Labor Relations Metrobank - Bpi 21-30

Labor Relations- full text cases
LLB II A BULSU LAW 1314
[G.R. No. 108855. February 28, 1996]
METROLAB INDUSTRIES, INC., petitioner, vs. HONORABLE MA.

NIEVES ROLDAN-CONFESOR, in her capacity as Secretary of
the Department of Labor and Employment and METRO DRUG
CORPORATION EMPLOYEES ASSOCIATION-FEDERATION
OF FREE WORKERS, respondents.
REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF
ADMINISTRATIVE AGENCIES; RULE; CASE AT BAR. - We reaffirm
the doctrine that considering their expertise in their respective fields,
factual findings of administrative agencies supported by substantial
evidence are accorded great respect and binds this Court. The
Secretary of Labor ruled, thus: x x x Any act committed during the
pendency of the dispute that tends to give rise to further contentious
issues or increase the tensions between the parties should be
considered an act of exacerbation. One must look at the act itself, not
on speculative reactions. A misplaced recourse is not needed to prove
that a dispute has been exacerbated. For instance, the Union could not
be expected to file another notice of strike. For this would depart from
its theory of the case that the layoff is subsumed under the instant
dispute, for which a notice of strike had already been filed. On the other
hand, to expect violent reactions, unruly behavior, and any other
chaotic or drastic action from the Union is to expect it to commit acts
disruptive of public order or acts that may be illegal. Under a regime of
laws, legal remedies take the place of violent ones. x xx Protest against
the subject layoffs need not be in the form of violent action or any other
drastic measure. In the instant case the Union registered their dissent
by swiftly filing a motion for a cease and desist order. Contrary to
petitioners allegations, the Union strongly condemned the layoffs and
threatened mass action if the Secretary of Labor fails to timely
intervene: x x x 3. This unilateral action of management is a blatant
violation of the injunction of this Office against committing acts which
would exacerbate the dispute. Unless such act is enjoined the Union
will be compelled to resort to its legal right to mass actions and
concerted activities to protest and stop the said management
action. This mass layoff is clearly one which would result in a very
serious dispute unless this Office swiftly intervenes. x x x Metrolab and
the Union were still in the process of resolving their CBA deadlock
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1.
SYLLABUS

LABOR AND SOCIAL LEGISLATION; TERMINATION OF

EMPLOYMENT; EXERCISE OF MANAGEMENT PREROGATIVES;
NOT ABSOLUTE; SUBJECT TO EXCEPTIONS IMPOSED BY LAW. This Court recognizes the exercise of management prerogatives and
often declines to interfere with the legitimate business decisions of the
employer. However, this privilege is not absolute but subject to
limitations imposed by law. In PAL vs. NLRC, (225 SCRA 301 [1993]),
we issued this reminder: ... the exercise of management prerogatives
was never considered boundless. Thus, in Cruz vs. Medina (177
SCRA 565 [1989]), it was held that managements prerogatives must be
without abuse of discretion ...All this points to the conclusion that the
exercise of managerial prerogatives is not unlimited. It is circumscribed
by limi(ations found in law, a collective bargaining agreement, or the
general principles of fair play and justice (University of Sto. Tomas v.
NLRC, 190 SCRA 758 [1990]).
3.
ID.; ID.; ID.; ID.; ID.; CASE AT BAR AN EXCEPTION. - The case at
bench constitutes one of the exceptions. The Secretary of Labor is
expressly given the power under the Labor Code to assume jurisdiction
and resolve labor disputes involving industries indispensable to national
interest. The disputed injunction is subsumed under this special grant
of authority. Art. 263 (g) of the Labor Code specifically provides that: x
x x (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. . . . That
Metrolabs business is of national interest is not disputed. Metrolab is
one of the leading manufacturers and suppliers of medical and
pharmaceutical products to the country. Metrolabs management
prerogatives, therefore, are not being unjustly curtailed but duly
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2.
when petitioner implemented the subject layoffs. As a result, motions

and oppositions were filed diverting the parties attention, delaying
resolution of the bargaining deadlock and postponing the signing of
their new CBA, thereby aggravating the whole conflict.

balanced with and tempered by the limitations set by law, taking into
account its special character and the particular circumstances in the
case at bench.
4.
ID.; LABOR RELATIONS; INELIGIBILITY OF MANAGERIAL

EMPLOYEES TO JOIN, FORM AND ASSIST ANY LABOR
ORGANIZATION; PROHIBITION EXTENDED TO CONFIDENTIAL
EMPLOYEES. - Although Article 245 of the Labor Code limits the
ineligibility to join, form and assist any labor organization to managerial
employees, jurisprudence has extended this prohibition to confidential
employees or those who by reason of their positions or nature of work
are required to assist or act in a fiduciary manner to managerial
employees and hence, are likewise privy to sensitive and highly
confidential records.
5.
ID.; ID.; EXCLUSION OF CONFIDENTIAL EMPLOYEES FROM THE

RANK AND FILE BARGAINING UNIT; NOT TANTAMOUNT TO
DISCRIMINATION. - Confidential employees cannot be classified as
rank and file. As previously discussed, the nature of employment of
confidential employees is quite distinct from the rank and file, thus,
warranting a separate category. Excluding confidential employees from
the rank and file bargaining unit, therefore, is not tantamount to
discrimination.
APPEARANCES OF COUNSEL
Bautista Picazo Buyco Tan & Fider for petitioner.
The Solicitor General for public respondent.
Perfecto V. Fernandez, Jose P. Fernandez
Fernandez for Metro Drug Corporation.
&
Cristobal
P.
DECISION
KAPUNAN, J.:
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Private respondent Metro Drug Corporation Employees AssociationFederation of Free Workers (hereinafter referred to as the Union) is a labor
organization representing the rank and file employees of petitioner
Metrolab Industries, Inc. (hereinafter referred to as Metrolab/MII) and also
of Metro Drug, Inc.
This is a petition for certiorari under Rule 65 of the Revised Rules of

Court seeking the annulment of the Resolution and Omnibus Resolution of
the Secretary of Labor and Employment dated 14 April 1992 and 25
January 1993, respectively, in OS-AJ-04491-11 (NCMB-NCR-NS-08-595-9
1; NCMB-NCR-NS-09-678-91) on grounds that these were issued with
grave abuse of discretion and in excess of jurisdiction.

On 31 December 1990, the Collective Bargaining Agreement (CBA)

between Metrolab and the Union expired. The negotiations for a new CBA,
however, ended in a deadlock.
Consequently, on 23 August 1991, the Union filed a notice of strike
against Metrolab and Metro Drug Inc. The parties failed to settle their
dispute despite the conciliation efforts of the National Conciliation and
Mediation Board.
To contain the escalating dispute, the then Secretary of Labor and
Employment, Ruben D. Torres, issued an assumption order dated 20
September 1991, the dispositive portion of which reads, thus:
WHEREFORE, PREMISES CONSIDERED, and pursuant to Article 263 (g) of the
Labor Code, as amended, this Office hereby assumes jurisdiction over the entire
labor dispute at Metro Drug, Inc. - Metro Drug Distribution Division and Metrolab
Industries Inc.
Accordingly, any strike or lockout is hereby strictly enjoined. The Companies and
the Metro Drug Corp. Employees Association - FFW are likewise directed to cease
and desist from committing any and all acts that might exacerbate the situation.
Finally, the parties are directed to submit their position papers and evidence on the
aforequoted deadlocked issues to this office within twenty (20) days from receipt
hereof.
SO ORDERED. (Italics ours.)
[1]
On 27 December 1991, then Labor Secretary Torres issued an order

resolving all the disputed items in the CBA and ordered the parties involved
to execute a new CBA.
Thereafter, the Union filed a motion for reconsideration.
On 27 January 1992, during the pendency of the abovementioned
motion for reconsideration, Metrolab laid off 94 of its rank and file
employees.
On the same date, the Union filed a motion for a cease and desist order
to enjoin Metrolab from implementing the mass layoff, alleging that such act
violated the prohibition against committing acts that would exacerbate the
dispute as specifically directed in the assumption order.
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On the other hand, Metrolab contended that the layoff was temporary
and in the exercise of its management prerogative. It maintained that the
company would suffer a yearly gross revenue loss of approximately sixtysix (66) million pesos due to the withdrawal of its principals in the Toll and
Contract Manufacturing Department. Metrolab further asserted that with
[2]

the automation of the manufacture of its product Eskinol, the number of

workers required its production is significantly reduced.
[3]
Thereafter, on various dates, Metrolab recalled some of the laid off

workers on a temporary basis due to availability of work in the production
lines.
On 14 April 1992, Acting Labor Secretary Nieves Confesor issued a
resolution declaring the layoff of Metrolabs 94 rank and file workers illegal
and ordered their reinstatement with full backwages. The dispositive
portion reads as follows:
WHEREFORE, the Unions motion for reconsideration is granted in part, and our
order of 28 December 1991 is affirmed subject to the modifications in allowances
and in the close shop provision. The layoff of the 94 employees at MII is hereby
declared illegal for the failure of the latter to comply with our injunction against
committing any act which may exacerbate the dispute and with the 30-day notice
requirement. Accordingly, MII is hereby ordered to reinstate the 94 employees,
except those who have already been recalled, to their former positions or
substantially equivalent, positions with full backwages from the date they were
illegally laid off on 27 January 1992 until actually reinstated without loss of
seniority rights and other benefits. Issues relative to the CBA agreed upon by the
parties and not embodied in our earlier order are hereby ordered adopted for
incorporation in the CBA. Further, the dispositions and directives contained in all
previous orders and resolutions relative to the instant dispute, insofar as not
inconsistent herein, are reiterated. Finally, the parties are enjoined to cease and
desist from committing any act which may tend to circumvent this resolution.
SO RESOLVED.
[4]
On 6 March 1992, Metrolab filed a Partial Motion for Reconsideration

alleging that the layoff did not aggravate the dispute since no untoward
incident occurred as a result thereof. It, likewise, filed a motion for
clarification regarding the constitution of the bargaining unit covered by the
CBA.
On 29 June 1992, after exhaustive negotiations, the parties entered into
a new CBA. The execution, however, was without prejudice to the outcome
of the issues raised in the reconsideration and clarification motions
submitted for decision to the Secretary of Labor.
[5]
[6]
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On 15 October 1992, Labor Secretary Confesor again issued a cease

and desist order. Metrolab moved for a reconsideration.
Pending the resolution of the aforestated motions, on 2 October 1992,

Metrolab laid off 73 of its employees on grounds of redundancy due to lack
of work which the Union again promptly opposed on 5 October 1992.

