees) are duly elected officers of
the UST Faculty Union (USTFU). The union has a subsisting five-year Collective Bargaining Agreement
with its employer, the University of Santo Tomas (UST). The CBA was registered with the Industrial
Relations Division, DOLE-NCR, on 20 February 1995. It is set to expire on 31 May 1998.

On 21 September 1996, appellee Collantes, in her capacity as Secretary General of USTFU, posted a
notice addressed to all USTFU members announcing a general assembly to be held on 05 October 1996.
Among others, the general assembly was called to elect USTFUs next set of officers. Through the notice,
the members were also informed of the constitution of a Committee on Elections (COMELEC) to oversee
the elections. (Annex B, petition)

On 01 October 1996, some of herein appellants filed a separate petition with the Med-Arbiter, DOLE-
NCR, directed against herein appellees and the members of the COMELEC. Docketed as Case No. NCR-
OD-M-9610-001, the petition alleged that the COMELEC was not constituted in accordance with USTFUs
constitution and by-laws (CBL) and that no rules had been issued to govern the conduct of the 05
October 1996 election.

On 02 October 1996, the secretary general of UST, upon the request of the various UST faculty club
presidents (See paragraph VI, Respondents Comment and Motion to Dismiss), issued notices allowing all
faculty members to hold a convocation on 04 October 1996 (See Annex C Petition; Annexes 4 to 10,
Appeal). Denominated as [a] general faculty assembly, the convocation was supposed to discuss the
state of the unratified UST-USTFU CBA and status and election of USTFU officers (Annex 11, Appeal)

On 04 October 1996, the med-arbiter in Case No. NCR-OD-M-9610-001 issued a temporary restraining
order against herein appellees enjoining them from conducting the election scheduled on 05 October
1996.

Also on 04 October 1996, and as earlier announced by the UST secretary general, the general faculty
assembly was held as scheduled. The general assembly was attended by members of the USTFU and, as
admitted by the appellants, also by 'non-USTFU members [who] are members in good standing of the
UST Academic Community Collective Bargaining Unit' (See paragraph XI, Respondents Comment and
Motion to Dismiss). On this occasion, appellants were elected as USTFUs new set of officers by
acclamation and clapping of hands (See paragraphs 40 to 50, Annex '12', Appeal).

The election of the appellants came about upon a motion of one Atty. Lopez, admittedly not a member
of USTFU, that the USTFU CBL and 'the rules of the election be suspended and that the election be held
[on] that day' (See --paragraph 39, Idem.)

On 11 October 1996, appellees filed the instant petition seeking injunctive reliefs and the nullification of
the results of the 04 October 1996 election. Appellees alleged that the holding of the same violated the
temporary restraining order issued in Case No. NCR-OD-M-9610-001. Accusing appellants of usurpation,
appellees characterized the election as spurious for being violative of USTFUs CBL, specifically because
the general assembly resulting in the election of appellants was not called by the Board of Officers of the
USTFU; there was no compliance with the ten-day notice rule required by Section 1, Article VIII of the
CBL; the supposed elections were conducted without a COMELEC being constituted by the Board of
Officers in accordance with Section 1, Article IX of the CBL; the elections were not by secret balloting as
required by Section 1, Article V and Section 6, Article IX of the CBL, and, the general assembly was
convened by faculty members some of whom were not members of USTFU, so much so that non-USTFU
members were allowed to vote in violation of Section 1, Article V of the CBL.
On 24 October 1996, appellees filed another urgent ex-parte motion for a temporary restraining order,
this time alleging that appellants had served the former a notice to vacate the union office. For their
part, appellants moved to dismiss the original petition and the subsequent motion on jurisdictional
grounds. Both the petition and the motion were captioned to be for Prohibition, Injunction with Prayer
for Preliminary Injunction and Temporary Restraining Order. According to the appellants, the med-arbiter
has no jurisdiction over petitions for prohibition, 'including the ancillary remedies of restraining order
and/or preliminary injunction, which are merely incidental to the main petition for PROHIBITION'
(Paragraph XVIII3, Respondents Comment and Motion to Dismiss). Appellants also averred that they now
constituted the new set of union officers having been elected in accordance with law after the term of
office of appellees had expired. They further maintained that appellees scheduling of the 5 October 1996
elections was illegal because no rules and regulations governing the elections were promulgated as
required by USTFUs CBL and that one of the members of the COMELEC was not a registered member of
USTFU. Appellants likewise noted that the elections called by the appellees should have been postponed
to allow the promulgation of rules and regulations and to 'insure a free, clean, honest and orderly
elections and to afford at the same time the greater majority of the general membership to participate'
(See paragraph V, Idem). Finally, appellants contended that the holding of the general faculty assembly
on 04 October 1996 was under the control of the Council of College/Faculty Club Presidents in
cooperation with the USTFU Reformist Alliance and that they received the Temporary Restraining Order
issued in Case No. NCR-OD-M-9610-001 only on 07 October 1996 and were not aware of the same on 04
October 1996.

On 03 December 1996, appellants and UST allegedly entered into another CBA covering the period from
01 June 1996 to 31 May 2001 (Annex 11, appellants Rejoinder to the Reply and Opposition).

Consequently, appellees again moved for the issuance of a temporary restraining order to prevent
appellants from making further representations that [they] had entered into a new agreement with UST.
Appellees also reiterated their earlier stand that appellants were usurping the formers duties and
functions and should be stopped from continuing such acts.

On 11 December 1996, over appellants insistence that the issue of jurisdiction should first be resolved,
the med-arbiter issued a temporary restraining order directing the respondents to cease and desist from
performing any and all acts pertaining to the duties and functions of the officers and directors of USTFU.

In the meantime, appellants claimed that the new CBA was purportedly ratified by an overwhelming
majority of USTs academic community on 12 December 1996 (Annexes 1 to 10, Idem). For this reason,
appellants moved for the dismissal of what it denominated as appellees petition for prohibition on the
ground that this had become moot and academic.[5]

Petitioners appealed the med-arbiters Decision to the labor secretary,[6] who transmitted the records of
the case to the Bureau of Labor Relations which, under Department Order No. 9, was authorized to
resolve appeals of intra-union cases, consistent with the last paragraph of Article 241 of the Labor Code.
[7]

The Assailed Ruling

Agreeing with the med-arbiter that the USTFU officers purported election held on October 4, 1994 was
void for having been conducted in violation of the unions Constitution and Bylaws (CBL), Public
Respondent Bitonio rejected petitioners contention that it was a legitimate exercise of their right to self-
organization. He ruled that the CBL, which constituted the covenant between the union and its
members, could not be suspended during the October 4, 1996 general assembly of all faculty members,
since that assembly had not been convened or authorized by the USTFU.

Director Bitonio likewise held that the October 4, 1996 election could not be legitimized by the
recognition of the newly elected set of officers by UST or by the alleged ratification of the new CBA by
the general membership of the USTFU. Ruled Respondent Bitonio:

"This submission is flawed. The issue at hand is not collective bargaining representation but union
leadership, a matter that should concern only the members of USTFU. As pointed out by the appellees,
the privilege of determining who the union officers will be belongs exclusively to the members of the
union. Said privilege is exercised in an election proceeding in accordance with the union's CBL and
applicable law.

To accept appellants' claim to legitimacy on the foregoing grounds is to invest in appellants the position,
duties, responsibilities, rights and privileges of USTFU officers without the benefit of a lawful electoral
exercise as defined in USTFU's CBL and Article 241(c) of the Labor Code. Not to mention the fact that
labor laws prohibit the employer from interfering with the employees in the latter' exercise of their right
to self-organization. To allow appellants to become USTFU officers on the strength of management's
recognition of them is to concede to the employer the power of determining who should be USTFU's
leaders. This is a clear case of interference in the exercise by USTFU members of their right to self-
organization.[8]

Hence, this Petition.[9]

The Issues

The main issue in this case is whether the public respondent committed grave abuse of discretion in
refusing to recognize the officers elected during the October 4, 1996 general assembly. Specifically,
petitioners in their Memorandum urge the Court to resolve the following questions:[10]

(1) Whether the Collective Bargaining Unit of all the faculty members in that General Faculty Assembly
had the right in that General Faculty Assembly to suspend the provisions of the Constitution and By-Laws
of the USTFU regarding the elections of officers of the union[.]

(2) Whether the suspension of the provisions of the Constitution and By-Laws of the USTFU in that
General Faculty Assembly is valid pursuant to the constitutional right of the Collective Bargaining Unit to
engage in peaceful concerted activities for the purpose of ousting the corrupt regime of the private
respondents[.]

(3) Whether the overwhelming ratification of the Collective Bargaining Agreement executed by the
petitioners in behalf of the USTFU with the University of Santo Tomas has rendered moot and academic
the issue as to the validity of the suspension of the Constitution and By-Laws and the elections of
October 4, 1996 in the General Faculty Assembly[.]

The Courts Ruling

The petition is not meritorious. Petitioners fail to convince this Court that Director Bitonio gravely
abused his discretion in affirming the med-arbiter and in refusing to recognize the binding effect of the
October 4, 1996 general assembly called by the UST administration.
First Issue: Right to Self-Organization and Union Membership

At the outset, the Court stresses that National Federation of Labor (NFL) v. Laguesma[11] has held that
challenges against rulings of the labor secretary and those acting on his behalf, like the director of labor
relations, shall be acted upon by the Court of Appeals, which has concurrent jurisdiction with this Court
over petitions for certiorari. However, inasmuch as the memoranda in the instant case have been filed
prior to the promulgation and finality of our Decision in NFL, we deem it proper to resolve the present
controversy directly, instead of remanding it to the Court of Appeals. Having disposed of the foregoing
procedural matter, we now tackle the issues in the present case seriatim.

Self-organization is a fundamental right guaranteed by the Philippine Constitution and the Labor Code.
Employees have the right to form, join or assist labor organizations for the purpose of collective
bargaining or for their mutual aid and protection.[12] Whether employed for a definite period or not,
any employee shall be considered as such, beginning on his first day of service, for purposes of
membership in a labor union.[13]

Corollary to this right is the prerogative not to join, affiliate with or assist a labor union.[14] Therefore, to
become a union member, an employee must, as a rule, not only signify the intent to become one, but
also take some positive steps to realize that intent. The procedure for union membership is usually
embodied in the unions constitution and bylaws.[15] An employee who becomes a union member
acquires the rights and the concomitant obligations that go with this new status and becomes bound by
the unions rules and regulations.

When a man joins a labor union (or almost any other democratically controlled group), necessarily a
portion of his individual freedom is surrendered for the benefit of all members. He accepts the will of the
majority of the members in order that he may derive the advantages to be gained from the concerted
action of all. Just as the enactments of the legislature bind all of us, to the constitution and by-laws of
the union (unless contrary to good morals or public policy, or otherwise illegal), which are duly enacted
through democratic processes, bind all of the members. If a member of a union dislikes the provisions of
the by-laws, he may seek to have them amended or may withdraw from the union; otherwise, he must
abide by them. It is not the function of courts to decide the wisdom or propriety of legitimate by-laws of
a trade union.

On joining a labor union, the constitution and by-laws become a part of the members contract of
membership under which he agrees to become bound by the constitution and governing rules of the
union so far as it is not inconsistent with controlling principles of law. The constitution and by-laws of an
unincorporated trade union express the terms of a contract, which define the privileges and rights
secured to, and duties assumed by, those who have become members. The agreement of a member on
joining a union to abide by its laws and comply with the will of the lawfully constituted majority does not
require a member to submit to the determination of the union any question involving his personal rights.
[16]

Petitioners claim that the numerous anomalies allegedly committed by the private respondents during
the latters incumbency impelled the October 4, 1996 election of the new set of USTFU officers. They
assert that such exercise was pursuant to their right to self-organization.

Petitioners frustration over the performance of private respondents, as well as their fears of a fraudulent
election to be held under the latters supervision, could not justify the method they chose to impose their
will on the union. Director Bitonio aptly elucidated:[17]

The constitutional right to self-organization is better understood in the context of ILO Convention No. 87
(Freedom of Association and Protection of Right to Organize), to which the Philippines is signatory.
Article 3 of the Convention provides that workers organizations shall have the right to draw up their
constitution and rules and to elect their representatives in full freedom, free from any interference from
public authorities. The freedom conferred by the provision is expansive; the responsibility imposed on
union members to respect the constitution and rules they themselves draw up equally so. The point to
be stressed is that the unions CBL is the fundamental law that governs the relationship between and
among the members of the union. It is where the rights, duties and obligations, powers, functions and
authority of the officers as well as the members are defined. It is the organic law that determines the
validity of acts done by any officer or member of the union. Without respect for the CBL, a union as a
democratic institution degenerates into nothing more than a group of individuals governed by mob rule.

Union Election vs. Certification Election

A union election is held pursuant to the unions constitution and bylaws, and the right to vote in it is
enjoyed only by union members. A union election should be distinguished from a certification election,
which is the process of determining, through secret ballot, the sole and exclusive bargaining agent of the
employees in the appropriate bargaining unit, for purposes of collective bargaining.[18] Specifically, the
purpose of a certification election is to ascertain whether or not a majority of the employees wish to be
represented by a labor organization and, in the affirmative case, by which particular labor organization.
[19]

In a certification election, all employees belonging to the appropriate bargaining unit can vote.[20]
Therefore, a union member who likewise belongs to the appropriate bargaining unit is entitled to vote in
said election. However, the reverse is not always true; an employee belonging to the appropriate
bargaining unit but who is not a member of the union cannot vote in the union election, unless
otherwise authorized by the constitution and bylaws of the union. Verily, union affairs and elections
cannot be decided in a non-union activity.

In both elections, there are procedures to be followed. Thus, the October 4, 1996 election cannot
properly be called a union election, because the procedure laid down in the USTFUs CBL for the election
of officers was not followed. It could not have been a certification election either, because
representation was not the issue, and the proper procedure for such election was not followed. The
participation of non-union members in the election aggravated its irregularity.

Second Issue: USTFUs Constitution and ByLaws Violated

The importance of a unions constitution and bylaws cannot be overemphasized. They embody a
covenant between a union and its members and constitute the fundamental law governing the members
rights and obligations.[21] As such, the unions constitution and bylaws should be upheld, as long as they
are not contrary to law, good morals or public policy.

We agree with the finding of Director Bitonio and Med-Arbiter Falconitin that the October 4, 1996
election was tainted with irregularities because of the following reasons.

First, the October 4, 1996 assembly was not called by the USTFU. It was merely a convocation of faculty
clubs, as indicated in the memorandum sent to all faculty members by Fr. Rodel Aligan, OP, the secretary
general of the University of Santo Tomas.[22] It was not convened in accordance with the provision on
general membership meetings as found in the USTFUs CBL, which reads:

ARTICLE VIII-MEETINGS OF THE UNION

Section 1. The Union shall hold regular general membership meetings at least once every three (3)
months. Notices of the meeting shall be sent out by the Secretary-General at least ten (10) days prior to
such meetings by posting in conspicuous places, preferably inside Company premises, said notices. The
date, time and place for the meetings shall be determined by the Board of Officers.[23]

Unquestionably, the assembly was not a union meeting. It was in fact a gathering that was called and
participated in by management and non-union members. By no legal fiat was such assembly transformed
into a union activity by the participation of some union members.

Second, there was no commission on elections to oversee the election, as mandated by Sections 1 and 2
of Article IX of the USTFUs CBL, which provide:

ARTICLE IX - UNION ELECTION

Section 1. There shall be a Committee on Election (COMELEC) to be created by the Board of Officers at
least thirty (30) days before any regular or special election. The functions of the COMELEC include the
following:

a) Adopt and promulgate rules and regulations that will ensure a free, clean, honest and orderly election,
whether regular or special;

b) Pass upon qualifications of candidates;

c) Rule on any question or protest regarding the conduct of the election subject to the procedure that
may be promulgated by the Board of Officers; and

d) Proclaim duly elected officers.

Section 2. The COMELEC shall be composed of a chairman and two members all of whom shall be
appointed by the Board of Officers.

xxx xxx xxx[24]

Third, the purported election was not done by secret balloting, in violation of Section 6, Article IX of the
USTFUs CBL, as well as Article 241 (c) of the Labor Code.

The foregoing infirmities considered, we cannot attribute grave abuse of discretion to Director Bitonios
finding and conclusion. In Rodriguez v. Director, Bureau of Labor Relations,[25] we invalidated the local
union elections held at the wrong date without prior notice to members and conducted without regard
for duly prescribed ground rules. We held that the proceedings were rendered void by the lack of due
process -- undue haste, lack of adequate safeguards to ensure integrity of the voting, and the absence of
the notice of the dates of balloting.

Third Issue: Suspension of USTFUs CBL

Petitioners contend that the October 4, 1996 assembly suspended the unions CBL. They aver that the
suspension and the election that followed were in accordance with their constituent and residual powers
as members of the collective bargaining unit to choose their representatives for purposes of collective
bargaining. Again they cite the numerous anomalies allegedly committed by the private respondents as
USTFU officers. This argument does not persuade.

First, as has been discussed, the general faculty assembly was not the proper forum to conduct the
election of USTFU officers. Not all who attended the assembly were members of the union; some,
apparently, were even disqualified from becoming union members, since they represented
management. Thus, Director Bitonio correctly observed:

Further, appellants cannot be heard to say that the CBL was effectively suspended during the 04 October
1996 general assembly. A union CBL is a covenant between the union and its members and among
members (Johnson and Johnson Labor Union-FFW, et al. v. Director of Labor Relations, 170 SCRA 469).
Where ILO Convention No. 87 speaks of a unions full freedom to draw up its constitution and rules, it
includes freedom from interference by persons who are not members of the union. The democratic
principle that governance is a matter for the governed to decide upon applies to the labor movement
which, by law and constitutional mandate, must be assiduously insulated against intrusions coming from
both the employer and complete strangers if the 'protection to labor clause' of the constitution is to be
guaranteed. By appellants own evidence, the general faculty assembly of 04 October 1996 was not a
meeting of USTFU. It was attended by members and non-members alike, and therefore was not a forum
appropriate for transacting union matters. The person who moved for the suspension of USTFUs CBL was
not a member of USTFU. Allowing a non-union member to initiate the suspension of a unions CBL, and
non-union members to participate in a union election on the premise that the unions CBL had been
suspended in the meantime, is incompatible with the freedom of association and protection of the right
to organize.

If there are members of the so-called academic community collective bargaining unit who are not USTFU
members but who would nevertheless want to have a hand in USTFUs affairs, the appropriate procedure
would have been for them to become members of USTFU first. The procedure for membership is very
clearly spelled out in Article IV of USTFUs CBL. Having become members, they could then draw guidance
from Ang Malayang Manggagawa Ng Ang Tibay v. Ang Tibay, 103 Phil. 669. Therein the Supreme Court
held that if a member of the union dislikes the provisions of the by-laws he may seek to have them
amended or may withdraw from the union; otherwise he must abide by them. Under Article XVII of
USTFUs CBL, there is also a specific provision for constitutional amendments. What is clear therefore is
that USTFUs CBL provides for orderly procedures and remedies which appellants could have easily
availed [themselves] of instead of resorting to an exercise of their so-called residual power'.[26]

Second, the grievances of the petitioners could have been brought up and resolved in accordance with
the procedure laid down by the unions CBL[27]and by the Labor Code.[28] They contend that their sense
of desperation and helplessness led to the October 4, 1996 election. However, we cannot agree with the
method they used to rectify years of inaction on their part and thereby ease bottled-up frustrations, as
such method was in total disregard of the USTFUs CBL and of due process. The end never justifies the
means.

We agree with the solicitor generals observation that the act of suspending the constitution when the
questioned election was held is an implied admission that the election held on that date [October 4,
1996] could not be considered valid under the existing USTFU constitution xxx.[29]

The ratification of the new CBA executed between the petitioners and the University of Santo Tomas
management did not validate the void October 4, 1996 election. Ratified were the terms of the new CBA,
not the issue of union leadership -- a matter that should be decided only by union members in the
proper forum at the proper time and after observance of proper procedures.

Epilogue

In dismissing this Petition, we are not passing upon the merits of the mismanagement allegations
imputed by the petitioners to the private respondents; these are not at issue in the present case.
Petitioners can bring their grievances and resolve their differences with private respondents in timely
and appropriate proceedings. Courts will not tolerate the unfair treatment of union members by their
own leaders. When the latter abuse and violate the rights of the former, they shall be dealt with
accordingly in the proper forum after the observance of due process.

WHEREFORE, the Petition is hereby DISMISSED and the assailed Resolutions AFFIRMED. Costs against
petitioners.

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

THIRD DIVISION
REPUBLIC OF THE PHILIPPINES, represented by the SOCIAL SECURITY COMMISSION and SOCIAL
SECURITY SYSTEM,

Petitioners,

- versus -

ASIAPRO COOPERATIVE,

Respondent.

G.R. No. 172101

Present:

YNARES-SANTIAGO, J., Chairperson,

AUSTRIA-MARTINEZ,

AZCUNA,

CHICO-NAZARIO, and

REYES, JJ.

Promulgated:
November 23, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to annul and set aside the Decision[1] and Resolution[2] of the Court of Appeals in
CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006, respectively, which annulled and set
aside the Orders of the Social Security Commission (SSC) in SSC Case No. 6-15507-03, dated 17 February
2004[3] and 16 September 2004,[4] respectively, thereby dismissing the petition-complaint dated 12
June 2003 filed by herein petitioner Social Security System (SSS) against herein respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body authorized
by law to resolve disputes arising under Republic Act No. 1161, as amended by Republic Act No. 8282.[5]
Petitioner SSS is a government corporation created by virtue of Republic Act No. 1161, as amended. On
the other hand, herein respondent Asiapro Cooperative (Asiapro) is a multi-purpose cooperative created
pursuant to Republic Act No. 6938[6] and duly registered with the Cooperative Development Authority
(CDA) on 23 November 1999 with Registration Certificate No. 0-623-2460.[7]

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws, owners-

members are of two categories, to wit: (1) regular member, who is entitled to all the rights and privileges
of membership; and (2) associate member, who has no right to vote and be voted upon and shall be
entitled only to such rights and privileges provided in its by-laws.[8] Its primary objectives are to provide
savings and credit facilities and to develop other livelihood services for its owners-members. In the
discharge of the aforesaid primary objectives, respondent cooperative entered into several Service
Contracts[9] with Stanfilco - a division of DOLE Philippines, Inc. and a company based in Bukidnon. The
owners-members do not receive compensation or wages from the respondent cooperative. Instead, they
receive a share in the service surplus[10] which the respondent cooperative earns from different areas of
trade it engages in, such as the income derived from the said Service Contracts with Stanfilco. The
owners-members get their income from the service surplus generated by the quality and amount of
services they rendered, which is determined by the Board of Directors of the respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of the
respondent cooperative, who were assigned to Stanfilco requested the services of the latter to register
them with petitioner SSS as self-employed and to remit their contributions as such. Also, to comply with
Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282, the SSS contributions of
the said owners-members were equal to the share of both the employer and the employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division, Atty.
Eddie A. Jara, sent a letter[11] to the respondent cooperative, addressed to its Chief Executive Officer
(CEO) and General Manager Leo G. Parma, informing the latter that based on the Service Contracts it
executed with Stanfilco, respondent cooperative is actually a manpower contractor supplying employees
to Stanfilco and for that reason, it is an employer of its owners-members working with Stanfilco. Thus,
respondent cooperative should register itself with petitioner SSS as an employer and make the
corresponding report and remittance of premium contributions in accordance with the Social Security
Law of 1997. On 9 October 2002,[12] respondent cooperative, through its counsel, sent a reply to
petitioner SSSs letter asserting that it is not an employer because its owners-members are the
cooperative itself; hence, it cannot be its own employer. Again, on 21 October 2002,[13] petitioner SSS
sent a letter to respondent cooperative ordering the latter to register as an employer and report its
owners-members as employees for compulsory coverage with the petitioner SSS. Respondent
cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition[14] before petitioner SSC against the
respondent cooperative and Stanfilco praying that the respondent cooperative or, in the alternative,
Stanfilco be directed to register as an employer and to report respondent cooperatives owners-members
as covered employees under the compulsory coverage of SSS and to remit the necessary contributions in
accordance with the Social Security Law of 1997. The same was docketed as SSC Case No. 6-15507-03.
Respondent cooperative filed its Answer with Motion to Dismiss alleging that no employer-employee
relationship exists between it and its owners-members, thus, petitioner SSC has no jurisdiction over the
respondent cooperative. Stanfilco, on the other hand, filed an Answer with Cross-claim against the
respondent cooperative.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed by the
respondent cooperative. The respondent cooperative moved for the reconsideration of the said Order,
but it was likewise denied in another Order issued by the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension of Time to
File a Petition for Review before the Court of Appeals. Subsequently, respondent cooperative filed a
Manifestation stating that it was no longer filing a Petition for Review. In its place, respondent
cooperative filed a Petition for Certiorari before the Court of Appeals, docketed as CA-G.R. SP No. 87236,
with the following assignment of errors:

I. The Orders dated 17 February 2004 and 16 September 2004 of [herein

petitioner] SSC were issued with grave abuse of discretion amounting to a (sic) lack or excess of
jurisdiction in that:

A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over the petition a
quo, considering that it failed to first resolve the issue of the existence of an employer-employee
relationship between [respondent] cooperative and its owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under the SSS Law
with respect to coverage, benefits, contributions, and related matters, it is respectfully submitted that
[petitioner] SSC may only assume jurisdiction in cases where there is no dispute as to the existence of an
employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-employee
relationship raised in [respondents] Motion to Dismiss can be preliminarily resolved through summary
hearings prior to the hearing on the merits. However, any inquiry beyond a preliminary determination,
as what [petitioner SSC] wants to accomplish, would be to encroach on the jurisdiction of the National
Labor Relations Commission [NLRC], which is the more competent body clothed with power to resolve
issues relating to the existence of an employment relationship.

II. At any rate, the [petitioner] SSC has no jurisdiction to take cognizance of the
petition a quo.

A. [Respondent] is not an employer within the contemplation of the Labor Law but is a multi-
purpose cooperative created pursuant to Republic Act No. 6938 and composed of owners-members, not
employees.
B. The rights and obligations of the owners-members of [respondent] cooperative are derived
from their Membership Agreements, the Cooperatives By-Laws, and Republic Act No. 6938, and not from
any contract of employment or from the Labor Laws. Moreover, said owners-members enjoy rights that
are not consistent with being mere employees of a company, such as the right to participate and vote in
decision-making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of [respondent]

cooperative are not paid any compensation income.[15] (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by the
respondent cooperative. The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and [16 September
2004], are ANNULLED and SET ASIDE and a new one is entered DISMISSING the petition-complaint dated
[12 June 2003] of [herein petitioner] Social Security System.[16]

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was denied by the
appellate court in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals erred in not
finding that the SSC has jurisdiction over the subject matter and it has a valid basis in denying
respondents Motion to Dismiss. The said issue is supported by the following arguments:

I. The [petitioner SSC] has jurisdiction over the petition-complaint filed before it
by the [petitioner SSS] under R.A. No. 8282.

II. Respondent [cooperative] is estopped from questioning the jurisdiction of

petitioner SSC after invoking its jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss before it.
 III. The [petitioner SSC] did not act with grave abuse of discretion in denying
respondent [cooperatives] [M]otion to [D]ismiss.

IV. The existence of an employer-employee relationship is a question of fact where

presentation of evidence is necessary.

V. There is an employer-employee relationship between [respondent cooperative]

and its [owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS as
it involved an issue of whether or not a worker is entitled to compulsory coverage under the SSS Law.
Petitioners avow that Section 5 of Republic Act No. 1161, as amended by Republic Act No. 8282,
expressly confers upon petitioner SSC the power to settle disputes on compulsory coverage, benefits,
contributions and penalties thereon or any other matter related thereto. Likewise, Section 9 of the same
law clearly provides that SSS coverage is compulsory upon all employees. Thus, when petitioner SSS filed
a petition-complaint against the respondent cooperative and Stanfilco before the petitioner SSC for the
compulsory coverage of respondent cooperatives owners-members as well as for collection of unpaid
SSS contributions, it was very obvious that the subject matter of the aforesaid petition-complaint was
within the expertise and jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to determine the existence
of an employer-employee relationship between the respondent cooperative and its owners-members,
said issue does not preclude petitioner SSC from taking cognizance of the aforesaid petition-complaint.
Considering that the principal relief sought in the said petition-complaint has to be resolved by reference
to the Social Security Law and not to the Labor Code or other labor relations statutes, therefore,
jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperatives Motion to Dismiss grounded on
the alleged lack of employer-employee relationship does not constitute grave abuse of discretion on the
part of petitioner SSC because the latter has the authority and power to deny the same. Moreover, the
existence of an employer-employee relationship is a question of fact where presentation of evidence is
necessary. Petitioners also maintain that the respondent cooperative is already estopped from assailing
the jurisdiction of the petitioner SSC because it has already filed its Answer before it, thus, respondent
cooperative has already submitted itself to the jurisdiction of the petitioner SSC.

Finally, petitioners contend that there is an employer-employee relationship between the respondent
cooperative and its owners-members. The respondent cooperative is the employer of its owners-
members considering that it undertook to provide services to Stanfilco, the performance of which is
under the full and sole control of the respondent cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the cooperative, thus,
no employer-employee relationship can arise between them. The persons of the employer and the
employee are merged in the owners-members themselves. Likewise, respondent cooperatives owners-
members even requested the respondent cooperative to register them with the petitioner SSS as self-
employed individuals. Hence, petitioner SSC has no jurisdiction over the petition-complaint filed before
it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that petitioner SSC acted
with grave abuse of discretion when it assumed jurisdiction over the petition-complaint without
determining first if there was an employer-employee relationship between the respondent cooperative
and its owners-members. Respondent cooperative claims that the question of whether an employer-
employee relationship exists between it and its owners-members is a legal and not a factual issue as the
facts are undisputed and need only to be interpreted by the applicable law and jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing the
jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss, especially where
the issue of jurisdiction is raised at the very first instance and where the only relief being sought is the
dismissal of the petition-complaint for lack of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:

I. Whether the petitioner SSC has jurisdiction over the petition-complaint filed
before it by petitioner SSS against the respondent cooperative.
 II. Whether the respondent cooperative is estopped from assailing the jurisdiction
of petitioner SSC since it had already filed an Answer with Motion to Dismiss before the said body.

Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as in Section 1,
Rule III of the 1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to coverage, benefits,
contributions and penalties thereon or any other matter related thereto, shall be cognizable by the
Commission, x x x. (Emphasis supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. Any dispute arising under the Social Security Act with respect to coverage,
entitlement of benefits, collection and settlement of contributions and penalties thereon, or any other
matter related thereto, shall be cognizable by the Commission after the SSS through its President,
Manager or Officer-in-charge of the Department/Branch/Representative Office concerned had first taken
action thereon in writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of the SSS
is well within the exclusive domain of the petitioner SSC. It is important to note, though, that the
mandatory coverage under the SSS Law is premised on the existence of an employer-employee
relationship[17] except in cases of compulsory coverage of the self-employed.

It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in the
Motion to Dismiss, determine which court has jurisdiction over an action; otherwise, the question of
jurisdiction would depend almost entirely upon the defendant.[18] Moreover, it is well-settled that once
jurisdiction is acquired by the court, it remains with it until the full termination of the case.[19] The said
principle may be applied even to quasi-judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC against the
respondent cooperative and Stanfilco alleges that the owners-members of the respondent cooperative
are subject to the compulsory coverage of the SSS because they are employees of the respondent
cooperative. Consequently, the respondent cooperative being the employer of its owners-members must
register as employer and report its owners-members as covered members of the SSS and remit the
necessary premium contributions in accordance with the Social Security Law of 1997. Accordingly, based
on the aforesaid allegations in the petition-complaint filed before the petitioner SSC, the case clearly falls
within its jurisdiction. Although the Answer with Motion to Dismiss filed by the respondent cooperative
challenged the jurisdiction of the petitioner SSC on the alleged lack of employer-employee relationship
between itself and its owners-members, the same is not enough to deprive the petitioner SSC of its
jurisdiction over the petition-complaint filed before it. Thus, the petitioner SSC cannot be faulted for
initially assuming jurisdiction over the petition-complaint of the petitioner SSS.

Nonetheless, since the existence of an employer-employee relationship between the respondent

cooperative and its owners-members was put in issue and considering that the compulsory coverage of
the SSS Law is predicated on the existence of such relationship, it behooves the petitioner SSC to
determine if there is really an employer-employee relationship that exists between the respondent
cooperative and its owners-members.

The question on the existence of an employer-employee relationship is not within the exclusive
jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of the Labor Code
enumerating the jurisdiction of the Labor Arbiters and the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relations, including those of persons in domestic or household
service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.[20]

Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily include
issues on the coverage thereof, because claims are undeniably rooted in the coverage by the system.
Hence, the question on the existence of an employer-employee relationship for the purpose of
determining the coverage of the Social Security System is explicitly excluded from the jurisdiction of the
NLRC and falls within the jurisdiction of the SSC which is primarily charged with the duty of settling
disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS involved the issue of
compulsory coverage of the owners-members of the respondent cooperative, this Court agrees with the
petitioner SSC when it declared in its Order dated 17 February 2004 that as an incident to the issue of
compulsory coverage, it may inquire into the presence or absence of an employer-employee relationship
without need of waiting for a prior pronouncement or submitting the issue to the NLRC for prior
determination. Since both the petitioner SSC and the NLRC are independent bodies and their jurisdiction
are well-defined by the separate statutes creating them, petitioner SSC has the authority to inquire into
the relationship existing between the worker and the person or entity to whom he renders service to
determine if the employment, indeed, is one that is excepted by the Social Security Law of 1997 from
compulsory coverage.[21]

Even before the petitioner SSC could make a determination of the existence of an employer-employee
relationship, however, the respondent cooperative already elevated the Order of the petitioner SSC,
denying its Motion to Dismiss, to the Court of Appeals by filing a Petition for Certiorari. As a
consequence thereof, the petitioner SSC became a party to the said Petition for Certiorari pursuant to
Section 5(b)[22] of Republic Act No. 8282. The appellate court ruled in favor of the respondent
cooperative by declaring that the petitioner SSC has no jurisdiction over the petition-complaint filed
before it because there was no employer-employee relationship between the respondent cooperative
and its owners-members. Resultantly, the petitioners SSS and SSC, representing the Republic of the
Philippines, filed a Petition for Review before this Court.

Although as a rule, in the exercise of the Supreme Courts power of review, the Court is not a trier of facts
and the findings of fact of the Court of Appeals are conclusive and binding on the Court,[23] said rule is
not without exceptions. There are several recognized exceptions[24] in which factual issues may be
resolved by this Court. One of these exceptions finds application in this present case which is, when the
findings of fact are conflicting. There are, indeed, conflicting findings espoused by the petitioner SSC and
the appellate court relative to the existence of employer-employee relationship between the respondent
cooperative and its owners-members, which necessitates a departure from the oft-repeated rule that
factual issues may not be the subject of appeals to this Court.
In determining the existence of an employer-employee relationship, the following elements are
considered: (1) the selection and engagement of the workers; (2) the payment of wages by whatever
means; (3) the power of dismissal; and (4) the power to control the workers conduct, with the latter
assuming primacy in the overall consideration.[25] The most important element is the employers control
of the employees conduct, not only as to the result of the work to be done, but also as to the means and
methods to accomplish.[26] The power of control refers to the existence of the power and not
necessarily to the actual exercise thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the employer has the right to wield that power.
[27] All the aforesaid elements are present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has the
exclusive discretion in the selection and engagement of the owners-members as well as its team leaders
who will be assigned at Stanfilco.[28] Second. Wages are defined as remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained, on a time, task,
piece or commission basis, or other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment for work done or to be done, or for
service rendered or to be rendered.[29] In this case, the weekly stipends or the so-called shares in the
service surplus given by the respondent cooperative to its owners-members were in reality wages, as the
same were equivalent to an amount not lower than that prescribed by existing labor laws, rules and
regulations, including the wage order applicable to the area and industry; or the same shall not be lower
than the prevailing rates of wages.[30] It cannot be doubted then that those stipends or shares in the
service surplus are indeed wages, because these are given to the owners-members as compensation in
rendering services to respondent cooperatives client, Stanfilco. Third. It is also stated in the above-
mentioned Service Contracts that it is the respondent cooperative which has the power to investigate,
discipline and remove the owners-members and its team leaders who were rendering services at
Stanfilco.[31] Fourth. As earlier opined, of the four elements of the employer-employee relationship, the
control test is the most important. In the case at bar, it is the respondent cooperative which has the sole
control over the manner and means of performing the services under the Service Contracts with
Stanfilco as well as the means and methods of work.[32] Also, the respondent cooperative is solely and
entirely responsible for its owners-members, team leaders and other representatives at Stanfilco.[33] All
these clearly prove that, indeed, there is an employer-employee relationship between the respondent
cooperative and its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and Stanfilco
expressly provide that there shall be no employer-employee relationship between the respondent
cooperative and its owners-members.[34] This Court, however, cannot give the said provision force and
effect.
As previously pointed out by this Court, an employee-employer relationship actually exists between the
respondent cooperative and its owners-members. The four elements in the four-fold test for the
existence of an employment relationship have been complied with. The respondent cooperative must
not be allowed to deny its employment relationship with its owners-members by invoking the
questionable Service Contracts provision, when in actuality, it does exist. The existence of an employer-
employee relationship cannot be negated by expressly repudiating it in a contract, when the terms and
surrounding circumstances show otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.[35]

It is settled that the contracting parties may establish such stipulations, clauses, terms and conditions as
they want, and their agreement would have the force of law between them. However, the agreed terms
and conditions must not be contrary to law, morals, customs, public policy or public order.[36] The
Service Contract provision in question must be struck down for being contrary to law and public policy
since it is apparently being used by the respondent cooperative merely to circumvent the compulsory
coverage of its employees, who are also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City, Inc.
v. Ferrer-Calleja[37] wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being run either by
persons, partnerships, or corporations. Its owners and/or members are the ones who run and operate
the business while the others are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke the
right to collective bargaining for certainly an owner cannot bargain with himself or his co-owners. In the
opinion of August 14, 1981 of the Solicitor General he correctly opined that employees of cooperatives
who are themselves members of the cooperative have no right to form or join labor organizations for
purposes of collective bargaining for being themselves co-owners of the cooperative.

However, in so far as it involves cooperatives with employees who are not members or co-owners
thereof, certainly such employees are entitled to exercise the rights of all workers to organization,
collective bargaining, negotiations and others as are enshrined in the Constitution and existing laws of
the country.
The situation in the aforesaid case is very much different from the present case. The declaration made by
the Court in the aforesaid case was made in the context of whether an employee who is also an owner-
member of a cooperative can exercise the right to bargain collectively with the employer who is the
cooperative wherein he is an owner-member. Obviously, an owner-member cannot bargain collectively
with the cooperative of which he is also the owner because an owner cannot bargain with himself. In the
instant case, there is no issue regarding an owner-members right to bargain collectively with the
cooperative. The question involved here is whether an employer-employee relationship can exist
between the cooperative and an owner-member. In fact, a closer look at Cooperative Rural Bank of
Davao City, Inc. will show that it actually recognized that an owner-member of a cooperative can be its
own employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its registration with the
Cooperative Development Authority.[38] It has its Board of Directors, which directs and supervises its
business; meaning, its Board of Directors is the one in charge in the conduct and management of its
affairs.[39] With that, a cooperative can be likened to a corporation with a personality separate and
distinct from its owners-members. Consequently, an owner-member of a cooperative can be an
employee of the latter and an employer-employee relationship can exist between them.

In the present case, it is not disputed that the respondent cooperative had registered itself with the
Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0-623-2460.[40]
In its by-laws,[41] its Board of Directors directs, controls, and supervises the business and manages the
property of the respondent cooperative. Clearly then, the management of the affairs of the respondent
cooperative is vested in its Board of Directors and not in its owners-members as a whole. Therefore, it is
completely logical that the respondent cooperative, as a juridical person represented by its Board of
Directors, can enter into an employment with its owners-members.

In sum, having declared that there is an employer-employee relationship between the respondent
cooperative and its owners-member, we conclude that the petitioner SSC has jurisdiction over the
petition-complaint filed before it by the petitioner SSS. This being our conclusion, it is no longer
necessary to discuss the issue of whether the respondent cooperative was estopped from assailing the
jurisdiction of the petitioner SSC when it filed its Answer with Motion to Dismiss.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and the
Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, are hereby REVERSED and SET ASIDE. The Orders of the petitioner SSC dated 17 February
2004 and 16 September 2004 are hereby REINSTATED. The petitioner SSC is hereby DIRECTED to
continue hearing the petition-complaint filed before it by the petitioner SSS as regards the compulsory
coverage of the respondent cooperative and its owners-members. No costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 85750 September 28, 1990

INTERNATIONAL CATHOLIC IMMIGRATION COMMISSION, petitioner

vs

HON. PURA CALLEJA IN HER CAPACITY AS DIRECTOR OF THE BUREAU OF LABOR RELATIONS AND TRADE
UNIONS OF THE PHILIPPINES AND ALLIED SERVICES (TUPAS) WFTU respondents.

G.R. No. 89331 September 28, 1990

KAPISANAN NG MANGGAGAWA AT TAC SA IRRI-ORGANIZED LABOR ASSOCIATION IN LINE INDUSTRIES

AND AGRICULTURE, petitioner,

vs

SECRETARY OF LABOR AND EMPLOYMENT AND INTERNATIONAL RICE RESEARCH INSTITUTE, INC.,
respondents.

Araullo, Zambrano, Gruba, Chua Law Firm for petitioner in 85750.

Dominguez, Armamento, Cabana & Associates for petitioner in G.R. No. 89331.

Jimenez & Associates for IRRI.

Alfredo L. Bentulan for private respondent in 85750.

MELENCIO-HERRERA, J.:

Consolidated on 11 December 1989, these two cases involve the validity of the claim of immunity by the
International Catholic Migration Commission (ICMC) and the International Rice Research Institute, Inc.
(IRRI) from the application of Philippine labor laws.

Facts and Issues

A. G.R. No. 85750 — the International Catholic Migration Commission (ICMC) Case.

As an aftermath of the Vietnam War, the plight of Vietnamese refugees fleeing from South Vietnam's
communist rule confronted the international community.

In response to this crisis, on 23 February 1981, an Agreement was forged between the Philippine
Government and the United Nations High Commissioner for Refugees whereby an operating center for
processing Indo-Chinese refugees for eventual resettlement to other countries was to be established in
Bataan (Annex "A", Rollo, pp. 22-32).
ICMC was one of those accredited by the Philippine Government to operate the refugee processing
center in Morong, Bataan. It was incorporated in New York, USA, at the request of the Holy See, as a
non-profit agency involved in international humanitarian and voluntary work. It is duly registered with
the United Nations Economic and Social Council (ECOSOC) and enjoys Consultative Status, Category II. As
an international organization rendering voluntary and humanitarian services in the Philippines, its
activities are parallel to those of the International Committee for Migration (ICM) and the International
Committee of the Red Cross (ICRC) [DOLE Records of BLR Case No. A-2-62-87, ICMC v. Calleja, Vol. 1].

On 14 July 1986, Trade Unions of the Philippines and Allied Services (TUPAS) filed with the then Ministry
of Labor and Employment a Petition for Certification Election among the rank and file members
employed by ICMC The latter opposed the petition on the ground that it is an international organization
registered with the United Nations and, hence, enjoys diplomatic immunity.

On 5 February 1987, Med-Arbiter Anastacio L. Bactin sustained ICMC and dismissed the petition for lack
of jurisdiction.

On appeal by TUPAS, Director Pura Calleja of the Bureau of Labor Relations (BLR), reversed the Med-
Arbiter's Decision and ordered the immediate conduct of a certification election. At that time, ICMC's
request for recognition as a specialized agency was still pending with the Department of Foreign Affairs
(DEFORAF).

Subsequently, however, on 15 July 1988, the Philippine Government, through the DEFORAF, granted
ICMC the status of a specialized agency with corresponding diplomatic privileges and immunities, as
evidenced by a Memorandum of Agreement between the Government and ICMC (Annex "E", Petition,
Rollo, pp. 41-43), infra.

ICMC then sought the immediate dismissal of the TUPAS Petition for Certification Election invoking the
immunity expressly granted but the same was denied by respondent BLR Director who, again, ordered
the immediate conduct of a pre-election conference. ICMC's two Motions for Reconsideration were
denied despite an opinion rendered by DEFORAF on 17 October 1988 that said BLR Order violated
ICMC's diplomatic immunity.

Thus, on 24 November 1988, ICMC filed the present Petition for Certiorari with Preliminary Injunction
assailing the BLR Order.
On 28 November 1988, the Court issued a Temporary Restraining Order enjoining the holding of the
certification election.

On 10 January 1989, the DEFORAF, through its Legal Adviser, retired Justice Jorge C. Coquia of the Court
of Appeals, filed a Motion for Intervention alleging that, as the highest executive department with the
competence and authority to act on matters involving diplomatic immunity and privileges, and tasked
with the conduct of Philippine diplomatic and consular relations with foreign governments and UN
organizations, it has a legal interest in the outcome of this case.

Over the opposition of the Solicitor General, the Court allowed DEFORAF intervention.

On 12 July 1989, the Second Division gave due course to the ICMC Petition and required the submittal of
memoranda by the parties, which has been complied with.

As initially stated, the issue is whether or not the grant of diplomatic privileges and immunites to ICMC
extends to immunity from the application of Philippine labor laws.

ICMC sustains the affirmative of the proposition citing (1) its Memorandum of Agreement with the
Philippine Government giving it the status of a specialized agency, (infra); (2) the Convention on the
Privileges and Immunities of Specialized Agencies, adopted by the UN General Assembly on 21
November 1947 and concurred in by the Philippine Senate through Resolution No. 91 on 17 May 1949
(the Philippine Instrument of Ratification was signed by the President on 30 August 1949 and deposited
with the UN on 20 March 1950) infra; and (3) Article II, Section 2 of the 1987 Constitution, which
declares that the Philippines adopts the generally accepted principles of international law as part of the
law of the land.

Intervenor DEFORAF upholds ICMC'S claim of diplomatic immunity and seeks an affirmance of the
DEFORAF determination that the BLR Order for a certification election among the ICMC employees is
violative of the diplomatic immunity of said organization.
Respondent BLR Director, on the other hand, with whom the Solicitor General agrees, cites State policy
and Philippine labor laws to justify its assailed Order, particularly, Article II, Section 18 and Article III,
Section 8 of the 1987 Constitution, infra; and Articles 243 and 246 of the Labor Code, as amended, ibid.
In addition, she contends that a certification election is not a litigation but a mere investigation of a non-
adversary, fact-finding character. It is not a suit against ICMC its property, funds or assets, but is the sole
concern of the workers themselves.

B. G.R. No. 89331 — (The International Rice Research Institute [IRRI] Case).

Before a Decision could be rendered in the ICMC Case, the Third Division, on 11 December 1989,
resolved to consolidate G.R. No. 89331 pending before it with G.R. No. 85750, the lower-numbered case
pending with the Second Division, upon manifestation by the Solicitor General that both cases involve
similar issues.

The facts disclose that on 9 December 1959, the Philippine Government and the Ford and Rockefeller
Foundations signed a Memorandum of Understanding establishing the International Rice Research
Institute (IRRI) at Los Baños, Laguna. It was intended to be an autonomous, philanthropic, tax-free, non-
profit, non-stock organization designed to carry out the principal objective of conducting "basic research
on the rice plant, on all phases of rice production, management, distribution and utilization with a view
to attaining nutritive and economic advantage or benefit for the people of Asia and other major rice-
growing areas through improvement in quality and quantity of rice."

Initially, IRRI was organized and registered with the Securities and Exchange Commission as a private
corporation subject to all laws and regulations. However, by virtue of Pres. Decree No. 1620,
promulgated on 19 April 1979, IRRI was granted the status, prerogatives, privileges and immunities of an
international organization.

The Organized Labor Association in Line Industries and Agriculture (OLALIA), is a legitimate labor
organization with an existing local union, the Kapisanan ng Manggagawa at TAC sa IRRI (Kapisanan, for
short) in respondent IRRI.

On 20 April 1987, the Kapisanan filed a Petition for Direct Certification Election with Region IV, Regional
Office of the Department of Labor and Employment (DOLE).
IRRI opposed the petition invoking Pres. Decree No. 1620 conferring upon it the status of an
international organization and granting it immunity from all civil, criminal and administrative proceedings
under Philippine laws.

On 7 July 1987, Med-Arbiter Leonardo M. Garcia, upheld the opposition on the basis of Pres. Decree No.
1620 and dismissed the Petition for Direct Certification.

On appeal, the BLR Director, who is the public respondent in the ICMC Case, set aside the Med-Arbiter's
Order and authorized the calling of a certification election among the rank-and-file employees of IRRI.
Said Director relied on Article 243 of the Labor Code, as amended, infra and Article XIII, Section 3 of the
1987 Constitution, 1 and held that "the immunities and privileges granted to IRRI do not include
exemption from coverage of our Labor Laws." Reconsideration sought by IRRI was denied.

On appeal, the Secretary of Labor, in a Resolution of 5 July 1989, set aside the BLR Director's Order,
dismissed the Petition for Certification Election, and held that the grant of specialized agency status by
the Philippine Government to the IRRI bars DOLE from assuming and exercising jurisdiction over IRRI Said
Resolution reads in part as follows:

Presidential Decree No. 1620 which grants to the IRRI the status, prerogatives, privileges and immunities
of an international organization is clear and explicit. It provides in categorical terms that:

Art. 3 — The Institute shall enjoy immunity from any penal, civil and administrative proceedings, except
insofar as immunity has been expressly waived by the Director-General of the Institution or his
authorized representative.

Verily, unless and until the Institute expressly waives its immunity, no summons, subpoena, orders,
decisions or proceedings ordered by any court or administrative or quasi-judicial agency are enforceable
as against the Institute. In the case at bar there was no such waiver made by the Director-General of the
Institute. Indeed, the Institute, at the very first opportunity already vehemently questioned the
jurisdiction of this Department by filing an ex-parte motion to dismiss the case.
Hence, the present Petition for Certiorari filed by Kapisanan alleging grave abuse of discretion by
respondent Secretary of Labor in upholding IRRI's diplomatic immunity.

The Third Division, to which the case was originally assigned, required the respondents to comment on
the petition. In a Manifestation filed on 4 August 1990, the Secretary of Labor declared that it was "not
adopting as his own" the decision of the BLR Director in the ICMC Case as well as the Comment of the
Solicitor General sustaining said Director. The last pleading was filed by IRRI on 14 August 1990.

Instead of a Comment, the Solicitor General filed a Manifestation and Motion praying that he be excused
from filing a comment "it appearing that in the earlier case of International Catholic Migration
Commission v. Hon. Pura Calleja, G.R. No. 85750. the Office of the Solicitor General had sustained the
stand of Director Calleja on the very same issue now before it, which position has been superseded by
respondent Secretary of Labor in G.R. No. 89331," the present case. The Court acceded to the Solicitor
General's prayer.

The Court is now asked to rule upon whether or not the Secretary of Labor committed grave abuse of
discretion in dismissing the Petition for Certification Election filed by Kapisanan.

Kapisanan contends that Article 3 of Pres. Decree No. 1620 granting IRRI the status, privileges,
prerogatives and immunities of an international organization, invoked by the Secretary of Labor, is
unconstitutional in so far as it deprives the Filipino workers of their fundamental and constitutional right
to form trade unions for the purpose of collective bargaining as enshrined in the 1987 Constitution.

A procedural issue is also raised. Kapisanan faults respondent Secretary of Labor for entertaining IRRI'S
appeal from the Order of the Director of the Bureau of Labor Relations directing the holding of a
certification election. Kapisanan contends that pursuant to Sections 7, 8, 9 and 10 of Rule V 2 of the
Omnibus Rules Implementing the Labor Code, the Order of the BLR Director had become final and
unappeable and that, therefore, the Secretary of Labor had no more jurisdiction over the said appeal.

On the other hand, in entertaining the appeal, the Secretary of Labor relied on Section 25 of Rep. Act.
No. 6715, which took effect on 21 March 1989, providing for the direct filing of appeal from the Med-
Arbiter to the Office of the Secretary of Labor and Employment instead of to the Director of the Bureau
of Labor Relations in cases involving certification election orders.
III

Findings in Both Cases.

There can be no question that diplomatic immunity has, in fact, been granted ICMC and IRRI.

Article II of the Memorandum of Agreement between the Philippine Government and ICMC provides
that ICMC shall have a status "similar to that of a specialized agency." Article III, Sections 4 and 5 of the
Convention on the Privileges and Immunities of Specialized Agencies, adopted by the UN General
Assembly on 21 November 1947 and concurred in by the Philippine Senate through Resolution No. 19 on
17 May 1949, explicitly provides:

Art. III, Section 4. The specialized agencies, their property and assets, wherever located and by
whomsoever held, shall enjoy immunity from every form of legal process except insofar as in any
particular case they have expressly waived their immunity. It is, however, understood that no waiver of
immunity shall extend to any measure of execution.

Sec. 5. — The premises of the specialized agencies shall be inviolable. The property and assets of the
specialized agencies, wherever located and by whomsoever held shall be immune from search,
requisition, confiscation, expropriation and any other form of interference, whether by executive,
administrative, judicial or legislative action. (Emphasis supplied).

IRRI is similarly situated, Pres. Decree No. 1620, Article 3, is explicit in its grant of immunity, thus:

Art. 3. Immunity from Legal Process. — The Institute shall enjoy immunity from any penal, civil and
administrative proceedings, except insofar as that immunity has been expressly waived by the Director-
General of the Institute or his authorized representatives.

Thus it is that the DEFORAF, through its Legal Adviser, sustained ICMC'S invocation of immunity when in a
Memorandum, dated 17 October 1988, it expressed the view that "the Order of the Director of the
Bureau of Labor Relations dated 21 September 1988 for the conduct of Certification Election within
ICMC violates the diplomatic immunity of the organization." Similarly, in respect of IRRI, the DEFORAF
speaking through The Acting Secretary of Foreign Affairs, Jose D. Ingles, in a letter, dated 17 June 1987,
to the Secretary of Labor, maintained that "IRRI enjoys immunity from the jurisdiction of DOLE in this
particular instance."

The foregoing opinions constitute a categorical recognition by the Executive Branch of the Government
that ICMC and IRRI enjoy immunities accorded to international organizations, which determination has
been held to be a political question conclusive upon the Courts in order not to embarrass a political
department of Government.

It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic immunity is
recognized and affirmed by the executive branch of the government as in the case at bar, it is then the
duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal law
officer of the government . . . or other officer acting under his direction. Hence, in adherence to the
settled principle that courts may not so exercise their jurisdiction . . . as to embarrass the executive arm
of the government in conducting foreign relations, it is accepted doctrine that in such cases the judicial
department of (this) government follows the action of the political branch and will not embarrass the
latter by assuming an antagonistic jurisdiction. 3

A brief look into the nature of international organizations and specialized agencies is in order. The term
"international organization" is generally used to describe an organization set up by agreement between
two or more states. 4 Under contemporary international law, such organizations are endowed with some
degree of international legal personality 5 such that they are capable of exercising specific rights, duties
and powers. 6 They are organized mainly as a means for conducting general international business in
which the member states have an interest. 7 The United Nations, for instance, is an international
organization dedicated to the propagation of world peace.

"Specialized agencies" are international organizations having functions in particular fields. The term
appears in Articles 57 8 and 63 9 of the Charter of the United Nations:

The Charter, while it invests the United Nations with the general task of promoting progress and
international cooperation in economic, social, health, cultural, educational and related matters,
contemplates that these tasks will be mainly fulfilled not by organs of the United Nations itself but by
autonomous international organizations established by inter-governmental agreements outside the
United Nations. There are now many such international agencies having functions in many different
fields, e.g. in posts, telecommunications, railways, canals, rivers, sea transport, civil aviation,
meteorology, atomic energy, finance, trade, education and culture, health and refugees. Some are
virtually world-wide in their membership, some are regional or otherwise limited in their membership.
The Charter provides that those agencies which have "wide international responsibilities" are to be
brought into relationship with the United Nations by agreements entered into between them and the
Economic and Social Council, are then to be known as "specialized agencies." 10

The rapid growth of international organizations under contemporary international law has paved the way
for the development of the concept of international immunities.

It is now usual for the constitutions of international organizations to contain provisions conferring certain
immunities on the organizations themselves, representatives of their member states and persons acting
on behalf of the organizations. A series of conventions, agreements and protocols defining the
immunities of various international organizations in relation to their members generally are now widely
in force; . . . 11

There are basically three propositions underlying the grant of international immunities to international
organizations. These principles, contained in the ILO Memorandum are stated thus: 1) international
institutions should have a status which protects them against control or interference by any one
government in the performance of functions for the effective discharge of which they are responsible to
democratically constituted international bodies in which all the nations concerned are represented; 2) no
country should derive any national financial advantage by levying fiscal charges on common
international funds; and 3) the international organization should, as a collectivity of States members, be
accorded the facilities for the conduct of its official business customarily extended to each other by its
individual member States. 12 The theory behind all three propositions is said to be essentially
institutional in character. "It is not concerned with the status, dignity or privileges of individuals, but with
the elements of functional independence necessary to free international institutions from national
control and to enable them to discharge their responsibilities impartially on behalf of all their members.
13 The raison d'etre for these immunities is the assurance of unimpeded performance of their functions
by the agencies concerned.

The grant of immunity from local jurisdiction to ICMC and IRRI is clearly necessitated by their
international character and respective purposes. The objective is to avoid the danger of partiality and
interference by the host country in their internal workings. The exercise of jurisdiction by the
Department of Labor in these instances would defeat the very purpose of immunity, which is to shield
the affairs of international organizations, in accordance with international practice, from political
pressure or control by the host country to the prejudice of member States of the organization, and to
ensure the unhampered performance of their functions.

ICMC's and IRRI's immunity from local jurisdiction by no means deprives labor of its basic rights, which
are guaranteed by Article II, Section 18, 14 Article III, Section 8, 15 and Article XIII, Section 3 (supra), of
the 1987 Constitution; and implemented by Articles 243 and 246 of the Labor Code, 16 relied on by the
BLR Director and by Kapisanan.

For, ICMC employees are not without recourse whenever there are disputes to be settled. Section 31 of
the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations 17
provides that "each specialized agency shall make provision for appropriate modes of settlement of: (a)
disputes arising out of contracts or other disputes of private character to which the specialized agency is
a party." Moreover, pursuant to Article IV of the Memorandum of Agreement between ICMC the the
Philippine Government, whenever there is any abuse of privilege by ICMC, the Government is free to
withdraw the privileges and immunities accorded. Thus:

Art. IV. Cooperation with Government Authorities. — 1. The Commission shall cooperate at all times
with the appropriate authorities of the Government to ensure the observance of Philippine laws, rules
and regulations, facilitate the proper administration of justice and prevent the occurrences of any abuse
of the privileges and immunities granted its officials and alien employees in Article III of this Agreement
to the Commission.

2. In the event that the Government determines that there has been an abuse of the privileges and
immunities granted under this Agreement, consultations shall be held between the Government and the
Commission to determine whether any such abuse has occurred and, if so, the Government shall
withdraw the privileges and immunities granted the Commission and its officials.

Neither are the employees of IRRI without remedy in case of dispute with management as, in fact, there
had been organized a forum for better management-employee relationship as evidenced by the
formation of the Council of IRRI Employees and Management (CIEM) wherein "both management and
employees were and still are represented for purposes of maintaining mutual and beneficial cooperation
between IRRI and its employees." The existence of this Union factually and tellingly belies the argument
that Pres. Decree No. 1620, which grants to IRRI the status, privileges and immunities of an international
organization, deprives its employees of the right to self-organization.

The immunity granted being "from every form of legal process except in so far as in any particular case
they have expressly waived their immunity," it is inaccurate to state that a certification election is beyond
the scope of that immunity for the reason that it is not a suit against ICMC. A certification election
cannot be viewed as an independent or isolated process. It could tugger off a series of events in the
collective bargaining process together with related incidents and/or concerted activities, which could
inevitably involve ICMC in the "legal process," which includes "any penal, civil and administrative
proceedings." The eventuality of Court litigation is neither remote and from which international
organizations are precisely shielded to safeguard them from the disruption of their functions. Clauses on
jurisdictional immunity are said to be standard provisions in the constitutions of international
Organizations. "The immunity covers the organization concerned, its property and its assets. It is equally
applicable to proceedings in personam and proceedings in rem." 18

We take note of a Manifestation, dated 28 September 1989, in the ICMC Case (p. 161, Rollo), wherein
TUPAS calls attention to the case entitled "International Catholic Migration Commission v. NLRC, et als.,
(G.R. No. 72222, 30 January 1989, 169 SCRA 606), and claims that, having taken cognizance of that
dispute (on the issue of payment of salary for the unexpired portion of a six-month probationary
employment), the Court is now estopped from passing upon the question of DOLE jurisdiction petition
over ICMC.

We find no merit to said submission. Not only did the facts of said controversy occur between 1983-
1985, or before the grant to ICMC on 15 July 1988 of the status of a specialized agency with
corresponding immunities, but also because ICMC in that case did not invoke its immunity and,
therefore, may be deemed to have waived it, assuming that during that period (1983-1985) it was tacitly
recognized as enjoying such immunity.

Anent the procedural issue raised in the IRRI Case, suffice it to state that the Decision of the BLR Director,
dated 15 February 1989, had not become final because of a Motion for Reconsideration filed by IRRI Said
Motion was acted upon only on 30 March 1989 when Rep. Act No. 6715, which provides for direct
appeals from the Orders of the Med-Arbiter to the Secretary of Labor in certification election cases
either from the order or the results of the election itself, was already in effect, specifically since 21
March 1989. Hence, no grave abuse of discretion may be imputed to respondent Secretary of Labor in
his assumption of appellate jurisdiction, contrary to Kapisanan's allegations. The pertinent portion of
that law provides:
Art. 259. — Any party to an election may appeal the order or results of the election as determined by the
Med-Arbiter directly to the Secretary of Labor and Employment on the ground that the rules and
regulations or parts thereof established by the Secretary of Labor and Employment for the conduct of
the election have been violated. Such appeal shall be decided within 15 calendar days (Emphasis
supplied).

En passant, the Court is gratified to note that the heretofore antagonistic positions assumed by two
departments of the executive branch of government have been rectified and the resultant
embarrassment to the Philippine Government in the eyes of the international community now,
hopefully, effaced.

WHEREFORE, in G.R. No. 85750 (the ICMC Case), the Petition is GRANTED, the Order of the Bureau of
Labor Relations for certification election is SET ASIDE, and the Temporary Restraining Order earlier issued
is made PERMANENT.

In G.R. No. 89331 (the IRRI Case), the Petition is Dismissed, no grave abuse of discretion having been
committed by the Secretary of Labor and Employment in dismissing the Petition for Certification
Election.

No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION

G.R. No. 196276 June 4, 2014

TAKATA (PHILIPPINES) CORPORATION, Petitioner,

vs.

BUREAU OF LABOR RELATIONS and SAMAHANG LAKAS MANGGAGAWA NG TAKATA (SALAMAT),

Respondents.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari filed by petitioner TAKATA Philippines Corporation assailing
the Decision1 dated December 22, 2010 and the Resolution2 dated March 28, 2011 of the Court of
Appeals in CA-G.R. SP No. 112406.

On July 7, 2009, petitioner filed with the Department of Labor and Employment (DOLE) Regional Office a
Petition3 for Cancellation of the Certificate of Union Registration of Respondent Samahang Lakas
Manggagawa ng Takata (SALAMA1) on the ground that the latter is guilty of misrepresentation, false
statement and fraud with respect to the number of those who participated in the organizational
meeting, the adoption and ratification of its Constitution and By-Laws, and in the election of its officers.
It contended that in the May 1, 2009 organizational meeting of respondent, only 68 attendees signed the
attendance sheet, and which number comprised only 17% of the total number of the 396 regular rank-
and-file employees which respondent sought to represent, and hence, respondent failed to comply with
the 20% minimum membership requirement. Petitioner insisted that the document "Pangalan ng mga
Kasapi ng Unyon" bore no signatures of the alleged 119 union members; and that employees were not
given sufficient information on the documents they signed; that the document "Sama-Samang Pahayag
ng Pagsapi" was not submitted at the time of the filing of respondent's application for union registration;
that the 119 union members were actually only 117; and, that the total number of petitioner's
employees as of May 1, 2009 was 470, and not 396 as respondent claimed.4

Respondent denied the charge and claimed that the 119 union members were more than the 20%
requirement for union registration. The document "Sama-Samang Pahayag ng Pagsapi sa Unyon" which it
presented in its petition for certification election5 supported their claim of 119 members. Respondent
also contended that petitioner was estopped from assailing its legal personality as it agreed to a
certification election and actively participated in the pre-election conference of the certification election
proceedings.6 Respondent argued that the union members were informed of the contents of the
documents they signed and that the 68 attendees to the organizational meeting constituted more than
50% of the total union membership, hence, a quo rumexisted for the conduct of the said meeting.7

On August 27, 2009, DOLE Regional Director, Atty. Ricardo S. Martinez, Sr., issued a Decision8 granting
the petition for cancellation of respondent's certificate of registration, the dispositive portion of which
reads:

WHEREFORE, from the foregoing considerations, the petition is hereby GRANTED. Accordingly, the
respondent Union Certificate of Registration No. RO400A-2009-05-01-UR-LAG, dated May 19, 2009 is
hereby REVOCKED (sic) and /or CANCELLED pursuant to paragraph (a) & (b), Section 3, Rule XIV of
Department Order No. 40-03 and the Samahang Lakas ng Manggagawa ng TAKATA (SALAMAT) is hereby
delisted from the roll of legitimate labor organization of this office.9

In revoking respondent's certificate of registration, the Regional Director found that the 68 employees
who attended the organizational meeting was obviously less than 20% of the total number of 396 regular
rank-and-file employees which respondent sought to represent, hence, short of the union registration
requirement; that the attendance sheet which contained the signatures and names of the union
members totalling to 68 contradicted the list of names stated in the document denominated as
"Pangalan ng mga Kasaping Unyon." The document "Sama-Samang Pahayag ng Pagsapi" was not
attached to the application for registration as it was only submitted in the petition for certification
election filed by respondent at a later date. The Regional Director also found that the proceedings in the
cancellation of registration and certification elections are two different and entirely separate and
independent proceedings which were not dependent on each other.

Dissatisfied, respondent, through Bukluran ng Manggagawang Pilipino (BMP) Paralegal Officer, Domingo
P. Mole, filed a Notice and Memorandum of Appeal10 with the Bureau of Labor Relations (BLR).
However, on September 28,2009, respondent, through its counsels, Attys.

Napoleon C. Banzuela, Jr. and Jehn Louie W. Velandrez, filed an Appeal Memorandum with Formal Entry
of Appearance11 to the Office of the DOLE Secretary, which the latter eventually referred to the BLR.
Petitioner filed an Opposition to the Appeals12 praying for their dismissal on the ground of forum
shopping as respondent filed two separate appeals in two separate venues; and for failing to avail of the
correct remedy within the period; and that the certificate of registration was tainted with fraud,
misrepresentation and falsification.
In its Answer,13 respondent claimed that there was no forum shopping as BMP's Paralegal Officer was no
longer authorized to file an appeal on behalf of respondent as the latter's link with BMP was already
terminated and only the Union President was authorized to file the appeal; and that it complied with
Department Order No. 40-03.

On December 9, 2009, after considering respondent's Appeal Memorandum with Formal Entry of
Appearance and petitioner's Answer, the BLR rendered its Decision14 reversing the Order of the Regional
Director, the decretal portion of which reads:

WHEREFORE, the appeal is hereby GRANTED. The Decision of Regional Director Ricardo S. Martinez, Sr.,
dated 27 August 2009, is hereby REVERSEDand SET ASIDE.

Accordingly, Samahang Lakas Manggagawa ng TAKATA (SALAMAT) shall remain in the roster of labor
organizations.15

In reversing, the BLR found that petitioner failed to prove that respondent deliberately and maliciously
misrepresented the number of rank-and-file employees. It pointed out petitioner's basis for the alleged
noncompliance with the minimum membership requirement for registration was the attendance of 68
members to the May 1, 2009 organizational meeting supposedly comprising only 17% of the total 396
regular rank-and-file employees. However, the BLR found that the list of employees who participated in
the organizational meeting was a separate and distinct requirement from the list of the names of
members comprising at least 20% of the employees in the bargaining unit; and that there was no
requirement for signatures opposite the names of the union members; and there was no evidence
showing that the employees assailed their inclusion in the list of union members.

Petitioner filed a motion for reconsideration, which was denied by the BLR in a Resolution16 dated
January 8, 2010.

Undaunted, petitioner went to the CA via a petition for certiorari under Rule 65.

After the submission of the parties' respective pleadings, the case was submitted for decision.
On December 22, 2010, the CA rendered its assailed decision which denied the petition and affirmed the
decision of the BLR. Petitioner's motion for reconsideration was denied in a Resolution dated March 29,
2011.

Hence this petition for review filed by petitioner raising the following issues, to wit:

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR IN AFFIRMING THE
DECISION OF PUBLIC RESPONDENT BLR AND NOT FINDING ANY VIOLATION BY SAMAHANG LAKAS
MANGGAGAWA SA TAKATA (SALAMAT) OF THE RULE ON FORUM SHOPPING IN THE FILING OF TWO
VERIFIED APPEALS FOR AND ITS BEHALF. BOTH OF THE APPEALS SHOULD HAVE BEEN DISMISSED
OUTRIGHT BY PUBLIC RESPONDENT BLR, ON GROUND OF FORUM SHOPPING.

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE APPLICATION FOR
REGISTRATION OF SAMAHANG LAKAS MANGGAGAWA SA TAKATA (SALAMAT) WAS COMPLIANT WITH
THE LAW. CONSIDERING THE CIRCUMSTANCES OBTAINING IN THE REGISTRATION OF SALAMAT, IT IS
CLEAR THAT THE SAME IS TAINTED WITH FRAUD, MISREPRESENTATION AND FALSIFICATION. SALAMAT
DID NOT POSSESS THE REQUIREDNUMBER OF MEMBERS AT THE TIME OF FILING OF ITS APPLICATION
FOR REGISTRATION, HENCE, IT SHOULD BE HELD GUILTY OF MISREPRESENTATION, AND FALSE
STATEMENTS AND FRAUD IN CONNECTION THEREWITH.17

Anent the first issue, petitioner contends that respondent had filed two separate appeals with two
different representations at two different venues, in violation of the rule on multiplicity of suits and
forum shopping, and instead of dismissing both appeals, the appeal erroneously filed before the Labor
Secretary was the one held validly filed, entertained and even granted; that it is not within the discretion
of BLR to choose which between the two appeals should be entertained, as it is the fact of the filing of
the two appeals that is being prohibited and not who among the representatives therein possessed the
authority.

We are not persuaded.

We find no error committed by the CA in finding that respondent committed no forum shopping. As the
CA correctly concluded, to wit:
It is undisputed that BMP Paralegal Officer Domingo P. Mole was no longer authorized to file an appeal
on behalf of union SALAMAT and that BMP was duly informed that its services was already terminated.
SALAMAT even submitted before the BLR its "Resolusyon Blg. 01-2009" terminating the services of BMP
and revoking the representation of Mr. Domingo Mole in any of the pending cases being handled by him
on behalf of the union. So, considering that BMP Paralegal Officer Domingo P. Mole was no longer
authorized to file an appeal when it filed the Notice and Memorandum of Appeal to DOLE Regional
Office No. IV-A, the same can no longer be treated as an appeal filed by union SALAMAT. Hence, there is
no forum shopping to speak of in this case as only the Appeal Memorandum with Formal Entry of
Appearance filed by Atty. Napoleon C. Banzuela, Jr. and Atty. Jehn Louie W. Velandrez is sanctioned by
SALAMAT.18

Since Mole's appeal filed with the BLR was not specifically authorized by respondent, such appeal is
considered to have not been filed at all. It has been held that "if a complaint is filed for and in behalf of
the plaintiff who is not authorized to do so, the complaint is not deemed filed.

An unauthorized complaint does not produce any legal effect."19

Respondent through its authorized representative filed its Appeal Memorandum with Formal Entry of
Appearance before the Labor Secretary, and not with the BLR. As the appeal emanated from the petition
for cancellation of certificate of registration filed with the Regional Office, the decision canceling the
registration is appealable to the BLR, and not with the Labor Secretary. However, since the Labor
Secretary motu propio referred the appeal with the BLR, the latter can now act on it. Considering that
Mole's appeal with the BLR was not deemed filed, respondent’s appeal, through Banzuela and
Associates, which the Labor Secretary referred to the BLR was the only existing appeal with the BLR for
resolution. There is, therefore, no merit to petitioner's claim that BLR chose the appeal of Banzuela and
Associates over Mole's appeal.

The case of Abbott Laboratories Philippines, Inc. v. Abbott Laboratories Employees Union20 cited by
petitioner is not at all applicable in this case as the issue therein is the authority of the Labor Secretary
to review the decision of the Bureau of Labor Relations rendered in the exercise of its appellate
jurisdiction over decision of the Regional Director in cases involving cancellations of certificate of
registration of labor unions. We found no grave abuse of discretion committed by the Secretary of Labor
in not acting on therein petitioner's appeal. The decision of the Bureau of Labor Relations on cases
brought before it on appeal from the Regional Director are final and executory. Hence, the remedy of the
aggrieved party is to seasonably avail of the special civil action of certiorari under Rule 65 and the Rules
of Court. In this case, after the Labor Secretary motu propio referred respondent's appeal filed with it to
the BLR which rendered its decision reversing the Regional Director, petitioner went directly to the CA
via a petition for certiorari under Rule 65.

As to the second issue, petitioner seeks the cancellation of respondent's registration on grounds offraud
and misrepresentation bearing on the minimum requirement of the law as to its membership,
considering the big disparity in numbers, between the organizational meeting and the list of members,
and so misleading the BLR that it obtained the minimum required number of employees for purposes of
organization and registration.

We find no merit in the arguments.

Art. 234 of the Labor Code provides:

ART. 234. Requirements of Registration. - A federation, national union or industry or trade union center
or an independent union shall acquire legal personality and shall be entitled to the rights and privileges
granted by law to legitimate labor organizations upon issuance of the certificate of registration based on
the following requirements:

(a) Fifty pesos (₱50.00)registration fee;

(b) The names of its officers, their addresses, the principal address of the labor organization, the minutes
of the organizational meetings and the list of the workers who participated in such meetings;

(c) In case the applicant is an independent union, the names of all its members comprising at least
twenty percent (20%) of all the employees in the bargaining unit where it seeks to operate;

(d) If the applicant union has been in existence for one or more years, copies of its annual financial
reports; and
(e) Four copies of the constitution and by-laws of the applicant union, minutes of its adoption or
ratification, and the list of the members who participated in it."