On 25 January 1993, Labor Secretary Confesor issued the assailed

Omnibus Resolution containing the following orders:
xxx
xxx
xxx.
1. MIIs motion for partial reconsideration of our 14 April 1992 resolution

specifically that portion thereof assailing our ruling that the layoff of the 94
employees is illegal, is hereby denied. MII is hereby ordered to pay such
employees their full backwages computed from the time of actual layoff to the time
of actual recall;
2. For the parties to incorporate in their respective collective bargaining
agreements the clarifications herein contained; and
3. MIIs motion for reconsideration with respect to the consequences of the second
wave of layoff affecting 73 employees, to the extent of assailing our ruling that
such layoff tended to exacerbate the dispute, is hereby denied. But inasmuch as
the legality of the layoff was not submitted for our resolution and no evidence had
been adduced upon which a categorical finding thereon can be based, the same is
hereby referred to the NLRC for its appropriate action.
Finally, all prohibitory injunctions issued as a result of our assumption of
jurisdiction over this dispute are hereby lifted.
SO RESOLVED.
[7]
Labor Secretary Confesor also ruled that executive secretaries are

excluded from the closed-shop provision of the CBA, not from the
bargaining unit.
On 4 February 1993, the Union filed a motion for execution. Metrolab
opposed. Hence, the present petition for certiorari with application for
issuance of a Temporary Restraining Order.
On 4 March 1993, we issued a Temporary Restraining Order enjoining
the Secretary of Labor from enforcing and implementing the assailed
Resolution and Omnibus Resolution dated 14 April 1992 and 25 January
1993, respectively.
In its petition, Metrolab assigns the following errors:
A
Page
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND

EMPLOYMENT COMMITTED GRAVE ABUSE OF DISCRETION AND
EXCEEDED HER JURISDICTION IN DECLARING THE TEMPORARY
LAYOFF ILLEGAL AND ORDERING THE REINSTATEMENT AND
PAYMENT OF BACKWAGES TO THE AFFECTED EMPLOYEES.
*
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B
THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND

EMPLOYMENT GRAVELY ABUSED HER DISCRETION IN INCLUDING
EXECUTIVE SECRETARIES AS PART OF THE BARGAINING UNIT OF
RANK AND FILE EMPLOYEES.
[8]
Anent the first issue, we are asked to determine whether or not public
respondent Labor Secretary committed grave abuse of discretion and
exceeded her jurisdiction in declaring the subject layoffs instituted by
Metrolab illegal on grounds that these unilateral actions aggravated the
conflict between Metrolab and the Union who were, then, locked in a
stalemate in CBA negotiations.
Metrolab argues that the Labor Secretarys order enjoining the parties
from committing any act that might exacerbate the dispute is overly broad,
sweeping and vague and should not be used to curtail the employers right
to manage his business and ensure its viability.
We cannot give credence to Metrolabs contention.
This Court recognizes the exercise of management prerogatives and
often declines to interfere with the legitimate business decisions of the
employer. However, this privilege is not absolute but subject to limitations
imposed by law.
[9]
In PAL v. NLRC, we issued this reminder:

[10]
xxx
xxx
xxx
. . .the exercise of management prerogatives was never considered boundless.

Thus, in Cruz vs. Medina ( 177 SCRA 565 [1989]), it was held that managements
prerogatives must be without abuse of discretion....
xxx
xxx
xxx
All this points to the conclusion that the exercise of managerial prerogatives is not
unlimited. It is circumscribed by limitations found in law, a collective bargaining
agreement, or the general principles of fair play and justice (University of Sto.
Tomas v. NLRC, 190 SCRA 758 [1990]). . . . (Italics ours.)
xxx.
The case at bench constitutes one of the exceptions. The Secretary of

Labor is expressly given the power under the Labor Code to assume
jurisdiction and resolve labor disputes involving industries indispensable to
national interest. The disputed injunction is subsumed under this special
grant of authority. Art. 263 (g) of the Labor Code specifically provides that:
xxx
xxx
xxx
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xxx

(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. . . (Italics ours.)
xxx
xxx
xxx.
That Metrolabs business is of national interest is not

disputed. Metrolab is one of the leading manufacturers and suppliers of
medical and pharmaceutical products to the country.
Metro labs management prerogatives, therefore, are not being unjustly
curtailed but duly balanced with and tempered by the limitations set by law,
taking into account its special character and the particular circumstances in
the case at bench.
As aptly declared by public respondent Secretary of Labor in its
assailed resolution:
xxx
xxx
xxx.
MII is right to the extent that as a rule, we may not interfere with the legitimate
exercise of management prerogatives such as layoffs. But it may nevertheless be
appropriate to mention here that one of the substantive evils which Article 263 (g)
of the Labor Code seeks to curb is the exacerbation of a labor dispute to the further
detriment of the national interest. When a labor dispute has in fact occurred and a
general injunction has been issued restraining the commission of disruptive acts,
management prerogatives must always be exercised consistently with the statutory
objective.
[11]
xxx.
Metrolab insists that the subject layoffs did not exacerbate their dispute
with the Union since no untoward incident occurred after the layoffs were
implemented. There were no work disruptions or stoppages and no mass
actions were threatened or undertaken. Instead, petitioner asserts, the
affected employees calmly accepted their fate as this was a matter which
they had been previously advised would be inevitable.
[12]
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xxx
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xxx

After a judicious review of the record, we find no compelling reason to

overturn the findings of the Secretary of Labor.
We reaffirm the doctrine that considering their expertise in their
respective fields, factual findings of administrative agencies supported by
substantial evidence are accorded great respect and binds this Court.
[13]
The Secretary of Labor ruled, thus:

xxx
xxx
xxx.
Any act committed during the pendency of the dispute that tends to give rise to
further contentious issues or increase the tensions between the parties should be
considered an act of exacerbation. One must look at the act itself, not on
speculative reactions. A misplaced recourse is not needed to prove that a dispute
has been exacerbated. For instance, the Union could not be expected to file
another notice of strike. For this would depart from its theory of the case that the
layoff is subsumed under the instant dispute, for which a notice of strike had
already been filed. On the other hand, to expect violent reactions, unruly behavior,
and any other chaotic or drastic action from the Union is to expect it to commit
acts disruptive of public order or acts that may be illegal. Under a regime of laws,
legal remedies take the place of violent ones.
[14]
xxx
xxx
xxx.
Protest against the subject layoffs need not be in the form of violent action or any
other drastic measure. In the instant case the Union registered their dissent by
swiftly filing a motion for a cease and desist order. Contrary to petitioners
allegations, the Union strongly condemned the layoffs and threatened mass action
if the Secretary of Labor fails to timely intervene:
xxx
xxx
xxx.
3. This unilateral action of management is a blatant violation of the injunction of

this Office against committing acts which would exacerbate the dispute. Unless
such act is enjoined the Union will be compelled to resort to its legal right to mass
actions and concerted activities to protest and stop the said management
action. This mass layoff is clearly one which would result in a very serious labor
dispute unless this Office swiftly intervenes.
[15]
xxx.
Metrolab and the Union were still in the process of resolving their CBA
deadlock when petitioner implemented the subject layoffs. As a result,
motions and oppositions were filed diverting the parties attention, delaying
resolution of the bargaining deadlock and postponing the signing of their
new CBA, thereby aggravating the whole conflict.
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xxx
Page
xxx

We, likewise, find untenable Metrolabs contention that the layoff of the
94 rank-and-file employees was temporary, despite the recall of some of
the laid off workers.
If Metrolab intended the layoff of the 94 workers to be
should have plainly stated so in the notices it sent to
employees and the Department of Labor and Employment.
tenor of the pertinent portions of the layoff notice to
employees:
xxx
xxx
temporary, it
the affected
Consider the
the affected
xxx.
Dahil sa mga bagay na ito, napilitan ang ating kumpanya na magsagawa ng layoff ng mga empleyado sa Rank & File dahil nabawasan ang trabaho at puwesto
para sa kanila. Marami sa atin ang kasama sa lay-off dahil wala nang trabaho
para sa kanila. Mahirap tanggapin ang mga bagay na ito subalit kailangan nating
gawin dahil hindi kaya ng kumpanya ang magbayad ng suweldo kung ang
empleyado ay walang trabaho. Kung tayo ay patuloy na magbabayad ng suweldo,
mas hihina ang ating kumpanya at mas marami ang maaring maapektuhan.
Sa pagpapatupad ng lay-off susundin natin ang LAST IN-FIRST OUT policy.
Ang mga empleyadong may pinakamaikling serbisyo sa kumpanya ang unang
maaapektuhan. Ito ay batay na rin sa nakasaad sa ating CBA na ang mga huling
pumasok sa kumpanya ang unang masasama sa lay-off kapag nagkaroon ng
ganitong mga kalagayan.
Ang mga empleyado na kasama sa lay-off ay nakalista sa sulat na ito. Ang
umpisa ng lay-off ay sa Lunes, Enero 27. Hindi na muna sila papasok sa
kumpanya. Makukuha nila ang suweldo nila sa Enero 30, 1992.
Hindi po natin matitiyak kung gaano katagal ang lay-off ngunit ang aming
tingin ay matatagalan bago magkaroon ng dagdag na trabaho. Dahil dito,
sinimulan na namin ang isang Redundancy Program sa mga
supervisors. Nabawasan ang mga puwesto para sa kanila, kaya sila ay
mawawalan ng trabaho at bibigyan na ng redundancy pay. (Italics ours.)
[16]
xxx
xxx
xxx.
We agree with the ruling of the Secretary of Labor, thus:

xxx.
. . .MII insists that the layoff in question is temporary not permanent. It then
cites International Hardware, Inc. vs. NLRC, 176 SCRA 256, in which the
Supreme Court held that the 30-day notice required under Article 283 of the Labor
Code need not be complied with if the employer has no intention to permanently
severe (sic) the employment relationship.
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xxx
Page
xxx

We are not convinced by this argument. International Hardware involves a case

where there had been a reduction of workload. Precisely to avoid laying off the
employees, the employer therein opted to give them work on a rotating basis.
Though on a limited scale, work was available. This was the Supreme Courts
basis for holding that there was no intention to permanently severe (sic) the
employment relationship.
Here, there is no circumstance at all from which we can infer an intention from
MII not to sever the employment relationship permanently. If there was such an
intention, MII could have made it very clear in the notices of layoff. But as it were,
the notices are couched in a language so uncertain that the only conclusion possible
is the permanent termination, not the continuation, of the employment relationship.
MII also seeks to excuse itself from compliance with the 30-day notice with a
tautology. While insisting that there is really no best time to announce a bad news,
(sic) it also claims that it broke the bad news only on 27 January 1992 because had
it complied with the 30-day notice, it could have broken the bad news on 02
January 1992, the first working day of the year. If there is really no best time to
announce a bad news (sic), it wouldnt have mattered if the same was announced at
the first working day of the year. That way, MII could have at least complied with
the requirement of the law.
[17]
The second issue raised by petitioner merits our consideration.

In the assailed Omnibus Resolution, Labor Secretary Confesor clarified
the CBA provisions on closed-shop and the scope of the bargaining unit in
this wise:
xxx
xxx
xxx.
Appropriateness of the bargaining unit.

xxx
xxx
xxx.
Exclusions. In our 14 April 1992 resolution, we ruled on the issue of

exclusion as follows:
Managerial employees; and
2. The executive secretaries of the President, Executive Vice-President, VicePresident, Vice President for Sales, Personnel Manager, and Director for Corporate
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1.
11
These aside, we reconsider our denial of the modifications which the Union
proposes to introduce on the close shop provision. While we note that the
provision as presently worded has served the relationship of the parties well under
previous CBAs, the shift in constitutional policy toward expanding the right of all
workers to self-organization should now be formally recognized by the parties,
subject to the following exclusions only:

Planning who may have access to vital labor relations information or who may
otherwise act in a confidential capacity to persons who determine or formulate
management policies.
The provisions of Article I (b) and Attachment I of the 1988-1990 CBA shall thus
be modified consistently with the foregoing.
Article I (b) of the 1988-1990 CBA provides:
b)Close Shop. - All Qualified Employees must join the Association immediately
upon regularization as a condition for continued employment. This provision shall
not apply to: (i) managerial employees who are excluded from the scope of the
bargaining unit; (ii) the auditors and executive secretaries of senior executive
officers, such as, the President, Executive Vice-President, Vice-President for
Finance, Head of Legal, Vice-President for Sales, who are excluded from
membership in the Association; and (iii) those employees who are referred to in
Attachment I hereof, subject, however, to the application of the provision of
Article II, par. (b) hereof. Consequently, the above-specified employees are not
required to join the Association as a condition for their continued employment.
On the other hand, Attachment I provides:
Exclusion from the Scope of the Close Shop Provision
The following positions in the Bargaining Unit are not covered by the
Close Shop provision of the CBA (Article I, par. b):
1. Executive Secretaries of Vice-Presidents, or equivalent positions.
2. Executive Secretary of the Personnel Manager, or equivalent positions.
3. Executive Secretary of the Director for Corporate Planning, or equivalent
positions.
4. Some personnel in the Personnel Department, EDP Staff at Head Office, Payroll
Staff at Head Office, Accounting Department at Head Office, and Budget Staff,
who because of the nature of their duties and responsibilities need not join the
Association as a condition for their employment.
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Both MDD and MII read the exclusion of managerial employees and
executive secretaries in our 14 April 1992 resolution as exclusion from the
bargaining unit. They point out that managerial employees are lumped
under one classification with executive secretaries, so that since the former
are excluded from the bargaining unit, so must the latter be likewise
excluded.
12
5. Newly-hired secretaries of Branch Managers and Regional Managers.