And after the issuance of the certificate of registration, the labor organization's registration could be
assailed directly through cancellation of registration proceedings in accordance with Articles 238 and 239
of the Labor Code. And the cancellation of union certificate of registration and the grounds thereof are
as follows:

ART. 238. Cancellation of Registration. - The certificate of registration of any legitimate labor
organization, whether national or local, may be cancelled by the Bureau, after due hearing, only on the
grounds specified in Article 239 hereof.

ART. 239. Grounds for Cancellation of Union Registration. - The following may constitute grounds for
cancellation of union registration:

(a) Misrepresentation, false statement or fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto, the minutes of ratification, and the list of members
who took part in the ratification;

(b) Misrepresentation, false statements or fraud in connection with the election of officers, minutes of
the election of officers, and the list of voters;

(c) Voluntary dissolution by the members.

Petitioner's charge that respondent committed misrepresentation and fraud in securing its certificate of
registration is a serious charge and must be carefully evaluated. Allegations thereof should be
compounded with supporting circumstances and evidence.21 We find no evidence on record to support
petitioner's accusation.

Petitioner's allegation of misrepresentation and fraud is based on its claim that during the organizational
meeting on May 1, 2009, only 68 employees attended, while respondent claimed that it has 119
members as shown in the document denominated as "Pangalan ng mga Kasapi ng Unyon;" hence,
respondent misrepresented on the 20% requirement of the law as to its membership.

We do not agree.

It does not appear in Article 234 (b) of the Labor Code that the attendees in the organizational meeting
must comprise 20% of the employees in the bargaining unit. In fact, even the Implementing Rules and
Regulations of the Labor Code does not so provide. It is only under Article 234 (c) that requires the
names of all its members comprising at least twenty percent (20%) of all the employees in the bargaining
unit where it seeks to operate. Clearly, the 20% minimum requirement pertains to the employees’
membership in the union and not to the list of workers who participated in the organizational meeting.
Indeed, Article 234 (b) and (c) provide for separate requirements, which must be submitted for the
union's registration, and which respondent did submit. Here, the total number of employees in the
bargaining unit was 396, and 20% of which was about 79. Respondent submitted a document entitled
"Pangalan ng Mga Kasapi ng Unyon" showing the names of 119 employees as union members, thus
respondent sufficiently complied even beyond the 20% minimum membership requirement. Respondent
also submitted the attendance sheet of the organizational meeting which contained the names and
signatures of the 68 union members who attended the meeting. Considering that there are 119 union
members which are more than 20% of all the employees of the bargaining unit, and since the law does
not provide for the required number of members to attend the organizational meeting, the 68 attendees
which comprised at least the majority of the 119 union members would already constitute a quorum for
the meeting to proceed and to validly ratify the Constitution and By-laws of the union. There is,
therefore, no basis for petitioner to contend that grounds exist for the cancellation of respondent's
union registration. For fraud and misrepresentation to be grounds for cancellation of union registration
under Article 239 of the Labor Code, the nature of the fraud and misrepresentation must be grave and
compelling enough to vitiate the consent of a majority of union members.22

Petitioner's claim that the alleged union members signed documents without adequate information is
not persuasive. The one who alleges a fact has the burden of proving it and a mere allegation is not
evidence.23 In fact, we note that not one of those listed in the document denominated as "Pangalan ng
Mga Kasaping Unyon" had come forward to deny their membership with respondent. Notably, it had not
been rebutted that the same union members had signed the document entitled "Sama-Samang Pahayag
ng Pagsapi," thus, strengtheningtheir desire to be members of the respondent union.

Petitioner claims that in the list of members, there was an employee whose name appeared twice and
another employee who was merely a project employee. Such could not be considered a
misrepresentation in the absence of showing that respondent deliberately did so for the purpose of
increasing their union membership. In fact, even if those two names were not included in the list of
union members, there would still be 117 members which was still more than 20% of the 396 rank-and-
file employees.

As to petitioner's argument that the total number of its employees as of May 1, 2009 was 470, and
not396 as respondent claimed, still the 117 union members comprised more than the 20% membership
requirement for respondent's registration.

In Mariwasa Siam Ceramics v. Secretary of the Department of Labor and Employment,24 we said:

For the purpose of de-certifying a union such as respondent, it must be shown that there was
misrepresentation, false statement or fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto, the minutes of ratification; or, in connection with the
election of officers, the minutes of the election of officers, the list of voters, or failure to submit these
documents together with the list of the newly elected-appointed officers and their postal addresses to
the BLR.

The bare fact that two signatures appeared twice on the list of those who participated in the
organizational meeting would not, to our mind, provide a valid reason to cancel respondent’s certificate
of registration. The cancellation of a union’s registration doubtless has an impairing dimension on the
right of labor to self-organization. For fraud and misrepresentation to be grounds for cancellation of
union registration under the Labor Code, the nature of the fraud and misrepresentation must be grave
and compelling enough to vitiate the consent of a majority of union members.1âwphi1

In this case, we agree with the BLR and the CA that respondent could not have possibly committed
misrepresentation, fraud, or false statements. The alleged failure of respondent to indicate with
mathematical precision the total number of employees in the bargaining unit is of no moment, especially
as it was able to comply with the 20% minimum membership requirement. Even if the total number of
rank-and-file employees of petitioner is 528, while respondent declared that it should only be 455, it still
cannot be denied that the latter would have more than complied with the registration requirement.25
WHEREFORE, premises considered, the petition for review is DENIED. The Decision dated December 22,
2010 and the Resolution dated March 28, 2011 of the Court of Appeals, in CA-G.R. SP No. 112406, are
AFFIRMED.

SO ORDERED.

The Heritage Hotel Manila vs. NATIONAL UNION OF WORKERS IN THE HOTEL, RESTAURANT AND ALLIED
INDUSTRIES-HERITAGE HOTEL MANILA SUPERVISORS CHAPTER (NUWHRAIN-HHMSC) G.R. No. 178296,
January 12, 2011

SunnyDay

3 years ago

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FACTS:

The respondent’s petition for certification election was granted. Petitioner then discovered that
respondent had failed to submit to the Bureau of Labor Relations (BLR) its annual financial report for
several years and the list of its members since it filed its registration papers in 1995. Consequently, it
filed a Petition for Cancellation of Registration of respondent, on the ground of the non-submission of
the said documents. Petitioner prayed that respondent’s Certificate of Creation of Local/Chapter be
cancelled and its name be deleted from the list of legitimate labor organizations. It further requested the
suspension of the certification election proceedings. Nevertheless, the certification election pushed
through and the respondent won.

The Regional Director of DOLE-NCR and DOLE Secretary both held that constitutionally guaranteed
freedom of association and right of workers to self-organization outweighed respondent’s
noncompliance with the statutory requirements to maintain its status as a legitimate labor organization.

ISSUE:
Whether or not the failure to comply with the statutory requirement(filing financial reports and the list
of its members) sufficient ground for the cancellation of registration of the respondent as a labor union.

HELD:

No, the non-compliance should not be a ground for the cancellation. Articles 238 and 239 of the Labor
Code provide that failure to file financial reports and the list of its members are grounds for the
cancellation of Union Organization. However, consideration must be taken of the fundamental rights
guaranteed by Article XIII, Section 3 of the Constitution, i.e., the rights of all workers to self-organization,
collective bargaining and negotiations, and peaceful concerted activities. Labor authorities should bear
in mind that registration confers upon a union the status of legitimacy and the concomitant right and
privileges granted by law to a legitimate labor organization, particularly the right to participate in or ask
for certification election in a bargaining unit. Thus, the cancellation of a certificate of registration is the
equivalent of snuffing out the life of a labor organization. For without such registration, it loses – as a
rule – its rights under the Labor Code.

Furthermore, that the Labor Code’s provisions on cancellation of union registration and on reportorial
requirements have been recently amended by Republic Act (R.A.) No. 9481, An Act Strengthening the
Workers’ Constitutional Right to Self-Organization, Amending for the Purpose Presidential Decree No.
442, As Amended, Otherwise Known as the Labor Code of the Philippines, which says that failure to file
financial reports and list of union members shall not be a ground for cancellation of union registration
but shall subject the erring officers or members to suspension, expulsion from membership, or any
appropriate penalty.

SECOND DIVISION
THE HERITAGE HOTEL MANILA, acting through its owner, GRAND PLAZA HOTEL CORPORATION,

Petitioner,

- versus -

NATIONAL UNION OF WORKERS IN THE HOTEL, RESTAURANT AND ALLIED INDUSTRIES-HERITAGE HOTEL
MANILA SUPERVISORS CHAPTER (NUWHRAIN-HHMSC),

Respondent.

G.R. No. 178296

Present:

CARPIO, J.,

Chairperson,

NACHURA,

LEONARDO-DE CASTRO,*

ABAD, and

MENDOZA, JJ.

Promulgated:

January 12, 2011

x----------------------------------------------------------------------------------x
DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA)
dated May 30, 2005 and Resolution dated June 4, 2007. The assailed Decision affirmed the dismissal of a
petition for cancellation of union registration filed by petitioner, Grand Plaza Hotel Corporation, owner of
Heritage Hotel Manila, against respondent, National Union of Workers in the Hotel, Restaurant and Allied
Industries-Heritage Hotel Manila Supervisors Chapter (NUWHRAIN-HHMSC), a labor organization of the
supervisory employees of Heritage Hotel Manila.

The case stemmed from the following antecedents:

On October 11, 1995, respondent filed with the Department of Labor and Employment-National Capital
Region (DOLE-NCR) a petition for certification election.[2] The Med-Arbiter granted the petition on
February 14, 1996 and ordered the holding of a certification election.[3] On appeal, the DOLE Secretary,
in a Resolution dated August 15, 1996, affirmed the Med-Arbiters order and remanded the case to the
Med-Arbiter for the holding of a preelection conference on February 26, 1997. Petitioner filed a motion
for reconsideration, but it was denied on September 23, 1996.

The preelection conference was not held as initially scheduled; it was held a year later, or on February
20, 1998. Petitioner moved to archive or to dismiss the petition due to alleged repeated non-appearance
of respondent. The latter agreed to suspend proceedings until further notice. The preelection conference
resumed on January 29, 2000.

Subsequently, petitioner discovered that respondent had failed to submit to the Bureau of Labor
Relations (BLR) its annual financial report for several years and the list of its members since it filed its
registration papers in 1995. Consequently, on May 19, 2000, petitioner filed a Petition for Cancellation of
Registration of respondent, on the ground of the non-submission of the said documents. Petitioner
prayed that respondents Certificate of Creation of Local/Chapter be cancelled and its name be deleted
from the list of legitimate labor organizations. It further requested the suspension of the certification
election proceedings.[4]

On June 1, 2000, petitioner reiterated its request by filing a Motion to Dismiss or Suspend the
[Certification Election] Proceedings,[5] arguing that the dismissal or suspension of the proceedings is
warranted, considering that the legitimacy of respondent is seriously being challenged in the petition for
cancellation of registration. Petitioner maintained that the resolution of the issue of whether respondent
is a legitimate labor organization is crucial to the issue of whether it may exercise rights of a legitimate
labor organization, which include the right to be certified as the bargaining agent of the covered
employees.

Nevertheless, the certification election pushed through on June 23, 2000. Respondent emerged as the
winner.[6]

On June 28, 2000, petitioner filed a Protest with Motion to Defer Certification of Election Results and
Winner,[7] stating that the certification election held on June 23, 2000 was an exercise in futility
because, once respondents registration is cancelled, it would no longer be entitled to be certified as the
exclusive bargaining agent of the supervisory employees. Petitioner also claimed that some of
respondents members were not qualified to join the union because they were either confidential
employees or managerial employees. It then prayed that the certification of the election results and
winner be deferred until the petition for cancellation shall have been resolved, and that respondents
members who held confidential or managerial positions be excluded from the supervisors bargaining
unit.

Meanwhile, respondent filed its Answer[8] to the petition for the cancellation of its registration. It
averred that the petition was filed primarily to delay the conduct of the certification election, the
respondents certification as the exclusive bargaining representative of the supervisory employees, and
the commencement of bargaining negotiations. Respondent prayed for the dismissal of the petition for
the following reasons: (a) petitioner is estopped from questioning respondents status as a legitimate
labor organization as it had already recognized respondent as such during the preelection conferences;
(b) petitioner is not the party-in-interest, as the union members are the ones who would be
disadvantaged by the non-submission of financial reports; (c) it has already complied with the reportorial
requirements, having submitted its financial statements for 1996, 1997, 1998, and 1999, its updated list
of officers, and its list of members for the years 1995, 1996, 1997, 1998, and 1999; (d) the petition is
already moot and academic, considering that the certification election had already been held, and the
members had manifested their will to be represented by respondent.

Citing National Union of Bank Employees v. Minister of Labor, et al.[9] and Samahan ng Manggagawa sa
Pacific Plastic v. Hon. Laguesma,[10] the Med-Arbiter held that the pendency of a petition for
cancellation of registration is not a bar to the holding of a certification election. Thus, in an Order[11]
dated January 26, 2001, the Med-Arbiter dismissed petitioners protest, and certified respondent as the
sole and exclusive bargaining agent of all supervisory employees.
Petitioner subsequently appealed the said Order to the DOLE Secretary.[12] The appeal was later
dismissed by DOLE Secretary Patricia A. Sto. Tomas (DOLE Secretary Sto. Tomas) in the Resolution of
August 21, 2002.[13] Petitioner moved for reconsideration, but the motion was also denied.[14]

In the meantime, Regional Director Alex E. Maraan (Regional Director Maraan) of DOLE-NCR finally
resolved the petition for cancellation of registration. While finding that respondent had indeed failed to
file financial reports and the list of its members for several years, he, nonetheless, denied the petition,
ratiocinating that freedom of association and the employees right to self-organization are more
substantive considerations. He took into account the fact that respondent won the certification election
and that it had already been certified as the exclusive bargaining agent of the supervisory employees. In
view of the foregoing, Regional Director Maraanwhile emphasizing that the non-compliance with the law
is not viewed with favorconsidered the belated submission of the annual financial reports and the list of
members as sufficient compliance thereof and considered them as having been submitted on time. The
dispositive portion of the decision[15] dated December 29, 2001 reads:

WHEREFORE, premises considered, the instant petition to delist the National Union of Workers in the
Hotel, Restaurant and Allied Industries-Heritage Hotel Manila Supervisors Chapter from the roll of
legitimate labor organizations is hereby DENIED.

SO ORDERED.[16]

Aggrieved, petitioner appealed the decision to the BLR.[17] BLR Director Hans Leo Cacdac inhibited
himself from the case because he had been a former counsel of respondent.

In view of Director Cacdacs inhibition, DOLE Secretary Sto. Tomas took cognizance of the appeal. In a
resolution[18] dated February 21, 2003, she dismissed the appeal, holding that the constitutionally
guaranteed freedom of association and right of workers to self-organization outweighed respondents
noncompliance with the statutory requirements to maintain its status as a legitimate labor organization.

Petitioner filed a motion for reconsideration,[19] but the motion was likewise denied in a resolution[20]
dated May 30, 2003. DOLE Secretary Sto. Tomas admitted that it was the BLR which had jurisdiction over
the appeal, but she pointed out that the BLR Director had voluntarily inhibited himself from the case
because he used to appear as counsel for respondent. In order to maintain the integrity of the decision
and of the BLR, she therefore accepted the motion to inhibit and took cognizance of the appeal.
Petitioner filed a petition for certiorari with the CA, raising the issue of whether the DOLE Secretary
acted with grave abuse of discretion in taking cognizance of the appeal and affirming the dismissal of its
petition for cancellation of respondents registration.

In a Decision dated May 30, 2005, the CA denied the petition. The CA opined that the DOLE Secretary
may legally assume jurisdiction over an appeal from the decision of the Regional Director in the event
that the Director of the BLR inhibits himself from the case. According to the CA, in the absence of the
BLR Director, there is no person more competent to resolve the appeal than the DOLE Secretary. The CA
brushed aside the allegation of bias and partiality on the part of the DOLE Secretary, considering that
such allegation was not supported by any evidence.

The CA also found that the DOLE Secretary did not commit grave abuse of discretion when she affirmed
the dismissal of the petition for cancellation of respondents registration as a labor organization. Echoing
the DOLE Secretary, the CA held that the requirements of registration of labor organizations are an
exercise of the overriding police power of the State, designed for the protection of workers against
potential abuse by the union that recruits them. These requirements, the CA opined, should not be
exploited to work against the workers constitutionally protected right to self-organization.

Petitioner filed a motion for reconsideration, invoking this Courts ruling in Abbott Labs. Phils., Inc. v.
Abbott Labs. Employees Union,[21] which categorically declared that the DOLE Secretary has no
authority to review the decision of the Regional Director in a petition for cancellation of union
registration, and Section 4,[22] Rule VIII, Book V of the Omnibus Rules Implementing the Labor Code.

In its Resolution[23] dated June 4, 2007, the CA denied petitioners motion, stating that the BLR Directors
inhibition from the case was a peculiarity not present in the Abbott case, and that such inhibition
justified the assumption of jurisdiction by the DOLE Secretary.

In this petition, petitioner argues that:

I.

The Court of Appeals seriously erred in ruling that the Labor Secretary properly assumed jurisdiction
over Petitioners appeal of the Regional Directors Decision in the Cancellation Petition x x x.
A. Jurisdiction is conferred only by law. The Labor Secretary had no jurisdiction to review the
decision of the Regional Director in a petition for cancellation. Such jurisdiction is conferred by law to the
BLR.

B. The unilateral inhibition by the BLR Director cannot justify the Labor Secretarys exercise of
jurisdiction over the Appeal.

C. The Labor Secretarys assumption of jurisdiction over the Appeal without notice violated
Petitioners right to due process.

II.

The Court of Appeals gravely erred in affirming the dismissal of the Cancellation Petition despite the
mandatory and unequivocal provisions of the Labor Code and its Implementing Rules.[24]

The petition has no merit.

Jurisdiction to review the decision of the Regional Director lies with the BLR. This is clearly provided in
the Implementing Rules of the Labor Code and enunciated by the Court in Abbott. But as pointed out by
the CA, the present case involves a peculiar circumstance that was not present or covered by the ruling
in Abbott. In this case, the BLR Director inhibited himself from the case because he was a former counsel
of respondent. Who, then, shall resolve the case in his place?

In Abbott, the appeal from the Regional Directors decision was directly filed with the Office of the DOLE
Secretary, and we ruled that the latter has no appellate jurisdiction. In the instant case, the appeal was
filed by petitioner with the BLR, which, undisputedly, acquired jurisdiction over the case. Once
jurisdiction is acquired by the court, it remains with it until the full termination of the case.[25]

Thus, jurisdiction remained with the BLR despite the BLR Directors inhibition. When the DOLE Secretary
resolved the appeal, she merely stepped into the shoes of the BLR Director and performed a function
that the latter could not himself perform. She did so pursuant to her power of supervision and control
over the BLR.[26]

Expounding on the extent of the power of control, the Court, in Araneta, et al. v. Hon. M. Gatmaitan, et
al.,[27] pronounced that, if a certain power or authority is vested by law upon the Department Secretary,
then such power or authority may be exercised directly by the President, who exercises supervision and
control over the departments. This principle was incorporated in the Administrative Code of 1987, which
defines supervision and control as including the authority to act directly whenever a specific function is
entrusted by law or regulation to a subordinate.[28] Applying the foregoing to the present case, it is clear
that the DOLE Secretary, as the person exercising the power of supervision and control over the BLR, has
the authority to directly exercise the quasi-judicial function entrusted by law to the BLR Director.

It is true that the power of control and supervision does not give the Department Secretary unbridled
authority to take over the functions of his or her subordinate. Such authority is subject to certain
guidelines which are stated in Book IV, Chapter 8, Section 39(1)(a) of the Administrative Code of 1987.
[29] However, in the present case, the DOLE Secretarys act of taking over the function of the BLR
Director was warranted and necessitated by the latters inhibition from the case and the objective to
maintain the integrity of the decision, as well as the Bureau itself.[30]

Petitioner insists that the BLR Directors subordinates should have resolved the appeal, citing the
provision under the Administrative Code of 1987 which states, in case of the absence or disability of the
head of a bureau or office, his duties shall be performed by the assistant head.[31] The provision clearly
does not apply considering that the BLR Director was neither absent nor suffering from any disability; he
remained as head of the BLR. Thus, to dispel any suspicion of bias, the DOLE Secretary opted to resolve
the appeal herself.

Petitioner was not denied the right to due process when it was not notified in advance of the BLR
Directors inhibition and the DOLE Secretarys assumption of the case. Well-settled is the rule that the
essence of due process is simply an opportunity to be heard, or, as applied to administrative
proceedings, an opportunity to explain ones side or an opportunity to seek a reconsideration of the
action or ruling complained of.[32] Petitioner had the opportunity to question the BLR Directors
inhibition and the DOLE Secretarys taking cognizance of the case when it filed a motion for
reconsideration of the latters decision. It would be well to state that a critical component of due process
is a hearing before an impartial and disinterested tribunal, for all the elements of due process, like notice
and hearing, would be meaningless if the ultimate decision would come from a partial and biased judge.
[33] It was precisely to ensure a fair trial that moved the BLR Director to inhibit himself from the case
and the DOLE Secretary to take over his function.

Petitioner also insists that respondents registration as a legitimate labor union should be cancelled.
Petitioner posits that once it is determined that a ground enumerated in Article 239 of the Labor Code is
present, cancellation of registration should follow; it becomes the ministerial duty of the Regional
Director to cancel the registration of the labor organization, hence, the use of the word shall. Petitioner
points out that the Regional Director has admitted in its decision that respondent failed to submit the
required documents for a number of years; therefore, cancellation of its registration should have
followed as a matter of course.

We are not persuaded.

Articles 238 and 239 of the Labor Code read:

ART. 238. CANCELLATION OF REGISTRATION; APPEAL

The certificate of registration of any legitimate labor organization, whether national or local, shall be
canceled by the Bureau if it has reason to believe, after due hearing, that the said labor organization no
longer meets one or more of the requirements herein prescribed.[34]

ART. 239. GROUNDS FOR CANCELLATION OF UNION REGISTRATION.

The following shall constitute grounds for cancellation of union registration:

xxxx

(d) Failure to submit the annual financial report to the Bureau within thirty (30) days after the closing of
every fiscal year and misrepresentation, false entries or fraud in the preparation of the financial report
itself;

xxxx

(i) Failure to submit list of individual members to the Bureau once a year or whenever required by the
Bureau.[35]

These provisions give the Regional Director ample discretion in dealing with a petition for cancellation of
a unions registration, particularly, determining whether the union still meets the requirements
prescribed by law. It is sufficient to give the Regional Director license to treat the late filing of required
documents as sufficient compliance with the requirements of the law. After all, the law requires the
labor organization to submit the annual financial report and list of members in order to verify if it is still
viable and financially sustainable as an organization so as to protect the employer and employees from
fraudulent or fly-by-night unions. With the submission of the required documents by respondent, the
purpose of the law has been achieved, though belatedly.

We cannot ascribe abuse of discretion to the Regional Director and the DOLE Secretary in denying the
petition for cancellation of respondents registration. The union members and, in fact, all the employees
belonging to the appropriate bargaining unit should not be deprived of a bargaining agent, merely
because of the negligence of the union officers who were responsible for the submission of the
documents to the BLR.

Labor authorities should, indeed, act with circumspection in treating petitions for cancellation of union
registration, lest they be accused of interfering with union activities. In resolving the petition,
consideration must be taken of the fundamental rights guaranteed by Article XIII, Section 3 of the
Constitution, i.e., the rights of all workers to self-organization, collective bargaining and negotiations, and
peaceful concerted activities. Labor authorities should bear in mind that registration confers upon a
union the status of legitimacy and the concomitant right and privileges granted by law to a legitimate
labor organization, particularly the right to participate in or ask for certification election in a bargaining
unit.[36] Thus, the cancellation of a certificate of registration is the equivalent of snuffing out the life of a
labor organization. For without such registration, it loses - as a rule - its rights under the Labor Code.[37]

It is worth mentioning that the Labor Codes provisions on cancellation of union registration and on
reportorial requirements have been recently amended by Republic Act (R.A.) No. 9481, An Act
Strengthening the Workers Constitutional Right to Self-Organization, Amending for the Purpose
Presidential Decree No. 442, As Amended, Otherwise Known as the Labor Code of the Philippines, which
lapsed into law on May 25, 2007 and became effective on June 14, 2007. The amendment sought to
strengthen the workers right to self-organization and enhance the Philippines compliance with its
international obligations as embodied in the International Labour Organization (ILO) Convention No. 87,
[38] pertaining to the non-dissolution of workers organizations by administrative authority.[39] Thus,
R.A. No. 9481 amended Article 239 to read:

ART. 239. Grounds for Cancellation of Union Registration.The following may constitute grounds for
cancellation of union registration:

(a) Misrepresentation, false statement or fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto, the minutes of ratification, and the list of members
who took part in the ratification;
(b) Misrepresentation, false statements or fraud in connection with the election of officers, minutes of
the election of officers, and the list of voters;

(c) Voluntary dissolution by the members.

R.A. No. 9481 also inserted in the Labor Code Article 242-A, which provides:

ART. 242-A. Reportorial Requirements.The following are documents required to be submitted to the
Bureau by the legitimate labor organization concerned:

(a) Its constitution and by-laws, or amendments thereto, the minutes of ratification, and the list of
members who took part in the ratification of the constitution and by-laws within thirty (30) days from
adoption or ratification of the constitution and by-laws or amendments thereto;

(b) Its list of officers, minutes of the election of officers, and list of voters within thirty (30) days from
election;

(c) Its annual financial report within thirty (30) days after the close of every fiscal year; and

(d) Its list of members at least once a year or whenever required by the Bureau.

Failure to comply with the above requirements shall not be a ground for cancellation of union
registration but shall subject the erring officers or members to suspension, expulsion from membership,
or any appropriate penalty.

ILO Convention No. 87, which we have ratified in 1953, provides that workers and employers
organizations shall not be liable to be dissolved or suspended by administrative authority. The ILO has
expressed the opinion that the cancellation of union registration by the registrar of labor unions, which
in our case is the BLR, is tantamount to dissolution of the organization by administrative authority when
such measure would give rise to the loss of legal personality of the union or loss of advantages necessary
for it to carry out its activities, which is true in our jurisdiction. Although the ILO has allowed such
measure to be taken, provided that judicial safeguards are in place, i.e., the right to appeal to a judicial
body, it has nonetheless reminded its members that dissolution of a union, and cancellation of
registration for that matter, involve serious consequences for occupational representation. It has,
therefore, deemed it preferable if such actions were to be taken only as a last resort and after exhausting
other possibilities with less serious effects on the organization.[40]

The aforesaid amendments and the ILOs opinion on this matter serve to fortify our ruling in this case. We
therefore quote with approval the DOLE Secretarys rationale for denying the petition, thus:

It is undisputed that appellee failed to submit its annual financial reports and list of individual members
in accordance with Article 239 of the Labor Code. However, the existence of this ground should not
necessarily lead to the cancellation of union registration. Article 239 recognizes the regulatory authority
of the State to exact compliance with reporting requirements. Yet there is more at stake in this case than
merely monitoring union activities and requiring periodic documentation thereof.

The more substantive considerations involve the constitutionally guaranteed freedom of association and
right of workers to self-organization. Also involved is the public policy to promote free trade unionism
and collective bargaining as instruments of industrial peace and democracy. An overly stringent
interpretation of the statute governing cancellation of union registration without regard to surrounding
circumstances cannot be allowed. Otherwise, it would lead to an unconstitutional application of the
statute and emasculation of public policy objectives. Worse, it can render nugatory the protection to
labor and social justice clauses that pervades the Constitution and the Labor Code.

Moreover, submission of the required documents is the duty of the officers of the union. It would be
unreasonable for this Office to order the cancellation of the union and penalize the entire union
membership on the basis of the negligence of its officers. In National Union of Bank Employees vs.
Minister of Labor, L-53406, 14 December 1981, 110 SCRA 296, the Supreme Court ruled:

As aptly ruled by respondent Bureau of Labor Relations Director Noriel: The rights of workers to self-
organization finds general and specific constitutional guarantees. x x x Such constitutional guarantees
should not be lightly taken much less nullified. A healthy respect for the freedom of association demands
that acts imputable to officers or members be not easily visited with capital punishments against the
association itself.
At any rate, we note that on 19 May 2000, appellee had submitted its financial statement for the years
1996-1999. With this submission, appellee has substantially complied with its duty to submit its financial
report for the said period. To rule differently would be to preclude the union, after having failed to meet
its periodic obligations promptly, from taking appropriate measures to correct its omissions. For the
record, we do not view with favor appellees late submission. Punctuality on the part of the union and its
officers could have prevented this petition.[41]

WHEREFORE, premises considered, the Court of Appeals Decision dated May 30, 2005 and Resolution
dated June 4, 2007 are AFFIRMED.

THIRD DIVISION

MARIWASA SIAM CERAMICS, INC.,

Petitioner,

- versus -

THE SECRETARY OF THE DEPARTMENT OF LABOR AND EMPLOYMENT, CHIEF OF THE BUREAU OF LABOR
RELATIONS, DEPARTMENT OF LABOR AND EMPLOYMENT, REGIONAL DIRECTOR OF DOLE REGIONAL
OFFICE NUMBER IV-A &

SAMAHAN NG MGA MANGGAGAWA SA MARIWASA SIAM CERAMICS, INC. (SMMSC-INDEPENDENT),

Respondents.

G.R. No. 183317

Present:

CORONA, J.,

Chairperson,

VELASCO, JR.,

NACHURA,

PERALTA, and

DEL CASTILLO,* JJ.

Promulgated:

December 21, 2009

x------------------------------------------------------------------------------------x

DECISION
NACHURA, J.:

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, seeking to annul the
Decision[2] dated December 20, 2007 and the Resolution[3] dated June 6, 2008 of the Court of Appeals
in CA-G.R. SP No. 98332.

The antecedent facts are as follows

On May 4, 2005, respondent Samahan Ng Mga Manggagawa Sa Mariwasa Siam Ceramics, Inc. (SMMSC-
Independent) was issued a Certificate of Registration[4] as a legitimate labor organization by the
Department of Labor and Employment (DOLE), Region IV-A.

On June 14, 2005, petitioner Mariwasa Siam Ceramics, Inc. filed a Petition for Cancellation of Union
Registration against respondent, claiming that the latter violated Article 234[5] of the Labor Code for not
complying with the 20% requirement, and that it committed massive fraud and misrepresentation in
violation of Article 239[6] of the same code. The case was docketed as Case No. RO400-0506-AU-004.

On August 26, 2005, the Regional Director of DOLE IV-A issued an Order granting the petition, revoking
the registration of respondent, and delisting it from the roster of active labor unions.

Aggrieved, respondent appealed to the Bureau of Labor Relations (BLR).

In a Decision[7] dated June 14, 2006, the BLR granted respondents appeal and disposed as follows

WHEREFORE, premises considered, the appeal by Samahan ng Manggagawa sa Mariwasa Siam Ceramics,
Inc. (SMMSC-Independent) is hereby GRANTED, and the Decision dated 26 August 2005 by DOLE-Region-
IV-A Director Maximo B. Lim is hereby REVERSED and SET ASIDE. Samahan ng Manggagawa sa Mariwasa
Siam Ceramics, Inc. (SMMSC-Independent), under Registration Certificate No. RO400-200505-UR-002,
remains in the roster of legitimate labor organizations.
SO DECIDED.[8]

Petitioner filed a Motion for Reconsideration but the BLR denied it in a Resolution[9] dated February 2,
2007.

Petitioner sought recourse with the Court of Appeals (CA) through a Petition for Certiorari; but the CA
denied the petition for lack of merit.

Petitioners motion for reconsideration of the CA Decision was likewise denied, hence, this petition based
on the following grounds

Review of the Factual Findings of the Bureau of Labor Relations, adopted and confirmed by the
Honorable Court of Appeals is warranted[;]

The Honorable Court of Appeals seriously erred in ruling that the affidavits of recantation cannot be
given credence[;]

The Honorable Court of Appeals seriously erred in ruling that private respondent union complied with
the 20% membership requirement[; and]

The Honorable Court of Appeals seriously erred when it ruled that private respondent union did not
commit misrepresentation, fraud or false statement.[10]

The petition should be denied.

The petitioner insists that respondent failed to comply with the 20% union membership requirement for
its registration as a legitimate labor organization because of the disaffiliation from the total number of
union members of 102 employees who executed affidavits recanting their union membership.

It is, thus, imperative that we peruse the affidavits appearing to have been executed by these affiants.

The affidavits uniformly state

Ako, _____________, Pilipino, may sapat na gulang, regular na empleyado bilang Rank & File sa
Mariwasa Siam Ceramics, Inc., Bo. San Antonio, Sto. Tomas, Batangas, matapos na makapanumpa ng
naaayon sa batas ay malaya at kusang loob na nagsasaad ng mga sumusunod:

1. Ako ay napilitan at nilinlang sa pagsapi sa Samahan ng mga Manggagawa sa Mariwasa Siam Ceramics,
Inc. o SMMSC-Independent sa kabila ng aking pag-aalinlangan[;]

2. Aking lubos na pinagsisihan ang aking pagpirma sa sipi ng samahan, at handa ako[ng] tumalikod sa
anumang kasulatan na aking nalagdaan sa kadahilanan na hindi angkop sa aking pananaw ang mga
mungkahi o adhikain ng samahan.

SA KATUNAYAN NANG LAHAT, ako ay lumagda ng aking pangalan ngayong ika-____ ng ______, 2005 dito
sa Lalawigan ng Batangas, Bayan ng Sto. Tomas.

____________________

Nagsasalaysay

Evidently, these affidavits were written and prepared in advance, and the pro forma affidavits were ready
to be filled out with the employees names and signatures.
The first common allegation in the affidavits is a declaration that, in spite of his hesitation, the affiant
was forced and deceived into joining the respondent union. It is worthy to note, however, that the
affidavit does not mention the identity of the people who allegedly forced and deceived the affiant into
joining the union, much less the circumstances that constituted such force and deceit. Indeed, not only
was this allegation couched in very general terms and sweeping in nature, but more importantly, it was
not supported by any evidence whatsoever.

The second allegation ostensibly bares the affiants regret for joining respondent union and expresses the
desire to abandon or renege from whatever agreement he may have signed regarding his membership
with respondent.

Simply put, through these affidavits, it is made to appear that the affiants recanted their support of
respondents application for registration.

In appreciating affidavits of recantation such as these, our ruling in La Suerte Cigar and Cigarette Factory
v. Director of the Bureau of Labor Relations[11] is enlightening, viz.

On the second issuewhether or not the withdrawal of 31 union members from NATU affected the
petition for certification election insofar as the 30% requirement is concerned, We reserve the Order of
the respondent Director of the Bureau of Labor Relations, it appearing undisputably that the 31 union
members had withdrawn their support to the petition before the filing of said petition. It would be
otherwise if the withdrawal was made after the filing of the petition for it would then be presumed that
the withdrawal was not free and voluntary. The presumption would arise that the withdrawal was
procured through duress, coercion or for valuable consideration. In other words, the distinction must be
that withdrawals made before the filing of the petition are presumed voluntary unless there is
convincing proof to the contrary, whereas withdrawals made after the filing of the petition are deemed
involuntary.

The reason for such distinction is that if the withdrawal or retraction is made before the filing of the
petition, the names of employees supporting the petition are supposed to be held secret to the opposite
party. Logically, any such withdrawal or retraction shows voluntariness in the absence of proof to the
contrary. Moreover, it becomes apparent that such employees had not given consent to the filing of the
petition, hence the subscription requirement has not been met.
When the withdrawal or retraction is made after the petition is filed, the employees who are supporting
the petition become known to the opposite party since their names are attached to the petition at the
time of filing. Therefore, it would not be unexpected that the opposite party would use foul means for
the subject employees to withdraw their support.[12]

In the instant case, the affidavits of recantation were executed after the identities of the union members
became public, i.e., after the union filed a petition for certification election on May 23, 2005, since the
names of the members were attached to the petition. The purported withdrawal of support for the
registration of the union was made after the documents were submitted to the DOLE, Region IV-A. The
logical conclusion, therefore, following jurisprudence, is that the employees were not totally free from
the employers pressure, and so the voluntariness of the employees execution of the affidavits becomes
suspect.

It is likewise notable that the first batch of 25 pro forma affidavits shows that the affidavits were
executed by the individual affiants on different dates from May 26, 2005 until June 3, 2005, but they
were all sworn before a notary public on June 8, 2005.

There was also a second set of standardized affidavits executed on different dates from May 26, 2005
until July 6, 2005. While these 77 affidavits were notarized on different dates, 56 of these were notarized
on June 8, 2005, the very same date when the first set of 25 was notarized.

Considering that the first set of 25 affidavits was submitted to the DOLE on June 14, 2005, it is surprising
why petitioner was able to submit the second set of affidavits only on July 12, 2005.

Accordingly, we cannot give full credence to these affidavits, which were executed under suspicious
circumstances, and which contain allegations unsupported by evidence. At best, these affidavits are self-
serving. They possess no probative value.

A retraction does not necessarily negate an earlier declaration. For this reason, retractions are looked
upon with disfavor and do not automatically exclude the original statement or declaration based solely
on the recantation. It is imperative that a determination be first made as to which between the original
and the new statements should be given weight or accorded belief, applying the general rules on
evidence. In this case, inasmuch as they remain bare allegations, the purported recantations should not
be upheld.[13]
Nevertheless, even assuming the veracity of the affidavits of recantation, the legitimacy of respondent as
a labor organization must be affirmed. While it is true that the withdrawal of support may be considered
as a resignation from the union, the fact remains that at the time of the unions application for
registration, the affiants were members of respondent and they comprised more than the required 20%
membership for purposes of registration as a labor union. Article 234 of the Labor Code merely requires
a 20% minimum membership during the application for union registration. It does not mandate that a
union must maintain the 20% minimum membership requirement all throughout its existence.[14]

Respondent asserts that it had a total of 173 union members at the time it applied for registration. Two
names were repeated in respondents list and had to be deducted, but the total would still be 171 union
members. Further, out of the four names alleged to be no longer connected with petitioner, only two
names should be deleted from the list since Diana Motilla and T.W. Amutan resigned from petitioner only
on May 10, 2005 and May 17, 2005, respectively, or after respondents registration had already been
granted. Thus, the total union membership at the time of registration was 169. Since the total number of
rank-and-file employees at that time was 528, 169 employees would be equivalent to 32% of the total
rank-and-file workers complement, still very much above the minimum required by law.

For the purpose of de-certifying a union such as respondent, it must be shown that there was
misrepresentation, false statement or fraud in connection with the adoption or ratification of the
constitution and by-laws or amendments thereto; the minutes of ratification; or, in connection with the
election of officers, the minutes of the election of officers, the list of voters, or failure to submit these
documents together with the list of the newly elected-appointed officers and their postal addresses to
the BLR.[15]

The bare fact that two signatures appeared twice on the list of those who participated in the
organizational meeting would not, to our mind, provide a valid reason to cancel respondents certificate
of registration. The cancellation of a unions registration doubtless has an impairing dimension on the
right of labor to self-organization. For fraud and misrepresentation to be grounds for cancellation of
union registration under the Labor Code, the nature of the fraud and misrepresentation must be grave
and compelling enough to vitiate the consent of a majority of union members.

In this case, we agree with the BLR and the CA that respondent could not have possibly committed
misrepresentation, fraud, or false statements. The alleged failure of respondent to indicate with
mathematical precision the total number of employees in the bargaining unit is of no moment, especially
as it was able to comply with the 20% minimum membership requirement. Even if the total number of
rank-and-file employees of petitioner is 528, while respondent declared that it should only be 455, it still
cannot be denied that the latter would have more than complied with the registration requirement.

WHEREFORE, the petition is DENIED. The assailed December 20, 2007 Decision and the June 6, 2008
Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

Manila

SECOND DIVISION

G.R. No. 78755 July 19, 1989

GOLDEN FARMS, INC., petitioner,

vs.

THE HONORABLE DIRECTOR PURA FERRER-CALLEJA, BUREAU OF LABOR RELATIONS and NATIONAL
FEDERATION OF LABOR, respondents.

J. V. Yap Law Office for petitioner.

Beethoven L. Orcullo for private respondent.

PARAS, J.:
Petitioner Golden Farms, Inc., seeks a reversal of the resolution of public respondent Department of
Labor and Employment Director Pura Ferrer-Calleja in BLR Case No. A-2-56-87 which affirmed on appeal
the decision of Labor Arbiter Conrado O. Macasa, Sr., in NLRC Case No. R-418-ROXI-MED-UR-8886,
issuing a directive as follows:

In view of the foregoing, the herein petition for certification election filed by the National Federation of
Labor (NFL) is hereby DISMISSED; whereas, its resultant and relevant consequence of its recognized
representation of the entire rank-and-file employees of the bargaining unit should be given life and
meaning, as it is hereby directed, and Employer Golden Farms, Incorporated likewise enjoined to
negotiate for a supplementary collective bargaining agreement, or for the inclusion of the herein
monthly paid rank-and- file employees at Luna, Kapalong, Davao del Norte, and Lanang, Davao City in the
still existing negotiated contract, whichever the parties may consider just and appropriate under the
circumstances.

SO ORDERED. (p. 29, Rollo)

The case originated as a Petition for Direct Certification Election or Recognition filed by herein private
respondent in behalf of certain office employees and foremen before Regional Office No. XI, Davao City
of the Ministry of Labor and Employment. Petitioner herein opposed said petition on the ground among
others that a perusal of the names allegedly supporting the said petition showed that said persons by
the nature of their jobs are performing managerial functions and/or occupying confidential positions
such that they cannot validly constitute a separate or distinct group from the existing collective
bargaining unit also represented by private respondent.

Petitioner is a corporation engaged in the production of bananas for export. Private respondent Union
represents the employees/workers of petitioner corporation, who were the same signatories to an
earlier Petition for Certification Election filed in 1984 before the Ministry of Labor known as ROXI Case
No. UR-70-84, which was dismissed by a Resolution issued by Med-Arbiter Conchita Martinez when it
was established that a collective bargaining unit (NFL) between the Corporation and the rank-and-file
employees was and is in existence at the time of the filing of the said petition for certification election
until the present filing. However, in the order of dismissal, it was stated:

After taking into consideration the functions exercised by the foremen as contained in their joint
affidavits (Annexes "A-1", "A-2" & "A-3", Petitioner's Position Paper) apparently, they fall within the
classification of rank-and-file employees. For, as consistently ruled in a long line of decisions, mere
supervisory designations in the position titles, do not make the holders of such positions any less rank
and filers, without the convincing proof that such supervisory designations are coupled with actual
performance of managerial functions. In the cases at bar, what was submitted by the respondent
companies are only lists of employees holding the positions of foremen and confidential positions and as
such are not covered by the bargaining unit. Such piece of evidence alone does not constitute convincing
proof for us to adapt respondents' stance (Annexes "A", "B", "C", & "D"). Comment on Petition). (p. 13,
Rollo)

Having had no opportunity to contest the abovementioned statement in the order of dismissal,
petitioner herein as private respondent therein, filed a "Manifestation" stating among others:

2. That since the petitions were dismissed the herein employees make clear for the record that said
view would run counter to the provision of the pertinent Collective Bargaining Agreement whereby the
foremen were already acknowledged and agreed upon to be managerial employees and accordingly
excluded from the coverage of the said CBA;

3. That with respect to those employees holding confidential positions, it is a basic principle that
they cannot be included in any bargaining unit, the fact being that having access to confidential
informations, said employees may be the source of undue advantage. Said employees may act as spies
for either parties to collective bargaining agreement. This is especially true in this case where the
petitioning union is already the bargaining agent of the rank-and-file employees in the establishment. To
allow confidential employees to join existing bargaining unit will defeat the very purpose for which an
employee holding confidential position was in the first place excluded. (p. 68, Rollo)

Private respondent herein as petitioner therein appealed the order of dismissal which was accordingly
opposed (Annex "L" p. 69, Rollo) by Golden Farms, Inc., reiterating the grounds and arguments set forth
in its Manifestation filed earlier. The appeal was dismissed and subsequently the National Federation of
Labor Union refiled the Petition for Certification in NLRC Case No. R-418- ROX-MED-UR-88-86 which was
also dismissed. Said order of dismissal is now the subject of this review for containing directives not
within the power of a Med-Arbiter to issue. Petitioner Golden Farms, Inc., now poses the following
questions:

I HAS A MED-ARBITER THE POWER OR AUTHORITY TO DIRECT MANAGEMENT TO ENTER INTO A

SUPPLEMENTAL COLLECTIVE BARGAINING AGREEMENT WITH A CONTRACTING UNION.
II MAY SUPERVISORS, CASHIERS, FOREMEN, AND EMPLOYEES HOLDING CONFIDENTIAL/MANAGERIAL
FUNCTION COMPEL MANAGEMENT TO ENTER INTO A COLLECTIVE BARGAINING AGREEMENT WITH
THEM. (p. 14, Rollo)

The petition merits Our consideration.

Respondents relied heavily on the alleged finding of Med-Arbiter Martinez that the employees who were
signatories to the petition for certification election and represented by respondent Union are actually
rank-and-file workers not disqualified from entering into a collective bargaining agreement with
management. In said findings of fact, Med-Arbiter Martinez singled out in her classification as rank-and-
file employees the foremen of Petitioner Corporation considered from their joint affidavits and for lack
of convincing proof that their supervisory designations are coupled with the actual performance of
managerial functions.

Whether or not such finding is supported by the evidence is beside the point. Respondents herein do not
dispute that the signatories (listed in Annex "A", page 30, Rollo) to the Petition for certification election
subject of this case, were holding the positions of cashier, purchasers, personnel officers, foremen and
employees having access to confidential information such as accounting personnel, radio and telegraph
operators and head of various sections. It is also a fact that respondent Union is the exclusive bargaining
Unit of the rank-and-file employees of petitioner corporation and that an existing CBA between
petitioner corporation and the Union representing these rank-and-file employees was still enforced at
the time the Union filed a petition for certification election in behalf of the aforementioned signatories.
Under the terms of said CBA (Annex "E", p. 40, Rollo) it is expressly provided that:

Section 1. The COMPANY and the UNION hereby agree that the recognized bargaining unit for purposes
of this agreement shall consist of regular rank-and-file workers employed by the COMPANY at the
plantation presently situated at Alejal, Carmen, Davao. Consequently, all managerial personnel like,
superintendents, supervisor, foremen, administrative, professional and confidential employees, and
those temporary, casual, contractual, and seasonal workers are excluded from the bargaining unit and
therefore, not covered by this agreement.

(p. 41, Rollo)

Respondents do not dispute the existence of said collective bargaining agreement. We must therefore
respect this CBA which was freely and voluntarily entered into as the law between the parties for the
duration of the period agreed upon. Until then no one can be compelled to accept changes in the terms
of the collective bargaining agreement.

Furthermore, the signatories to the petition for certification election are the very type of employees by
the nature of their positions and functions which We have decreed as disqualified from bargaining with
management in case of Bulletin Publishing Co. Inc. vs. Hon. Augusto Sanchez, etc. (144 SCRA 628)
reiterating herein the rationale for such ruling as follows: if these managerial employees would belong to
or be affiliated with a Union, the latter might not be assured of their loyalty to the Union in view of
evident conflict of interests or that the Union can be company- dominated with the presence of
managerial employees in Union membership. A managerial employee is defined under Art. 212 (k) of the
new Labor Code as "one who is vested with powers or prerogatives to lay down and execute
management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline
employees, or to effectively recommend such managerial actions. All employees not falling within this
definitions are considered rank-and-file employees for purposes of this Book."

This rationale holds true also for confidential employees such as accounting personnel, radio and
telegraph operators, who having access to confidential information, may become the source of undue
advantage. Said employee(s) may act as a spy or spies of either party to a collective bargaining
agreement. This is specially true in the present case where the petitioning Union is already the
bargaining agent of the rank-and-file employees in the establishment. To allow the confidential
employees to join the existing Union of the rank-and-file would be in violation of the terms of the
Collective Bargaining Agreement wherein this kind of employees by the nature of their
functions/positions are expressly excluded.

As to the company foremen, while in the performance of supervisory functions, they may be the
extension or alter ego of the management. Adversely, the foremen, by their actuation, may influence the
workers under their supervision to engage in slow down commercial activities or similar activities
detrimental to the policy, interest or business objectives of the company or corporation, hence they also
cannot join.

WHEREFORE, finding the assailed directive of Med-Arbiter Conrado O. Macasa, Sr. which was affirmed by
Director Pura Ferrer-Calleja reiterating the directive of Med- Arbiter Conchita Martinez "to negotiate for
a supplementary collective bargaining agreement, or for the inclusion of the herein monthly paid rank-
and- file employees" to be erroneous as it is in complete disregard of the terms of the collective
bargaining agreement, the same is hereby DECLARED to be without force and effect.

SO ORDERED.

THIRD DIVISION

UNITED AIRLINES, INC.,

Petitioner,

- versus -

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

G.R. No. 178788

Present:
CARPIO MORALES, J.,

Chairperson,

BRION,

BERSAMIN,

VILLARAMA, JR., and

SERENO, JJ.

Promulgated:

September 29, 2010

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, of the Decision[1] dated July 5, 2007 of the Court of Tax Appeals En Banc (CTA En Banc) in
C.T.A. EB No. 227 denying petitioners claim for tax refund of P5.03 million.

The undisputed facts are as follows:

Petitioner United Airlines, Inc. is a foreign corporation organized and existing under the laws of the State
of Delaware, U.S.A., engaged in the international airline business.

Petitioner used to be an online international carrier of passenger and cargo, i.e., it used to operate
passenger and cargo flights originating in the Philippines. Upon cessation of its passenger flights in and
out of the Philippines beginning February 21, 1998, petitioner appointed a sales agent in the Philippines
-- Aerotel Ltd. Corp., an independent general sales agent acting as such for several international airline
companies.[2] Petitioner continued operating cargo flights from the Philippines until January 31, 2001.[3]
On April 12, 2002, petitioner filed with respondent Commissioner a claim for income tax refund,
pursuant to Section 28(A)(3)(a)[4] of the National Internal Revenue Code of 1997 (NIRC) in relation to
Article 4(7)[5] of the Convention between the Government of the Republic of the Philippines and the
Government of the United States of America with respect to Income Taxes (RP-US Tax Treaty). Petitioner
sought to refund the total amount of P15,916,680.69 pertaining to income taxes paid on gross passenger
and cargo revenues for the taxable years 1999 to 2001, which included the amount of P5,028,813.23
allegedly representing income taxes paid in 1999 on passenger revenue from tickets sold in the
Philippines, the uplifts of which did not originate in the Philippines. Citing the change in definition of
Gross Philippine Billings (GPB) in the NIRC, petitioner argued that since it no longer operated passenger
flights originating from the Philippines beginning February 21, 1998, its passenger revenue for 1999,
2000 and 2001 cannot be considered as income from sources within the Philippines, and hence should
not be subject to Philippine income tax under Article 9[6] of the RP-US Tax Treaty.[7]

As no resolution on its claim for refund had yet been made by the respondent and in view of the two (2)-
year prescriptive period (from the time of filing the Final Adjustment Return for the taxable year 1999)
which was about to expire on April 15, 2002, petitioner filed on said date a petition for review with the
Court of Tax Appeals (CTA).[8]

Petitioner asserted that under the new definition of GPB under the 1997 NIRC and Article 4(7) of the RP-
US Tax Treaty, Philippine tax authorities have jurisdiction to tax only the gross revenue derived by US air
and shipping carriers from outgoing traffic in the Philippines. Since the Bureau of Internal Revenue (BIR)
erroneously imposed and collected income tax in 1999 based on petitioners gross passenger revenue, as
beginning 1998 petitioner no longer flew passenger flights to and from the Philippines, petitioner is
entitled to a refund of such erroneously collected income tax in the amount of P5,028,813.23.[9]

In its Decision[10] dated May 18, 2006, the CTAs First Division[11] ruled that no excess or erroneously
paid tax may be refunded to petitioner because the income tax on GPB under Section 28(A)(3)(a) of the
NIRC applies as well to gross revenue from carriage of cargoes originating from the Philippines. It agreed
that petitioner cannot be taxed on its 1999 passenger revenue from flights originating outside the
Philippines. However, in reporting a cargo revenue of P740.33 million in 1999, it was found that
petitioner deducted two (2) items from its gross cargo revenue of P2.84 billion: P141.79 million as
commission and P1.98 billion as other incentives of its agent. These deductions were erroneous because
the gross revenue referred to in Section 28(A)(3)(a) of the NIRC was total revenue before any deduction
of commission and incentives. Petitioners gross cargo revenue in 1999, being P2.84 billion, the GPB tax
thereon was P42.54 million and not P11.1 million, the amount petitioner paid for the reported net cargo
revenue of P740.33 million. The CTA First Division further noted that petitioner even underpaid its taxes
on cargo revenue by P31.43 million, which amount was much higher than the P5.03 million it asked to be
refunded.

A motion for reconsideration was filed by petitioner but the First Division denied the same. It held that
petitioners claim for tax refund was not offset with its tax liability; that petitioners tax deficiency was due
to erroneous deductions from its gross cargo revenue; that it did not make an assessment against
petitioner; and that it merely determined if petitioner was entitled to a refund based on the undisputed
facts and whether petitioner had paid the correct amount of tax.[12]

Petitioner elevated the case to the CTA En Banc which affirmed the decision of the First Division.

Hence, this petition anchored on the following grounds:

I. THE CTA EN BANC GROSSLY ERRED IN DENYING THE PETITIONERS CLAIM FOR REFUND OF
ERRONEOUSLY PAID INCOME TAX ON GROSS PHILIPPINE BILLINGS [GPB] BASED ON ITS FINDING THAT
PETITIONERS UNDERPAYMENT OF [P31.43 MILLION] GPB TAX ON CARGO REVENUES IS A LOT HIGHER
THAN THE GPB TAX OF [P5.03 MILLION] ON PASSENGER REVENUES, WHICH IS THE SUBJECT OF THE
INSTANT CLAIM FOR REFUND. THE DENIAL OF PETITIONERS CLAIM ON SUCH GROUND CLEARLY
AMOUNTS TO AN OFF-SETTING OF TAX LIABILITIES, CONTRARY TO WELL-SETTLED JURISPRUDENCE.

II. THE DECISION OF THE CTA EN BANC VIOLATED PETITIONERS RIGHT TO DUE PROCESS.

III. THE CTA EN BANC ACTED IN EXCESS OF ITS JURISDICTION BY DENYING PETITIONERS CLAIM FOR
REFUND OF ERRONEOUSLY PAID INCOME TAX ON GROSS PHILIPPINE BILLINGS BASED ON ITS FINDING
THAT PETITIONER UNDERPAID GPB TAX ON CARGO REVENUES IN THE AMOUNT OF [P31.43 MILLION]
FOR THE TAXABLE YEAR 1999.

IV. THE CTA EN BANC HAS NO AUTHORITY UNDER THE LAW TO MAKE ANY ASSESSMENTS FOR
DEFICIENCY TAXES. THE AUTHORITY TO MAKE ASSESSMENTS FOR DEFICIENCY NATIONAL INTERNAL
REVENUE TAXES IS VESTED BY THE 1997 NIRC UPON RESPONDENT.

V. ANY ASSESSMENT AGAINST PETITIONER FOR DEFICIENCY INCOME TAX FOR THE TAXABLE YEAR 1999
IS ALREADY BARRED BY PRESCRIPTION.[13]

The main issue to be resolved is whether the petitioner is entitled to a refund of the amount of
P5,028,813.23 it paid as income tax on its passenger revenues in 1999.

Petitioner argues that its claim for refund of erroneously paid GPB tax on off-line passenger revenues
cannot be denied based on the finding of the CTA that petitioner allegedly underpaid the GPB tax on
cargo revenues by P31,431,171.09, which underpayment is allegedly higher than the GPB tax of
P5,028,813.23 on passenger revenues, the amount of the instant claim. The denial of petitioners claim
for refund on such ground is tantamount to an offsetting of petitioners claim for refund of erroneously
paid GPB against its alleged tax liability. Petitioner thus cites the well-entrenched rule in taxation cases
that internal revenue taxes cannot be the subject of set-off or compensation.[14]

According to petitioner, the offsetting of the liabilities is very clear in the instant case because the
amount of petitioners claim for refund of erroneously paid GPB tax of P5,028,813.23 for the taxable year
1999 is being offset against petitioners alleged deficiency GPB tax liability on cargo revenues for the
same year, which was not even the subject of an investigation nor any valid assessment issued by
respondent against the petitioner. Under Section 228[15] of the NIRC, the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be
void. This administrative process of issuing an assessment is part of procedural due process enshrined in
the 1987 Constitution. Records do not show that petitioner has been assessed by the BIR for any
deficiency GBP tax for 1999, nor was there any finding or investigation being conducted by respondent of
any liability of petitioner for GPB tax for the said taxable period. Clearly, petitioners right to due process
was violated.[16]

Petitioner further argues that the CTA acted in excess of its jurisdiction because the exclusive appellate
jurisdiction of the CTA covers only decisions or inactions of the respondent in cases involving disputed
assessments. The CTA has effectively assessed petitioner with a P31.43 million tax deficiency when it
concluded that petitioner underpaid its GPB tax on cargo revenue. Since respondent did not issue an
assessment for any deficiency tax, the alleged deficiency tax on its cargo revenue in 1999 cannot be
considered a disputed assessment that may be passed upon by the CTA. Petitioner stresses that the
authority to issue an assessment for deficiency internal revenue taxes is vested by law on respondent,
not with the CTA.[17]

Lastly, petitioner argues that any assessment against it for deficiency income tax for taxable year 1999 is
barred by prescription. Petitioner claims that the prescriptive period within which an assessment for
deficiency income tax may be made has prescribed on April 17, 2003, three (3) years after it filed its 1999
tax return.[18]

Respondent Commissioner maintains that the CTA acted within its jurisdiction in denying petitioners
claim for tax refund. It points out that the objective of the CTAs determination of whether petitioner
correctly paid its GPB tax for the taxable year 1999 was to ascertain the latters entitlement to the
claimed refund and not for the purpose of imposing any deficiency tax. Hence, petitioners arguments
regarding the propriety of the CTAs determination of its deficiency tax on its GPB for gross cargo
revenues for 1999 are clearly misplaced.[19]

The petition has no merit.

As correctly pointed out by petitioner, inasmuch as it ceased operating passenger flights to or from the
Philippines in 1998, it is not taxable under Section 28(A)(3)(a) of the NIRC for gross passenger revenues.
This much was also found by the CTA. In South African Airways v. Commissioner of Internal Revenue,[20]
we ruled that the correct interpretation of the said provisions is that, if an international air carrier
maintains flights to and from the Philippines, it shall be taxed at the rate of 2% of its GPB, while
international air carriers that do not have flights to and from the Philippines but nonetheless earn
income from other activities in the country will be taxed at the rate of 32% of such income.

Here, the subject of claim for tax refund is the tax paid on passenger revenue for taxable year 1999 at
the time when petitioner was still operating cargo flights originating from the Philippines although it had
ceased passenger flight operations. The CTA found that petitioner had underpaid its GPB tax for 1999
because petitioner had made deductions from its gross cargo revenues in the income tax return it filed
for the taxable year 1999, the amount of underpayment even greater than the refund sought for
erroneously paid GPB tax on passenger revenues for the same taxable period. Hence, the CTA ruled
petitioner is not entitled to a tax refund.

Petitioners arguments regarding the propriety of such determination by the CTA are misplaced.

Under Section 72 of the NIRC, the CTA can make a valid finding that petitioner made erroneous
deductions on its gross cargo revenue; that because of the erroneous deductions, petitioner reported a
lower cargo revenue and paid a lower income tax thereon; and that petitioner's underpayment of the
income tax on cargo revenue is even higher than the income tax it paid on passenger revenue subject of
the claim for refund, such that the refund cannot be granted.

Section 72 of the NIRC reads:

SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns. - When an assessment is made in case
of any list, statement or return, which in the opinion of the Commissioner was false or fraudulent or
contained any understatement or undervaluation, no tax collected under such assessment shall be
recovered by any suit, unless it is proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply
to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas
wells and mines.

In the afore-cited case of South African Airways, this Court rejected similar arguments on the denial of
claim for tax refund, as follows:

Precisely, petitioner questions the offsetting of its payment of the tax under Sec. 28(A)(3)(a) with their
liability under Sec. 28(A)(1), considering that there has not yet been any assessment of their obligation
under the latter provision. Petitioner argues that such offsetting is in the nature of legal compensation,
which cannot be applied under the circumstances present in this case.

Article 1279 of the Civil Code contains the elements of legal compensation, to wit:

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
And we ruled in Philex Mining Corporation v. Commissioner of Internal Revenue, thus:

In several instances prior to the instant case, we have already made the pronouncement that taxes
cannot be subject to compensation for the simple reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are
due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign
capacity. We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, we categorically held that
taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission
on Audit, which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes
cannot be the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off.

Verily, petitioners argument is correct that the offsetting of its tax refund with its alleged tax deficiency is
unavailing under Art. 1279 of the Civil Code.

Commissioner of Internal Revenue v. Court of Tax Appeals, however, granted the offsetting of a tax
refund with a tax deficiency in this wise:

Further, it is also worth noting that the Court of Tax Appeals erred in denying petitioners supplemental
motion for reconsideration alleging bringing to said courts attention the existence of the deficiency
income and business tax assessment against Citytrust. The fact of such deficiency assessment is
intimately related to and inextricably intertwined with the right of respondent bank to claim for a tax
refund for the same year. To award such refund despite the existence of that deficiency assessment is an
absurdity and a polarity in conceptual effects. Herein private respondent cannot be entitled to refund
and at the same time be liable for a tax deficiency assessment for the same year.

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated
therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and
constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself
and without unquestionable evidence, cannot be the basis for the grant of the refund.

Section 82, Chapter IX of the National Internal Revenue Code of 1977, which was the applicable law
when the claim of Citytrust was filed, provides that (w)hen an assessment is made in case of any list,
statement, or return, which in the opinion of the Commissioner of Internal Revenue was false or
fraudulent or contained any understatement or undervaluation, no tax collected under such assessment
shall be recovered by any suits unless it is proved that the said list, statement, or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this provision shall not apply
to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas
wells and mines.

Moreover, to grant the refund without determination of the proper assessment and the tax due would
inevitably result in multiplicity of proceedings or suits. If the deficiency assessment should subsequently
be upheld, the Government will be forced to institute anew a proceeding for the recovery of erroneously
refunded taxes which recourse must be filed within the prescriptive period of ten years after discovery of
the falsity, fraud or omission in the false or fraudulent return involved. This would necessarily require
and entail additional efforts and expenses on the part of the Government, impose a burden on and a
drain of government funds, and impede or delay the collection of much-needed revenue for
governmental operations.

Thus, to avoid multiplicity of suits and unnecessary difficulties or expenses, it is both logically necessary
and legally appropriate that the issue of the deficiency tax assessment against Citytrust be resolved
jointly with its claim for tax refund, to determine once and for all in a single proceeding the true and
correct amount of tax due or refundable.

In fact, as the Court of Tax Appeals itself has heretofore conceded, it would be only just and fair that the
taxpayer and the Government alike be given equal opportunities to avail of remedies under the law to
defeat each others claim and to determine all matters of dispute between them in one single case. It is
important to note that in determining whether or not petitioner is entitled to the refund of the amount
paid, it would [be] necessary to determine how much the Government is entitled to collect as taxes. This
would necessarily include the determination of the correct liability of the taxpayer and, certainly, a
determination of this case would constitute res judicata on both parties as to all the matters subject
thereof or necessarily involved therein. (Emphasis supplied.)

Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72, Chapter XI of the 1997 NIRC. The above
pronouncements are, therefore, still applicable today.

Here, petitioners similar tax refund claim assumes that the tax return that it filed was correct. Given,
however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997
NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt.
As such, we cannot grant the prayer for a refund.[21] (Additional emphasis supplied.)

In the case at bar, the CTA explained that it merely determined whether petitioner is entitled to a refund
based on the facts. On the assumption that petitioner filed a correct return, it had the right to file a claim
for refund of GPB tax on passenger revenues it paid in 1999 when it was not operating passenger flights
to and from the Philippines. However, upon examination by the CTA, petitioners return was found
erroneous as it understated its gross cargo revenue for the same taxable year due to deductions of two
(2) items consisting of commission and other incentives of its agent. Having underpaid the GPB tax due
on its cargo revenues for 1999, petitioner is not entitled to a refund of its GPB tax on its passenger
revenue, the amount of the former being even much higher (P31.43 million) than the tax refund sought
(P5.2 million). The CTA therefore correctly denied the claim for tax refund after determining the proper
assessment and the tax due. Obviously, the matter of prescription raised by petitioner is a non-issue. The
prescriptive periods under Sections 203[22] and 222[23] of the NIRC find no application in this case.

We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and
liberally in favor of the taxing authority.[24] In any event, petitioner has not discharged its burden of
proof in establishing the factual basis for its claim for a refund and we find no reason to disturb the
ruling of the CTA. It has been a long-standing policy and practice of the Court to respect the conclusions
of quasi-judicial agencies such as the CTA, a highly specialized body specifically created for the purpose
of reviewing tax cases.[25]

WHEREFORE, we DENY the petition for lack of merit and AFFIRM the Decision dated July 5, 2007 of the
Court of Tax Appeals En Banc in C.T.A. EB No. 227.

With costs against the petitioner.

SO ORDERED.

SECOND DIVISION

[G.R. No. 114974. June 16, 2004]

STANDARD CHARTERED BANK EMPLOYEES UNION (NUBE), petitioner, vs. The Honorable MA. NIEVES R.
CONFESOR, in her capacity as SECRETARY OF LABOR AND EMPLOYMENT; and the STANDARD CHARTERED
BANK, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for certiorari under Rule 65 of the Rules of Court filed by the Standard Chartered Bank
Employees Union, seeking the nullification of the October 29, 1993 Order[1] of then Secretary of Labor
and Employment Nieves R. Confesor and her resolutions dated December 16, 1993 and February 10,
1994.

The Antecedents
Standard Chartered Bank (the Bank, for brevity) is a foreign banking corporation doing business in the
Philippines. The exclusive bargaining agent of the rank and file employees of the Bank is the Standard
Chartered Bank Employees Union (the Union, for brevity).

In August of 1990, the Bank and the Union signed a five-year collective bargaining agreement (CBA) with
a provision to renegotiate the terms thereof on the third year. Prior to the expiration of the three-year
period[2] but within the sixty-day freedom period, the Union initiated the negotiations. On February 18,
1993, the Union, through its President, Eddie L. Divinagracia, sent a letter[3] containing its proposals[4]
covering political provisions[5] and thirty-four (34) economic provisions.[6] Included therein was a list of
the names of the members of the Unions negotiating panel.[7]

In a Letter dated February 24, 1993, the Bank, through its Country Manager Peter H. Harris, took note of
the Unions proposals. The Bank attached its counter-proposal to the non-economic provisions proposed
by the Union.[8] The Bank posited that it would be in a better position to present its counter-proposals
on the economic items after the Union had presented its justifications for the economic proposals.[9]
The Bank, likewise, listed the members of its negotiating panel.[10] The parties agreed to set meetings to
settle their differences on the proposed CBA.

Before the commencement of the negotiation, the Union, through Divinagracia, suggested to the Banks
Human Resource Manager and head of the negotiating panel, Cielito Diokno, that the bank lawyers
should be excluded from the negotiating team. The Bank acceded.[11] Meanwhile, Diokno suggested to
Divinagracia that Jose P. Umali, Jr., the President of the National Union of Bank Employees (NUBE), the
federation to which the Union was affiliated, be excluded from the Unions negotiating panel.[12]
However, Umali was retained as a member thereof.

On March 12, 1993, the parties met and set the ground rules for the negotiation. Diokno suggested that
the negotiation be kept a family affair. The proposed non-economic provisions of the CBA were discussed
first.[13] Even during the final reading of the non-economic provisions on May 4, 1993, there were still
provisions on which the Union and the Bank could not agree. Temporarily, the notation DEFERRED was
placed therein. Towards the end of the meeting, the Union manifested that the same should be changed
to DEADLOCKED to indicate that such items remained unresolved. Both parties agreed to place the
notation DEFERRED/DEADLOCKED.[14]
On May 18, 1993, the negotiation for economic provisions commenced. A presentation of the basis of
the Unions economic proposals was made. The next meeting, the Bank made a similar presentation.
Towards the end of the Banks presentation, Umali requested the Bank to validate the Unions
guestimates, especially the figures for the rank and file staff.[15] In the succeeding meetings, Umali
chided the Bank for the insufficiency of its counter-proposal on the provisions on salary increase, group
hospitalization, death assistance and dental benefits. He reminded the Bank, how the Union got what it
wanted in 1987, and stated that if need be, the Union would go through the same route to get what it
wanted.[16]

Upon the Banks insistence, the parties agreed to tackle the economic package item by item. Upon the
Unions suggestion, the Bank indicated which provisions it would accept, reject, retain and agree to
discuss.[17] The Bank suggested that the Union prioritize its economic proposals, considering that many
of such economic provisions remained unresolved. The Union, however, demanded that the Bank make
a revised itemized proposal.

In the succeeding meetings, the Union made the following proposals:

Wage Increase:

1st Year Reduced from 45% to 40%

2nd Year - Retain at 20%

Total = 60%

Group Hospitalization Insurance:

Maximum disability benefit reduced from P75,000.00 to P60,000.00 per illness annually

Death Assistance:

For the employee -- Reduced from P50,000.00 to P45,000.00

For Immediate Family Member -- Reduced from P30,000.00 to P25,000.00

Dental and all others -- No change from the original demand.[18]

In the morning of the June 15, 1993 meeting, the Union suggested that if the Bank would not make the
necessary revisions on its counter-proposal, it would be best to seek a third party assistance.[19] After
the break, the Bank presented its revised counter-proposal[20] as follows:

Wage Increase : 1st Year from P1,000 to P1,050.00

2nd Year P800.00 no change

Group Hospitalization Insurance

From: P35,000.00 per illness

To : P35,000.00 per illness per year

Death Assistance For employee

From: P20,000.00

To : P25,000.00

Dental Retainer Original offer remains the same[21]

The Union, for its part, made the following counter-proposal:

Wage Increase: 1st Year - 40%

2nd Year - 19.5%

Group Hospitalization Insurance

From: P60,000.00 per year

To : P50,000.00 per year

Dental:

Temporary Filling/ P150.00

Tooth Extraction

Permanent Filling 200.00

Prophylaxis 250.00

Root Canal From P2,000 per tooth

To: 1,800.00 per tooth

Death Assistance:

For Employees: From P45,000.00 to P40,000.00

For Immediate Family Member: From P25,000.00 to P20,000.00.[22]

The Unions original proposals, aside from the above-quoted, remained the same.

Another set of counter-offer followed:

Management Union

Wage Increase

1st Year P1,050.00 40%

2nd Year - 850.00 19.0%[23]

Diokno stated that, in order for the Bank to make a better offer, the Union should clearly identify what it
wanted to be included in the total economic package. Umali replied that it was impossible to do so
because the Banks counter-proposal was unacceptable. He furthered asserted that it would have been
easier to bargain if the atmosphere was the same as before, where both panels trusted each other.
Diokno requested the Union panel to refrain from involving personalities and to instead focus on the
negotiations.[24] He suggested that in order to break the impasse, the Union should prioritize the items
it wanted to iron out. Divinagracia stated that the Bank should make the first move and make a list of
items it wanted to be included in the economic package. Except for the provisions on signing bonus and
uniforms, the Union and the Bank failed to agree on the remaining economic provisions of the CBA. The
Union declared a deadlock[25] and filed a Notice of Strike before the National Conciliation and
Mediation Board (NCMB) on June 21, 1993, docketed as NCMB-NCR-NS-06-380-93.[26]

On the other hand, the Bank filed a complaint for Unfair Labor Practice (ULP) and Damages before the
Arbitration Branch of the National Labor Relations Commission (NLRC) in Manila, docketed as NLRC Case
No. 00-06-04191-93 against the Union on June 28, 1993. The Bank alleged that the Union violated its
duty to bargain, as it did not bargain in good faith. It contended that the Union demanded sky high
economic demands, indicative of blue-sky bargaining.[27] Further, the Union violated its no strike- no
lockout clause by filing a notice of strike before the NCMB. Considering that the filing of notice of strike
was an illegal act, the Union officers should be dismissed. Finally, the Bank alleged that as a consequence
of the illegal act, the Bank suffered nominal and actual damages and was forced to litigate and hire the
services of the lawyer.[28]

On July 21, 1993, then Secretary of Labor and Employment (SOLE) Nieves R. Confesor, pursuant to Article
263(g) of the Labor Code, issued an Order assuming jurisdiction over the labor dispute at the Bank. The
complaint for ULP filed by the Bank before the NLRC was consolidated with the complaint over which the
SOLE assumed jurisdiction. After the parties submitted their respective position papers, the SOLE issued
an Order on October 29, 1993, the dispositive portion of which is herein quoted:

WHEREFORE, the Standard Chartered Bank and the Standard Chartered Bank Employees Union NUBE are
hereby ordered to execute a collective bargaining agreement incorporating the dispositions contained
herein. The CBA shall be retroactive to 01 April 1993 and shall remain effective for two years thereafter,
or until such time as a new CBA has superseded it. All provisions in the expired CBA not expressly
modified or not passed upon herein are deemed retained while all new provisions which are being
demanded by either party are deemed denied, but without prejudice to such agreements as the parties
may have arrived at in the meantime.

The Banks charge for unfair labor practice which it originally filed with the NLRC as NLRC-NCR Case No.
00-06-04191-93 but which is deemed consolidated herein, is dismissed for lack of merit. On the other
hand, the Unions charge for unfair labor practice is similarly dismissed.
Let a copy of this order be furnished the Labor Arbiter in whose sala NLRC-NCR Case No. 00-06-04191-93
is pending for his guidance and appropriate action.[29]

The SOLE gave the following economic awards:

1. Wage Increase:

a) To be incorporated to present salary rates:

Fourth year : 7% of basic monthly salary

Fifth year : 5% of basic monthly salary based on the 4th year adjusted salary

b) Additional fixed amount:

Fourth year : P600.00 per month

Fifth year : P400.00 per month

2. Group Insurance

a) Hospitalization : P45,000.00

b) Life : P130,000.00

c) Accident : P130,000.00

3. Medicine Allowance

Fourth year : P5,500.00

Fifth year : P6,000.00

4. Dental Benefits

Provision of dental retainer as proposed by the Bank, but without diminishing existing benefits
5. Optical Allowance

Fourth year: P2,000.00

Fifth year : P2,500.00

6. Death Assistance

a) Employee : P30,000.00

b) Immediate Family Member : P5,000.00

7. Emergency Leave Five (5) days for each contingency

8. Loans

a) Car Loan : P200,000.00

b) Housing Loan : It cannot be denied that the costs attendant to having ones own home have
tremendously gone up. The need, therefore, to improve on this benefit cannot be overemphasized. Thus,
the management is urged to increase the existing and allowable housing loan that the Bank extends to
its employees to an amount that will give meaning and substance to this CBA benefit.[30]

The SOLE dismissed the charges of ULP of both the Union and the Bank, explaining that both parties
failed to substantiate their claims. Citing National Labor Union v. Insular-Yebana Tobacco Corporation,
[31] the SOLE stated that ULP charges would prosper only if shown to have directly prejudiced the public
interest.