This reading is obviously contrary to the intent of our 14 April 1992

resolution. By recognizing the expanded scope of the right to selforganization, our intent was to delimit the types of employees excluded
from the close shop provision, not from the bargaining unit, to executive
secretaries only. Otherwise, the conversion of the exclusionary provision to
one that refers to the bargaining unit from one that merely refers to the
close shop provision would effectively curtail all the organizational rights of
executive secretaries.
The exclusion of managerial employees, in accordance with law, must
therefore still carry the qualifying phrase from the bargaining unit in Article
I (b)(i) of the 1988-1990 CBA. In the same manner, the exclusion of
executive secretaries should be read together with the qualifying phrase
are excluded from membership in the Association of the same Article and
with the heading of Attachment I. The latter refers to Exclusions from
Scope of Close Shop Provision and provides that [t]he following positions
in Bargaining Unit are not covered by the close shop provision of the CBA.
The issue of exclusion has different dimension in the case of MII. In an
earlier motion for clarification, MII points out that it has done away with the
positions of Executive Vice-President, Vice-President for Sales, and
Director for Corporate Planning. Thus, the foregoing group of exclusions is
no longer appropriate in its present organizational structure. Nevertheless,
there remain MII officer positions for which there may be executive
secretaries. These include the General Manager and members of the
Management Committee, specifically i) the Quality Assurance Manager; ii)
the Product Development Manager; iii) the Finance Director; iv) the
Management System Manager; v) the Human Resources Manager; vi) the
Marketing Director; vii) the Engineering Manager; viii) the Materials
Manager; and ix) the Production Manager.
xxx
xxx
xxx
The basis for the questioned exclusions, it should be noted, is no other

than the previous CBA between MII and the Union. If MII had undergone
an organizational restructuring since then, this is a fact to which we have
never been made privy. In any event, had this been otherwise the result
would have been the same. To repeat, we limited the exclusions to
recognize the expanded scope of the right to self-organization as embodied
in the Constitution.
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Metrolab, however, maintains that executive secretaries of the General

Manager and the executive secretaries of the Quality Assurance Manager,
Product Development Manager, Finance Director, Management System
Manager, Human Resources Manager, Marketing Director, Engineering
Manager, Materials Manager and Production Manager, who are all
members of the companys Management Committee should not only be
13
[18]

exempted from the closed-shop provision but should be excluded from

membership in the bargaining unit of the rank and file employees as well on
grounds that their executive secretaries are confidential employees, having
access to vital labor information.
[19]
We concur with Metrolab.

Although Article 245 of the Labor Code limits the ineligibility to join,
form and assist any labor organization to managerial employees,
jurisprudence has extended this prohibition to confidential employees or
those who by reason of their positions or nature of work are required to
assist or act in a fiduciary manner to managerial employees and hence, are
likewise privy to sensitive and highly confidential records.
[20]
The rationale behind the exclusion of confidential employees from the

bargaining unit of the rank and file employees and their disqualification to
join any labor organization was succinctly discussed in Philips Industrial
Development v. NLRC:
[21]
xxx
xxx
xxx.
On the main issue raised before Us, it is quite obvious that respondent NLRC
committed grave abuse of discretion in reversing the decision of the Executive
Labor Arbiter and in decreeing that PIDIs Service Engineers, Sales Force,
division secretaries, all Staff of General Management, Personnel and Industrial
Relations Department, Secretaries of Audit, EDP and Financial Systems are
included within the rank and file bargaining unit.
In the first place, all these employees, with the exception of the service engineers
and the sales force personnel, are confidential employees. Their classification as
such is not seriously disputed by PEO-FFW; the five (5) previous CBAs between
PIDI and PEO-FFW explicitly considered them as confidential employees. By the
very nature of their functions, they assist and act in a confidential capacity to, or
have access to confidential matters of, persons who exercise managerial functions
in the field of labor relations. As such, the rationale behind the ineligibility of
managerial employees to form, assist or join a labor union equally applies to them.
In Bulletin Publishing Co., Inc. vs. Hon. Augusto Sanchez, this Court
elaborated on this rationale, thus:
Page
14
x x x The rationale for this inhibition has been stated to be, because 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. The Union can also become company-dominated with the presence of
managerial employees in Union membership.
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In Golden Farms, Inc. vs. Ferrer-Calleja, this Court explicitly made this
rationale applicable to confidential employees:
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.
xxx
xxx
xxx.
Similarly, in National Association of Trade Union - Republic Planters

Bank Supervisors Chapter v. Torres we declared:
[22]
xxx
xxx
xxx.
. . . As regards the other claim of respondent Bank that Branch Managers/OICs,

Cashiers and Controllers are confidential employees, having control, custody and/
or access to confidential matters, e.g., the branchs cash position, statements of
financial condition, vault combination, cash codes for telegraphic transfers,
demand drafts and other negotiable instruments, pursuant to Sec. 1166.4 of the
Central Bank Manual regarding joint custody, this claim is not even disputed by
petitioner. A confidential employee is one entrusted with confidence on delicate
matters, or with the custody, handling, or care and protection of the employers
property. While Art. 245 of the Labor Code singles out managerial employees as
ineligible to join, assist or form any labor organization, under the doctrine of
necessary, implication, confidential employees are similarly disqualified. . . .
xxx.
. . .(I)n the collective bargaining process, managerial employees are supposed to be

on the side of the employer, to act as its representatives, and to see to it that its
interest are well protected. The employer is not assured of such protection if these
employees themselves are union members. Collective bargaining in such a
situation can become one-sided. It is the same reason that impelled this Court to
consider the position of confidential employees as included in the disqualification
found in Art. 245 as if the disqualification of confidential employees were written
in the provision. If confidential employees could unionize in order to bargain for
advantages for themselves, then they could be governed by their own motives
rather than the interest of the employers. Moreover, unionization of confidential
employees for the purpose of collective bargaining would mean the extension of
the law to persons or individuals who are supposed to act in the interest of the
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15
xxx
Page
xxx

employers. It is not farfetched that in the course of collective bargaining, they

might jeopardize that interest which they are duty-bound to protect. . . .
xxx
xxx
xxx.
And in the latest case of Pier 8 Arrastre & Stevedoring Services, Inc. vs.
Roldan-Confesor, we ruled that:
[23]
xxx
xxx
xxx.
Upon the other hand, legal secretaries are neither managers nor supervisors. Their
work is basically routinary and clerical. However, they should be differentiated
from rank-and-file employees because they are tasked with, among others, the
typing of legal documents, memoranda and correspondence, the keeping of records
and files, the giving of and receiving notices, and such other duties as required by
the legal personnel of the corporation. Legal secretaries therefore fall under the
category of confidential employees. . . .
xxx
xxx
xxx.
We thus hold that public respondent acted with grave abuse of discretion in not
excluding the four foremen and legal secretary from the bargaining unit composed
of rank-and-file employees.
xxx
xxx
xxx.
In the case at bench, the Union does not disagree with petitioner that the executive
secretaries are confidential employees. It however, makes the following
contentions:
xxx
xxx
xxx.
There would be no danger of company domination of the Union since the

confidential employees would not be members of and would not participate in the
decision making processes of the Union.
Neither would there be a danger of espionage since the confidential employees
would not have any conflict of interest, not being members of the Union. In any
case, there is always the danger that any employee would leak management secrets
to the Union out of sympathy for his fellow rank and filer even if he were not a
member of the union nor the bargaining unit.
Page
16
Confidential employees are rank and file employees and they, like all the other
rank and file employees, should be granted the benefits of the Collective
Bargaining Agreement. There is no valid basis for discriminating against them.
The mandate of the Constitution and the Labor Code, primarily of protection to
Labor, compels such conclusion.
[24]
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xxx
xxx
xxx.
The Unions assurances fail to convince. The dangers sought to be

prevented, particularly the threat of conflict of interest and espionage, are
not eliminated by non-membership of Metrolabs executive secretaries or
confidential employees in the Union. Forming part of the bargaining unit,
the executive secretaries stand to benefit from any agreement executed
between the Union and Metrolab. Such a scenario, thus, gives rise to a
potential conflict between personal interests and their duty as confidential
employees to act for and in behalf of Metrolab. They do not have to be
union members to affect or influence either side.
Finally, confidential employees cannot be classified as rank and file. As
previously discussed, the nature of employment of confidential employees
is quite distinct from the rank and file, thus, warranting a separate
category. Excluding confidential employees from the rank and file
bargaining unit, therefore, is not tantamount to discrimination.
WHEREFORE, premises considered, the petition is partially
GRANTED. The resolutions of public respondent Secretary of Labor dated
14 April 1992 and 25 January 1993 are hereby MODIFIED to the extent
that executive secretaries of petitioner Metrolabs General Manager and the
executive secretaries of the members of its Management Committee are
excluded from the bargaining unit of petitioners rank and file employees.
SO ORDERED.
Page
17
Padilla, Bellosillo, Vitug, and Hermosisima, Jr., JJ., concur.
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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 (NUWHRAINHHMSC),
Respondent.
G.R. No. 178296

Present:
CARPIO, J.,
Chairperson,
NACHURA,
LEONARDO-DE CASTRO,*
ABAD, and
MENDOZA, JJ.
Promulgated:
January 12, 2011

x----------------------------------------------------------------------------------x
DECISION
Page
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.
18
NACHURA, J.:
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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.
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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
19
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]

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.
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20
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.
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Citing National Union of Bank Employees v. Minister of Labor, et

al. 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.
[9]
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:
Page
21
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.
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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.
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Page
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
22
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.

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:
Page
23
I.
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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]
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Page
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
24
The petition has no merit.

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]
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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
25
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.

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.
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Page
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
26
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.

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

REGISTRATION.
FOR
CANCELLATION
OF
UNION
The following shall constitute grounds for cancellation of

union registration:
xxxx
Page
27
(d) Failure to submit the annual financial report to the Bureau

within thirty (30) days after the closing of every fiscal year and
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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.
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Page
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
28
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.