Dissatisfied, the Union filed a motion for reconsideration with clarification, while the Bank filed a motion
for reconsideration. On December 16, 1993, the SOLE issued a Resolution denying the motions. The
Union filed a second motion for reconsideration, which was, likewise, denied on February 10, 1994.

On March 22, 1994, the Bank and the Union signed the CBA.[32] Immediately thereafter, the wage
increase was effected and the signing bonuses based on the increased wage were distributed to the
employees covered by the CBA.
The Present Petition

On April 28, 1994, the Union filed this petition for certiorari under Rule 65 of the Rules of Procedure
alleging as follows:

A. RESPONDENT HONORABLE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OF JURISDICTION IN DISMISSING THE UNIONS CHARGE OF UNFAIR LABOR PRACTICE IN VIEW OF
THE CLEAR EVIDENCE OF RECORD AND ADMISSIONS PROVING THE UNFAIR LABOR PRACTICES CHARGED.
[33]

B. RESPONDENT HONORABLE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OF JURISDICTION IN FAILING TO RULE ON OTHER UNFAIR LABOR PRACTICES CHARGED.[34]

C. RESPONDENT HONORABLE SECRETARY COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OF JURISDICTION IN DISMISSING THE CHARGES OF UNFAIR LABOR PRACTICES ON THE GROUND
THAT NO PROOF OF INJURY TO THE PUBLIC INTEREST WAS PRESENTED.[35]

The Union alleges that the SOLE acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it found that the Bank did not commit unfair labor practice when it interfered with the
Unions choice of negotiator. It argued that, Dioknos suggestion that the negotiation be limited as a
family affair was tantamount to suggesting that Federation President Jose Umali, Jr. be excluded from the
Unions negotiating panel. It further argued that contrary to the ruling of the public respondent, damage
or injury to the public interest need not be present in order for unfair labor practice to prosper.

The Union, likewise, pointed out that the public respondent failed to rule on the ULP charges arising
from the Banks surface bargaining. The Union contended that the Bank merely went through the
motions of collective bargaining without the intent to reach an agreement, and made bad faith proposals
when it announced that the parties should begin from a clean slate. It argued that the Bank opened the
political provisions up for grabs, which had the effect of diminishing or obliterating the gains that the
Union had made.
The Union also accused the Bank of refusing to disclose material and necessary data, even after a
request was made by the Union to validate its guestimates.

In its Comment, the Bank prayed that the petition be dismissed as the Union was estopped, considering
that it signed the Collective Bargaining Agreement (CBA) on April 22, 1994. It asserted that contrary to
the Unions allegations, it was the Union that committed ULP when negotiator Jose Umali, Jr. hurled
invectives at the Banks head negotiator, Cielito Diokno, and demanded that she be excluded from the
Banks negotiating team. Moreover, the Union engaged in blue-sky bargaining and isolated the no strike-
no lockout clause of the existing CBA.

The Office of the Solicitor General, in representation of the public respondent, prayed that the petition
be dismissed. It asserted that the Union failed to prove its ULP charges and that the public respondent
did not commit any grave abuse of discretion in issuing the assailed order and resolutions.

The Issues

The issues presented for resolution are the following: (a) whether or not the Union was able to
substantiate its claim of unfair labor practice against the Bank arising from the latters alleged
interference with its choice of negotiator; surface bargaining; making bad faith non-economic proposals;
and refusal to furnish the Union with copies of the relevant data; (b) whether or not the public
respondent acted with grave abuse of discretion amounting to lack or excess of jurisdiction when she
issued the assailed order and resolutions; and, (c) whether or not the petitioner is estopped from filing
the instant action.

The Courts Ruling

The petition is bereft of merit.

Interference under Article

248 (a) of the Labor Code

The petitioner asserts that the private respondent committed ULP, i.e., interference in the selection of
the Unions negotiating panel, when Cielito Diokno, the Banks Human Resource Manager, suggested to
the Unions President Eddie L. Divinagracia that Jose P. Umali, Jr., President of the NUBE, be excluded
from the Unions negotiating panel. In support of its claim, Divinagracia executed an affidavit, stating that
prior to the commencement of the negotiation, Diokno approached him and suggested the exclusion of
Umali from the Unions negotiating panel, and that during the first meeting, Diokno stated that the
negotiation be kept a family affair.

Citing the cases of U.S. Postal Service[36] and Harley Davidson Motor Co., Inc., AMF,[37] the Union
claims that interference in the choice of the Unions bargaining panel is tantamount to ULP.

In the aforecited cases, the alleged ULP was based on the employers violation of Section 8(a)(1) and (5)
of the National Labor Relations Act (NLRA),[38] which pertain to the interference, restraint or coercion of
the employer in the employees exercise of their rights to self-organization and to bargain collectively
through representatives of their own choosing; and the refusal of the employer to bargain collectively
with the employees representatives. In both cases, the National Labor Relations Board held that upon
the employers refusal to engage in negotiations with the Union for collective-bargaining contract when
the Union includes a person who is not an employee, or one who is a member or an official of other
labor organizations, such employer is engaged in unfair labor practice under Section 8(a)(1) and (5) of
the NLRA.

The Union further cited the case of Insular Life Assurance Co., Ltd. Employees Association NATU vs.
Insular Life Assurance Co., Ltd.,[39] wherein this Court said that the test of whether an employer has
interfered with and coerced employees in the exercise of their right to self-organization within the
meaning of subsection (a)(1) is whether the employer has engaged in conduct which it may reasonably
be said, tends to interfere with the free exercise of employees rights under Section 3 of the Act.[40]
Further, it is not necessary that there be direct evidence that any employee was in fact intimidated or
coerced by statements of threats of the employer if there is a reasonable inference that anti-union
conduct of the employer does have an adverse effect on self-organization and collective bargaining.[41]

Under the International Labor Organization Convention (ILO) No. 87 FREEDOM OF ASSOCIATION AND
PROTECTION OF THE RIGHT TO ORGANIZE to which the Philippines is a signatory, workers and
employers, without distinction whatsoever, shall have the right to establish and, subject only to the rules
of the organization concerned, to job organizations of their own choosing without previous
authorization.[42] Workers and employers organizations shall have the right to draw up their
constitutions and rules, to elect their representatives in full freedom to organize their administration and
activities and to formulate their programs.[43] Article 2 of ILO Convention No. 98 pertaining to the Right
to Organize and Collective Bargaining, provides:

Article 2

1. Workers and employers organizations shall enjoy adequate protection against any acts or interference
by each other or each others agents or members in their establishment, functioning or administration.

2. In particular, acts which are designed to promote the establishment of workers organizations under
the domination of employers or employers organizations or to support workers organizations by financial
or other means, with the object of placing such organizations under the control of employers or
employers organizations within the meaning of this Article.

The aforcited ILO Conventions are incorporated in our Labor Code, particularly in Article 243 thereof,
which provides:

ART. 243. COVERAGE AND EMPLOYEES RIGHT TO SELF-ORGANIZATION. All persons employed in
commercial, industrial and agricultural enterprises and in religious, charitable, medical or educational
institutions whether operating for profit or not, shall have the right to self-organization and to form, join,
or assist labor organizations of their own choosing for purposes of collective bargaining. Ambulant,
intermittent and itinerant workers, self-employed people, rural workers and those without any definite
employers may form labor organizations for their mutual aid and protection.

and Articles 248 and 249 respecting ULP of employers and labor organizations.

The said ILO Conventions were ratified on December 29, 1953. However, even as early as the 1935
Constitution,[44] the State had already expressly bestowed protection to labor as part of the general
provisions. The 1973 Constitution,[45] on the other hand, declared it as a policy of the state to afford
protection to labor, specifying that the workers rights to self-organization, collective bargaining, security
of tenure, and just and humane conditions of work would be assured. For its part, the 1987 Constitution,
aside from making it a policy to protect the rights of workers and promote their welfare,[46] devotes an
entire section, emphasizing its mandate to afford protection to labor, and highlights the principle of
shared responsibility between workers and employers to promote industrial peace.[47]
Article 248(a) of the Labor Code, considers it an unfair labor practice when an employer interferes,
restrains or coerces employees in the exercise of their right to self-organization or the right to form
association. The right to self-organization necessarily includes the right to collective bargaining.

Parenthetically, if an employer interferes in the selection of its negotiators or coerces the Union to
exclude from its panel of negotiators a representative of the Union, and if it can be inferred that the
employer adopted the said act to yield adverse effects on the free exercise to right to self-organization or
on the right to collective bargaining of the employees, ULP under Article 248(a) in connection with
Article 243 of the Labor Code is committed.

In order to show that the employer committed ULP under the Labor Code, substantial evidence is
required to support the claim. Substantial evidence has been defined as such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion.[48] In the case at bar, the Union
bases its claim of interference on the alleged suggestions of Diokno to exclude Umali from the Unions
negotiating panel.

The circumstances that occurred during the negotiation do not show that the suggestion made by
Diokno to Divinagracia is an anti-union conduct from which it can be inferred that the Bank consciously
adopted such act to yield adverse effects on the free exercise of the right to self-organization and
collective bargaining of the employees, especially considering that such was undertaken previous to the
commencement of the negotiation and simultaneously with Divinagracias suggestion that the bank
lawyers be excluded from its negotiating panel.

The records show that after the initiation of the collective bargaining process, with the inclusion of Umali
in the Unions negotiating panel, the negotiations pushed through. The complaint was made only on
August 16, 1993 after a deadlock was declared by the Union on June 15, 1993.

It is clear that such ULP charge was merely an afterthought. The accusation occurred after the arguments
and differences over the economic provisions became heated and the parties had become frustrated. It
happened after the parties started to involve personalities. As the public respondent noted, passions
may rise, and as a result, suggestions given under less adversarial situations may be colored with
unintended meanings.[49] Such is what appears to have happened in this case.
The Duty to Bargain

Collectively

If at all, the suggestion made by Diokno to Divinagracia should be construed as part of the normal
relations and innocent communications, which are all part of the friendly relations between the Union
and Bank.

The Union alleges that the Bank violated its duty to bargain; hence, committed ULP under Article 248(g)
when it engaged in surface bargaining. It alleged that the Bank just went through the motions of
bargaining without any intent of reaching an agreement, as evident in the Banks counter-proposals. It
explained that of the 34 economic provisions it made, the Bank only made 6 economic
counterproposals. Further, as borne by the minutes of the meetings, the Bank, after indicating the
economic provisions it had rejected, accepted, retained or were open for discussion, refused to make a
list of items it agreed to include in the economic package.

Surface bargaining is defined as going through the motions of negotiating without any legal intent to
reach an agreement.[50] The resolution of surface bargaining allegations never presents an easy issue.
The determination of whether a party has engaged in unlawful surface bargaining is usually a difficult
one because it involves, at bottom, a question of the intent of the party in question, and usually such
intent can only be inferred from the totality of the challenged partys conduct both at and away from the
bargaining table.[51] It involves the question of whether an employers conduct demonstrates an
unwillingness to bargain in good faith or is merely hard bargaining.[52]

The minutes of meetings from March 12, 1993 to June 15, 1993 do not show that the Bank had any
intention of violating its duty to bargain with the Union. Records show that after the Union sent its
proposal to the Bank on February 17, 1993, the latter replied with a list of its counter-proposals on
February 24, 1993. Thereafter, meetings were set for the settlement of their differences. The minutes of
the meetings show that both the Bank and the Union exchanged economic and non-economic proposals
and counter-proposals.

The Union has not been able to show that the Bank had done acts, both at and away from the bargaining
table, which tend to show that it did not want to reach an agreement with the Union or to settle the
differences between it and the Union. Admittedly, the parties were not able to agree and reached a
deadlock. However, it is herein emphasized that the duty to bargain does not compel either party to
agree to a proposal or require the making of a concession.[53] Hence, the parties failure to agree did not
amount to ULP under Article 248(g) for violation of the duty to bargain.

We can hardly dispute this finding, for it finds support in the evidence. The inference that respondents
did not refuse to bargain collectively with the complaining union because they accepted some of the
demands while they refused the others even leaving open other demands for future discussion is
correct, especially so when those demands were discussed at a meeting called by respondents
themselves precisely in view of the letter sent by the union on April 29, 1960[54]

In view of the finding of lack of ULP based on Article 248(g), the accusation that the Bank made bad faith
provisions has no leg to stand on. The records show that the Banks counter-proposals on the non-
economic provisions or political provisions did not put up for grabs the entire work of the Union and its
predecessors. As can be gleaned from the Banks counter-proposal, there were many provisions which it
proposed to be retained. The revisions on the other provisions were made after the parties had come to
an agreement. Far from buttressing the Unions claim that the Bank made bad-faith proposals on the
non-economic provisions, all these, on the contrary, disprove such allegations.

We, likewise, find that the Union failed to substantiate its claim that the Bank refused to furnish the
information it needed.

While the refusal to furnish requested information is in itself an unfair labor practice, and also supports
the inference of surface bargaining,[55] in the case at bar, Umali, in a meeting dated May 18, 1993,
requested the Bank to validate its guestimates on the data of the rank and file. However, Umali failed to
put his request in writing as provided for in Article 242(c) of the Labor Code:

Article 242. Rights of Legitimate Labor Organization

(c) To be furnished by the employer, upon written request, with the annual audited financial statements,
including the balance sheet and the profit and loss statement, within thirty (30) calendar days from the
date of receipt of the request, after the union has been duly recognized by the employer or certified as
the sole and exclusive bargaining representatives of the employees in the bargaining unit, or within sixty
(60) calendar days before the expiration of the existing collective bargaining agreement, or during the
collective negotiation;
The Union, did not, as the Labor Code requires, send a written request for the issuance of a copy of the
data about the Banks rank and file employees. Moreover, as alleged by the Union, the fact that the Bank
made use of the aforesaid guestimates, amounts to a validation of the data it had used in its
presentation.

No Grave Abuse of Discretion

On the Part of the Public Respondent

The special civil action for certiorari may be availed of when the tribunal, board, or officer exercising
judicial or quasi-judicial functions has acted without or in excess of jurisdiction and there is no appeal or
any plain, speedy, and adequate remedy in the ordinary course of law for the purpose of annulling the
proceeding.[56] Grave abuse of discretion implies such capricious and whimsical exercise of judgment as
is equivalent to lack of jurisdiction, or where the power is exercised in an arbitrary or despotic manner
by reason of passion or personal hostility which must be so patent and gross as to amount to an invasion
of positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of
law. Mere abuse of discretion is not enough.[57]

While it is true that a showing of prejudice to public interest is not a requisite for ULP charges to prosper,
it cannot be said that the public respondent acted in capricious and whimsical exercise of judgment,
equivalent to lack of jurisdiction or excess thereof. Neither was it shown that the public respondent
exercised its power in an arbitrary and despotic manner by reason of passion or personal hostility.

Estoppel not Applicable

In the Case at Bar

The respondent Bank argues that the petitioner is estopped from raising the issue of ULP when it signed
the new CBA.

Article 1431 of the Civil Code provides:

Through estoppel an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.

A person, who by his deed or conduct has induced another to act in a particular manner, is barred from
adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to
another.[58]

In the case, however, the approval of the CBA and the release of signing bonus do not necessarily mean
that the Union waived its ULP claim against the Bank during the past negotiations. After all, the
conclusion of the CBA was included in the order of the SOLE, while the signing bonus was included in the
CBA itself. Moreover, the Union twice filed a motion for reconsideration respecting its ULP charges
against the Bank before the SOLE.

The Union Did Not Engage

In Blue-Sky Bargaining

We, likewise, do not agree that the Union is guilty of ULP for engaging in blue-sky bargaining or making
exaggerated or unreasonable proposals.[59] The Bank failed to show that the economic demands made
by the Union were exaggerated or unreasonable. The minutes of the meeting show that the Union based
its economic proposals on data of rank and file employees and the prevailing economic benefits received
by bank employees from other foreign banks doing business in the Philippines and other branches of the
Bank in the Asian region.

In sum, we find that the public respondent did not act with grave abuse of discretion amounting to lack
or excess of jurisdiction when it issued the questioned order and resolutions. While the approval of the
CBA and the release of the signing bonus did not estop the Union from pursuing its claims of ULP against
the Bank, we find that the latter did not engage in ULP. We, likewise, hold that the Union is not guilty of
ULP.

IN LIGHT OF THE FOREGOING, the October 29, 1993 Order and December 16, 1993 and February 10,
1994 Resolutions of then Secretary of Labor Nieves R. Confesor are AFFIRMED. The Petition is hereby
DISMISSED.
SO ORDERED.

UNION OF FILIPRO EMPLOYEES - DRUG, FOOD AND ALLIED INDUSTRIES UNIONS - KILUSANG MAYO UNO
(UFE-DFA-KMU),

Petitioner,

- versus -

NESTL PHILIPPINES, INCORPORATED,

Respondent.

x-----------------------------------x

NESTL PHILIPPINES, INCORPORATED

Petitioner,

- versus -
UNION OF FILIPRO EMPLOYEES - DRUG, FOOD AND ALLIED INDUSTRIES UNIONS - KILUSANG MAYO UNO
(UFE-DFA-KMU),

Respondent.

G.R. No. 158930-31

G.R. No. 158944-45

Present:

PANGANIBAN, C.J.

Chairperson,

YNARES - SANTIAGO

AUSTRIA-MARTINEZ,

CALLEJO, SR., and

CHICO-NAZARIO, JJ.

Promulgated:

August 22, 2006

x-------------------------------------------------------------------------x

DECISION

CHICO-NAZARIO, J.:

The Case
Before the Court are two (2) petitions for review on certiorari under Rule 45 of the Rules of Court, as
amended. Both seek to annul and set aside the joint: (1) Decision[1] dated 27 February 2003, and (2)
Resolution[2] dated 27 June 2003, of the Court of Appeals in CA-G.R. SP No. 69805[3] and No. 71540.[4]

G.R. No. 158930-31 was filed by Union of Filipro Employees Drug, Food and Allied Industries Unions
Kilusang Mayo Uno (UFE-DFA-KMU) against Nestl Philippines, Incorporated (Nestl) seeking the reverse of
the Court of Appeals Decision in so far as the latters failure to adjudge Nestl guilty of unfair labor
practice is concerned, as well as the Resolution of 27 June 2003 denying its Partial Motion for
Reconsideration; G.R. No. 158944-45 was instituted by Nestl against UFE-DFA-KMU similarly seeking to
annul and set aside the Decision and Resolution of the Court of Appeals declaring 1) the Retirement Plan
a valid collective bargaining issue; and 2) the scope of assumption of jurisdiction power of the Secretary
of the DOLE to be limited to the resolution of questions and matters pertaining merely to the ground
rules of the collective bargaining negotiations to be conducted between the parties.

In as much as the cases involve the same set of parties; arose from the same set of circumstances, i.e.,
from several Orders issued by then Secretary of the Department of Labor and Employment (DOLE), Hon.
Patricia A. Sto. Tomas, respecting her assumption of jurisdiction over the labor dispute between Nestl
and UFE-DFA-KMU, Alabang and Cabuyao Divisions;[5] and likewise assail the same Decision and
Resolution of the Court of Appeals, the Court ordered the consolidation of the two petitions.[6]

The Facts

From the record and the pleadings filed by the parties, we cull the following material facts in this case:

On 4 April 2001, in consideration of the impending expiration of the existing collective bargaining
agreement (CBA) between Nestl and UFE-DFA-KMU[7] on 5 June 2001,[8] in a letter denominated as a
Letter of Intent, the Presidents of the Alabang and Cabuyao Divisions of UFE-DFA-KMU, Ernesto Pasco
and Diosdado Fortuna, respectively, informed Nestl of their intent to open our new Collective Bargaining
Negotiation for the year 2001-2004 x x x as early as June 2001.[9]

In a letter[10] dated 10 April 2001, Nestl acknowledged receipt of the aforementioned letter. It also
informed UFE-DFA-KMU that it was preparing its own counter-proposal and proposed ground rules that
shall govern the conduct of the collective bargaining negotiations.
On 29 May 2001, in another letter addressed to the UFE-DFA-KMU (Cabuyao Division), Nestl underscored
its position that unilateral grants, one-time company grants, company-initiated policies and programs,
which include, but are not limited to the Retirement Plan, Incidental Straight Duty Pay and Calling Pay
Premium, are by their very nature not proper subjects of CBA negotiations and therefore shall be
excluded therefrom.[11] In addition, it clarified that with the closure of the Alabang Plant, the CBA
negotiations will only be applicable to the covered employees of the Cabuyao Plant; hence, the Cabuyao
Division of UFE-DFA-KMU became the sole bargaining unit involved in the subject CBA negotiations.

Thereafter, dialogue between the company and the union ensued.

In a letter dated 14 August 2001, Nestl, claiming to have reached an impasse in said dialogue,
requested[12] the National Conciliation and Mediation Board (NCMB), Regional Office No. IV, Imus,
Cavite, to conduct preventive mediation proceedings between it and UFE-DFA-KMU. Nestl alleged that
despite fifteen (15) meetings between them, the parties failed to reach any agreement on the proposed
CBA. The request was docketed as NCMB-RBIV-CAB-PM-08-035-01.

Conciliation proceedings nevertheless proved ineffective. Complaining, in essence, of bargaining

deadlock pertaining to economic issues, i.e., retirement (plan), panel composition, costs and attendance,
and CBA,[13] UFE-DFA-KMU filed a Notice of Strike[14] on 31 October 2001 with the NCMB docketed as
NCMB-RBIV-LAG-NS-10-037-01. One week later, or on 07 November 2001, another Notice of Strike[15]
was filed by the UFE-DFA-KMU docketed as NCMB-RBIV-LAG-NS-11-10-039-01, this time predicated on
Nestls alleged unfair labor practices i.e., bargaining in bad faith in that it was setting pre-conditions in the
ground rules by refusing to include the issue of the Retirement Plan in the CBA negotiations. A strike vote
was then conducted by UFE-DFA-KMU on 22 November 2001. The result was an overwhelming approval
of the decision to hold a strike.[16]

On 26 November 2001, in view of the looming strike, Nestl filed with the DOLE a Petition for Assumption
of Jurisdiction,[17] docketed as OS-AJ-0023-01, fundamentally praying that the Secretary of the DOLE,
Hon. Patricia A. Sto. Tomas, assume jurisdiction over the current labor dispute as mandated by Article
263 (g) of the Labor Code, as amended, thereby effectively enjoining any impending strike at the Nestl
Cabuyao Plant in Laguna.

On 29 November 2001, Sec. Sto. Tomas issued an Order[18] in OS-AJ-0023-01, NCMB-RBIV-CAV-PM-08-

035-01, NCMB-RBIV-LAG-NS-10-037-01 & NCMB-RBIV-LAG-NS-11-10-039-01 assuming jurisdiction over
the subject labor dispute between the parties, the fallo thereof stating that:
CONSIDERING THE FOREGOING, this Office hereby assumes jurisdiction over the labor dispute at the
Nestl Philippines, Inc. (Cabuyao Plant) pursuant to Article 263 (g) of the Labor Code, as amended.

Accordingly, any strike or lockout is hereby enjoined. The parties are directed to cease and desist from
committing any act that might lead to the further deterioration of the current labor relations situation.

The parties are further directed to meet and convene for the discussion of the union proposals and
company counter-proposals before the National Conciliation and Mediation Board (NCMB) who is hereby
designated as the delegate/facilitator of this Office for this purpose. The NCMB shall report to this Office
the results of this attempt at conciliation and delimitation of the issues within thirty (30) days from the
parties receipt of this Order, in no case later than December 31, 2001. If no settlement of all the issues is
reached, this Office shall thereafter define the outstanding issues and order the filing of position papers
for a ruling on the merits.

UFE-DFA-KMU sought reconsideration[19] of the abovequoted Assumption of Jurisdiction Order on the

assertion that:

i. Article 263 (g) of the Labor Code, as amended, is invalid and unconstitutional as it is in
derogation of the provisions dealing on protection to labor, social justice, the bill of rights, and, generally
accepted principle of international law;

ii. compulsory arbitration as a mode of dispute settlement provided for in the Labor Code and
sourced from the 1935 and 1973 constitutions has been discarded and deleted by the New Charter
which instituted in its stead free collective bargaining;

iii. that ILO condemns the continuous exercise by the Secretary of Labor of the power of
compulsory arbitration;

iv. granting that the law is valid, the Secretary has unconstitutionally applied the law;
v. that the company is a business enterprise not belonging to an industry indispensable to the
national interest considering that it is only one among a number of companies in the country producing
milk and nutritional products; that the Cabuyao plant is only one of the six (6) Nestle plants in the
country and could rely on its highly automated Cagayan de Oro plant for buffer stocks;

vi. that the Secretary acted with grave abuse of discretion in issuing the assailed order without the
benefit of a prior notice and inquiry.

In the interregnum, the union interposed a motion for extension of time[20] to file its position paper as
directed by the Assumption of Jurisdiction Order of 29 November 2001.

In an Order[21] dated 14 January 2002, Sec. Sto. Tomas denied the aforequoted motion for
reconsideration in this wise:

This is not the first time that this Office had occasion to resolve the grounds and arguments now being
raised x x x. In a more recent case In re: labor dispute at Toyota Motor Philippines Corporation x x x this
Office ruled:

The constitutionality of the power of the Secretary of Labor under Article 263 (g) of the Labor Code to
assume jurisdiction over a labor dispute in an industry indispensable to the national interest has been
upheld as an exercise of police power of the constitution. x x x.

xxxx

As ruled by the Supreme Court in the Philtread case:

Article 263 (g) of the Labor Code does not violate the workers constitutional right to strike.
xxxxxx

The foregoing article clearly does not interfere with the workers right to strike but merely regulates it,
when in the exercise of such right, national interests will be affected.

On 15 January 2002, despite the injunction[22] contained in Sec. Sto. Tomas Assumption of Jurisdiction
Order and conciliation efforts by the NCMB, the employee members of UFE-DFA-KMU at the Nestl
Cabuyao Plant went on strike.

On 16 January 2002, in consideration of the above, Sec. Sto. Tomas issued yet another Order[23]
directing: (1) the members of UFE-DFA-KMU to return-to-work within twenty-four (24) hours from
receipt of such Order; (2) Nestl to accept back all returning workers under the same terms and
conditions existing preceding to the strike; (3) both parties to cease and desist from committing acts
inimical to the on-going conciliation proceedings leading to the further deterioration of the situation;
and (4) the submission of their respective position papers within ten (10) days from receipt thereof.

Notwithstanding the Return-To-Work Order, the members of UFE-DFA-KMU continued with their strike
and refused to go back to work as instructed. Thus, Sec. Sto. Tomas sought the assistance of the
Philippine National Police (PNP) for the enforcement of said order.

At the hearing called on 7 February 2002, Nestl and UFE-DFA-KMU filed their respective position papers.
In its position paper,[24] Nestl addressed several issues allegedly pertaining to the current labor dispute,
i.e., economic provisions of the CBA as well as the non-inclusion of the issue of the Retirement Plan in
the collective bargaining negotiations. UFE-DFA-KMU, in contrast, limited itself to tackling the solitary
issue of whether or not the retirement plan was a mandatory subject in its CBA negotiations with the
company on the contention that the Order of Assumption of Jurisdiction covers only the issue of
Retirement Plan.[25]

On 8 February 2002, Nestl moved that UFE-DFA-KMU be declared to have waived its right to present
arguments respecting the other issues raised by the company on the ground that the latter chose to limit
itself to discussing only one (1) issue. Sec. Sto. Tomas, in an Order[26] dated 11 February 2002, however,
did not see fit to grant said motion. She instead allowed UFE-DFA-KMU the chance to tender its stand on
the other issues raised by Nestl but not covered by its initial position paper paper by way of a
Supplemental Position Paper.

UFE-DFA-KMU afterward filed several pleadings: (1) an Urgent Motion to File a Reply dated 13 February
2002; (2) a Motion for Time to File Supplemental Position Paper dated 22 February 2002; and (3) a
Manifestation with Motion for Reconsideration of the Order dated February 11, 2002 dated 27 February
2002. The latter pleading was an absolute contradiction of the second one praying for additional time to
file the subject supplemental position paper. In said Manifestation, UFE-DFA-KMU explained that it
realized that the Order of February 11, 2002 appears to be contrary to law and jurisprudence and is not
in conformity with existing laws and the evidence on record,[27] as the Secretary of the DOLE could only
assume jurisdiction over the issues mentioned in the notice of strike subject of the current dispute.[28]
UFE-DFA-KMU then went on to clarify that the Amended Notice of Strike did not cite, as one of the
grounds, the CBA deadlock.

On 8 March 2002, Sec. Sto. Tomas denied the motion for reconsideration of UFE-DFA-KMU.

Frustrated with the foregoing turn of events, UFE-DFA-KMU filed a petition for certiorari[29] with
application for the issuance of a temporary restraining order or a writ of preliminary injunction before
the Court of Appeals. The petition was predicated on the question of whether or not the DOLE Secretary
committed grave abuse of discretion in issuing the Orders of 11 February 2002 and 8 March 2002.

Meanwhile, in an attempt to finally resolve the crippling labor dispute between the parties, then Acting
Secretary of the DOLE, Hon. Arturo D. Brion, came out with an Order[30] dated 02 April 2002, in the
main, ruling that:

a. we hereby recognize that the present Retirement Plan at the Nestl Cabuyao Plant is a unilateral grant
that the parties have expressly so recognized subsequent to the Supreme Courts ruling in Nestl, Phils.
Inc. vs. NLRC, G.R. No. 90231, February 4, 1991, and is therefore not a mandatory subject for bargaining;

b. the Unions charge of unfair labor practice against the Company is hereby dismissed for lack of merit;
c. the parties are directed to secure the best applicable terms of the recently concluded CBs between
Nestl Phils. Inc. and it eight (8) other bargaining units, and to adopt these as the terms and conditions of
the Nestl Cabuyao Plant CBA;

d. all union demands that are not covered by the provisions of the CBAs of the other eight (8) bargaining
units in the Company are hereby denied;

e. all existing provisions of the expired Nestl Cabuyao Plant CBA without any counterpart in the CBAs of
the other eight bargaining units in the Company are hereby ordered maintained as part of the new Nestl
Cabuyao Plant CBA;

f. the parties shall execute their CBA within thirty (30) days from receipt of this Order, furnishing this
Office a copy of the signed Agreement;

g. this CBA shall, in so far as representation is concerned, be for a term of five (5) years; all other
provisions shall be renegotiated not later than three (3) years after its effective date which shall be
December 5, 2001 (or on the first day six months after the expiration on June 4, 2001 of the superceded
CBA).

Not surprisingly, UFE-DFA-KMU moved to reconsider the aforequoted position of the DOLE.

On 6 May 2002, the Secretary of the DOLE, Hon. Sto. Tomas, issued the last of the assailed Orders.[31]
This order resolved to deny the preceding motion for reconsideration of UFE-DFA-KMU.

Undaunted still, UFE-DFA-KMU, for the second time, went to the Court of Appeals likewise via a petition
for certiorari seeking to annul, on the ground of grave abuse of discretion, the Orders of 02 April 2002
and 06 May 2002 of the Secretary of the DOLE.

The Court of Appeals, acting on the twin petitions for certiorari, determined the issues in favor of UFE-
DFA-KMU in a joint Decision dated 27 February 2003. The dispositive part thereof states that:
WHEREFORE, in view of the foregoing, there being grave abuse on the part of the public respondent in
issuing all the assailed Orders, both petitions are hereby GRANTED. The assailed Orders dated February
11, 2001, and March 8, 2001 (CA-G.R. SP No. 69805), as well as the Orders dated April 2, 2002 and May
6, 2002 (CA-G.R. SP No. 71540) of the Secretary of Labor and Employment in the case entitled: IN RE:
LABOR DISPUTE AT NESTLE PHILIPPINES INC. (CABUYAO FACTORY) under OS-AJ-0023-01 (NCMB-RBIV-
CAV-PM-08-035-01, NCMB-RBIV-LAG-NS-10-037-01, NCMB-RBIV-LAG-NS-11-10-03901) are hereby
ANNULLED and SET ASIDE. Private respondent is hereby directed to resume the CBA negotiations with
the petitioner.[32]

Dissatisfied, both parties separately moved for the reconsideration of the abovequoted decision with
Nestl basically assailing that part of the decision finding the DOLE Secretary to have gravely abused her
discretion when she ruled that the Retirement Plan is not a valid issue for collective bargaining
negotiations; while UFE-DFA-KMU questions, in essence, the appellate courts decision in absolving Nestl
of the charge of unfair labor practice.

The parties efforts were all for naught as the Court of Appeals stood pat in its earlier pronouncements
and denied the motions for reconsideration in a joint Resolution dated 27 June 2003.

Hence, these petitions for review on certiorari separately filed by the parties. Said petitions were
ordered consolidated in a Supreme Court Resolution dated 29 March 2004.

The Issues

UFE-DFA-KMUs petition for review docketed as G.R. No. 158930-31, is predicated on the following
alleged errors:

I.
THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING THAT RESPONDENT IS
GUILTY OF UNFAIR LABOR PRACTICE IN REFUSING TO PROCEED WITH THE CBA NEGOTIATIONS UNLESS
PETITIONER FIRST ADMITS THAT THE RETIREMENT PLAN IN THE COMPANY IS A NON-CBA MATTER; and

II.

THE CONTENTION THAT THERE IS NO EVIDENCE OF UNFAIR LABOR PRACTICE ON RESPONDENT NESTLɒS
PART AND THAT PETITIONER DID NOT RAISE THE ISSUE OF ULP IN ITS ARGUMENTS BEFORE THE COURT
OF APPEALS IS GROSSLY ERRONEOUS.[33]

Whereas in G.R. No. 158944-45, petitioner Nestl challenges the conclusion of the Court of Appeals on
the basis of the following issues:

I.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT THE
POWERS GRANTED TO THE SECRETARY OF LABOR TO RESOLVE NATIONAL INTEREST DISPUTES UNDER
ARTICLE 263 (G) OF THE LABOR CODE MAY BE LIMITED BY A (SECOND) NOTICE OF STRIKE; and

II.

WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN ANNULING THE SECRETARY
OF LABORS JUDGMENT ON THE RETIREMENT PLAN ISSUE WHICH WAS MERELY A PART OF THE
COMPLETE RESOLUTION OF THE LABOR DISPUTE.[34]

On the whole, the consolidated cases only raise three (3) fundamental issues for deliberation by this
Court, that is, whether or not the Court of Appeals committed reversible error, first, in finding the
Secretary of Labor and Employment to have gravely abused her discretion in her pronouncement that
the Retirement Plan was not a proper subject to be included in the CBA negotiations between the
parties; hence, non-negotiable; second, in holding that the assumption powers of the Secretary of Labor
and Employment should have been limited merely to the grounds alleged in the second Notice of Strike;
and third, in not ruling that Nestl was guilty of unfair labor practice despite allegedly setting a pre-
condition to bargaining the non-inclusion of the Retirement Plan as an issue in the collective bargaining
negotiations.

The Courts Ruling

Foremost for our resolution is the matter of the non-inclusion of the Retirement Plan in the CBA
negotiations between Nestl and UFE-DFA-KMU (Cabuyao Division).

In finding the Secretary of the DOLE to have gravely abused her discretion in holding that the Retirement
Plan is not a valid CBA issue, the Court of Appeals explained that:

Although the Union, thru its President Diosdado Fortuna, signed a Memorandum of Agreement dated
October 8, 1998 together with the private respondent which clearly states that the Company agree to
extend the following unilateral grants which shall not form part of the CBA (citation omitted) however,
the same document made a proviso that reference on the Retirement Plan in the CBA signed on July 4,
1995, shall be maintained, x x x thus, this Court is of the belief and so holds that the Retirement Plan is
still a valid CBA issue, hence, it could not be argued that the true intention of the parties is that the
Retirement Plan, although referred in the CBA, would not in any way form part of the CBA (citation
omitted) as it could be clearly inferred by this Court that it is to be used as an integral part of the CBA
and to be used as a topic for future bargaining, in consonance with the ruling of the Supreme Court in
the previous Nestl Case that the Retirement Plan was a collective bargaining issue right from the start.
[35]

In filing the present petition, Nestle is of the view that after the 1991 Supreme Court Decision was
promulgated, there was obviously an agreement by the parties to no longer consider the Retirement
Plan as a negotiable item subject to bargaining. Rather, said benefit would be regarded as a unilateral
grant outside the ambit of negotiation. Nestl justifies such contention by directing the Courts attention
to the Ground Rules for 1998 Alabang/Cabuyao Factories CBA Negotiation (citation omitted) signed by it
and the representatives of UFE-DFA-KMU where both sides expressly recognized Nestls prerogative to
initiate unilateral grants which are not negotiable. It likewise cited the Memorandum of Agreement[36]
entered into by the parties on 08 October 1998, which also categorically referred to the Retirement Plan
as one of the unilateral grants alluded to in the aforementioned Ground Rules. Nestle then concluded
that:

Indeed, the foregoing uncontroverted documents very clearly established the clear agreement of the
parties, after the 1991 Supreme Court Decision, to remove the Retirement Plan from the scope of
bargaining negotiation, and leave the matter upon the sole initiative and discretion of Nestl.[37]

In contrast, UFE-DFA-KMU posits that there is nothing in either of the documents aboveclaimed that
proves that it agreed to treat the Retirement Plan as a unilateral grant of the company which is outside
the scope of the CBA and hence, not a proper subject of bargaining. It explained that the MOA alluded to
by Nestl merely speaks of the improvement[38] or the review for the improvement[39] of the current
Retirement Plan and nothing else. UFE-DFA-KMU rationalizes that:

Had the objective of the parties been to consider the Retirement Plan as not a subject for collective
bargaining, they would have stated so in categorical terms. Or, they could have deleted the said benefit
from the CBA.