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:
Page
29
(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;
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(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
Page
30
(d) Its list of members at least once a year or whenever

required by the Bureau.
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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:
Page
31
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.
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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 NationalUnion 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 selforganization 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.
Page
32
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
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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.
SO ORDERED.
Page
33
ANTONIO EDUARDO B. NACHURA

Associate Justice
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G.R. No. L-25246 September 12, 1974

BENJAMIN VICTORIANO, plaintiff-appellee,
vs.
ELIZALDE ROPE WORKERS' UNION and ELIZALDE ROPE
FACTORY, INC., defendants, ELIZALDE ROPE WORKERS'
UNION, defendant-appellant.
Salonga, Ordonez, Yap, Sicat & Associates for plaintiff-appellee.
Cipriano Cid & Associates for defendant-appellant.
ZALDIVAR, J.:p
Appeal to this Court on purely questions of law from the decision of the
Court of First Instance of Manila in its Civil Case No. 58894.
The undisputed facts that spawned the instant case follow:
Benjamin Victoriano (hereinafter referred to as Appellee), a member of
the religious sect known as the "Iglesia ni Cristo", had been in the
employ of the Elizalde Rope Factory, Inc. (hereinafter referred to as
Company) since 1958. As such employee, he was a member of the
Elizalde Rope Workers' Union (hereinafter referred to as Union) which
had with the Company a collective bargaining agreement containing a
closed shop provision which reads as follows:
Membership in the Union shall be required as a condition of
employment for all permanent employees workers covered
by this Agreement.
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Under Section 4(a), paragraph 4, of Republic Act No. 875, prior to its
amendment by Republic Act No. 3350, the employer was 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." On June 18, 1961, however,
Republic Act No. 3350 was enacted, introducing an amendment to
34
The collective bargaining agreement expired on March 3, 1964 but was

renewed the following day, March 4, 1964.

paragraph (4) subsection (a) of section 4 of Republic Act No. 875, as

follows: ... "but such agreement shall not cover members of any religious
sects which prohibit affiliation of their members in any such labor
organization".
Being a member of a religious sect that prohibits the affiliation of its
members with any labor organization, Appellee presented his
resignation to appellant Union in 1962, and when no action was taken
thereon, he reiterated his resignation on September 3, 1974. Thereupon,
the Union wrote a formal letter to the Company asking the latter to
separate Appellee from the service in view of the fact that he was
resigning from the Union as a member. The management of the
Company in turn notified Appellee and his counsel that unless the
Appellee could achieve a satisfactory arrangement with the Union, the
Company would be constrained to dismiss him from the service. This
prompted Appellee to file an action for injunction, docketed as Civil Case
No. 58894 in the Court of First Instance of Manila to enjoin the Company
and the Union from dismissing Appellee. 1 In its answer, the Union
invoked the "union security clause" of the collective bargaining
agreement; assailed the constitutionality of Republic Act No. 3350; and
contended that the Court had no jurisdiction over the case, pursuant to
Republic Act No. 875, Sections 24 and 9 (d) and (e). 2Upon the facts
agreed upon by the parties during the pre-trial conference, the Court a
quo rendered its decision on August 26, 1965, the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING, judgment is rendered
enjoining the defendant Elizalde Rope Factory, Inc. from
dismissing the plaintiff from his present employment and
sentencing the defendant Elizalde Rope Workers' Union to
pay the plaintiff P500 for attorney's fees and the costs of this
action. 3
From this decision, the Union appealed directly to this Court on purely
questions of law, assigning the following errors:
Page
II. That the lower court erred when it sentenced appellant

herein to pay plaintiff the sum of P500 as attorney's fees and
the cost thereof.
35
I. That the lower court erred when it did not rule that Republic
Act No. 3350 is unconstitutional.
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In support of the alleged unconstitutionality of Republic Act No. 3350,

the Union contented, firstly, that the Act infringes on the fundamental
right to form lawful associations; that "the very phraseology of said
Republic Act 3350, that membership in a labor organization is banned to
all those belonging to such religious sect prohibiting affiliation with any
labor organization" 4 , "prohibits all the members of a given religious sect
from joining any labor union if such sect prohibits affiliations of their
members thereto" 5 ; and, consequently, deprives said members of their
constitutional right to form or join lawful associations or organizations
guaranteed by the Bill of Rights, and thus becomes obnoxious to Article
III, Section 1 (6) of the 1935 Constitution. 6
Secondly, the Union contended that Republic Act No. 3350 is
unconstitutional for impairing the obligation of contracts in that, while the
Union is obliged to comply with its collective bargaining agreement
containing a "closed shop provision," the Act relieves the employer from
its reciprocal obligation of cooperating in the maintenance of union
membership as a condition of employment; and that said Act,
furthermore, impairs the Union's rights as it deprives the union of dues
from members who, under the Act, are relieved from the obligation to
continue as such members. 7
Thirdly, the Union contended that Republic Act No. 3350 discriminatorily
favors those religious sects which ban their members from joining labor
unions, in violation of Article Ill, Section 1 (7) of the 1935 Constitution;
and while said Act unduly protects certain religious sects, it leaves no
rights or protection to labor organizations. 8
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Fifthly, the Union contended that Republic Act No. 3350, violates the
"equal protection of laws" clause of the Constitution, it being a
discriminately legislation, inasmuch as by exempting from the operation
of closed shop agreement the members of the "Iglesia ni Cristo", it has
granted said members undue advantages over their fellow workers, for
while the Act exempts them from union obligation and liability, it
36
Fourthly, Republic Act No. 3350, asserted the Union, violates the
constitutional provision that "no religious test shall be required for the
exercise of a civil right," in that the laborer's exercise of his civil right to
join associations for purposes not contrary to law has to be determined
under the Act by his affiliation with a religious sect; that conversely, if a
worker has to sever his religious connection with a sect that prohibits
membership in a labor organization in order to be able to join a labor
organization, said Act would violate religious freedom. 9

nevertheless entitles them at the same time to the enjoyment of all

concessions, benefits and other emoluments that the union might secure
from the employer. 10
Sixthly, the Union contended that Republic Act No. 3350 violates the
constitutional provision regarding the promotion of social justice. 11
Appellant Union, furthermore, asserted that a "closed shop provision" in
a collective bargaining agreement cannot be considered violative of
religious freedom, as to call for the amendment introduced by Republic
Act No. 3350; 12and that unless Republic Act No. 3350 is declared
unconstitutional, trade unionism in this country would be wiped out as
employers would prefer to hire or employ members of the Iglesia ni
Cristo in order to do away with labor organizations. 13
Appellee, assailing appellant's arguments, contended that Republic Act
No. 3350 does not violate the right to form lawful associations, for the
right to join associations includes the right not to join or to resign from a
labor organization, if one's conscience does not allow his membership
therein, and the Act has given substance to such right by prohibiting the
compulsion of workers to join labor organizations; 14 that said Act does
not impair the obligation of contracts for said law formed part of, and was
incorporated into, the terms of the closed shop agreement; 15 that the Act
does not violate the establishment of religion clause or separation of
Church and State, for Congress, in enacting said law, merely
accommodated the religious needs of those workers whose religion
prohibits its members from joining labor unions, and balanced the
collective rights of organized labor with the constitutional right of an
individual to freely exercise his chosen religion; that the constitutional
right to the free exercise of one's religion has primacy and preference
over union security measures which are merely contractual 16 ; that said
Act does not violate the constitutional provision of equal protection, for
the classification of workers under the Act depending on their religious
tenets is based on substantial distinction, is germane to the purpose of
the law, and applies to all the members of a given class; 17 that said Act,
finally, does not violate the social justice policy of the Constitution, for
said Act was enacted precisely to equalize employment opportunities for
all citizens in the midst of the diversities of their religious beliefs." 18
Page
37
I. Before We proceed to the discussion of the first assigned error, it is

necessary to premise that there are some thoroughly established
principles which must be followed in all cases where questions of
constitutionality as obtains in the instant case are involved. All
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presumptions are indulged in favor of constitutionality; one who attacks a

statute, alleging unconstitutionality must prove its invalidity beyond a
reasonable doubt, that a law may work hardship does not render it
unconstitutional; that if any reasonable basis may be conceived which
supports the statute, it will be upheld, and the challenger must negate all
possible bases; that the courts are not concerned with the wisdom,
justice, policy, or expediency of a statute; and that a liberal interpretation
of the constitution in favor of the constitutionality of legislation should be
adopted. 19
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Both the Constitution and Republic Act No. 875 recognize freedom of
association. Section 1 (6) of Article III of the Constitution of 1935, as well
as Section 7 of Article IV of the Constitution of 1973, provide that the
right to form associations or societies for purposes not contrary to law
shall not be abridged. Section 3 of Republic Act No. 875 provides that
employees shall have the right to self-organization and to form, join of
assist labor organizations of their own choosing for the purpose of
collective bargaining and to engage in concerted activities for the
purpose of collective bargaining and other mutual aid or protection. What
the Constitution and the Industrial Peace Act recognize and guarantee is
the "right" to form or join associations. Notwithstanding the different
theories propounded by the different schools of jurisprudence regarding
the nature and contents of a "right", it can be safely said that whatever
theory one subscribes to, a right comprehends at least two broad
notions, namely: first, liberty or freedom, i.e., the absence of legal
restraint, whereby an employee may act for himself without being
prevented by law; and second, power, whereby an employee may, as he
pleases, join or refrain from Joining an association. It is, therefore, the
employee who should decide for himself whether he should join or not
an association; and should he choose to join, he himself makes up his
mind as to which association he would join; and even after he has
joined, he still retains the liberty and the power to leave and cancel his
membership with said organization at any time. 20 It is clear, therefore,
that the right to join a union includes the right to abstain from joining any
38
1. Appellant Union's contention that Republic Act No. 3350 prohibits and
bans the members of such religious sects that forbid affiliation of their
members with labor unions from joining labor unions appears nowhere in
the wording of Republic Act No. 3350; neither can the same be deduced
by necessary implication therefrom. It is not surprising, therefore, that
appellant, having thus misread the Act, committed the error of
contending that said Act is obnoxious to the constitutional provision on
freedom of association.

union. 21 Inasmuch as what both the Constitution and the Industrial

Peace Act have recognized, and guaranteed to the employee, is the
"right" to join associations of his choice, it would be absurd to say that
the law also imposes, in the same breath, upon the employee the duty to
join associations. The law does not enjoin an employee to sign up with
any association.
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Page
To that all-embracing coverage of the closed shop arrangement,

Republic Act No. 3350 introduced an exception, when it added to
Section 4 (a) (4) of the Industrial Peace Act the following proviso: "but
such agreement shall not cover members of any religious sects which
prohibit affiliation of their members in any such labor organization".
Republic Act No. 3350 merely excludes ipso jure from the application
and coverage of the closed shop agreement the employees belonging to
any religious sects which prohibit affiliation of their members with any
labor organization. What the exception provides, therefore, is that
members of said religious sects cannot be compelled or coerced to join
labor unions even when said unions have closed shop agreements with
the employers; that in spite of any closed shop agreement, members of
said religious sects cannot be refused employment or dismissed from
their jobs on the sole ground that they are not members of the collective
39
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.

bargaining union. It is clear, therefore, that the assailed Act, far from
infringing the constitutional provision on freedom of association, upholds
and reinforces it. It does not prohibit the members of said religious sects
from affiliating with labor unions. It still leaves to said members the
liberty and the power to affiliate, or not to affiliate, with labor unions. If,
notwithstanding their religious beliefs, the members of said religious
sects prefer to sign up with the labor union, they can do so. If in
deference and fealty to their religious faith, they refuse to sign up, they
can do so; the law does not coerce them to join; neither does the law
prohibit them from joining; and neither may the employer or labor union
compel them to join. Republic Act No. 3350, therefore, does not violate
the constitutional provision on freedom of association.
Page
According to Black, any statute which introduces a change into the

express terms of the contract, or its legal construction, or its validity, or
its discharge, or the remedy for its enforcement, impairs the contract.
The extent of the change is not material. It is not a question of degree or
manner or cause, but of encroaching in any respect on its obligation or
dispensing with any part of its force. There is an impairment of the
contract if either party is absolved by law from its
performance. 22 Impairment has also been predicated on laws which,
without destroying contracts, derogate from substantial contractual
rights. 23
40
2. Appellant Union also contends that the Act is unconstitutional for

impairing the obligation of its contract, specifically, the "union security
clause" embodied in its Collective Bargaining Agreement with the
Company, by virtue of which "membership in the union was required as
a condition for employment for all permanent employees workers". This
agreement was already in existence at the time Republic Act No. 3350
was enacted on June 18, 1961, and it cannot, therefore, be deemed to
have been incorporated into the agreement. But by reason of this
amendment, Appellee, as well as others similarly situated, could no
longer be dismissed from his job even if he should cease to be a
member, or disaffiliate from the Union, and the Company could continue
employing him notwithstanding his disaffiliation from the Union. The Act,
therefore, introduced a change into the express terms of the union
security clause; the Company was partly absolved by law from the
contractual obligation it had with the Union of employing only Union
members in permanent positions, It cannot be denied, therefore, that
there was indeed an impairment of said union security clause.
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Page
In several occasions this Court declared that the prohibition against

impairing the obligations of contracts has no application to statutes
relating to public subjects within the domain of the general legislative
powers of the state involving public welfare. 28 Thus, this Court also held
that the Blue Sunday Law was not an infringement of the obligation of a
contract that required the employer to furnish work on Sundays to his
employees, the law having been enacted to secure the well-being and
happiness of the laboring class, and being, furthermore, a legitimate
exercise of the police power. 29
41
It should not be overlooked, however, that the prohibition to impair the

obligation of contracts is not absolute and unqualified. The prohibition is
general, affording a broad outline and requiring construction to fill in the
details. The prohibition is not to be read with literal exactness like a
mathematical formula, for it prohibits unreasonable impairment only. 24 In
spite of the constitutional prohibition, the State continues to possess
authority to safeguard the vital interests of its people. Legislation
appropriate to safeguarding said interests may modify or abrogate
contracts already in effect. 25 For not only are existing laws read into
contracts in order to fix the obligations as between the parties, but the
reservation of essential attributes of sovereign power is also read into
contracts as a postulate of the legal order. All contracts made with
reference to any matter that is subject to regulation under the police
power must be understood as made in reference to the possible
exercise of that power. 26 Otherwise, important and valuable reforms
may be precluded by the simple device of entering into contracts for the
purpose of doing that which otherwise may be prohibited. The policy of
protecting contracts against impairment presupposes the maintenance
of a government by virtue of which contractual relations are worthwhile a
government which retains adequate authority to secure the peace and
good order of society. The contract clause of the Constitution must,
therefore, be not only in harmony with, but also in subordination to, in
appropriate instances, the reserved power of the state to safeguard the
vital interests of the people. It follows that not all legislations, which have
the effect of impairing a contract, are obnoxious to the constitutional
prohibition as to impairment, and a statute passed in the legitimate
exercise of police power, although it incidentally destroys existing
contract rights, must be upheld by the courts. This has special
application to contracts regulating relations between capital and labor
which are not merely contractual, and said labor contracts, for being
impressed with public interest, must yield to the common good. 27
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In order to determine whether legislation unconstitutionally impairs

contract obligations, no unchanging yardstick, applicable at all times and
under all circumstances, by which the validity of each statute may be
measured or determined, has been fashioned, but every case must be
determined upon its own circumstances. Legislation impairing the
obligation of contracts can be sustained when it is enacted for the
promotion of the general good of the people, and when the means
adopted to secure that end are reasonable. Both the end sought and the
means adopted must be legitimate, i.e., within the scope of the reserved
power of the state construed in harmony with the constitutional limitation
of that power. 30
What then was the purpose sought to be achieved by Republic Act No.
3350? Its purpose was to insure freedom of belief and religion, and to
promote the general welfare by preventing discrimination against those
members of religious sects which prohibit their members from joining
labor unions, confirming thereby their natural, statutory and
constitutional right to work, the fruits of which work are usually the only
means whereby they can maintain their own life and the life of their
dependents. It cannot be gainsaid that said purpose is legitimate.
The questioned Act also provides protection to members of said
religious sects against two aggregates of group strength from which the
individual needs protection. The individual employee, at various times in
his working life, is confronted by two aggregates of power collective
labor, directed by a union, and collective capital, directed by
management. The union, an institution developed to organize labor into
a collective force and thus protect the individual employee from the
power of collective capital, is, paradoxically, both the champion of
employee rights, and a new source of their frustration. Moreover, when
the Union interacts with management, it produces yet a third aggregate
of group strength from which the individual also needs protection the
collective bargaining relationship.31
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It would be unthinkable indeed to refuse employing a person

who, on account of his religious beliefs and convictions,
cannot accept membership in a labor organization although
he possesses all the qualifications for the job. This is
tantamount to punishing such person for believing in a
42
The aforementioned purpose of the amendatory law is clearly seen in

the Explanatory Note to House Bill No. 5859, which later became
Republic Act No. 3350, as follows:

doctrine he has a right under the law to believe in. The law
would not allow discrimination to flourish to the detriment of
those whose religion discards membership in any labor
organization. Likewise, the law would not commend the
deprivation of their right to work and pursue a modest means
of livelihood, without in any manner violating their religious
faith and/or belief. 32
It cannot be denied, furthermore, that the means adopted by the Act to
achieve that purpose exempting the members of said religious sects
from coverage of union security agreements is reasonable.
It may not be amiss to point out here that the free exercise of religious
profession or belief is superior to contract rights. In case of conflict, the
latter must, therefore, yield to the former. The Supreme Court of the
United States has also declared on several occasions that the rights in
the First Amendment, which include freedom of religion, enjoy a
preferred position in the constitutional system. 33 Religious freedom,
although not unlimited, is a fundamental personal right and liberty, 34 and
has a preferred position in the hierarchy of values. Contractual rights,
therefore, must yield to freedom of religion. It is only where unavoidably
necessary to prevent an immediate and grave danger to the security and
welfare of the community that infringement of religious freedom may be
justified, and only to the smallest extent necessary to avoid the danger.
3. In further support of its contention that Republic Act No. 3350 is
unconstitutional, appellant Union averred that said Act discriminates in
favor of members of said religious sects in violation of Section 1 (7) of
Article Ill of the 1935 Constitution, and which is now Section 8 of Article
IV of the 1973 Constitution, which provides:
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The constitutional provision into only prohibits legislation for the support
of any religious tenets or the modes of worship of any sect, thus
forestalling compulsion by law of the acceptance of any creed or the
practice of any form of worship, 35 but also assures the free exercise of
one's chosen form of religion within limits of utmost amplitude. It has
been said that the religion clauses of the Constitution are all designed to
43
No law shall be made respecting an establishment of

religion, or prohibiting the free exercise thereof, and the free
exercise and enjoyment of religious profession and worship,
without discrimination and preference, shall forever be
allowed. No religious test shall be required for the exercise of
civil or political rights.

protect the broadest possible liberty of conscience, to allow each man to

believe as his conscience directs, to profess his beliefs, and to live as he
believes he ought to live, consistent with the liberty of others and with
the common good. 36 Any legislation whose effect or purpose is to
impede the observance of one or all religions, or to discriminate
invidiously between the religions, is invalid, even though the burden may
be characterized as being only indirect. 37 But if the stage regulates
conduct by enacting, within its power, a general law which has for its
purpose and effect to advance the state's secular goals, the statute is
valid despite its indirect burden on religious observance, unless the state
can accomplish its purpose without imposing such burden. 38
In Aglipay v. Ruiz 39 , this Court had occasion to state that the
government should not be precluded from pursuing valid objectives
secular in character even if the incidental result would be favorable to a
religion or sect. It has likewise been held that the statute, in order to
withstand the strictures of constitutional prohibition, must have a secular
legislative purpose and a primary effect that neither advances nor
inhibits religion. 40 Assessed by these criteria, Republic Act No. 3350
cannot be said to violate the constitutional inhibition of the "noestablishment" (of religion) clause of the Constitution.
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The primary effects of the exemption from closed shop agreements in

favor of members of religious sects that prohibit their members from
affiliating with a labor organization, is the protection of said employees
against the aggregate force of the collective bargaining agreement, and
relieving certain citizens of a burden on their religious beliefs; and by
44
The purpose of Republic Act No. 3350 is secular, worldly, and temporal,
not spiritual or religious or holy and eternal. It was intended to serve the
secular purpose of advancing the constitutional right to the free exercise
of religion, by averting that certain persons be refused work, or be
dismissed from work, or be dispossessed of their right to work and of
being impeded to pursue a modest means of livelihood, by reason of
union security agreements. To help its citizens to find gainful
employment whereby they can make a living to support themselves and
their families is a valid objective of the state. In fact, the state is
enjoined, in the 1935 Constitution, to afford protection to labor, and
regulate the relations between labor and capital and industry. 41 More so
now in the 1973 Constitution where it is mandated that "the State shall
afford protection to labor, promote full employment and equality in
employment, ensure equal work opportunities regardless of sex, race or
creed and regulate the relation between workers and employers. 42

eliminating to a certain extent economic insecurity due to

unemployment, which is a serious menace to the health, morals, and
welfare of the people of the State, the Act also promotes the well-being
of society. It is our view that the exemption from the effects of closed
shop agreement does not directly advance, or diminish, the interests of
any particular religion. Although the exemption may benefit those who
are members of religious sects that prohibit their members from joining
labor unions, the benefit upon the religious sects is merely incidental and
indirect. The "establishment clause" (of religion) does not ban regulation
on conduct whose reason or effect merely happens to coincide or
harmonize with the tenets of some or all religions. 43 The free exercise
clause of the Constitution has been interpreted to require that religious
exercise be preferentially aided. 44
We believe that in enacting Republic Act No. 3350, Congress acted
consistently with the spirit of the constitutional provision. It acted merely
to relieve the exercise of religion, by certain persons, of a burden that is
imposed by union security agreements. It was Congress itself that
imposed that burden when it enacted the Industrial Peace Act (Republic
Act 875), and, certainly, Congress, if it so deems advisable, could take
away the same burden. It is certain that not every conscience can be
accommodated by all the laws of the land; but when general laws
conflict with scrupples of conscience, exemptions ought to be granted
unless some "compelling state interest" intervenes. 45 In the instant case,
We see no such compelling state interest to withhold exemption.
Appellant bewails that while Republic Act No. 3350 protects members of
certain religious sects, it leaves no right to, and is silent as to the
protection of, labor organizations. The purpose of Republic Act No. 3350
was not to grant rights to labor unions. The rights of labor unions are
amply provided for in Republic Act No. 875 and the new Labor Code. As
to the lamented silence of the Act regarding the rights and protection of
labor unions, suffice it to say, first, that the validity of a statute is
determined by its provisions, not by its silence 46 ; and, second, the fact
that the law may work hardship does not render it unconstitutional. 47
Page
45
It would not be amiss to state, regarding this matter, that to compel