Unfortunately for petitioner, the documents relied upon by it do not state that the Retirement Plan is no
longer a bargainable item. The said benefit was not also removed or deleted from the CBA.

If ever, what was unilaterally granted by petitioner company as appearing on the above-stated letter and
MOA were the improvements on the Retirement Plan. The Retirement Plan could not have been
unilaterally granted by the said letter and MOA since the said Plan predates the said letter and MOA by
over two decades.

UFE-DFA-KMU concludes that [s]ince the Retirement Plan did not derive its existence from the letter and
MOA x x x, the nature of the Retirement Plan was not altered or changed by the subsequent issuance by
petitioner company of the said letter and MOA. The Retirement Plan remained a CBA item which is a
proper subject of collective bargaining pursuant to the 1991 ruling of this Honorable Court.[40]
We agree.

The present issue is not one of first impression. In Nestl Philippines, Inc. v. NLRC,[41] ironically involving
the same parties herein, this Court has had the occasion to affirm that a retirement plan is consensual in
nature.

By way of background, the parties therein resorted to a slowdown and walked out of the factory
prompting the management to shut down its operations. Collective bargaining negotiations were
conducted but a deadlock was subsequently declared. The Secretary of Labor assumed jurisdiction over
the labor dispute and issued a return-to-work order. The NLRC thereafter issued its resolution modifying
Nestls existing non-contributory Retirement Plan. The company filed a petition for certiorari alleging
grave abuse of discretion on the part of the NLRC as Nestl was arguing that since its Retirement Plan is
non-contributory, it should be a non-issue in CBA negotiations. Nestl had the sole and exclusive
prerogative to define the terms of the plan as the employees had no vested and demandable rights
thereon the grant of such not being a contractual obligation but simply gratuitous. In a ruling contrary to
Nestls position, this Court, through Madame Justice Grio-Aquino, declared that:

The companys [Nestl] contention that its retirement plan is non-negotiable, is not well-taken. The NLRC
correctly observed that the inclusion of the retirement plan in the collective bargaining agreement as
part of the package of economic benefits extended by the company to its employees to provide them a
measure of financial security after they shall have ceased to be employed in the company, reward their
loyalty, boost their morale and efficiency and promote industrial peace, gives a consensual character to
the plan so that it may not be terminated or modified at will by either party (citation omitted).

The fact that the retirement plan is non-contributory, i.e., that the employees contribute nothing to the
operation of the plan, does not make it a non-issue in the CBA negotiations. As a matter of fact, almost
all of the benefits that the petitioner has granted to its employees under the CBA salary increases, rice
allowances, midyear bonuses, 13th and 14th month pay, seniority pay, medical and hospitalization plans,
health and dental services, vacation, sick & other leaves with pay are non-contributory benefits. Since
the retirement plan has been an integral part of the CBA since 1972, the Unions demand to increase the
benefits due the employees under said plan, is a valid CBA issue. x x x

xxxx
x x x [E]mployees do have a vested and demandable right over existing benefits voluntarily granted to
them by their employer. The latter may not unilaterally withdraw, eliminate or diminish such benefits
(Art. 100, Labor Code; other citation omitted). [Emphases supplied.][42]

In the case at bar, it cannot be denied that the CBA that was about to expire at that time contained
provisions respecting the Retirement Plan. As the latter benefit was already subject of the existing CBA,
the members of UFE-DFA-KMU were only exercising their prerogative to bargain or renegotiate for the
improvement of the terms of the Retirement Plan just like they would for all the other economic, as well
as non-economic benefits previously enjoyed by them. Precisely, the purpose of collective bargaining is
the acquisition or attainment of the best possible covenants or terms relating to economic and non-
economic benefits granted by employers and due the employees. The Labor Code has actually imposed
as a mutual obligation of both parties, this duty to bargain collectively. The duty to bargain collectively is
categorically prescribed by Article 252 of the said code. It states:

ART. 252. MEANING OF DUTY TO BARGAIN COLLECTIVELY. The duty to bargain collectively means the
performance of a mutual obligation to meet and confer promptly and expeditiously and in good faith for
the purpose of negotiating an agreement with respect to wages, hours of work, and all other terms and
conditions of employment including proposals for adjusting any grievances or questions arising under
such agreement and executing a contract incorporating such agreement if requested by either party, but
such duty does not compel any party to agree to a proposal or to make any concession.

Further, Article 253, also of the Labor Code, defines the parameter of said obligation when there already
exists a CBA, viz:

ART. 253. DUTY TO BARGAIN COLLECTIVELY WHEN THERE EXISTS A COLLECTIVE BARGAINING
AGREEMENT. The duty to bargain collectively shall also mean that either party shall not terminate nor
modify such agreement during its lifetime. However, either party can serve a written notice to terminate
or modify the agreement at least sixty (60) days prior to its expiration date. It shall be the duty of both
parties to keep the status quo and to continue in full force and effect the terms and conditions of the
existing agreement during the sixty day period and/or until a new agreement is reached by the parties.
And, in demanding that the terms of the Retirement Plan be opened for renegotiation, the members of
UFE-DFA-KMU are acting well within their rights as we have, indeed, declared that the Retirement Plan is
consensual in character; and so, negotiable.

Contrary to the claim of Nestl that the categorical mention of the terms unilateral agreement in the
letter and the MOA signed by the representatives of UFE-DFA-KMU, had, for all intents and purposes
worked to estop UFE-DFA-KMU from raising it as an issue in the CBA negotiations, our reading of the
same, specifically Paragraph 6 and subparagraph 6.2:

6. Additionally, the COMPANY agree to extend the following unilateral grants which shall not form part
of the Collective Bargaining Agreement (CBA):

xxxx

6.2. Review for improvement of the COMPANYs Retirement Plan and the reference on the Retirement
Plan in the Collective Bargaining Agreement signed on 4 July 1995 shall be maintained. [43]

hardly persuades us that the members of UFE-DFA-KMU have agreed to treat the Retirement Plan as a
benefit the terms of which are solely dependent on the inclination of the Nestl and remove the subject
benefit from the ambit of the CBA. The characterization unilaterally imposed by Nestl on the Retirement
Plan cannot operate to divest the employees of their vested and demandable right over existing benefits
voluntarily granted by their employer.[44] Besides, the contention that UFE-DFA-KMU has abandoned or
forsaken our earlier pronouncement vis--vis the consensual nature of a retirement plan is quite
inconsistent with, nay, is negated by its conduct in doggedly asking for a renegotiation of said benefit.

Worth noting, at this point, is the fact that the aforequoted paragraph 6 and its subparagraphs,
particularly subparagraph 6.2, highlights an undeniable fact that Nestl recognizes that the Retirement
Plan is part of the existing Collective Bargaining Agreement.

Nestl further rationalizes that a ruling declaring the Retirement Plan a valid CBA negotiation issue will
inspire other bargaining units to demand for greater benefits in accordance with their respective
appetites. Suffice it to say that the consensual nature of the Retirement Plan neither gives the union
members the unfettered right nor the unbridled prerogative to demand more than what the company
can viably give.

As regards the scope of the assumption powers of the Secretary of the DOLE, the appellate court ruled
that Sec. Sto. Tomas assumption of jurisdiction powers should have been limited to the disagreement on
the ground rules of the collective bargaining negotiations. The Court of Appeals referred to the minutes
of the meeting held on 30 October 2001. That the representative Nestl was recorded to have stated that
we are still discussing ground rules and not yet on the CBA negotiations proper, a deadlock cannot be
declared,[45] was a telling fact. The Court of Appeals, thus, declared that the Secretary should not have
ruled on the questions and issues relative to the substantive aspect of the CBA simply because there was
no conflict on the CBA yet.[46]

UFE-DFA-KMU agrees in the above and contends that the requisites of judicial inquiry require, first and
foremost the presence of an actual case controversy. It then concludes that [i]f the courts of law cannot
act and decide in the absence of an actual case or controversy, so should be (sic) also the Honorable
DOLE Secretary.[47]

Nestle, however, contradicts the preceding disquisitions on the ground that such referral to the minutes
of the meeting was erroneous and misleading. It avers that the Court of Appeals failed to consider the
circumstance surrounding said utterance that the statement was made during the preventive mediation
proceedings and the UFE-DFA-KMU had not yet filed any notice of strike. It further emphasizes that it
was UFE-DFA-KMU who first alleged bargaining deadlock as the basis for the filing of its Notice of Strike.
Finally, Nestl clarifies that before the first Notice of Strike was filed, several conciliation conferences had
already been undertaken where both parties had exchanges of their respective CBA proposals.

In this, we agree with Nestl. Declaring the Secretary of the DOLE to have acted with grave abuse of
discretion for ruling on substantial matters or issues and not restricting itself merely on the ground rules,
the appellate court and UFE-DFA-KMU would have us treat the subject labor dispute in a piecemeal
fashion.

The power granted to the Secretary of the DOLE by Paragraph (g) of Article 263 of the Labor Code, to wit:

ART. 263. STRIKES, PICKETING, AND LOCKOUTS.

xxxx

(g) When, in his opinion, there exists a labor dispute causing or likely to cause a strike or lockout in an
industry indispensable to the national interest, the Secretary of Labor and Employment may assume
jurisdiction over the dispute and decide it or certify the same to the Commission for compulsory
arbitration. Such assumption or certification shall have the effect of automatically enjoining the intended
or impending strike or lockout as specified in the assumption or certification order. If one has already
taken place at the time of assumption or certification, all striking or locked out employees shall
immediately return to work and the employer shall immediately resume operations and readmit all
workers under the same terms and conditions prevailing before the strike or lockout. The Secretary of
Labor and Employment or the Commission may seek the assistance of law enforcement agencies to
ensure compliance with this provision as well as with such orders as he may issue to enforce the same.

xxxx

authorizes her to assume jurisdiction over a labor dispute, causing or likely to cause a strike or lockout in
an industry indispensable to the national interest, and correlatively, to decide the same.

In the case at bar, the Secretary of the DOLE simply relied on the Notices of Strike that were filed by UFE-
DFA-KMU as stated in her Order of 08 March 2002, to wit:

x x x The records disclose that the Union filed two Notices of Strike. The First is dated October 31, 2001
whose grounds are cited verbatim hereunder:

A. Bargaining Deadlock

1. Economic issues (specify)

1. Retirement

2. Panel Composition

3. Costs and Attendance

4. CBA

The second Notice of Strike is dated November 7, 2001 and the cited ground is like quoted verbatim
below:

B. Unfair Labor Practices (specify)

Bargaining in bad faith

Setting pre-condition in the ground rules (Retirement issue)

Nowhere in the second Notice of Strike is it indicated that this Notice is an amendment to and took the
place of the first Notice of Strike. In fact, our Assumption of Jurisdiction Order dated November 29, 2001
specifically cited the two (2) Notices of Strike without any objection on the part of the Union x x x.[48]

Thus, based on the Notices of Strike filed by UFE-DFA-KMU, the Secretary of the DOLE rightly decided on
matters of substance. Further, it is a fact that during the conciliation meetings before the NCMB, but
prior to the filing of the notices of strike, the parties had already delved into matters affecting the meat
of the collective bargaining agreement. The appellate courts reliance on the statement[49] of the
representative of Nestl in ruling that the labor dispute had yet to progress from the discussion of the
ground rules of the CBA negotiations is clearly misleading; hence, erroneous.

Nevertheless, granting for the sake of argument that the meetings undertaken by the parties had not
gone beyond the discussion of the ground rules, the issue of whether or not the Secretary of the DOLE
could decide issues incidental to the subject labor dispute had already been answered in the affirmative.
The Secretarys assumption of jurisdiction power necessarily includes matters incidental to the labor
dispute, that is, issues that are necessarily involved in the dispute itself, not just to those ascribed in the
Notice of Strike; or, otherwise submitted to him for resolution. As held in the case of International
Pharmaceuticals, Inc. v. Sec. of Labor and Employment,[50] x x x [t]he Secretary was explicitly granted by
Article 263 (g) of the Labor Code the authority to assume jurisdiction over a labor dispute causing or
likely to cause a strike or lockout in an industry indispensable to the national interest, and decide the
same accordingly. Necessarily, this authority to assume jurisdiction over the said labor dispute must
include and extend to all questions and controversies arising therefrom, including cases over which the
Labor Arbiter has exclusive jurisdiction.[51] Accordingly, even if not exactly on the ground upon which
the Notice of Strike is based, the fact that the issue is incidental to the resolution of the subject labor
dispute or that a specific issue had been submitted to the Secretary of the DOLE for her resolution,
validly empowers the latter to take cognizance of and resolve the same.

Secretary Sto. Tomas correctly assumed jurisdiction over the questions incidental to the current labor
dispute and those matters raised by the parties. In any event, the query as to whether or not the
Retirement Plan is to be included in the CBA negotiations between the parties ineluctably dictates upon
the Secretary of the DOLE to go into the substantive matter of the CBA negotiations.

Lastly, the third issue pertains to the alleged reversible error committed by the Court of Appeals in
holding, albeit impliedly, Nestl free and clear from any unfair labor practice. UFE-DFA-KMU argues that
Nestls refusal to bargain on a very important CBA economic provision constitutes unfair labor practice.
[52] It explained that Nestl set as a precondition for the holding of collective bargaining negotiations the
non-inclusion of the issue of Retirement Plan. In its words, respondent Nestl Phils., Inc. insisted that the
Union should first agree that the retirement plan is not a bargaining issue before respondent Nestl would
agree to discuss other issues in the CBA.[53] It then concluded that the Court of Appeals committed a
legal error in not ruling that respondent company is guilty of unfair labor practice. It also committed a
legal error in failing to award damages to the petitioner for the ULP committed by the respondent.[54]

Nestl refutes the above argument and asserts that it was only before the Court of Appeals, and in the
second Petition for Certiorari at that, did UFE-DFA-KMU raise the matter of unfair labor practice. It
reasoned that the subject of unfair labor practice should have been threshed out with the appropriate
labor tribunal. In justifying the failure of the Court of Appeals to find it guilty of unfair labor practice, it
stated that:

Under the circumstances, therefore, there was no way for the Court of Appeals to make a ruling on the
issues of unfair labor practice and damages, simply because there was nothing to support or justify such
action. Although petitioner was afforded by the Secretary the opportunity to be heard and more, it
simply chose to omit the said issues in the proceedings below.[55]

We are persuaded.

The concept of unfair labor practice is defined by the Labor Code as:
ART. 247. CONCEPT OF UNFAIR LABOR PRACTICE AND PROCEDURE FOR PROSECUTION THEREOF. Unfair
labor practices violate the constitutional right of workers and employees to self-organization, are inimical
to the legitimate interests of both labor and management, including their right to bargain collectively
and otherwise deal with each other in an atmosphere of freedom and mutual respect, disrupt industrial
peace and hinder the promotion of healthy and stable labor-management relations.

x x x x.

The same code likewise provides the acts constituting unfair labor practices committed by employers, to
wit:

ART. 248. UNFAIR LABOR PRACTICES OF EMPLOYERS. It shall be unlawful for an employer to commit any
of the following unfair labor practices:

(a) To interfere with, restrain or coerce employees in the exercise of their right to self-organization;

(b) To require as a condition of employment that a person or an employee shall not join a labor
organization or shall withdraw from one to which he belongs;

(c) To contract out services or functions being performed by union members when such will
interfere with, restrain or coerce employees in the exercise of their right to self-organization;

(d) To initiate, dominate, assist or otherwise interfere with the formation or administration of any
labor organization, including the giving of financial or other support to it or its organizers or supporters;

(e) To discriminate in regard to wages, hours of work, and other terms and conditions of
employment in order to encourage or discourage membership in any labor organization. Nothing in this
Code or in any other law shall stop the parties from requiring membership in a recognized collective
bargaining agent as a condition for employment, except those employees who are already members of
another union at the time of the signing of the collective bargaining agreement.

Employees of an appropriate collective bargaining unit who are not members of the recognized
collective bargaining agent may be assessed a reasonable fee equivalent to the dues and other fees paid
by members of the recognized collective bargaining agent, if such non-union members accept the
benefits under the collective agreement. Provided, That the individual authorization required under
Article 242, paragraph (o) of this Code shall not apply to the nonmembers of the recognized collective
bargaining agent; [The article referred to is 241, not 242. CAA]

(f) To dismiss, discharge, or otherwise prejudice or discriminate against an employee for having
given or being about to give testimony under this Code;

(g) To violate the duty to bargain collectively as prescribed by this Code;

(h) To pay negotiation or attorneys fees to the union or its officers or agents as part of the
settlement of any issue in collective bargaining or any other dispute; or

(i) To violate a collective bargaining agreement.

The provisions of the preceding paragraph notwithstanding, only the officers and agents of corporations
associations or partnerships who have actually participated, authorized or ratified unfair labor practices
shall be held criminally liable. [Emphasis supplied.]

Herein, Nestl is accused of violating its duty to bargain collectively when it purportedly imposed a pre-
condition to its agreement to discuss and engage in collective bargaining negotiations with UFE-DFA-
KMU.

A meticulous review of the record and pleadings of the cases at bar shows that, of the two notices of
strike filed by UFE-DFA-KMU before the NCMB, it was only on the second that the ground of unfair labor
practice was alleged. Worse, the 7 November 2001 Notice of Strike merely contained a general allegation
that Nestl committed unfair labor practice by bargaining in bad faith for supposedly setting pre-condition
in the ground rules (Retirement issue).[56] On the contrary, Nestl, in its Position Paper, did not confine
itself to the issue of the non-inclusion of the Retirement Plan but extensively discussed its stance on
other economic matters pertaining to the CBA.

Basic is the principle that good faith is presumed and he who alleges bad faith has the duty to prove the
same.[57] By imputing bad faith unto the actuations of Nestl, it was UFE-DFA-KMU, therefore, who had
the burden of proof to present substantial evidence to support the allegation of unfair labor practice. A
perusal of the allegations and arguments raised by UFE-DFA-KMU in the Memorandum (in G.R. Nos.
158930-31) will readily disclose that it failed to discharge said onus probandi as there is still a need for
the presentation of evidence other than its bare contention of unfair labor practice in order to make
certain the propriety or impropriety of the unfair labor practice charge hurled against Nestl. Under Rule
XIII, Sec. 4, Book V of the Implementing Rules of the Labor Code:

x x x. In cases of unfair labor practices, the notice of strike shall as far as practicable, state the acts
complained of and the efforts to resolve the dispute amicably. [Emphasis supplied.]

Except for the assertion put forth by UFE-DFA-KMU, neither the second Notice of Strike nor the records
of these cases substantiate a finding of unfair labor practice. It is not enough that the union believed that
the employer committed acts of unfair labor practice when the circumstances clearly negate even a
prima facie showing to warrant such a belief.[58] In its letter[59] to UFE-DFA-KMU of 29 May 2001,
though Nestl underscored its position that unilateral grants, one-time company grants, company-
initiated policies and programs, which include, but are not limited to the Retirement Plan, Incidental
Straight Duty Pay and Calling Pay Premium, are by their very nature not proper subjects of CBA
negotiations and therefore shall be excluded therefrom, such attitude is not tantamount to refusal to
bargain. This is especially true when it is viewed in the light of the fact that eight out of nine bargaining
units have allegedly agreed to treat the Retirement Plan as a unilateral grant. Nestl, therefore, cannot be
faulted for considering the same benefit as unilaterally granted. To be sure, it must be shown that Nestl
was motivated by ill will, bad faith, or fraud, or was oppressive to labor, or done in a manner contrary to
morals, good customs, or public policy, and, of course, that social humiliation, wounded feelings, or
grave anxiety resulted x x x[60] in disclaiming unilateral grants as proper subjects in their collective
bargaining negotiations.

There is no per se test of good faith in bargaining.[61] Good faith or bad faith is an inference to be drawn
from the facts,[62] to be precise, the crucial question of whether or not a party has met his statutory
duty to bargain in good faith typically turns on the facts of the individual case. Necessarily, a
determination of the validity of the Nestls proposition involves an appraisal of the exercise of its
management prerogative.

Employers are accorded rights and privileges to assure their self-determination and independence and
reasonable return of capital.[63] This mass of privileges comprises the so-called management
prerogatives.[64] In this connection, the rule is that good faith is always presumed. As long as the
companys exercise of the same is in good faith to advance its interest and not for purpose of defeating or
circumventing the rights of employees under the law or a valid agreement, such exercise will be upheld.
[65]

Construing arguendo that the content of the aforequoted letter of 29 May 2001 laid down a pre-
condition to its agreement to bargain with UFE-DFA-KMU, Nestls inclusion in its Position Paper of its
proposals affecting other matters covered by the CBA contradicts the claim of refusal to bargain or
bargaining in bad faith. Accordingly, since UFE-DFA-KMU failed to proffer substantial evidence that would
overcome the legal presumption of good faith on the part of Nestl, the award of moral and exemplary
damages is unavailing.

It must be remembered at all times that the Philippine Constitution, while inexorably committed towards
the protection of the working class from exploitation and unfair treatment, nevertheless mandates the
policy of social justice so as to strike a balance between an avowed predilection for labor, on the one
hand, and the maintenance of the legal rights of capital, the proverbial hen that lays the golden egg, on
the other. Indeed, we should not be unmindful of the legal norm that justice is in every case for the
deserving, to be dispensed with in the light of established facts, the applicable law, and existing
jurisprudence.[66]

In sum, from the facts and evidence extant in the records of these consolidated petitions, this Court finds
that 1) the Retirement Plan is still a valid issue for herein parties collective bargaining negotiations; 2) the
Court of Appeals committed reversible error in limiting to the issue of the ground rules the scope of the
power of the Secretary of Labor to assume jurisdiction over the subject labor dispute; and 3) Nestl is not
guilty of unfair labor practice. As no other issues are availing, this ponencia writes finis to the protracted
labor dispute between Nestl and UFE-DFA-KMU (Cabuyao Division).

WHEREFORE, in view of the foregoing, the Petition in G.R. No. 158930-31 seeking that Nestl be declared
to have committed unfair labor practice in allegedly setting a precondition to bargaining is DENIED. The
Petition in G.R. No. 158944-45, however, is PARTLY GRANTED in that we REVERSE the ruling of the Court
of Appeals in CA G.R. SP No. 69805 in so far as it ruled that the Secretary of the DOLE gravely abused her
discretion in failing to confine her assumption of jurisdiction power over the ground rules of the CBA
negotiations; but the ruling of the Court of Appeals on the inclusion of the Retirement Plan as a valid
issue in the collective bargaining negotiations between UFE-DFA-KMU and Nestl is AFFIRMED. The
parties are directed to resume negotiations respecting the Retirement Plan and to take action consistent
with the discussions hereinabove set forth. No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 75700-01 August 30, 1990

LOPEZ SUGAR CORPORATION, petitioner,

vs.

FEDERATION OF FREE WORKERS, PHILIPPINE LABOR UNION ASSOCIATION (PLUA-NACUSIP) and

NATIONAL LABOR RELATIONS COMMISSION, respondents.

Sicangco, Diaz, Ortiz and Lapak for petitioner.

Reynaldo J. Gulmatico for private respondents.

FELICIANO, J.:

In this Petition, petitioner Lopez Sugar Corporation seeks reversal of the Decision dated 2 July 1986 of
public respondent National labor Relations Commission ("NLRC") which affirmed the decision of the
Labor Arbiter dated 30 September 1983. The Labor Arbiter (a) had denied petitioner's application to
retrench some of its employees and (b) had ordered the reinstatement of twenty-seven (27) employees
and to pay them full backwages from the time of termination until actual reinstatement.

Petitioner, allegedly to prevent losses due to major economic problems, and exercising its privilege under
Article XI, Section 2 of its 1975-1977 Collective Bargaining Agreement ("CBA") entered into between
petitioner and private respondent Philippine Labor Union Association ("PLUA-NACUSIP"), caused the
retrenchment and retirement of a number of its employees.

Thus, on 3 January 1980, petitioner filed with the Bacolod District Office of the then Ministry of Labor
and Employment ("MOLE") a combined report on retirement and application for clearance to retrench,
dated 28 December 1979, 1 affecting eighty six (86) of its employees. This was docketed as NLRC Case
Ne. A-217-80. Of these eighty-six (86) employees, fifty-nine (59) were retired effective 1 January 1980
and twenty-eight (27) were to be retrenched effective 16 January 1980 "in order to prevent losses."

Also, on 3 January 1980, private respondent Federation of Free Workers ("FFW"), as the certified
bargaining agent of the rank-and-file employees of petitioner, filed with the Bacolod District Office of the
MOLE a complaint dated 27 December 1979 for unfair labor practices and recovery of union dues
docketed as NLRC Case No. A-198-80. In said complainant, FFW claimed that the terminations
undertaken by petitioner were violative of the security of tenure of its members and were intended to
"bust" the union and hence constituted an unfair labor practice. FFW claimed that after the termination
of the services of its members, petitioner advised 110 casuals to report to its personnel office. FFW
further argued that to justify retrenchment, serious business reverses must be "actual, real and amply
supported by sufficient and convincing evidence." FFW prayed for reinstatement of its members who
had been retired or retrenched.

Petitioner denied having hired casuals to replace those it had retired or retrenched. It explained that the
announcement calling for 110 workers to report to its personnel office was only for the purpose of
organizing a pool of extra workers which could be tapped whenever there were temporary vacancies by
reason of leaves of absence of regular workers.

On 22 January 1980, another report on retirement affecting an additional twenty-five (25) employees
effective 1 February 1980 was filed by petitioner. 2

On 3 March 1980, petitioner filed its Position Paper in NLRC Case No. A-217-80 contending that certain
economic factors jeopardizing its very existence rendered the dismissals necessary. Petitioner explained:

As a business firm, the Applicant must earn [a] fair return of (sic) its investment. Its income is generated
from the sales of the Central's shares of sugar and molasses production. It has however no control of the
selling price of both products. It is of common knowledge that for the past years the price of sugar has
been very low. In order to survive, the Applicant has effected several forms of cost reduction. Now that
there is hope in the price of sugar the applicant is again faced with two major economic problems, i.e.,
the stoppage of its railway operation and the spiralling cost of production.

The Applicant was forced to stop its railway operation because the owners of the land upon which the
Applicant's railway lines traverse are no longer willing to allow the Applicant to make further use of
portions of their lands. . . .

The other economic problem that confronted the Applicant is the rising cost of labor, materials, supplies,
equipment, etc. These two major economic problems the rising cost of production and the stoppage of
its railway facilities, put together pose a very serious threat against the economic survival of the
Applicant. In view of this, the Applicant was constrained to touch on the last phase of its cost reduction
program which is the reduction of its workforce.

xxx xxx xxx

The Applicant as a business proposition must be allowed to earn income in order to survive. This is the
essence of private enterprise. Being plagued with two major economic problems, the applicant is not
expected to remain immobile. It has to react accordingly. As many other business firms have resorted to
reduction of force in view of the present economic crisis obtaining here and abroad, the applicant was
likewise compelled to do the same as a last alternative remedy for survival. 3
In a decision dated 30 September 1983, 4 the Labor Arbiter denied petitioner's application for clearance
to retrench its employees on the ground that for retrenchment to be valid, the employer's losses must
be serious, actual and real and must be amply supported by sufficient and convincing evidence. The
application to retire was also denied on the ground that petitioner's prerogative to so retire its
employees was granted by the 1975-77 collective bargaining agreement which agreement had long ago
expired. Petitioner was, therefore, ordered to reinstate twenty-seven retired or retrenched employees
represented by private respondent Philippine Labor Union Association ("PLUA") and FFW and to pay
them full backwages from the time of termination until actual reinstatement.

Both dissatisfied with the Labor Arbiter's decision, petitioner and respondent FFW appealed the case to
public respondent NLRC. On appeal, the NLRC, finding no justifiable reason for disturbing the decision of
the Labor Arbiter, affirmed that decision on 2 July 1986. 5

Hence, this Petition for certiorari making the following arguments:

1. That portions of the decision of public respondent NLRC dated July 2, 1986 affirming the decision
of Labor Arbiter Ethelwoldo Ovejera dated September 30, 1983 are contrary to law and jurisprudence;

2. That said decision subject of this petition are in some respects not supported by evidence and
self-contradictory;

3. That said decision subject of this petition were rendered with grave abuse of discretion and in
excess of jurisdiction;

4. That the dismissals at bar are valid and based on justifiable

grounds. 6

Petitioner contends that the NLRC acted with grave abuse of discretion in denying its combined report
on retirement and application for clearance to retrench. Petitioner argues that under the law, it has the
right to reduce its workforce if made necessary by economic factors which would endanger its existence,
and that for retrenchment to be valid, it is not necessary that losses be actually sustained. The existence
of valid grounds to anticipate or expect losses would be sufficient justification to enable the employer to
take the necessary actions to prevent any threat to its survival.

Upon the other hand the Solicitor General argued that the Decision rendered by the Labor Arbiter and
affirmed by the NLRC is supported by substantial evidence on record; that, therefore, no grave abuse of
discretion was committed by public respondent NLRC when it rendered that Decision.

Article 283 of the Labor Code provides:

Article 283. Closure of establishment and reduction of personnel. — The employer may also
terminate the employment of any employee due to the installation of labor saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of cricumventing the provisions of this Title, by serving
a written notice on the workers and the Ministry of Labor and Employer at least one (1) month before
the intended date thereof. In case of termination due to the installation of labor saving devices or
redundancy, the worker affected thereby shall be entitled to a se pay equivalent to at least his one (1)
month pay or to at least one (1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases, of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one half (1/2) month pay for every year of service, whichever
is higher. A fraction of at least six (6) months shall be considered one (1) whole year. (Emphasis supplied)

In ts ordinary connotation, he phrase "to revent losses" means hat retrenchment or termination of the
services of some employees is authorized to be undertaken by the employer sometime before the losses
anticipated are actually sustained or realized. It is not, in other words, the intention of the lawmaker to
compel the employer to stay his hand and keep all his employees until sometime after losses shall have
in fact materialized ; 7 if such an intent were expressly written into the law, that law may well be
vulnerable to constitutional attack as taking property from one man to give to another. This is simple
enough.

At the other end of the spectrum, it seems equally clear that not every asserted possibility of loss is
sufficient legal warrant for reduction of personnel. In the nature of things, the possibility of incurring
losses is constantly present, in greater or lesser degree, in the carrying on of business operations, since
some, indeed many, of the factors which impact upon the profitability or viability of such operations may
be substantially outside the control of the employer. Thus, the difficult question is determination of
when, or under what circumstances, the employer becomes legally privileged to retrench and reduce the
number of his employees.

We consider it may be useful to sketch the general standards in terms of which the acts of petitioner
employer must be appraised. Firstly, the losses expected should be substantial and not merely de
minimis in extent. If the loss purportedly sought to be forestalled by retrenchment is clearly shown to be
insubstantial and inconsequential in character, the bona fide nature of the retrenchment would appear
to be seriously in question. Secondly, the substantial loss apprehended must be reasonably imminent, as
such imminence can be perceived objectively and in good faith by the employer. There should, in other
words, be a certain degree of urgency for the retrenchment, which is after all a drastic recourse with
serious consequences for the livelihood of the employees retired or otherwise laid-off. Because of the
consequential nature of retrenchment, it must, thirdly, be reasonably necessary and likely to effectively
prevent the expected losses. The employer should have taken other measures prior or parallel to
retrenchment to forestall losses, i.e., cut other costs than labor costs. An employer who, for instance,
lays off substantial numbers of workers while continuing to dispense fat executive bonuses and
perquisites or so-called "golden parachutes", can scarcely claim to be retrenching in good faith to avoid
losses. To impart operational meaning to the constitutional policy of providing "full protection" to labor,
the employer's prerogative to bring down labor costs by retrenching must be exercised essentially as a
measure of last resort, after less drastic means — e.g., reduction of both management and rank-and-file
bonuses and salaries, going on reduced time, improving manufacturing efficiencies, trimming of
marketing and advertising costs, etc. — have been tried and found wanting.

Lastly, but certainly not the least important, alleged if already realized, and the expected imminent
losses sought to be forestalled, must be proved by sufficient and convincing evidence. The reason for
requiring this quantum of proof is readily apparent: any less exacting standard of proof would render too
easy the abuse of this ground for termination of services of employees. In Garcia v. National Labor
Relations Commissions, 8 the Court said:

. . . But it is essentially required that the alleged losses in business operations must be prove[n] (National
Federation of Labor Unions [NAFLU] vs. Ople, 143 SCRA 124 [1986]). Otherwise, said ground for
termination would be susceptible to abuse by scheming employers who might be merely feigning
business losses or reverses in their business ventures in order to ease out employees. (Emphasis
supplied) 9
Whether or not an employer would imminently suffer serious or substantial losses for economic reasons
is essentially a question of fact for the Labor Arbiter and the NLRC to determine. In the instant case, the
Labor Arbiter found no sufficient and convincing evidence to sustain petitioner's essential contention
that it was acting in order to prevent substantial and serious losses. The Labor Arbiter said:

There is no question that an employer may reduce its work force to prevent losses, however, these losses
must be serious, actual and real. In the instant case, even assuming arguendo that applicant company
was, in fact, surrounded by the major economic problems stated earlier, the question may be asked —
will it suffer serious losses as a result of the said economic problems? We find the answer to be negative.
We have scanned the records but failed to find evidence submitted to show that applicant company
would suffer serious business losses or reverses as a consequence of the alleged major economic
problems. In fact, applicant company asseverated that these problems only threatens its survival, hence,
it had to reduce its work force. Another thing, while applicant company was retrenching its regular
employees, it also hired the services of casuals. This militated its claim to reduce its work force to set up
cost reduction. It must be stated that settled is the rule that serious business losses or reverses must be
actual, real and amply supported by sufficient and convincing evidence. 10 (Emphasis supplied)

We are in principle bound by such findings in accordance with well-established jurisprudence that the
factual findings of labor administrative officials, if supported by substantial evidence, are entitled not
only to great respect but even to finality, 11 unless, indeed, petitioner is able to show that the Labor
Arbiter and the NLRC simply and arbitrarily disregarded evidence before them or had misapprehended
evidence of such a nature as to compel a contrary conclusion if properly appreciated.

The submissions made by petitioner in this respect are basically that from the crop year 1975-1976 to
the crop year 1980-981, the amount of cane deliveries made to petitioner Central was declining and that
the degree of utilization of the mill's capacity and the sugar recovery from the cane actually processed,
were similarly declining. 12 Petitioner also argued that the competition among the existing sugar mills
for the limited supply of sugar cane was lively and that such competition resulted in petitioner having to
close approximately — thirty-eight (38) of its railroad lines by the end of 1979. 13 According to the
petitioner, the cost of producing one (1) picul of sugar during the same period (i.e., from crop year 1976-
1977 to crop year 1979-1980) increased from P69.97 to P93.11.

The principal difficulty with petitioner's case as above presented was that no proof of actual declining
gross and net revenues was submitted. No audited financial statements showing the financial condition
of petitioner corporation during the above mentioned crop years were submitted. Since financial
statements audited by independent external auditors constitute the normal method of proof of the
profit and loss performance of a company, it is not easy to understand why petitioner should have failed
to submit such financial statements.

Moreover, while petitioner made passing reference to cost reduction measures it had allegedly
undertaken, it was, once more, a fairly conspicuous failure to specify the cost-reduction measures
actually undertaken in good faith before resorting to retrenchment. Upon the other hand, it appears
from the record that petitioner, after reducing its work force, advised 110 casual workers to register with
the company personnel officer as extra workers. Petitioner, as earlier noted, argued that it did not
actually hire casual workers but that it merely organize(d] a pool of "extra workers" from which workers
could be drawn whenever vacancies occurred by reason of regular workers going on leave of absence.
Both the Labor Arbiter and the NLRC did not accord much credit to petitioner's explanation but
petitioner has not shown that the Labor Arbiter and the NLRC were merely being arbitrary and
capricious in their evaluation. We note also that petitioner did not claim that the retrenched and retired
employees were brought into the "pool of extra workers" rather than new casual workers.