persons to join and remain members of a union to keep their jobs in
violation of their religious scrupples, would hurt, rather than help, labor
unions, Congress has seen it fit to exempt religious objectors lest their
resistance spread to other workers, for religious objections have
contagious potentialities more than political and philosophic objections.
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Furthermore, let it be noted that coerced unity and loyalty even to the
country, and a fortiori to a labor union assuming that such unity and
loyalty can be attained through coercion is not a goal that is
constitutionally obtainable at the expense of religious liberty. 48 A
desirable end cannot be promoted by prohibited means.
4. Appellants' fourth contention, that Republic Act No. 3350 violates the
constitutional prohibition against requiring a religious test for the
exercise of a civil right or a political right, is not well taken. The Act does
not require as a qualification, or condition, for joining any lawful
association membership in any particular religion or in any religious sect;
neither does the Act require affiliation with a religious sect that prohibits
its members from joining a labor union as a condition or qualification for
withdrawing from a labor union. Joining or withdrawing from a labor
union requires a positive act. Republic Act No. 3350 only exempts
members with such religious affiliation from the coverage of closed shop
agreements. So, under this Act, a religious objector is not required to do
a positive act to exercise the right to join or to resign from the union.
He is exempted ipso jure without need of any positive act on his part. A
conscientious religious objector need not perform a positive act or
exercise the right of resigning from the labor union he is exempted
from the coverage of any closed shop agreement that a labor union may
have entered into. How then can there be a religious test required for the
exercise of a right when no right need be exercised?
We have said that it was within the police power of the State to enact
Republic Act No. 3350, and that its purpose was legal and in
consonance with the Constitution. It is never an illegal evasion of a
constitutional provision or prohibition to accomplish a desired result,
which is lawful in itself, by discovering or following a legal way to do it. 49
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The guaranty of equal protection of the laws is not a guaranty of equality

in the application of the laws upon all citizens of the state. It is not,
therefore, a requirement, in order to avoid the constitutional prohibition
against inequality, that every man, woman and child should be affected
alike by a statute. Equality of operation of statutes does not mean
indiscriminate operation on persons merely as such, but on persons
46
5. Appellant avers as its fifth ground that Republic Act No. 3350 is a
discriminatory legislation, inasmuch as it grants to the members of
certain religious sects undue advantages over other workers, thus
violating Section 1 of Article III of the 1935 Constitution which forbids the
denial to any person of the equal protection of the laws. 50

according to the circumstances surrounding them. It guarantees

equality, not identity of rights. The Constitution does not require that
things which are different in fact be treated in law as though they were
the same. The equal protection clause does not forbid discrimination as
to things that are different. 51 It does not prohibit legislation which is
limited either in the object to which it is directed or by the territory within
which it is to operate.
The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of
knowledge or practice, is the grouping of things in speculation or
practice because they agree with one another in certain particulars. A
law is not invalid because of simple inequality. 52 The very idea of
classification is that of inequality, so that it goes without saying that the
mere fact of inequality in no manner determines the matter of
constitutionality. 53 All that is required of a valid classification is that it be
reasonable, which means that the classification should be based on
substantial distinctions which make for real differences; that it must be
germane to the purpose of the law; that it must not be limited to existing
conditions only; and that it must apply equally to each member of the
class. 54 This Court has held that the standard is satisfied if the
classification or distinction is based on a reasonable foundation or
rational basis and is not palpably arbitrary. 55
cai
Page
We believe that Republic Act No. 3350 satisfies the aforementioned

requirements. The Act classifies employees and workers, as to the effect
and coverage of union shop security agreements, into those who by
reason of their religious beliefs and convictions cannot sign up with a
labor union, and those whose religion does not prohibit membership in
labor unions. Tile classification rests on real or substantial, not merely
imaginary or whimsical, distinctions. There is such real distinction in the
beliefs, feelings and sentiments of employees. Employees do not believe
in the same religious faith and different religions differ in their dogmas
47
In the exercise of its power to make classifications for the purpose of

enacting laws over matters within its jurisdiction, the state is recognized
as enjoying a wide range of discretion. 56 It is not necessary that the
classification be based on scientific or marked differences of things or in
their relation. 57 Neither is it necessary that the classification be made
with mathematical nicety. 58 Hence legislative classification may in many
cases properly rest on narrow distinctions, 59for the equal protection
guaranty does not preclude the legislature from recognizing degrees of
evil or harm, and legislation is addressed to evils as they may appear.

and cannons. Religious beliefs, manifestations and practices, though

they are found in all places, and in all times, take so many varied forms
as to be almost beyond imagination. There are many views that
comprise the broad spectrum of religious beliefs among the people.
There are diverse manners in which beliefs, equally paramount in the
lives of their possessors, may be articulated. Today the country is far
more heterogenous in religion than before, differences in religion do
exist, and these differences are important and should not be ignored.
Even from the phychological point of view, the classification is based on
real and important differences. Religious beliefs are not mere beliefs,
mere ideas existing only in the mind, for they carry with them practical
consequences and are the motives of certain rules. of human conduct
and the justification of certain acts. 60 Religious sentiment makes a man
view things and events in their relation to his God. It gives to human life
its distinctive character, its tone, its happiness or unhappiness its
enjoyment or irksomeness. Usually, a strong and passionate desire is
involved in a religious belief. To certain persons, no single factor of their
experience is more important to them than their religion, or their not
having any religion. Because of differences in religious belief and
sentiments, a very poor person may consider himself better than the
rich, and the man who even lacks the necessities of life may be more
cheerful than the one who has all possible luxuries. Due to their religious
beliefs people, like the martyrs, became resigned to the inevitable and
accepted cheerfully even the most painful and excruciating pains.
Because of differences in religious beliefs, the world has witnessed
turmoil, civil strife, persecution, hatred, bloodshed and war, generated to
a large extent by members of sects who were intolerant of other religious
beliefs. The classification, introduced by Republic Act No. 3350,
therefore, rests on substantial distinctions.
cai
Page
Republic Act No. 3350, furthermore, is not limited in its application to

conditions existing at the time of its enactment. The law does not provide
that it is to be effective for a certain period of time only. It is intended to
apply for all times as long as the conditions to which the law is
applicable exist. As long as there are closed shop agreements between
an employer and a labor union, and there are employees who are
48
The classification introduced by said Act is also germane to its purpose.

The purpose of the law is precisely to avoid those who cannot, because
of their religious belief, join labor unions, from being deprived of their
right to work and from being dismissed from their work because of union
shop security agreements.

prohibited by their religion from affiliating with labor unions, their

exemption from the coverage of said agreements continues.
Finally, the Act applies equally to all members of said religious sects;
this is evident from its provision. The fact that the law grants a privilege
to members of said religious sects cannot by itself render the Act
unconstitutional, for as We have adverted to, the Act only restores to
them their freedom of association which closed shop agreements have
taken away, and puts them in the same plane as the other workers who
are not prohibited by their religion from joining labor unions. The
circumstance, that the other employees, because they are differently
situated, are not granted the same privilege, does not render the law
unconstitutional, for every classification allowed by the Constitution by its
nature involves inequality.
The mere fact that the legislative classification may result in actual
inequality is not violative of the right to equal protection, for every
classification of persons or things for regulation by law produces
inequality in some degree, but the law is not thereby rendered invalid. A
classification otherwise reasonable does not offend the constitution
simply because in practice it results in some inequality. 61 Anent this
matter, it has been said that whenever it is apparent from the scope of
the law that its object is for the benefit of the public and the means by
which the benefit is to be obtained are of public character, the law will be
upheld even though incidental advantage may occur to individuals
beyond those enjoyed by the general public. 62
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Page
Social justice also means the adoption by the Government of measures

calculated to insure economic stability of all component elements of
society, through the maintenance of a proper economic and social
equilibrium in the inter-relations of the members of the
community. 64 Republic Act No. 3350 insures economic stability to the
members of a religious sect, like the Iglesia ni Cristo, who are also
49
6. Appellant's further contention that Republic Act No. 3350 violates the
constitutional provision on social justice is also baseless. Social justice is
intended to promote the welfare of all the people. 63 Republic Act No.
3350 promotes that welfare insofar as it looks after the welfare of those
who, because of their religious belief, cannot join labor unions; the Act
prevents their being deprived of work and of the means of livelihood. In
determining whether any particular measure is for public advantage, it is
not necessary that the entire state be directly benefited it is sufficient
that a portion of the state be benefited thereby.

Page
7. As its last ground, appellant contends that the amendment introduced

by Republic Act No. 3350 is not called for in other words, the Act is
not proper, necessary or desirable. Anent this matter, it has been held
that a statute which is not necessary is not, for that reason,
unconstitutional; that in determining the constitutional validity of
legislation, the courts are unconcerned with issues as to the necessity
for the enactment of the legislation in question. 67 Courts do inquire into
the wisdom of laws. 68 Moreover, legislatures, being chosen by the
people, are presumed to understand and correctly appreciate the needs
of the people, and it may change the laws accordingly. 69 The fear is
entertained by appellant that unless the Act is declared unconstitutional,
employers will prefer employing members of religious sects that prohibit
their members from joining labor unions, and thus be a fatal blow to
unionism. We do not agree. The threat to unionism will depend on the
number of employees who are members of the religious sects that
control the demands of the labor market. But there is really no occasion
now to go further and anticipate problems We cannot judge with the
material now before Us. At any rate, the validity of a statute is to be
determined from its general purpose and its efficacy to accomplish the
end desired, not from its effects on a particular case. 70 The essential
basis for the exercise of power, and not a mere incidental result arising
from its exertion, is the criterion by which the validity of a statute is to be
measured. 71
50
component elements of society, for it insures security in their

employment, notwithstanding their failure to join a labor union having a
closed shop agreement with the employer. The Act also advances the
proper economic and social equilibrium between labor unions and
employees who cannot join labor unions, for it exempts the latter from
the compelling necessity of joining labor unions that have closed shop
agreements and equalizes, in so far as opportunity to work is concerned,
those whose religion prohibits membership in labor unions with those
whose religion does not prohibit said membership. Social justice does
not imply social equality, because social inequality will always exist as
long as social relations depend on personal or subjective proclivities.
Social justice does not require legal equality because legal equality,
being a relative term, is necessarily premised on differentiations based
on personal or natural conditions. 65 Social justice guarantees equality of
opportunity 66 , and this is precisely what Republic Act No. 3350
proposes to accomplish it gives laborers, irrespective of their religious
scrupples, equal opportunity for work.
cai

II. We now pass on the second assignment of error, in support of which

the Union argued that the decision of the trial court ordering the Union to
pay P500 for attorney's fees directly contravenes Section 24 of Republic
Act No. 875, for the instant action involves an industrial dispute wherein
the Union was a party, and said Union merely acted in the exercise of its
rights under the union shop provision of its existing collective bargaining
contract with the Company; that said order also contravenes Article 2208
of the Civil Code; that, furthermore, Appellee was never actually
dismissed by the defendant Company and did not therefore suffer any
damage at all . 72
In refuting appellant Union's arguments, Appellee claimed that in the
instant case there was really no industrial dispute involved in the attempt
to compel Appellee to maintain its membership in the union under pain
of dismissal, and that the Union, by its act, inflicted intentional harm on
Appellee; that since Appellee was compelled to institute an action to
protect his right to work, appellant could legally be ordered to pay
attorney's fees under Articles 1704 and 2208 of the Civil Code. 73
The second paragraph of Section 24 of Republic Act No. 875 which is
relied upon by appellant provides that:
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Page
That there was a labor dispute in the instant case cannot be disputed for
appellant sought the discharge of respondent by virtue of the closed
shop agreement and under Section 2 (j) of Republic Act No. 875 a
question involving tenure of employment is included in the term "labor
dispute". 74 The discharge or the act of seeking it is the labor dispute
itself. It being the labor dispute itself, that very same act of the Union in
asking the employer to dismiss Appellee cannot be "an act done ... in
furtherance of an industrial dispute". The mere fact that appellant is a
labor union does not necessarily mean that all its acts are in furtherance
of an industrial dispute. 75 Appellant Union, therefore, cannot invoke in its
51
No suit, action or other proceedings shall be maintainable in

any court against a labor organization or any officer or
member thereof for any act done by or on behalf of such
organization in furtherance of an industrial dispute to which it
is a party, on the ground only that such act induces some
other person to break a contract of employment or that it is in
restraint of trade or interferes with the trade, business or
employment of some other person or with the right of some
other person to dispose of his capital or labor. (Emphasis
supplied)

favor Section 24 of Republic Act No. 875. This case is not intertwined
with any unfair labor practice case existing at the time when Appellee
filed his complaint before the lower court.
Neither does Article 2208 of the Civil Code, invoked by the Union, serve
as its shield. The article provides that attorney's fees and expenses of
litigation may be awarded "when the defendant's act or omission has
compelled the plaintiff ... to incur expenses to protect his interest"; and
"in any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered". In the
instant case, it cannot be gainsaid that appellant Union's act in
demanding Appellee's dismissal caused Appellee to incur expenses to
prevent his being dismissed from his job. Costs according to Section 1,
Rule 142, of the Rules of Court, shall be allowed as a matter of course to
the prevailing party.
WHEREFORE, the instant appeal is dismissed, and the decision, dated
August 26, 1965, of the Court of First Instance of Manila, in its Civil Case
No. 58894, appealed from is affirmed, with costs against appellant
Union. It is so ordered.
Makalintal, C.J, Castro, Teehankee, Barredo, Makasiar, Antonio,
Esguerra, Muoz Palma and Aquino, JJ., concur.
Separate Opinions
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Page
The decision arrived at unanimously by this Court that Republic Act No.
3350 is free from the constitutional infirmities imputed to it was
demonstrated in a manner wellnigh conclusive in the learned, scholarly,
and comprehensive opinion so typical of the efforts of the ponente,
Justice Zaldivar. Like the rest of my brethren, I concur fully. Considering
moreover, the detailed attention paid to each and every objection raised
as to its validity and the clarity and persuasiveness with which it was
shown to be devoid of support in authoritative doctrines, it would appear
52
FERNANDO, J, concurring:

that the last word has been written on this particular subject.
Nonetheless, I deem it proper to submit this brief expression of my views
on the transcendent character of religious freedom 1 and its primacy
even as against the claims of protection to labor, 2 also one of the
fundamental principles of the Constitution.
cai
Page
Gerona v. Secretary of Education 4 speaks similarly. In the language of

its ponente, Justice Montemayor: "The realm of belief and creed is
infinite and limitless bounded only by one's imagination and thought. So
is the freedom of belief, including religious belief, limitless and without
bounds. One may believe in most anything, however strange, bizarre
and unreasonable the same may appear to others, even heretical when
weighed in the scales of orthodoxy or doctrinal standards."5 There was
this qualification though: "But between the freedom of belief and the
exercise of said belief, there is quite a stretch of road to travel. If the
exercise of said religious belief clashes with the established institutions
of society and with the law, then the former must yield and give way to
the latter. The Government steps in and either restrains said exercise or
even prosecutes the one exercising it." 6 It was on that basis that the
daily compulsory flag ceremony in accordance with a statute7 was found
free from the constitutional objection on the part of a religious sect, the
Jehovah's Witnesses, whose members alleged that their participation
would be offensive to their religious beliefs. In a case not
53
1. Religious freedom is identified with the liberty every individual

possesses to worship or not a Supreme Being, and if a devotee of any
sect, to act in accordance with its creed. Thus is constitutionally
safeguarded, according to Justice Laurel, that "profession of faith to an
active power that binds and elevates man to his Creator ...." 3 The choice
of what a man wishes to believe in is his and his alone. That is a domain
left untouched, where intrusion is not allowed, a citadel to which the law
is denied entry, whatever be his thoughts or hopes. In that sphere, what
he wills reigns supreme. The doctrine to which he pays fealty may for
some be unsupported by evidence, devoid of rational foundation. No
matter. There is no requirement as to its conformity to what has found
acceptance. It suffices that for him such a concept holds undisputed
sway. That is a recognition of man's freedom. That for him is one of the
ways of self- realization. It would be to disregard the dignity that attaches
to every human being to deprive him of such an attribute. The "fixed star
on our constitutional constellation," to borrow the felicitous phrase of
Justice Jackson, is that no official, not excluding the highest, has it in his
power to prescribe what shall be orthodox in matters of conscience or
to mundane affairs, for that matter.

dissimilar, West Virginia State Board of Education v. Barnette, 8 the

American Supreme Court reached a contrary conclusion. Justice
Jackson's eloquent opinion is, for this writer, highly persuasive. Thus:
"The case is made difficult not because the principles of its decision are
obscure but because the flag involved is our own. Nevertheless, we
apply the limitations of the Constitution with no fear that freedom to be
intellectually and spiritually diverse or even contrary will disintegrate the
social organization. To believe that patriotism will not flourish if patriotic
ceremonies are voluntary and spontaneous instead of a compulsory
routine is to make an unflattering estimate of the appeal of our
institutions to free minds. We can have intellectual individualism and the
rich cultural diversities that we owe to exceptional minds only at the price
of occasional eccentricity and abnormal attitudes. When they are so
harmless to others or to the State as those we deal with here, the price
is not too great. But freedom to differ is not limited to things that do not
matter much. That would be a mere shadow of freedom. The test of its
substance is the right to differ as to things that touch the heart of the
existing order." 9
There is moreover this ringing affirmation by Chief Justice Hughes of the
primacy of religious freedom in the forum of conscience even as against
the command of the State itself: "Much has been said of the paramount
duty to the state, a duty to be recognized, it is urged, even though it
conflicts with convictions of duty to God. Undoubtedly that duty to the
state exists within the domain of power, for government may enforce
obedience to laws regardless of scruples. When one's belief collides with
the power of the state, the latter is supreme within its sphere and
submission or punishment follows. But, in the forum of conscience, duty
to a moral power higher than the state has always been maintained. The
reservation of that supreme obligation, as a matter of principle, would
unquestionably be made by many of our conscientious and law-abiding
citizens. The essence of religion is belief in a relation to God involving
duties superior to those arising from any human relation." 10 The
American Chief Justice spoke in dissent, it is true, but with him in
agreement were three of the foremost jurists who ever sat in that
Tribunal, Justices Holmes, Brandeis, and Stone.
Page
54
2. As I view Justice Zaldivar's opinion in that light, my concurrence, as

set forth earlier, is wholehearted and entire. With such a cardinal
postulate as the basis of our polity, it has a message that cannot be
misread. Thus is intoned with a reverberating clang, to paraphrase
Cardozo, a fundamental principle that drowns all weaker sounds. The
labored effort to cast doubt on the validity of the statutory provision in
cai

question is far from persuasive. It is attended by futility. It is not for this

Court, as I conceive of the judicial function, to restrict the scope of a
preferred freedom.
3. There is, however, the question of whether such an exception
possesses an implication that lessens the effectiveness of state efforts
to protect labor, likewise, as noted, constitutionally ordained. Such a
view, on the surface, may not be lacking in plausibility, but upon closer
analysis, it cannot stand scrutiny. Thought must be given to the freedom
of association, likewise an aspect of intellectual liberty. For the late
Professor Howe a constitutionalist and in his lifetime the biographer of
the great Holmes, it even partakes of the political theory of pluralistic
sovereignty. So great is the respect for the autonomy accorded voluntary
societies. 11 Such a right implies at the very least that one can determine
for himself whether or not he should join or refrain from joining a labor
organization, an institutional device for promoting the welfare of the
working man. A closed shop, on the other hand, is inherently coercive.
That is why, as is unmistakably reflected in our decisions, the latest of
which is Guijarno v. Court of Industrial Relations, 12 it is far from being a
favorite of the law. For a statutory provision then to further curtail its
operation, is precisely to follow the dictates of sound public policy.
The exhaustive and well-researched opinion of Justice Zaldivar thus is in
the mainstream of constitutional tradition. That, for me, is the channel to
follow.
Separate Opinions
cai
Page
The decision arrived at unanimously by this Court that Republic Act No.
3350 is free from the constitutional infirmities imputed to it was
demonstrated in a manner wellnigh conclusive in the learned, scholarly,
and comprehensive opinion so typical of the efforts of the ponente,
Justice Zaldivar. Like the rest of my brethren, I concur fully. Considering
moreover, the detailed attention paid to each and every objection raised
as to its validity and the clarity and persuasiveness with which it was
shown to be devoid of support in authoritative doctrines, it would appear
that the last word has been written on this particular subject.
Nonetheless, I deem it proper to submit this brief expression of my views
55
FERNANDO, J, concurring:

on the transcendent character of religious freedom 1 and its primacy

even as against the claims of protection to labor, 2 also one of the
fundamental principles of the Constitution.
cai
Page
Gerona v. Secretary of Education 4 speaks similarly. In the language of

its ponente, Justice Montemayor: "The realm of belief and creed is
infinite and limitless bounded only by one's imagination and thought. So
is the freedom of belief, including religious belief, limitless and without
bounds. One may believe in most anything, however strange, bizarre
and unreasonable the same may appear to others, even heretical when
weighed in the scales of orthodoxy or doctrinal standards."5 There was
this qualification though: "But between the freedom of belief and the
exercise of said belief, there is quite a stretch of road to travel. If the
exercise of said religious belief clashes with the established institutions
of society and with the law, then the former must yield and give way to
the latter. The Government steps in and either restrains said exercise or
even prosecutes the one exercising it." 6 It was on that basis that the
daily compulsory flag ceremony in accordance with a statute7 was found
free from the constitutional objection on the part of a religious sect, the
Jehovah's Witnesses, whose members alleged that their participation
would be offensive to their religious beliefs. In a case not
dissimilar, West Virginia State Board of Education v. Barnette, 8 the
American Supreme Court reached a contrary conclusion. Justice
56
1. Religious freedom is identified with the liberty every individual

possesses to worship or not a Supreme Being, and if a devotee of any
sect, to act in accordance with its creed. Thus is constitutionally
safeguarded, according to Justice Laurel, that "profession of faith to an
active power that binds and elevates man to his Creator ...." 3 The choice
of what a man wishes to believe in is his and his alone. That is a domain
left untouched, where intrusion is not allowed, a citadel to which the law
is denied entry, whatever be his thoughts or hopes. In that sphere, what
he wills reigns supreme. The doctrine to which he pays fealty may for
some be unsupported by evidence, devoid of rational foundation. No
matter. There is no requirement as to its conformity to what has found
acceptance. It suffices that for him such a concept holds undisputed
sway. That is a recognition of man's freedom. That for him is one of the
ways of self- realization. It would be to disregard the dignity that attaches
to every human being to deprive him of such an attribute. The "fixed star
on our constitutional constellation," to borrow the felicitous phrase of
Justice Jackson, is that no official, not excluding the highest, has it in his
power to prescribe what shall be orthodox in matters of conscience or
to mundane affairs, for that matter.