Petitioner next contends that the NLRC committed grave abuse of discretion in affirming the ruling of the
Labor Arbiter that the retirements effected by petitioner were na valid since the basis therefor, i.e.
Article XI Section 2 of the 1975-1977 CBA, had by then already expired and was thus no longer
enforceable or operative. 14 Article XI, 2 of the CBA provides:

2. Section 2. — Any employee may apply for after having rendered the of at least eighteen (18)
year of service to the COMPANY. The COMPANY, as a right , may retire any employee who has rendered
twenty (20) years of service, or has reached the age of sixty (60) years. Employees who are physically
incapacitated to continue to work in the COMPANY upon certification of the COMPANY Physician, shall
be entitled to a separation pay equivalent to the retirement benefits herein provided for that may have
accrued. The heirs or surviving legally married spouse of the deceased employee shall be granted by the
COMPANY the amount equivalent to the accrued retirement benefit of the deceased employee at the
time of his death." 15 (Emphasis supplied)

Petitioner argues that the CBA was "extended" not merely by implication, but by reciprocal acts — in the
sense that even after the CBA had expired, petitioner continued to give, and the workers continued to
receive, the benefits and exercise the prerogatives provided therein. Under these circumstances,
petitioner urges, the employees are estopped from denying the extended effectivity of the CBA.
The Solicitor General, as well as private respondents, argue basically that petitioner's right to retire its
employees was coterminous with the life of the CBA.

On this point, we must find for petitioner. Although the CBA expired on 31 December 1977, it continued
to have legal effects as between the parties until a new CBA had been negotiated and entered into. This
proposition finds legal support in Article 253 of the Labor Code, which provides:

Article 253 — Duty to bargain collectively when there exists a collective bargaining agreement. — When
there is a collective bargaining agreement, the duty to bargain collectively shall also mean that neither
party shall terminate nor modify such agreement during its lifetime. However, either party can serve a
written notice to terminate or modify the agreement at least sixty (60) days prior to its expiration date. It
shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms
and conditions of the existing agreement during the 60-day period and/or until a new agreement is
reached by the parties. (Emphasis supplied)

Accordingly, in the instant case, despite the lapse of the formal effectivity of the CBA by virtue of its own
provisions, the law considered the same as continuing in force and effect until a new CBA shall have been
validly executed. Hence, petitioner acted within legal bounds when it decided to retire several
employees in accordance with the CBA. That the employees themselves similarly acted in accordance
with the CBA is plain from the record. Even after the expiration of the CBA, petitioner's employees
continued to receive the benefits and enjoy the privileges granted therein. They continued to avail of
vacation and sick leaves as computed in accordance with Articles VII and VIII of the CBA. They also
continued to avail of medical and dental aid under Article IX, death aid and bereavement leave under
Articles X and XIV, insurance coverage under Article XVI and housing allowance under Article XVIII.
Seventeen (17) employees even availed of Section XI (dealing with retirement) when they voluntarily
retired between 1 January 1978 and 31 December 1980 and received retirement pay computed on the
basis of Section 3 of the same article. If the workers chose to avail of the CBA despite its expiration,
equity — if not the law-dictates that the employer should likewise be able to invoke the CBA.

The fact that several workers signed quitclaims will not by itself bar them from joining in the complaint.
Quitclaims executed by laborers are commonly frowned upon as contrary to public policy and ineffective
to bar claims for the full measure of the worker's legal rights. In AFP Mutual Benefit Association, Inc. v.
AFP-MBAI-EU, 16 the Court held:
In labor jurisprudence, it is well establish that quitclaims and/or complete releases executed by the
employees do not estop them from pursuing their claims arising from the unfair labor practice of the
employer. The basic reason for this is that such quitclaimants and/or complete releases are against public
policy and, therefore, null and void. The acceptance of termination pay does not divest a laborer of the
right to prosecute his employer for unfair labor practice acts. (Cariño vs. ACCFA, L-19808, September 29,
1966, 18 SCRA 183; Philippine Sugar Institute vs. CIR, L-13475, September 29, 1960, 109 Phil. 452;
Mercury Drug Co. vs. CIR, L-23357, April 30, 1974, 56 SCRA 694, 704)

In the Cariño case, supra, the Supreme Court, speaking thru Justice Sanchez, said:

Acceptance of those benefits would not amount to estoppel. The reason is plain. Employer and
employee, obviously, do not stand on the same footing The employer drove the employee to the wall.
The latter must have to get hold of money. Because, out of job, he had to face the harsh necessities of
life. He thus found himself in no position to resist money proffered. His, then, is a case of adherence, not
of choice. One thing sure, however, is that petitioners did not relent their claim. They pressed it. They
are deemed not to have waived any of their rights. Renuntiatio non praesumitur (Emphasis supplied)

We conclude that because the attempted retrenchment on the part of the petitioner was legally
ineffective, all retrenched employees should be reinstated and backwages paid them corresponding to a
period of three (3) years without qualification or deduction, in accordance with the three-year rule laid
down in a long line of cases. 17 In the case of employees who had received payments for which they had
executed quitclaims, the amount of such payments shall be deducted from the backwages due to them.
Where reinstatement is no longer possible because the positions they had previously filled are no longer
in existence, petitioner shall pay backwages plus, in lieu of reinstatement, separation pay in the amount
of one-month's pay for every year of service including the three (3) year-period of putative service for
which backwages will be paid. Upon the other hand, we find valid the retirement of those employees
who were retired by petitioner pursuant to the applicable provisions of the CBA.

WHEREFORE, the Petition for Certiorari is partially GRANTED due course and the Decision dated 2 July
1986 of the public respondent NLRC is hereby MODIFIED to the extent that it had affirmed that portion
of the Decision of the Labor Arbiter dated 30 September 1983 ordering the reinstatement judgment of
employees who had been retired by petitioner under the applicable provisions of the CBA. Except as so
modified, the Decision of the NLRC is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.

Footnotes

1 Rollo, pp. 38-39; Annexes "A" and "A-l" of Petition

Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

PICOP RESOURCES, INCORPORATED (PRI),

Petitioner,

- versus

ANACLETO L. TAECA, GEREMIAS S. TATO, JAIME N. CAMPOS, MARTINIANO A. MAGAYON, JOSEPH B.

BALGOA, MANUEL G. ABUCAY, MOISES M. ALBARAN, MARGARITO G. ALICANTE, JERRY ROMEO T. AVILA,
LORENZO D. CANON, RAUL P. DUERO, DANILO Y. ILAN, MANUEL M. MATURAN, JR., LUISITO R. POPERA,
CLEMENTINO C. QUIMAN, ROBERTO Q. SILOT, CHARLITO D. SINDAY, REMBERT B. SUZON ALLAN J.
TRIMIDAL, and NAMAPRI-SPFL,
Respondents.

G.R. No. 160828

Present:

CARPIO, J., Chairperson,

NACHURA,

PERALTA

ABAD, and

MENDOZA, JJ.

Promulgated:

August 9, 2010

x----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of the
Decision[1] dated July 25, 2003 and Resolution[2] dated October 23, 2003 of the Court of Appeals in CA-
G.R. SP No. 71760, setting aside the Resolutions dated October 8, 2001[3] and April 29, 2002[4] of the
National Labor Relations Commission in NLRC CA No. M-006309-2001 and reinstating the Decision[5]
dated March 16, 2001 of the Labor Arbiter.

The facts, as culled from the records, are as follows:

On February 13, 2001, respondents Anacleto Taeca, Loreto Uriarte, Joseph Balgoa, Jaime Campos,
Geremias Tato, Martiniano Magayon, Manuel Abucay and fourteen (14) others filed a Complaint for
unfair labor practice, illegal dismissal and money claims against petitioner PICOP Resources,
Incorporated (PRI), Wilfredo Fuentes (in his capacity as PRI's Vice President/Resident Manager), Atty.
Romero Boniel (in his capacity as PRI's Manager of Legal/Labor), Southern Philippines Federation of
Labor (SPFL), Atty. Wilbur T. Fuentes (in his capacity as Secretary General of SPFL), Pascasio Trugillo (in his
capacity as Local President of Nagkahiusang Mamumuo sa PICOP Resources, Inc.- SPFL [NAMAPRI-SPFL])
and Atty. Proculo Fuentes, Jr.[6] (in his capacity as National President of SPFL).

Respondents were regular rank-and-file employees of PRI and bona fide members of Nagkahiusang
Mamumuo sa PRI Southern Philippines Federation of Labor (NAMAPRI-SPFL), which is the collective
bargaining agent for the rank-and-file employees of petitioner PRI.

PRI has a collective bargaining agreement (CBA) with NAMAPRI-SPFL for a period of five (5) years from
May 22, 1995 until May 22, 2000.

The CBA contained the following union security provisions:

Article II- Union Security and Check-Off

Section 6. Maintenance of membership.

6.1 All employees within the appropriate bargaining unit who are members of the UNION at the time of
the signing of this AGREEMENT shall, as a condition of continued employment by the COMPANY,
maintain their membership in the UNION in good standing during the effectivity of this AGREEMENT.

6.2 Any employee who may hereinafter be employed to occupy a position covered by the bargaining unit
shall be advised by the COMPANY that they are required to file an application for membership with the
UNION within thirty (30) days from the date his appointment shall have been made regular.

6.3 The COMPANY, upon the written request of the UNION and after compliance with the requirements
of the New Labor Code, shall give notice of termination of services of any employee who shall fail to
fulfill the condition provided in Section 6.1 and 6.2 of this Article, but it assumes no obligation to
discharge any employee if it has reasonable grounds to believe either that membership in the UNION
was not available to the employee on the same terms and conditions generally applicable to other
members, or that membership was denied or terminated for reasons other than voluntary resignation or
non-payment of regular union dues. Separation under the Section is understood to be for cause,
consequently, the dismissed employee is not entitled to separation benefits provided under the New
Labor Code and in this AGREEMENT.[7]

On May 16, 2000, Atty. Proculo P. Fuentes (Atty. Fuentes) sent a letter to the management of PRI
demanding the termination of employees who allegedly campaigned for, supported and signed the
Petition for Certification Election of the Federation of Free Workers Union (FFW) during the effectivity of
the CBA. NAMAPRI-SPFL considered said act of campaigning for and signing the petition for certification
election of FFW as an act of disloyalty and a valid basis for termination for a cause in accordance with its
Constitution and By-Laws, and the terms and conditions of the CBA, specifically Article II, Sections 6.1
and 6.2 on Union Security Clause.

In a letter dated May 23, 2000, Mr. Pascasio Trugillo requested the management of PRI to investigate
those union members who signed the Petition for Certification Election of FFW during the existence of
their CBA. NAMAPRI-SPFL, likewise, furnished PRI with machine copy of the authorization letters dated
March 19, 20 and 21, 2000, which contained the names and signatures of employees.
Acting on the May 16 and May 23, 2000 letters of the NAMAPRI-SPFL, Atty. Romero A. Boniel issued a
memorandum addressed to the concerned employees to explain in writing within 72 hours why their
employment should not be terminated due to acts of disloyalty as alleged by their Union.

Within the period from May 26 to June 2, 2000, a number of employees who were served explanation
memorandum submitted their explanation, while some did not.

In a letter dated June 2, 2000, Atty. Boniel endorsed the explanation letters of the employees to Atty.
Fuentes for evaluation and final disposition in accordance with the CBA.

After evaluation, in a letter dated July 12, 2000, Atty. Fuentes advised the management of PRI that the
Union found the member's explanations to be unsatisfactory. He reiterated the demand for termination,
but only of 46 member-employees, including respondents.

On October 16, 2000, PRI served notices of termination for causes to the 31 out of the 46 employees
whom NAMAPRIL-SPFL sought to be terminated on the ground of acts of disloyalty committed against it
when respondents allegedly supported and signed the Petition for Certification Election of FFW before
the freedom period during the effectivity of the CBA. A Notice dated October 21, 2000 was also served
on the Department of Labor and Employment Office (DOLE), Caraga Region.

Respondents then accused PRI of Unfair Labor Practice punishable under Article 248 (a), (b), (c), (d) and
(e) of the Labor Code, while Atty. Fuentes and Wilbur T. Fuentes and Pascasio Trujillo were accused of
violating Article 248 (a) and (b) of the Labor Code.

Respondents alleged that none of them ever withdrew their membership from NAMAPRI-SPFL or
submitted to PRI any union dues and check-off disauthorizations against NAMAPRI-SPFL. They claimed
that they continue to remain on record as bona fide members of NAMAPRI-SPFL. They pointed out that a
patent manifestation of ones disloyalty would have been the explicit resignation or withdrawal of
membership from the Union accompanied by an advice to management to discontinue union dues and
check-off deductions. They insisted that mere affixation of signature on such authorization to file a
petition for certification election was not per se an act of disloyalty. They claimed that while it may be
true that they signed the said authorization before the start of the freedom period, the petition of FFW
was only filed with the DOLE on May 18, 2000, or 58 days after the start of the freedom period.
Respondents maintained that their acts of signing the authorization signifying support to the filing of a
Petition for Certification Election of FFW was merely prompted by their desire to have a certification
election among the rank-and-file employees of PRI with hopes of a CBA negotiation in due time; and not
to cause the downfall of NAMAPRI-SPFL.

Furthermore, respondents contended that there was lack of procedural due process. Both the letter
dated May 16, 2000 of Atty. Fuentes and the follow-up letter dated May 23, 2000 of Trujillo addressed to
PRI did not mention their names. Respondents stressed that NAMAPRI-SPFL merely requested PRI to
investigate union members who supported the Petition for Certification Election of FFW. Respondents
claimed that they should have been summoned individually, confronted with the accusation and
investigated accordingly and from where the Union may base its findings of disloyalty and, thereafter,
recommend to management the termination for causes.

Respondents, likewise, argued that at the time NAMAPRI-SPFL demanded their termination, it was no
longer the bargaining representative of the rank-and-file workers of PRI, because the CBA had already
expired on May 22, 2000. Hence, there could be no justification in PRIs act of dismissing respondents
due to acts of disloyalty.

Respondents asserted that the act of PRI, Wilfredo Fuentes and Atty. Boniel in giving in to the wishes of
the Union in discharging them on the ground of disloyalty to the Union amounted to interference with,
restraint or coercion of respondents exercise of their right to self-organization. The act indirectly
required petitioners to support and maintain their membership with NAMAPRI-SPFL as a condition for
their continued employment. The acts of NAMAPRI-SPFL, Atty. Fuentes and Trujillo amounted to actual
restraint and coercion of the petitioners in the exercise of their rights to self-organization and
constituted acts of unfair labor practice.

In a Decision[8] dated March 16, 2001, the Labor Arbiter declared the respondents dismissal to be illegal
and ordered PRI to reinstate respondents to their former or equivalent positions without loss of seniority
rights and to jointly and solidarily pay their backwages. The dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby entered:

1. Declaring complainants dismissal illegal; and

2. Ordering respondents Picop Resources Inc. (PRI) and NAMAPRI-SPFL to reinstate

complainants to their former or equivalent positions without loss of seniority rights and to jointly and
solidarily pay their backwages in the total amount of P420,339.30 as shown in the said Annex A plus
damages in the amount of P10,000.00 each, or a total of P210,000.00 and attorneys fees equivalent to
10% of the total monetary award.

SO ORDERED.[9]

PRI and NAMAPRI-SPFL appealed to the National Labor Relations Commission (NLRC), which reversed
the decision of the Labor Arbiter; thus, declaring the dismissal of respondents from employment as legal.

Respondents filed a motion for reconsideration, but it was denied on April 29, 2001 for lack of merit.

Unsatisfied, respondents filed a petition for certiorari under Rule 65 before the Court of Appeals and
sought the nullification of the Resolution of the NLRC dated October 8, 2001 which reversed the Decision
dated March 16. 2001 of Labor Arbiter and the Resolution dated April 29, 2002, which denied
respondents motion for reconsideration.

On July 25, 2003, the Court of Appeals reversed and set aside the assailed Resolutions of the NLRC and
reinstated the Decision dated March 16, 2001 of the Labor Arbiter.

Thus, before this Court, PRI, as petitioner, raised the following issues:

I
WHETHER AN EXISTING COLLECTIVELY (sic) BARGAINING AGREEMENT (CBA) CAN BE GIVEN ITS FULL
FORCE AND EFFECT IN ALL ITS TERMS AND CONDITION INCLUDING ITS UNION SECURITY CLAUSE, EVEN
BEYOND THE 5-YEAR PERIOD WHEN NO NEW CBA HAS YET BEEN ENTERED INTO.

II

WHETHER OR NOT AN HONEST ERROR IN THE INTERPRETATION AND/OR CONCLUSION OF LAW FALL
WITHIN THE AMBIT OF THE EXTRAORDINARY REMEDY OF CERTIORARI UNDER RULE 65, REVISED RULES
OF COURT.[10]

We will first delve on the technical issue raised.

PRI perceived a patent error in the mode of appeal elected by respondents for the purpose of assailing
the decision of the NLRC. It claimed that assuming that the NLRC erred in its judgment on the legal
issues, its error, if any, is not tantamount to abuse of discretion falling within the ambit of Rule 65.

Petitioner is mistaken.

The power of the Court of Appeals to review NLRC decisions via Rule 65 or Petition for Certiorari has
been settled as early as in our decision in St. Martin Funeral Home v. National Labor Relations
Commission.[11] This Court held that the proper vehicle for such review was a Special Civil Action for
Certiorari under Rule 65 of the Rules of Court, and that this action should be filed in the Court of Appeals
in strict observance of the doctrine of the hierarchy of courts.[12] Moreover, it is already settled that
under Section 9 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7902[10] (An Act
Expanding the Jurisdiction of the Court of Appeals, amending for the purpose of Section Nine of Batas
Pambansa Blg. 129 as amended, known as the Judiciary Reorganization Act of 1980), the Court of
Appeals pursuant to the exercise of its original jurisdiction over Petitions for Certiorari is specifically
given the power to pass upon the evidence, if and when necessary, to resolve factual issues. [13]

We now come to the main issue of whether there was just cause to terminate the employment of
respondents.

PRI argued that the dismissal of the respondents was valid and legal. It claimed to have acted in good
faith at the instance of the incumbent union pursuant to the Union Security Clause of the CBA.

Citing Article 253 of the Labor Code,[14] PRI contends that as parties to the CBA, they are enjoined to
keep the status quo and continue in full force and effect the terms and conditions of the existing CBA
during the 60-day period and/or until a new agreement is reached by the parties.

Petitioner's argument is untenable.

Union security" is a generic term, which is applied to and comprehends "closed shop," union shop,"
"maintenance of membership," or any other form of agreement which imposes upon employees the
obligation to acquire or retain union membership as a condition affecting employment. There is union
shop when all new regular employees are required to join the union within a certain period as a
condition for their continued employment. There is maintenance of membership shop when employees,
who are union members as of the effective date of the agreement, or who thereafter become members,
must maintain union membership as a condition for continued employment until they are promoted or
transferred out of the bargaining unit, or the agreement is terminated. A closed shop, on the other hand,
may be defined as an enterprise in which, by agreement between the employer and his employees or
their representatives, no person may be employed in any or certain agreed departments of the
enterprise unless he or she is, becomes, and, for the duration of the agreement, remains a member in
good standing of a union entirely comprised of or of which the employees in interest are a part.[15]

However, in terminating the employment of an employee by enforcing the union security clause, the
employer needs to determine and prove that: (1) the union security clause is applicable; (2) the union is
requesting for the enforcement of the union security provision in the CBA; and (3) there is sufficient
evidence to support the decision of the union to expel the employee from the union. These requisites
constitute just cause for terminating an employee based on the union security provision of the CBA.[16]

As to the first requisite, there is no question that the CBA between PRI and respondents included a union
security clause, specifically, a maintenance of membership as stipulated in Sections 6 of Article II, Union
Security and Check-Off. Following the same provision, PRI, upon written request from the Union, can
indeed terminate the employment of the employee who failed to maintain its good standing as a union
member.

Secondly, it is likewise undisputed that NAMAPRI-SPFL, in two (2) occasions demanded from PRI, in their
letters dated May 16 and 23, 2000, to terminate the employment of respondents due to their acts of
disloyalty to the Union.

However, as to the third requisite, we find that there is no sufficient evidence to support the decision of
PRI to terminate the employment of the respondents.

PRI alleged that respondents were terminated from employment based on the alleged acts of disloyalty
they committed when they signed an authorization for the Federation of Free Workers (FFW) to file a
Petition for Certification Election among all rank-and-file employees of PRI. It contends that the acts of
respondents are a violation of the Union Security Clause, as provided in their Collective Bargaining
Agreement.

We are unconvinced.

We are in consonance with the Court of Appeals when it held that the mere signing of the authorization
in support of the Petition for Certification Election of FFW on March 19, 20 and 21, or before the
freedom period, is not sufficient ground to terminate the employment of respondents inasmuch as the
petition itself was actually filed during the freedom period. Nothing in the records would show that
respondents failed to maintain their membership in good standing in the Union. Respondents did not
resign or withdraw their membership from the Union to which they belong. Respondents continued to
pay their union dues and never joined the FFW.

Significantly, petitioner's act of dismissing respondents stemmed from the latter's act of signing an
authorization letter to file a petition for certification election as they signed it outside the freedom
period. However, we are constrained to believe that an authorization letter to file a petition for
certification election is different from an actual Petition for Certification Election. Likewise, as per
records, it was clear that the actual Petition for Certification Election of FFW was filed only on May 18,
2000.[17] Thus, it was within the ambit of the freedom period which commenced from March 21, 2000
until May 21, 2000. Strictly speaking, what is prohibited is the filing of a petition for certification election
outside the 60-day freedom period.[18] This is not the situation in this case. If at all, the signing of the
authorization to file a certification election was merely preparatory to the filing of the petition for
certification election, or an exercise of respondents right to self-organization.

Moreover, PRI anchored their decision to terminate respondents employment on Article 253 of the
Labor Code which states that it shall be the duty of both parties to keep the status quo and to continue
in full force and effect the terms and conditions of the existing agreement during the 60-day period
and/or until a new agreement is reached by the parties. It claimed that they are still bound by the Union
Security Clause of the CBA even after the expiration of the CBA; hence, the need to terminate the
employment of respondents.

Petitioner's reliance on Article 253 is misplaced.

The provision of Article 256 of the Labor Code is particularly enlightening. It reads:
Article 256. Representation issue in organized establishments. - In organized establishments, when a
verified petition questioning the majority status of the incumbent bargaining agent is filed before the
Department of Labor and Employment within the sixty-day period before the expiration of a collective
bargaining agreement, the Med-Arbiter shall automatically order an election by secret ballot when the
verified petition is supported by the written consent of at least twenty-five percent (25%) of all the
employees in the bargaining unit to ascertain the will of the employees in the appropriate bargaining
unit. To have a valid election, at least a majority of all eligible voters in the unit must have cast their
votes. The labor union receiving the majority of the valid votes cast shall be certified as the exclusive
bargaining agent of all the workers in the unit. When an election which provides for three or more
choices results in no choice receiving a majority of the valid votes cast, a run-off election shall be
conducted between the labor unions receiving the two highest number of votes: Provided, That the total
number of votes for all contending unions is at least fifty per cent (50%) of the number of votes cast.

At the expiration of the freedom period, the employer shall continue to recognize the majority status of
the incumbent bargaining agent where no petition for certification election is filed.[19]

Applying the same provision, it can be said that while it is incumbent for the employer to continue to
recognize the majority status of the incumbent bargaining agent even after the expiration of the
freedom period, they could only do so when no petition for certification election was filed. The reason is,
with a pending petition for certification, any such agreement entered into by management with a labor
organization is fraught with the risk that such a labor union may not be chosen thereafter as the
collective bargaining representative.[20] The provision for status quo is conditioned on the fact that no
certification election was filed during the freedom period. Any other view would render nugatory the
clear statutory policy to favor certification election as the means of ascertaining the true expression of
the will of the workers as to which labor organization would represent them.[21]

In the instant case, four (4) petitions were filed as early as May 12, 2000. In fact, a petition for
certification election was already ordered by the Med-Arbiter of DOLE Caraga Region on August 23,
2000.[22] Therefore, following Article 256, at the expiration of the freedom period, PRI's obligation to
recognize NAMAPRI-SPFL as the incumbent bargaining agent does not hold true when petitions for
certification election were filed, as in this case.

Moreover, the last sentence of Article 253 which provides for automatic renewal pertains only to the
economic provisions of the CBA, and does not include representational aspect of the CBA. An existing
CBA cannot constitute a bar to a filing of a petition for certification election. When there is a
representational issue, the status quo provision in so far as the need to await the creation of a new
agreement will not apply. Otherwise, it will create an absurd situation where the union members will be
forced to maintain membership by virtue of the union security clause existing under the CBA and,
thereafter, support another union when filing a petition for certification election. If we apply it, there will
always be an issue of disloyalty whenever the employees exercise their right to self-organization. The
holding of a certification election is a statutory policy that should not be circumvented,[23] or
compromised.

Time and again, we have ruled that we adhere to the policy of enhancing the welfare of the workers.
Their freedom to choose who should be their bargaining representative is of paramount importance. The
fact that there already exists a bargaining representative in the unit concerned is of no moment as long
as the petition for certification election was filed within the freedom period. What is imperative is that
by such a petition for certification election the employees are given the opportunity to make known of
who shall have the right to represent them thereafter. Not only some, but all of them should have the
right to do so. What is equally important is that everyone be given a democratic space in the bargaining
unit concerned.[24]

We will emphasize anew that the power to dismiss is a normal prerogative of the employer. This,
however, is not without limitations. The employer is bound to exercise caution in terminating the
services of his employees especially so when it is made upon the request of a labor union pursuant to
the Collective Bargaining Agreement. Dismissals must not be arbitrary and capricious. Due process must
be observed in dismissing an employee, because it affects not only his position but also his means of
livelihood. Employers should, therefore, respect and protect the rights of their employees, which include
the right to labor.[25]

An employee who is illegally dismissed is entitled to the twin reliefs of full backwages and reinstatement.
If reinstatement is not viable, separation pay is awarded to the employee. In awarding separation pay to
an illegally dismissed employee, in lieu of reinstatement, the amount to be awarded shall be equivalent
to one month salary for every year of service. Under Republic Act No. 6715, employees who are illegally
dismissed are entitled to full backwages, inclusive of allowances and other benefits, or their monetary
equivalent, computed from the time their actual compensation was withheld from them up to the time
of their actual reinstatement. But if reinstatement is no longer possible, the backwages shall be
computed from the time of their illegal termination up to the finality of the decision. Moreover,
respondents, having been compelled to litigate in order to seek redress for their illegal dismissal, are
entitled to the award of attorneys fees equivalent to 10% of the total monetary award.[26]

WHEREFORE, the petition is DENIED. The Decision dated July 25, 2003 and the Resolution dated October
23, 2003 of the Court of Appeals in CA-G.R. SP No. 71760, which set aside the Resolutions dated October
8, 2001 and April 29, 2002 of the National Labor Relations Commission in NLRC CA No. M-006309-2001,
are AFFIRMED accordingly. Respondents are hereby awarded full backwages and other allowances,
without qualifications and diminutions, computed from the time they were illegally dismissed up to the
time they are actually reinstated. Let this case be remanded to the Labor Arbiter for proper computation
of the full backwages due respondents, in accordance with Article 279 of the Labor Code, as
expeditiously as possible.
SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS,

Petitioner,

- versus -

BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS

IN BPI UNIBANK,

Respondent.

G.R. No. 164301

Present:
CORONA, C.J.,

CARPIO,

CARPIO MORALES,

VELASCO, JR.,*

NACHURA,

LEONARDO-DE CASTRO,

BRION,

PERALTA,

BERSAMIN,

DEL CASTILLO,

ABAD,

VILLARAMA, JR.,

PEREZ, and

MENDOZA, JJ.

Promulgated:

August 10, 2010

x------------------------------------------------x

DECISION
LEONARDO-DE CASTRO, J.:

May a corporation invoke its merger with another corporation as a valid ground to exempt its absorbed
employees from the coverage of a union shop clause contained in its existing Collective Bargaining
Agreement (CBA) with its own certified labor union? That is the question we shall endeavor to answer in
this petition for review filed by an employer after the Court of Appeals decided in favor of respondent
union, which is the employees recognized collective bargaining representative.

At the outset, we should call to mind the spirit and the letter of the Labor Code provisions on union
security clauses, specifically Article 248 (e), which states, x x x Nothing in this Code or in any other law
shall stop the parties from requiring membership in a recognized collective bargaining agent as a
condition for employment, except those employees who are already members of another union at the
time of the signing of the collective bargaining agreement.[1] This case which involves the application of
a collective bargaining agreement with a union shop clause should be resolved principally from the
standpoint of the clear provisions of our labor laws, and the express terms of the CBA in question, and
not by inference from the general consequence of the merger of corporations under the Corporation
Code, which obviously does not deal with and, therefore, is silent on the terms and conditions of
employment in corporations or juridical entities.

This issue must be resolved NOW, instead of postponing it to a future time when the CBA is renegotiated
as suggested by the Honorable Justice Arturo D. Brion because the same issue may still be resurrected in
the renegotiation if the absorbed employees insist on their privileged status of being exempt from any
union shop clause or any variant thereof.

We find it significant to note that it is only the employer, Bank of the Philippine Islands (BPI), that
brought the case up to this Court via the instant petition for review; while the employees actually
involved in the case did not pursue the same relief, but had instead chosen in effect to acquiesce to the
decision of the Court of Appeals which effectively required them to comply with the union shop clause
under the existing CBA at the time of the merger of BPI with Far East Bank and Trust Company (FEBTC),
which decision had already become final and executory as to the aforesaid employees. By not appealing
the decision of the Court of Appeals, the aforesaid employees are bound by the said Court of Appeals
decision to join BPIs duly certified labor union. In view of the apparent acquiescence of the affected
FEBTC employees in the Court of Appeals decision, BPI should not have pursued this petition for review.
However, even assuming that BPI may do so, the same still cannot prosper.

What is before us now is a petition for review under Rule 45 of the Rules of Court of the Decision[2]
dated September 30, 2003 of the Court of Appeals, as reiterated in its Resolution[3] of June 9, 2004,
reversing and setting aside the Decision[4] dated November 23, 2001 of Voluntary Arbitrator Rosalina
Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled BPI Employees Union-Davao Chapter-Federation of
Unions in BPI Unibank v. Bank of the Philippine Islands, et al.

The antecedent facts are as follows:

On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger executed on January
20, 2000 by and between BPI, herein petitioner, and FEBTC.[5] This Article and Plan of Merger was
approved by the Securities and Exchange Commission on April 7, 2000.[6]

Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were transferred to and
absorbed by BPI as the surviving corporation. FEBTC employees, including those in its different branches
across the country, were hired by petitioner as its own employees, with their status and tenure
recognized and salaries and benefits maintained.

Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank (hereinafter the
Union, for brevity) is the exclusive bargaining agent of BPIs rank and file employees in Davao City. The
former FEBTC rank-and-file employees in Davao City did not belong to any labor union at the time of the
merger. Prior to the effectivity of the merger, or on March 31, 2000, respondent Union invited said FEBTC
employees to a meeting regarding the Union Shop Clause (Article II, Section 2) of the existing CBA
between petitioner BPI and respondent Union.[7]

The parties both advert to certain provisions of the existing CBA, which are quoted below:

ARTICLE I
Section 1. Recognition and Bargaining Unit The BANK recognizes the UNION as the sole and exclusive
collective bargaining representative of all the regular rank and file employees of the Bank offices in
Davao City.

Section 2. Exclusions

Section 3. Additional Exclusions

Section 4. Copy of Contract

ARTICLE II

Section 1. Maintenance of Membership All employees within the bargaining unit who are members of
the Union on the date of the effectivity of this Agreement as well as employees within the bargaining
unit who subsequently join or become members of the Union during the lifetime of this Agreement shall
as a condition of their continued employment with the Bank, maintain their membership in the Union in
good standing.

Section 2. Union Shop - New employees falling within the bargaining unit as defined in Article I of this
Agreement, who may hereafter be regularly employed by the Bank shall, within thirty (30) days after
they become regular employees, join the Union as a condition of their continued employment. It is
understood that membership in good standing in the Union is a condition of their continued
employment with the Bank.[8] (Emphases supplied.)

After the meeting called by the Union, some of the former FEBTC employees joined the Union, while
others refused. Later, however, some of those who initially joined retracted their membership.[9]

Respondent Union then sent notices to the former FEBTC employees who refused to join, as well as
those who retracted their membership, and called them to a hearing regarding the matter. When these
former FEBTC employees refused to attend the hearing, the president of the Union requested BPI to
implement the Union Shop Clause of the CBA and to terminate their employment pursuant thereto.[10]

After two months of management inaction on the request, respondent Union informed petitioner BPI of
its decision to refer the issue of the implementation of the Union Shop Clause of the CBA to the
Grievance Committee. However, the issue remained unresolved at this level and so it was subsequently
submitted for voluntary arbitration by the parties.[11]

Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision[12] dated November 23, 2001, ruled in
favor of petitioner BPIs interpretation that the former FEBTC employees were not covered by the Union
Security Clause of the CBA between the Union and the Bank on the ground that the said employees were
not new employees who were hired and subsequently regularized, but were absorbed employees by
operation of law because the former employees of FEBTC can be considered assets and liabilities of the
absorbed corporation. The Voluntary Arbitrator concluded that the former FEBTC employees could not
be compelled to join the Union, as it was their constitutional right to join or not to join any organization.

Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator denied the same in
an Order dated March 25, 2002.[13]

Dissatisfied, respondent then appealed the Voluntary Arbitrators decision to the Court of Appeals. In the
herein assailed Decision dated September 30, 2003, the Court of Appeals reversed and set aside the
Decision of the Voluntary Arbitrator.[14] Likewise, the Court of Appeals denied herein petitioners Motion
for Reconsideration in a Resolution dated June 9, 2004.

The Court of Appeals pertinently ruled in its Decision:

A union-shop clause has been defined as a form of union security provision wherein non-members may
be hired, but to retain employment must become union members after a certain period.

There is no question as to the existence of the union-shop clause in the CBA between the petitioner-
union and the company. The controversy lies in its application to the absorbed employees.
This Court agrees with the voluntary arbitrator that the ABSORBED employees are distinct and different
from NEW employees BUT only in so far as their employment service is concerned. The distinction ends
there. In the case at bar, the absorbed employees length of service from its former employer is tacked
with their employment with BPI. Otherwise stated, the absorbed employees service is continuous and
there is no gap in their service record.

This Court is persuaded that the similarities of new and absorbed employees far outweighs the
distinction between them. The similarities lies on the following, to wit: (a) they have a new employer; (b)
new working conditions; (c) new terms of employment and; (d) new company policy to follow. As such,
they should be considered as new employees for purposes of applying the provisions of the CBA
regarding the union-shop clause.

To rule otherwise would definitely result to a very awkward and unfair situation wherein the absorbed
employees shall be in a different if not, better situation than the existing BPI employees. The existing BPI
employees by virtue of the union-shop clause are required to pay the monthly union dues, remain as
members in good standing of the union otherwise, they shall be terminated from the company, and
other union-related obligations. On the other hand, the absorbed employees shall enjoy the fruits of
labor of the petitioner-union and its members for nothing in exchange. Certainly, this would disturb
industrial peace in the company which is the paramount reason for the existence of the CBA and the
union.

The voluntary arbitrators interpretation of the provisions of the CBA concerning the coverage of the
union-shop clause is at war with the spirit and the rationale why the Labor Code itself allows the
existence of such provision.

The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R. No. 76989,
September 29, 1987) rule, to quote:

This Court has held that a valid form of union security, and such a provision in a collective bargaining
agreement is not a restriction of the right of freedom of association guaranteed by the Constitution.

A closed-shop agreement is an agreement whereby an employer binds himself to hire only members of
the contracting union who must continue to remain members in good standing to keep their jobs. It is
THE MOST PRIZED ACHIEVEMENT OF UNIONISM. IT ADDS MEMBERSHIP AND COMPULSORY DUES. By
holding out to loyal members a promise of employment in the closed-shop, it wields group solidarity.
(Emphasis supplied)

Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of industrial peace in
the company.

With the foregoing ruling from this Court, necessarily, the alternative prayer of the petitioner to require
the individual respondents to become members or if they refuse, for this Court to direct respondent BPI
to dismiss them, follows.[15]

Hence, petitioners present recourse, raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE FORMER FEBTC
EMPLOYEES SHOULD BE CONSIDERED NEW EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION
SHOP CLAUSE OF THE CBA

II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE VOLUNTARY
ARBITRATORS INTERPRETATION OF THE COVERAGE OF THE UNION SHOP CLAUSE IS AT WAR WITH THE
SPIRIT AND THE RATIONALE WHY THE LABOR CODE ITSELF ALLOWS THE EXISTENCE OF SUCH
PROVISION[16]

In essence, the sole issue in this case is whether or not the former FEBTC employees that were absorbed
by petitioner upon the merger between FEBTC and BPI should be covered by the Union Shop Clause
found in the existing CBA between petitioner and respondent Union.
Petitioner is of the position that the former FEBTC employees are not new employees of BPI for purposes
of applying the Union Shop Clause of the CBA, on this note, petitioner points to Section 2, Article II of the
CBA, which provides:

New employees falling within the bargaining unit as defined in Article I of this Agreement, who may
hereafter be regularly employed by the Bank shall, within thirty (30) days after they become regular
employees, join the Union as a condition of their continued employment. It is understood that
membership in good standing in the Union is a condition of their continued employment with the Bank.
[17] (Emphases supplied.)

Petitioner argues that the term new employees in the Union Shop Clause of the CBA is qualified by the
phrases who may hereafter be regularly employed and after they become regular employees which led
petitioner to conclude that the new employees referred to in, and contemplated by, the Union Shop
Clause of the CBA were only those employees who were new to BPI, on account of having been hired
initially on a temporary or probationary status for possible regular employment at some future date. BPI
argues that the FEBTC employees absorbed by BPI cannot be considered as new employees of BPI for
purposes of applying the Union Shop Clause of the CBA.[18]

According to petitioner, the contrary interpretation made by the Court of Appeals of this particular CBA
provision ignores, or even defies, what petitioner assumes as its clear meaning and scope which
allegedly contradicts the Courts strict and restrictive enforcement of union security agreements.

We do not agree.

Section 2, Article II of the CBA is silent as to how one becomes a regular employee of the BPI for the first
time. There is nothing in the said provision which requires that a new regular employee first undergo a
temporary or probationary status before being deemed as such under the union shop clause of the CBA.

Union security is a generic term which is applied to and comprehends closed shop, union shop,
maintenance of membership or any other form of agreement which imposes upon employees the
obligation to acquire or retain union membership as a condition affecting employment. There is union
shop when all new regular employees are required to join the union within a certain period for their
continued employment. There is maintenance of membership shop when employees, who are union
members as of the effective date of the agreement, or who thereafter become members, must maintain
union membership as a condition for continued employment until they are promoted or transferred out
of the bargaining unit or the agreement is terminated. A closed-shop, on the other hand, may be defined
as an enterprise in which, by agreement between the employer and his employees or their
representatives, no person may be employed in any or certain agreed departments of the enterprise
unless he or she is, becomes, and, for the duration of the agreement, remains a member in good
standing of a union entirely comprised of or of which the employees in interest are a part.[19]

In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,[20] we ruled that:

It is the policy of the State to promote unionism to enable the workers to negotiate with management
on the same level and with more persuasiveness than if they were to individually and independently
bargain for the improvement of their respective conditions. To this end, the Constitution guarantees to
them the rights to self-organization, collective bargaining and negotiations and peaceful concerted
actions including the right to strike in accordance with law. There is no question that these purposes
could be thwarted if every worker were to choose to go his own separate way instead of joining his co-
employees in planning collective action and presenting a united front when they sit down to bargain
with their employers. It is for this reason that the law has sanctioned stipulations for the union shop and
the closed shop as a means of encouraging the workers to join and support the labor union of their own
choice as their representative in the negotiation of their demands and the protection of their interest
vis--vis the employer. (Emphasis ours.)

In other words, the purpose of a union shop or other union security arrangement is to guarantee the
continued existence of the union through enforced membership for the benefit of the workers.

All employees in the bargaining unit covered by a Union Shop Clause in their CBA with management are
subject to its terms. However, under law and jurisprudence, the following kinds of employees are
exempted from its coverage, namely, employees who at the time the union shop agreement takes effect
are bona fide members of a religious organization which prohibits its members from joining labor unions
on religious grounds;[21] employees already in the service and already members of a union other than
the majority at the time the union shop agreement took effect;[22] confidential employees who are
excluded from the rank and file bargaining unit;[23] and employees excluded from the union shop by
express terms of the agreement.

When certain employees are obliged to join a particular union as a requisite for continued employment,
as in the case of Union Security Clauses, this condition is a valid restriction of the freedom or right not to
join any labor organization because it is in favor of unionism. This Court, on occasion, has even held that
a union security clause in a CBA is not a restriction of the right of freedom of association guaranteed by
the Constitution.[24]

Moreover, a closed shop agreement is an agreement whereby an employer binds himself to hire only
members of the contracting union who must continue to remain members in good standing to keep their
jobs. It is the most prized achievement of unionism. It adds membership and compulsory dues. By
holding out to loyal members a promise of employment in the closed shop, it wields group solidarity.[25]

Indeed, the situation of the former FEBTC employees in this case clearly does not fall within the first
three exceptions to the application of the Union Shop Clause discussed earlier. No allegation or evidence
of religious exemption or prior membership in another union or engagement as a confidential employee
was presented by both parties. The sole category therefore in which petitioner may prove its claim is the
fourth recognized exception or whether the former FEBTC employees are excluded by the express terms
of the existing CBA between petitioner and respondent.

To reiterate, petitioner insists that the term new employees, as the same is used in the Union Shop
Clause of the CBA at issue, refers only to employees hired by BPI as non-regular employees who later
qualify for regular employment and become regular employees, and not those who, as a legal
consequence of a merger, are allegedly automatically deemed regular employees of BPI. However, the
CBA does not make a distinction as to how a regular employee attains such a status. Moreover, there is
nothing in the Corporation Law and the merger agreement mandating the automatic employment as
regular employees by the surviving corporation in the merger.

It is apparent that petitioner hinges its argument that the former FEBTC employees were absorbed by
BPI merely as a legal consequence of a merger based on the characterization by the Voluntary Arbiter of
these absorbed employees as included in the assets and liabilities of the dissolved corporation - assets
because they help the Bank in its operation and liabilities because redundant employees may be
terminated and company benefits will be paid to them, thus reducing the Banks financial status. Based
on this ratiocination, she ruled that the same are not new employees of BPI as contemplated by the CBA
at issue, noting that the Certificate of Filing of the Articles of Merger and Plan of Merger between FEBTC
and BPI stated that x x x the entire assets and liabilities of FAR EASTERN BANK & TRUST COMPANY will be
transferred to and absorbed by the BANK OF THE PHILIPPINE ISLANDS x x x (underlining supplied).[26] In
sum, the Voluntary Arbiter upheld the reasoning of petitioner that the FEBTC employees became BPI
employees by operation of law because they are included in the term assets and liabilities.

Absorbed FEBTC Employees are Neither Assets nor Liabilities

In legal parlance, however, human beings are never embraced in the term assets and liabilities.
Moreover, BPIs absorption of former FEBTC employees was neither by operation of law nor by legal
consequence of contract. There was no government regulation or law that compelled the merger of the
two banks or the absorption of the employees of the dissolved corporation by the surviving corporation.
Had there been such law or regulation, the absorption of employees of the non-surviving entities of the
merger would have been mandatory on the surviving corporation.[27] In the present case, the merger
was voluntarily entered into by both banks presumably for some mutually acceptable consideration. In
fact, the Corporation Code does not also mandate the absorption of the employees of the non-surviving
corporation by the surviving corporation in the case of a merger. Section 80 of the Corporation Code
provides:

SEC. 80. Effects of merger or consolidation. The merger or consolidation, as provided in the preceding
sections shall have the following effects:

1. 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;

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;

3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including subscriptions to shares and other
choses in action, and all and every other interest of, or belonging to, or due to each constituent
corporation, shall be taken and deemed to be transferred to and vested in such surviving or consolidated
corporation without further act or deed; and

5. The surviving or the consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any claim, action or
proceeding pending by or against any of such constituent corporations may be prosecuted by or against
the surviving or consolidated corporation, as the case may be. Neither the rights of creditors nor any lien
upon the property of any of such constituent corporations shall be impaired by such merger or
consolidated.

Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did not contain any
specific stipulation with respect to the employment contracts of existing personnel of the non-surviving
entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot uphold the reasoning that the
general stipulation regarding transfer of FEBTC assets and liabilities to BPI as set forth in the Articles of
Merger necessarily includes the transfer of all FEBTC employees into the employ of BPI and neither BPI
nor the FEBTC employees allegedly could do anything about it. Even if it is so, it does not follow that the
absorbed employees should not be subject to the terms and conditions of employment obtaining in the
surviving corporation.

The rule is that unless expressly assumed, labor contracts such as employment contracts and collective
bargaining agreements are not enforceable against a transferee of an enterprise, labor contracts being in
personam, thus binding only between the parties. A labor contract merely creates an action in personam
and does not create any real right which should be respected by third parties. This conclusion draws its
force from the right of an employer to select his employees and to decide when to engage them as
protected under our Constitution, and the same can only be restricted by law through the exercise of the
police power.[28]

Furthermore, this Court believes that it is contrary to public policy to declare the former FEBTC
employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI
in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to
property rights and obligations of FEBTC and do not include the employment contracts of its personnel.
A corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if BPI
as an employer had the right to choose who to retain among FEBTCs employees, FEBTC employees had
the concomitant right to choose not to be absorbed by BPI. Even though FEBTC employees had no choice
or control over the merger of their employer with BPI, they had a choice whether or not they would
allow themselves to be absorbed by BPI. Certainly nothing prevented the FEBTCs employees from
resigning or retiring and seeking employment elsewhere instead of going along with the proposed
absorption.
Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee
without the consent of the employee is in violation of an individuals freedom to contract. It would have
been a different matter if there was an express provision in the articles of merger that as a condition for
the merger, BPI was being required to assume all the employment contracts of all existing FEBTC
employees with the conformity of the employees. In the absence of such a provision in the articles of
merger, then BPI clearly had the business management decision as to whether or not employ FEBTCs
employees. FEBTC employees likewise retained the prerogative to allow themselves to be absorbed or
not; otherwise, that would be tantamount to involuntary servitude.

There appears to be no dispute that with respect to FEBTC employees that BPI chose not to employ or
FEBTC employees who chose to retire or be separated from employment instead of being absorbed, BPIs
assumed liability to these employees pursuant to the merger is FEBTCs liability to them in terms of
separation pay,[29] retirement pay[30] or other benefits that may be due them depending on the
circumstances.

Legal Consequences of Mergers

Although not binding on this Court, American jurisprudence on the consequences of voluntary mergers
on the right to employment and seniority rights is persuasive and illuminating. We quote the following
pertinent discussion from the American Law Reports:

Several cases have involved the situation where as a result of mergers, consolidations, or shutdowns,
one group of employees, who had accumulated seniority at one plant or for one employer, finds that
their jobs have been discontinued except to the extent that they are offered employment at the place or
by the employer where the work is to be carried on in the future. Such cases have involved the question
whether such transferring employees should be entitled to carry with them their accumulated seniority
or whether they are to be compelled to start over at the bottom of the seniority list in the "new" job. It
has been recognized in some cases that the accumulated seniority does not survive and cannot be
transferred to the "new" job.

In Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three formerly separate railroad
corporations, which had previously operated separate facilities, was consolidated in the shops of one of
the roads. Displaced employees of the other two roads were given preference for the new jobs created
in the shops of the railroad which took over the work. A controversy arose between the employees as to
whether the displaced employees were entitled to carry with them to the new jobs the seniority rights
they had accumulated with their prior employers, that is, whether the rosters of the three corporations,
for seniority purposes, should be "dovetailed" or whether the transferring employees should go to the
bottom of the roster of their new employer. Labor representatives of the various systems involved
attempted to work out an agreement which, in effect, preserved the seniority status obtained in the
prior employment on other roads, and the action was for specific performance of this agreement against
a demurring group of the original employees of the railroad which was operating the consolidated shops.
The relief sought was denied, the court saying that, absent some specific contract provision otherwise,
seniority rights were ordinarily limited to the employment in which they were earned, and concluding
that the contract for which specific performance was sought was not such a completed and binding
agreement as would support such equitable relief, since the railroad, whose concurrence in the
arrangements made was essential to their effectuation, was not a party to the agreement.

Where the provisions of a labor contract provided that in the event that a trucker absorbed the business
of another private contractor or common carrier, or was a party to a merger of lines, the seniority of the
employees absorbed or affected thereby should be determined by mutual agreement between the
trucker and the unions involved, it was held in Moore v International Brotherhood of Teamsters, etc.
(1962, Ky) 356 SW2d 241, that the trucker was not required to absorb the affected employees as well as
the business, the court saying that they could find no such meaning in the above clause, stating that it
dealt only with seniority, and not with initial employment. Unless and until the absorbing company
agreed to take the employees of the company whose business was being absorbed, no seniority problem
was created, said the court, hence the provision of the contract could have no application. Furthermore,
said the court, it did not require that the absorbing company take these employees, but only that if it did
take them the question of seniority between the old and new employees would be worked out by
agreement or else be submitted to the grievance procedure.[31] (Emphasis ours.)

Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of the dissolved
corporations employees or the recognition of the absorbed employees service with their previous
employer may be demanded from the surviving corporation if required by provision of law or contract.
The dissent of Justice Arturo D. Brion tries to make a distinction as to the terms and conditions of
employment of the absorbed employees in the case of a corporate merger or consolidation which will, in
effect, take away from corporate management the prerogative to make purely business decisions on the
hiring of employees or will give it an excuse not to apply the CBA in force to the prejudice of its own
employees and their recognized collective bargaining agent. In this regard, we disagree with Justice
Brion.

Justice Brion takes the position that because the surviving corporation continues the personality of the
dissolved corporation and acquires all the latters rights and obligations, it is duty-bound to absorb the
dissolved corporations employees, even in the absence of a stipulation in the plan of merger. He
proposes that this interpretation would provide the necessary protection to labor as it spares workers
from being left in legal limbo.

However, there are instances where an employer can validly discontinue or terminate the employment
of an employee without violating his right to security of tenure. Among others, in case of redundancy, for
example, superfluous employees may be terminated and such termination would be authorized under
Article 283 of the Labor Code.[32]

Moreover, assuming for the sake of argument that there is an obligation to hire or absorb all employees
of the non-surviving corporation, there is still no basis to conclude that the terms and conditions of
employment under a valid collective bargaining agreement in force in the surviving corporation should
not be made to apply to the absorbed employees.

The Corporation Code and the Subject Merger Agreement are Silent on Efficacy, Terms and Conditions of
Employment Contracts

The lack of a provision in the plan of merger regarding the transfer of employment contracts to the
surviving corporation could have very well been deliberate on the part of the parties to the merger, in
order to grant the surviving corporation the freedom to choose who among the dissolved corporations
employees to retain, in accordance with the surviving corporations business needs. If terminations, for
instance due to redundancy or labor-saving devices or to prevent losses, are done in good faith, they
would be valid. The surviving corporation too is duty-bound to protect the rights of its own employees
who may be affected by the merger in terms of seniority and other conditions of their employment due
to the merger. Thus, we are not convinced that in the absence of a stipulation in the merger plan the
surviving corporation was compelled, or may be judicially compelled, to absorb all employees under the
same terms and conditions obtaining in the dissolved corporation as the surviving corporation should
also take into consideration the state of its business and its obligations to its own employees, and to
their certified collective bargaining agent or labor union.

Even assuming we accept Justice Brions theory that in a merger situation the surviving corporation
should be compelled to absorb the dissolved corporations employees as a legal consequence of the
merger and as a social justice consideration, it bears to emphasize his dissent also recognizes that the
employee may choose to end his employment at any time by voluntarily resigning. For the employee to
be absorbed by BPI, it requires the employees implied or express consent. It is because of this human
element in employment contracts and the personal, consensual nature thereof that we cannot agree
that, in a merger situation, employment contracts are automatically transferable from one entity to
another in the same manner that a contract pertaining to purely proprietary rights such as a promissory
note or a deed of sale of property is perfectly and automatically transferable to the surviving
corporation.

That BPI is the same entity as FEBTC after the merger is but a legal fiction intended as a tool to
adjudicate rights and obligations between and among the merged corporations and the persons that
deal with them. Although in a merger it is as if there is no change in the personality of the employer,
there is in reality a change in the situation of the employee. Once an FEBTC employee is absorbed, there
are presumably changes in his condition of employment even if his previous tenure and salary rate is
recognized by BPI. It is reasonable to assume that BPI would have different rules and regulations and
company practices than FEBTC and it is incumbent upon the former FEBTC employees to obey these new
rules and adapt to their new environment. Not the least of the changes in employment condition that
the absorbed FEBTC employees must face is the fact that prior to the merger they were employees of an
unorganized establishment and after the merger they became employees of a unionized company that
had an existing collective bargaining agreement with the certified union. This presupposes that the union
who is party to the collective bargaining agreement is the certified union that has, in the appropriate
certification election, been shown to represent a majority of the members of the bargaining unit.

Likewise, with respect to FEBTC employees that BPI chose to employ and who also chose to be absorbed,
then due to BPIs blanket assumption of liabilities and obligations under the articles of merger, BPI was
bound to respect the years of service of these FEBTC employees and to pay the same, or commensurate
salaries and other benefits that these employees previously enjoyed with FEBTC.

As the Union likewise pointed out in its pleadings, there were benefits under the CBA that the former
FEBTC employees did not enjoy with their previous employer. As BPI employees, they will enjoy all these
CBA benefits upon their absorption. Thus, although in a sense BPI is continuing FEBTCs employment of
these absorbed employees, BPIs employment of these absorbed employees was not under exactly the
same terms and conditions as stated in the latters employment contracts with FEBTC. This further
strengthens the view that BPI and the former FEBTC employees voluntarily contracted with each other
for their employment in the surviving corporation.

Proper Appreciation of the Term New Employees Under the CBA

In any event, it is of no moment that the former FEBTC employees retained the regular status that they
possessed while working for their former employer upon their absorption by petitioner. This fact would
not remove them from the scope of the phrase new employees as contemplated in the Union Shop
Clause of the CBA, contrary to petitioners insistence that the term new employees only refers to those
who are initially hired as non-regular employees for possible regular employment.

The Union Shop Clause in the CBA simply states that new employees who during the effectivity of the
CBA may be regularly employed by the Bank must join the union within thirty (30) days from their
regularization. There is nothing in the said clause that limits its application to only new employees who
possess non-regular status, meaning probationary status, at the start of their employment. Petitioner
likewise failed to point to any provision in the CBA expressly excluding from the Union Shop Clause new
employees who are absorbed as regular employees from the beginning of their employment. What is
indubitable from the Union Shop Clause is that upon the effectivity of the CBA, petitioners new regular
employees (regardless of the manner by which they became employees of BPI) are required to join the
Union as a condition of their continued employment.

The dissenting opinion of Justice Brion dovetails with Justice Carpios view only in their restrictive
interpretation of who are new employees under the CBA. To our dissenting colleagues, the phrase new
employees (who are covered by the union shop clause) should only include new employees who were
hired as probationary during the life of the CBA and were later granted regular status. They propose that
the former FEBTC employees who were deemed regular employees from the beginning of their
employment with BPI should be treated as a special class of employees and be excluded from the union
shop clause.

Justice Brion himself points out that there is no clear, categorical definition of new employee in the CBA.
In other words, the term new employee as used in the union shop clause is used broadly without any
qualification or distinction. However, the Court should not uphold an interpretation of the term new
employee based on the general and extraneous provisions of the Corporation Code on merger that
would defeat, rather than fulfill, the purpose of the union shop clause. To reiterate, the provision of the
Article 248(e) of the Labor Code in point mandates that nothing in the said Code or any other law should
stop the parties from requiring membership in a recognized collective bargaining agent as a condition of
employment.

Significantly, petitioner BPI never stretches its arguments so far as to state that the absorbed employees
should be deemed old employees who are not covered by the Union Shop Clause. This is not surprising.
By law and jurisprudence, a merger only becomes effective upon approval by the Securities and
Exchange Commission (SEC) of the articles of merger. In Associated Bank v. Court of Appeals,[33] we
held:

The procedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires
the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn,
must have been duly approved by a majority of the respective stockholders of the constituent
corporations. The same provision further states that the merger shall be effective only upon the issuance
by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when
the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as
liabilities pass on to the surviving corporation. (Emphasis ours.)

In other words, even though BPI steps into the shoes of FEBTC as the surviving corporation, BPI does so
at a particular point in time, i.e., the effectivity of the merger upon the SECs issuance of a certificate of
merger. In fact, the articles of merger themselves provided that both BPI and FEBTC will continue their
respective business operations until the SEC issues the certificate of merger and in the event SEC does
not issue such a certificate, they agree to hold each other blameless for the non-consummation of the
merger.

Considering the foregoing principle, BPI could have only become the employer of the FEBTC employees it
absorbed after the approval by the SEC of the merger. If the SEC did not approve the merger, BPI would
not be in the position to absorb the employees of FEBTC at all. Indeed, there is evidence on record that
BPI made the assignments of its absorbed employees in BPI effective April 10, 2000, or after the SECs
approval of the merger.[34] In other words, BPI became the employer of the absorbed employees only at
some point after the effectivity of the merger, notwithstanding the fact that the absorbed employees
years of service with FEBTC were voluntarily recognized by BPI.

Even assuming for the sake of argument that we consider the absorbed FEBTC employees as old
employees of BPI who are not members of any union (i.e., it is their date of hiring by FEBTC and not the
date of their absorption that is considered), this does not necessarily exclude them from the union
security clause in the CBA. The CBA subject of this case was effective from April 1, 1996 until March 31,
2001. Based on the allegations of the former FEBTC employees themselves, there were former FEBTC
employees who were hired by FEBTC after April 1, 1996 and if their date of hiring by FEBTC is considered
as their date of hiring by BPI, they would undeniably be considered new employees of BPI within the
contemplation of the Union Shop Clause of the said CBA. Otherwise, it would lead to the absurd
situation that we would discriminate not only between new BPI employees (hired during the life of the
CBA) and former FEBTC employees (absorbed during the life of the CBA) but also among the former
FEBTC employees themselves. In other words, we would be treating employees who are exactly similarly
situated (i.e., the group of absorbed FEBTC employees) differently. This hardly satisfies the demands of
equality and justice.

Petitioner limited itself to the argument that its absorbed employees do not fall within the term new
employees contemplated under the Union Shop Clause with the apparent objective of excluding all, and
not just some, of the former FEBTC employees from the application of the Union Shop Clause.

However, in law or even under the express terms of the CBA, there is no special class of employees called
absorbed employees. In order for the Court to apply or not apply the Union Shop Clause, we can only
classify the former FEBTC employees as either old or new. If they are not old employees, they are
necessarily new employees. If they are new employees, the Union Shop Clause did not distinguish
between new employees who are non-regular at their hiring but who subsequently become regular and
new employees who are absorbed as regular and permanent from the beginning of their employment.
The Union Shop Clause did not so distinguish, and so neither must we.

No Substantial Distinction Under the CBA Between Regular Employees Hired After Probationary Status
and Regular Employees Hired After the Merger

Verily, we agree with the Court of Appeals that there are no substantial differences between a newly
hired non-regular employee who was regularized weeks or months after his hiring and a new employee
who was absorbed from another bank as a regular employee pursuant to a merger, for purposes of
applying the Union Shop Clause. Both employees were hired/employed only after the CBA was signed. At
the time they are being required to join the Union, they are both already regular rank and file employees
of BPI. They belong to the same bargaining unit being represented by the Union. They both enjoy
benefits that the Union was able to secure for them under the CBA. When they both entered the employ
of BPI, the CBA and the Union Shop Clause therein were already in effect and neither of them had the
opportunity to express their preference for unionism or not. We see no cogent reason why the Union
Shop Clause should not be applied equally to these two types of new employees, for they are undeniably
similarly situated.
The effect or consequence of BPIs so-called absorption of former FEBTC employees should be limited to
what they actually agreed to, i.e. recognition of the FEBTC employees years of service, salary rate and
other benefits with their previous employer. The effect should not be stretched so far as to exempt
former FEBTC employees from the existing CBA terms, company policies and rules which apply to
employees similarly situated. If the Union Shop Clause is valid as to other new regular BPI employees,
there is no reason why the same clause would be a violation of the absorbed employees freedom of
association.

Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and Inimical to Industrial
Peace

It is but fair that similarly situated employees who enjoy the same privileges of a CBA should be likewise
subject to the same obligations the CBA imposes upon them. A contrary interpretation of the Union
Shop Clause will be inimical to industrial peace and workers solidarity. This unfavorable situation will not
be sufficiently addressed by asking the former FEBTC employees to simply pay agency fees to the Union
in lieu of union membership, as the dissent of Justice Carpio suggests. The fact remains that other new
regular employees, to whom the absorbed employees should be compared, do not have the option to
simply pay the agency fees and they must join the Union or face termination.

Petitioners restrictive reading of the Union Shop Clause could also inadvertently open an avenue, which
an employer could readily use, in order to dilute the membership base of the certified union in the
collective bargaining unit (CBU). By entering into a voluntary merger with a non-unionized company that
employs more workers, an employer could get rid of its existing union by the simple expedient of arguing
that the absorbed employees are not new employees, as are commonly understood to be covered by a
CBAs union security clause. This could then lead to a new majority within the CBU that could potentially
threaten the majority status of the existing union and, ultimately, spell its demise as the CBUs bargaining
representative. Such a dreaded but not entirely far-fetched scenario is no different from the ingenious
and creative union-busting schemes that corporations have fomented throughout the years, which this
Court has foiled time and again in order to preserve and protect the valued place of labor in this
jurisdiction consistent with the Constitutions mandate of insuring social justice.

There is nothing in the Labor Code and other applicable laws or the CBA provision at issue that requires
that a new employee has to be of probationary or non-regular status at the beginning of the
employment relationship. An employer may confer upon a new employee the status of regular
employment even at the onset of his engagement. Moreover, no law prohibits an employer from
voluntarily recognizing the length of service of a new employee with a previous employer in relation to
computation of benefits or seniority but it should not unduly be interpreted to exclude them from the
coverage of the CBA which is a binding contractual obligation of the employer and employees.

Indeed, a union security clause in a CBA should be interpreted to give meaning and effect to its purpose,
which is to afford protection to the certified bargaining agent and ensure that the employer is dealing
with a union that represents the interests of the legally mandated percentage of the members of the
bargaining unit.

The union shop clause offers protection to the certified bargaining agent by ensuring that future regular
employees who (a) enter the employ of the company during the life of the CBA; (b) are deemed part of
the collective bargaining unit; and (c) whose number will affect the number of members of the collective
bargaining unit will be compelled to join the union. Such compulsion has legal effect, precisely because
the employer by voluntarily entering in to a union shop clause in a CBA with the certified bargaining
agent takes on the responsibility of dismissing the new regular employee who does not join the union.

Without the union shop clause or with the restrictive interpretation thereof as proposed in the
dissenting opinions, the company can jeopardize the majority status of the certified union by excluding
from union membership all new regular employees whom the Company will absorb in future mergers
and all new regular employees whom the Company hires as regular from the beginning of their
employment without undergoing a probationary period. In this manner, the Company can increase the
number of members of the collective bargaining unit and if this increase is not accompanied by a
corresponding increase in union membership, the certified union may lose its majority status and render
it vulnerable to attack by another union who wishes to represent the same bargaining unit.[35]

Or worse, a certified union whose membership falls below twenty percent (20%) of the total members of
the collective bargaining unit may lose its status as a legitimate labor organization altogether, even in a
situation where there is no competing union.[36] In such a case, an interested party may file for the
cancellation of the unions certificate of registration with the Bureau of Labor Relations.[37]

Plainly, the restrictive interpretation of the union shop clause would place the certified unions very
existence at the mercy and control of the employer. Relevantly, only BPI, the employer appears to be
interested in pursuing this case. The former FEBTC employees have not joined BPI in this appeal.
For the foregoing reasons, Justice Carpios proposal to simply require the former FEBTC to pay agency
fees is wholly inadequate to compensate the certified union for the loss of additional membership
supposedly guaranteed by compliance with the union shop clause. This is apart from the fact that
treating these absorbed employees as a special class of new employees does not encourage worker
solidarity in the company since another class of new employees (i.e. those whose were hired as
probationary and later regularized during the life of the CBA) would not have the option of substituting
union membership with payment of agency fees.

Justice Brion, on the other hand, appears to recognize the inherent unfairness of perpetually excluding
the absorbed employees from the ambit of the union shop clause. He proposes that this matter be left
to negotiation by the parties in the next CBA. To our mind, however, this proposal does not sufficiently
address the issue. With BPI already taking the position that employees absorbed pursuant to its
voluntary mergers with other banks are exempt from the union shop clause, the chances of the said
bank ever agreeing to the inclusion of such employees in a future CBA is next to nil more so, if BPIs
narrow interpretation of the union shop clause is sustained by this Court.

Right of an Employee not to Join a Union is not Absolute and Must Give Way to the Collective Good of All
Members of the Bargaining Unit

The dissenting opinions place a premium on the fact that even if the former FEBTC employees are not
old employees, they nonetheless were employed as regular and permanent employees without a gap in
their service. However, an employees permanent and regular employment status in itself does not
necessarily exempt him from the coverage of a union shop clause.

In the past this Court has upheld even the more stringent type of union security clause, i.e., the closed
shop provision, and held that it can be made applicable to old employees who are already regular and
permanent but have chosen not to join a union. In the early case of Juat v. Court of Industrial Relations,
[38] the Court held that an old employee who had no union may be compelled to join the union even if
the collective bargaining agreement (CBA) imposing the closed shop provision was only entered into
seven years after of the hiring of the said employee. To quote from that decision:

A closed-shop agreement has been considered as one form of union security whereby only union
members can be hired and workers must remain union members as a condition of continued
employment. The requirement for employees or workers to become members of a union as a condition
for employment redounds to the benefit and advantage of said employees because by holding out to
loyal members a promise of employment in the closed-shop the union wields group solidarity. In fact, it
is said that "the closed-shop contract is the most prized achievement of unionism."

xxxx

This Court had categorically held in the case of Freeman Shirt Manufacturing Co., Inc., et al. vs. Court of
Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961, that the closed-shop proviso of a collective
bargaining agreement entered into between an employer and a duly authorized labor union is applicable
not only to the employees or laborers that are employed after the collective bargaining agreement had
been entered into but also to old employees who are not members of any labor union at the time the
said collective bargaining agreement was entered into. In other words, if an employee or laborer is
already a member of a labor union different from the union that entered into a collective bargaining
agreement with the employer providing for a closed-shop, said employee or worker cannot be obliged to
become a member of that union which had entered into a collective bargaining agreement with the
employer as a condition for his continued employment. (Emphasis and underscoring supplied.)

Although the present case does not involve a closed shop provision that included even old employees,
the Juat example is but one of the cases that laid down the doctrine that the right not to join a union is
not absolute. Theoretically, there is nothing in law or jurisprudence to prevent an employer and a union
from stipulating that existing employees (who already attained regular and permanent status but who
are not members of any union) are to be included in the coverage of a union security clause. Even Article
248(e) of the Labor Code only expressly exempts old employees who already have a union from inclusion
in a union security clause.[39]

Contrary to the assertion in the dissent of Justice Carpio, Juat has not been overturned by Victoriano v.
Elizalde Rope Workers Union[40] nor by Reyes v. Trajano.[41] The factual milieus of these three cases are
vastly different.

In Victoriano, the issue that confronted the Court was whether or not employees who were members of
the Iglesia ni Kristo (INK) sect could be compelled to join the union under a closed shop provision,
despite the fact that their religious beliefs prohibited them from joining a union. In that case, the Court
was asked to balance the constitutional right to religious freedom against a host of other constitutional
provisions including the freedom of association, the non-establishment clause, the non-impairment of
contracts clause, the equal protection clause, and the social justice provision. In the end, the Court held
that religious freedom, although not unlimited, is a fundamental personal right and liberty, and has a
preferred position in the hierarchy of values.[42]

However, Victoriano is consistent with Juat since they both affirm that the right to refrain from joining a
union is not absolute. The relevant portion of Victoriano is quoted below:

The right to refrain from joining labor organizations recognized by Section 3 of the Industrial Peace Act is,
however, limited. The legal protection granted to such right to refrain from joining is withdrawn by
operation of law, where a labor union and an employer have agreed on a closed shop, by virtue of which
the employer may employ only member of the collective bargaining union, and the employees must
continue to be members of the union for the duration of the contract in order to keep their jobs. Thus
Section 4 (a) (4) of the Industrial Peace Act, before its amendment by Republic Act No. 3350, provides
that although it would be an unfair labor practice for an employer "to discriminate in regard to hire or
tenure of employment or any term or condition of employment to encourage or discourage membership
in any labor organization" the employer is, however, not precluded "from making an agreement with a
labor organization to require as a condition of employment membership therein, if such labor
organization is the representative of the employees." By virtue, therefore, of a closed shop agreement,
before the enactment of Republic Act No. 3350, if any person, regardless of his religious beliefs, wishes
to be employed or to keep his employment, he must become a member of the collective bargaining
union. Hence, the right of said employee not to join the labor union is curtailed and withdrawn.[43]
(Emphases supplied.)

If Juat exemplified an exception to the rule that a person has the right not to join a union, Victoriano
merely created an exception to the exception on the ground of religious freedom.

Reyes, on the other hand, did not involve the interpretation of any union security clause. In that case,
there was no certified bargaining agent yet since the controversy arose during a certification election. In
Reyes, the Court highlighted the idea that the freedom of association included the right not to associate
or join a union in resolving the issue whether or not the votes of members of the INK sect who were part
of the bargaining unit could be excluded in the results of a certification election, simply because they
were not members of the two contesting unions and were expected to have voted for NO UNION in view
of their religious affiliation. The Court upheld the inclusion of the votes of the INK members since in the
previous case of Victoriano we held that INK members may not be compelled to join a union on the
ground of religious freedom and even without Victoriano every employee has the right to vote no union
in a certification election as part of his freedom of association. However, Reyes is not authority for
Justice Carpios proposition that an employee who is not a member of any union may claim an exemption
from an existing union security clause because he already has regular and permanent status but simply
prefers not to join a union.

The other cases cited in Justice Carpios dissent on this point are likewise inapplicable. Basa v. Federacion
Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas,[44] Anucension v. National Labor
Union,[45] and Gonzales v. Central Azucarera de Tarlac Labor Union[46] all involved members of the INK.
In line with Victoriano, these cases upheld the INK members claimed exemption from the union security
clause on religious grounds. In the present case, the former FEBTC employees never claimed any
religious grounds for their exemption from the Union Shop Clause. As for Philips Industrial Development,
Inc. v. National Labor Relations Corporation[47] and Knitjoy Manufacturing, Inc. v. Ferrer-Calleja,[48] the
employees who were exempted from joining the respondent union or who were excluded from
participating in the certification election were found to be not members of the bargaining unit
represented by respondent union and were free to form/join their own union. In the case at bar, it is
undisputed that the former FEBTC employees were part of the bargaining unit that the Union
represented. Thus, the rulings in Philips and Knitjoy have no relevance to the issues at hand.

Time and again, this Court has ruled that the individual employees right not to join a union may be
validly restricted by a union security clause in a CBA[49] and such union security clause is not a violation
of the employees constitutional right to freedom of association.[50]

It is unsurprising that significant provisions on labor protection of the 1987 Constitution are found in
Article XIII on Social Justice. The constitutional guarantee given the right to form unions[51] and the
State policy to promote unionism[52] have social justice considerations. In Peoples Industrial and
Commercial Employees and Workers Organization v. Peoples Industrial and Commercial Corporation,[53]
we recognized that [l]abor, being the weaker in economic power and resources than capital, deserve
protection that is actually substantial and material.

The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge upon the
individual employees right or freedom of association, is not to protect the union for the unions sake.
Laws and jurisprudence promote unionism and afford certain protections to the certified bargaining
agent in a unionized company because a strong and effective union presumably benefits all employees in
the bargaining unit since such a union would be in a better position to demand improved benefits and
conditions of work from the employer. This is the rationale behind the State policy to promote unionism
declared in the Constitution, which was elucidated in the above-cited case of Liberty Flour Mills
Employees v. Liberty Flour Mills, Inc.[54]
In the case at bar, since the former FEBTC employees are deemed covered by the Union Shop Clause,
they are required to join the certified bargaining agent, which supposedly has gathered the support of
the majority of workers within the bargaining unit in the appropriate certification proceeding. Their
joining the certified union would, in fact, be in the best interests of the former FEBTC employees for it
unites their interests with the majority of employees in the bargaining unit. It encourages employee
solidarity and affords sufficient protection to the majority status of the union during the life of the CBA
which are the precisely the objectives of union security clauses, such as the Union Shop Clause involved
herein. We are indeed not being called to balance the interests of individual employees as against the
State policy of promoting unionism, since the employees, who were parties in the court below, no longer
contested the adverse Court of Appeals decision. Nonetheless, settled jurisprudence has already swung
the balance in favor of unionism, in recognition that ultimately the individual employee will be benefited
by that policy. In the hierarchy of constitutional values, this Court has repeatedly held that the right to
abstain from joining a labor organization is subordinate to the policy of encouraging unionism as an
instrument of social justice.

Also in the dissenting opinion of Justice Carpio, he maintains that one of the dire consequences to the
former FEBTC employees who refuse to join the union is the forfeiture of their retirement benefits. This
is clearly not the case precisely because BPI expressly recognized under the merger the length of service
of the absorbed employees with FEBTC. Should some refuse to become members of the union, they may
still opt to retire if they are qualified under the law, the applicable retirement plan, or the CBA, based on
their combined length of service with FEBTC and BPI. Certainly, there is nothing in the union shop clause
that should be read as to curtail an employees eligibility to apply for retirement if qualified under the
law, the existing retirement plan, or the CBA as the case may be.

In sum, this Court finds it reasonable and just to conclude that the Union Shop Clause of the CBA covers
the former FEBTC employees who were hired/employed by BPI during the effectivity of the CBA in a
manner which petitioner describes as absorption. A contrary appreciation of the facts of this case would,
undoubtedly, lead to an inequitable and very volatile labor situation which this Court has consistently
ruled against.

In the case of former FEBTC employees who initially joined the union but later withdrew their
membership, there is even greater reason for the union to request their dismissal from the employer
since the CBA also contained a Maintenance of Membership Clause.
A final point in relation to procedural due process, the Court is not unmindful that the former FEBTC
employees refusal to join the union and BPIs refusal to enforce the Union Shop Clause in this instance
may have been based on the honest belief that the former FEBTC employees were not covered by said
clause. In the interest of fairness, we believe the former FEBTC employees should be given a fresh thirty
(30) days from notice of finality of this decision to join the union before the union demands BPI to
terminate their employment under the Union Shop Clause, assuming said clause has been carried over in
the present CBA and there has been no material change in the situation of the parties.

WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003 of the Court of
Appeals is AFFIRMED, subject to the thirty (30) day notice requirement imposed herein. Former FEBTC
employees who opt not to become union members but who qualify for retirement shall receive their
retirement benefits in accordance with law, the applicable retirement plan, or the CBA, as the case may
be.

SO ORDERED.