Jackson's eloquent opinion is, for this writer, highly persuasive. Thus:
"The case is made difficult not because the principles of its decision are
obscure but because the flag involved is our own. Nevertheless, we
apply the limitations of the Constitution with no fear that freedom to be
intellectually and spiritually diverse or even contrary will disintegrate the
social organization. To believe that patriotism will not flourish if patriotic
ceremonies are voluntary and spontaneous instead of a compulsory
routine is to make an unflattering estimate of the appeal of our
institutions to free minds. We can have intellectual individualism and the
rich cultural diversities that we owe to exceptional minds only at the price
of occasional eccentricity and abnormal attitudes. When they are so
harmless to others or to the State as those we deal with here, the price
is not too great. But freedom to differ is not limited to things that do not
matter much. That would be a mere shadow of freedom. The test of its
substance is the right to differ as to things that touch the heart of the
existing order." 9
There is moreover this ringing affirmation by Chief Justice Hughes of the
primacy of religious freedom in the forum of conscience even as against
the command of the State itself: "Much has been said of the paramount
duty to the state, a duty to be recognized, it is urged, even though it
conflicts with convictions of duty to God. Undoubtedly that duty to the
state exists within the domain of power, for government may enforce
obedience to laws regardless of scruples. When one's belief collides with
the power of the state, the latter is supreme within its sphere and
submission or punishment follows. But, in the forum of conscience, duty
to a moral power higher than the state has always been maintained. The
reservation of that supreme obligation, as a matter of principle, would
unquestionably be made by many of our conscientious and law-abiding
citizens. The essence of religion is belief in a relation to God involving
duties superior to those arising from any human relation." 10 The
American Chief Justice spoke in dissent, it is true, but with him in
agreement were three of the foremost jurists who ever sat in that
Tribunal, Justices Holmes, Brandeis, and Stone.
Page
57
2. As I view Justice Zaldivar's opinion in that light, my concurrence, as

set forth earlier, is wholehearted and entire. With such a cardinal
postulate as the basis of our polity, it has a message that cannot be
misread. Thus is intoned with a reverberating clang, to paraphrase
Cardozo, a fundamental principle that drowns all weaker sounds. The
labored effort to cast doubt on the validity of the statutory provision in
question is far from persuasive. It is attended by futility. It is not for this
cai

Court, as I conceive of the judicial function, to restrict the scope of a

preferred freedom.
3. There is, however, the question of whether such an exception
possesses an implication that lessens the effectiveness of state efforts
to protect labor, likewise, as noted, constitutionally ordained. Such a
view, on the surface, may not be lacking in plausibility, but upon closer
analysis, it cannot stand scrutiny. Thought must be given to the freedom
of association, likewise an aspect of intellectual liberty. For the late
Professor Howe a constitutionalist and in his lifetime the biographer of
the great Holmes, it even partakes of the political theory of pluralistic
sovereignty. So great is the respect for the autonomy accorded voluntary
societies. 11 Such a right implies at the very least that one can determine
for himself whether or not he should join or refrain from joining a labor
organization, an institutional device for promoting the welfare of the
working man. A closed shop, on the other hand, is inherently coercive.
That is why, as is unmistakably reflected in our decisions, the latest of
which is Guijarno v. Court of Industrial Relations, 12 it is far from being a
favorite of the law. For a statutory provision then to further curtail its
operation, is precisely to follow the dictates of sound public policy.
Page
58
The exhaustive and well-researched opinion of Justice Zaldivar thus is in

the mainstream of constitutional tradition. That, for me, is the channel to
follow.
cai

BANK OF
ISLANDS,
THE
PHILIPPINE
Petitioner,
- versus -
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:
BPI EMPLOYEES UNION-DAVAO
CHAPTER-FEDERATION
OF
August 10, 2010
UNIONS
IN BPI UNIBANK,
Respondent.
x----------------------- -------------------------x
DECISION
Page
59
LEONARDO-DE CASTRO, J.:
cai

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.
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Page
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
60
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.

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 UnionDavao 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]
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Page
Respondent BPI Employees Union-Davao Chapter - Federation of Unions

in BPI Unibank (hereinafter the Union, for brevity) is the exclusive
61
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.

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.
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62
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
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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]
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Respondent Union filed a Motion for Reconsideration, but the Voluntary

Arbitrator denied the same in an Order dated March 25, 2002.[13]
63
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.
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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.
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64
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
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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.
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65
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]
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Hence, petitioners present recourse, raising the following issues:
I
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:
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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
66
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.)

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.
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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
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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.

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., we ruled that:
[20]
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.)
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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.
68
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.
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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.
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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
69
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.

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:
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70
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;
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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
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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.
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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.

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]
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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.
72
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.

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.
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73
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
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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.)
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74
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.
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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.
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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
75
The Corporation Code and the Subject

Merger Agreement are Silent on Efficacy,
Terms and Conditions of Employment
Contracts

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.
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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
76
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.

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.
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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 nonregular employees for possible regular employment.
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Proper Appreciation of the Term New

Employees Under the CBA

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.
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Page
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.
78
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.

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.)
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Page
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
79
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.

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.
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Page
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 nonregular 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.
80
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.

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.
Page
81
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.
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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.
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Page
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
82
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 nonunionized 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.

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.
Page
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]
83
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.
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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.
Page
84
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.
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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
Page
85
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
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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.
Page
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:
86
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]
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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.)
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Page
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
87
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.

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
[45]
Union, 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.
Page
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.
88
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]
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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]
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Page
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
89
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.

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.
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Page
WHEREFORE, the petition is hereby DENIED, and the Decision dated

September 30, 2003 of the Court of Appeals isAFFIRMED, subject to the thirty
90
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.

(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.
Page
91
SO ORDERED.
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G.R. No. 91086 May 8, 1990

VIRGILIO S. CARIO petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HARRISON
INDUSTRIAL CORPORATION and HARRISON INDUSTRIAL
WORKERS' UNION, respondents.
Federico C. Leynes for petitioner.
Banzuela, Flores, Miralles, Raeses Sy, Taquio & Associates for
respondent Union.
Armando V. Ampil for respondent Harrison.
RESOLUTION
FELICIANO, J.:
Petitioner asks the Court to declare null and void a Decision dated 26
May 1989 of the National Labor Relations Commission (NLRC) in NLRC
Case No. NCR-00-09-03225-87 and to reinstate the Decision of the
Labor Arbiter which the NLRC had modified.
Petitioner Cario was the former President of private respondent
Harrison Industrial Workers' Union ("Union"). Because he was widely
believed to have grossly mismanaged Union affairs, the other officers of
the Union formed an investigating committee and several times invited
petitioner Cario to answer the complaints and charges against him.
These charges were, principally:
Page
2. Paying attorney's fees to Atty. Federico Leynes, Union counsel, out of

Union funds without obtaining corresponding receipts therefor.
92
1. Conspiring with the company during the negotiation of the CBA,

resulting in, among other things, Article 22 entitled "Retirement" which
provided for retirement pay of one (1) day's basic salary for every year of
service.
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3. Unilaterally increasing the membership dues by an additional P17.00

per member in order to pay increased attorney's fees.
4. Concealing the CBA, failure to present and to explain the provisions of
the same prior to ratification by the union membership.
5. Refusal to turn over the custody and management of Union funds to
the Union treasurer.
Petitioner Cario, however, failed to respond to the calls or invitations
made by the investigating committee. Finally, the investigation
committee caged a general membership meeting on 11 June 1987. At
this general membership meeting, the charges against petitioner were
presented and discussed and the Union decided to file a petition for
special election of its officers.
On 16 June 1987, a petition for special election of officers was filed by
the Union with the Bureau of Labor Relations, Department of Labor and
Employment. Several hearings were field at the BLR always with due
notice to petitioner Cario petitioner, however, failed to appear even
once.
On 5 August 1987, a general Union membership meeting was held for
the impeachment of Cario. The general membership found Cario
guilty of the above-mentioned charges and decided to expel him from
the Union and to recommend his termination from employment. Atty.
Federico Leynes also ceased to be counsel for the Union.
The Union accordingly informed private respondent Harrison Industrial
Corporation ("Company") of the expulsion of petitioner Cario from the
Union and demanded application of the Union Security Clause of the
then existing Collective Bargaining Agreement (CBA) on 15 September
1987. Petitioner Cario received a letter of termination from the
Company, effective the next day.
Petitioner Cario, now represented by Atty. Leynes, the former lawyer of
the Union, filed a complaint for illegal dismissal with the Labor Arbiter.
Page
93
In a Decision dated 7 October, 1988, the Labor Arbiter held that there
was no just cause for the dismissal of petitioner Cario, none of the
causes for suspension or dismissal of Union members enumerated in
the Union's Constitution and By-Laws being applicable to petitioner's
situation. The Labor Arbiter also held that the manner of petitioner's
dismissal had been in disregard of the requirements of notice and
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hearing laid down in the Labor Code. The Labor Arbiter ordered
petitioner's reinstatement with full backwages and payment of attorney's
fees, the monetary liability to be borne solidarily by the Company and
the Union.
The Company and the Union went on appeal before the public
respondent National Labor Relations Commission (NLRC). The NLRC,
in a Decision promulgated on 26 May 1989, reversed the Labor Arbiter's
award. The NLRC noted that petitioner Cario had merely denied the
serious charges of mismanagement preferred against him, as set out in
the affidavit of Dante Maroya, the incumbent President of the Union,
which affidavit had been adopted by the Union as its position paper in
the proceedings before the Labor Arbiter. The NLRC held Cario's
silence as "tantamount to [an] admission of guilt" and as constituting the
ultimate cause for his dismissal. However, the NLRC agreed with the
Labor Arbiter's finding that the manner of petitioner Cario's dismissal
was inconsistent with the requirements of due process. The NLRC
accordingly found the Company and the Union solidarily liable, "by way
of penalty and financial assistance", to petitioner Cario for payment of
separation pay, at the rate of one-half (1/2) month's salary for each year
of service.
In the instant Petition for Certiorari, petitioner Cario basically seeks
reinstatement of the Decision of the Labor Arbiter.
1. Petitioner Cario contended that the NLRC had erred in taking
cognizance of the Union's admittedly late appeal. We agree, however,
with the Solicitor General that it is a settled principle of remedial law that
reversal of a judgment obtained by a party appealing from it also
benefits a co-party who had not appealed, or who had appealed out of
time, where the rights and liabilities of both parties under the modified
decision are so interwoven and inter-dependent as to be substantively
inseparable. 1
Page
94
In the instant case, the NLRC could take cognizance of the late appeal
of the Union, considering that the lawfulness of petitioner Cario's
dismissal by the Company could be determined only after ascertaining,
among other things, the validity of the Union's act of expelling Cario
from its membership. In other words, the Company having seasonably
appealed the Labor Arbiter's Decision and the Company's and the
Union's liability being closely intertwined the NLRC could properly take
account of the Union's appeal even though not seasonably filed.
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2. The NLRC in effect held that there had been just cause for petitioner
Cario's dismissal. The Court considers that the NLRC was correct in so
holding, considering the following documentary provisions:
a) Article II, Sections 4 and 5 of the Collective Bargaining Agreement
between the Company and the Union provided as follows:
Sec. 4. Any employee or worker obliged to join the UNION
and/or maintain membership therein under the foregoing
sections who fails to do so and/or maintain such membership
shall be dismiss without pay upon formal request of the
UNION.
Sec. 5. Any UNION member may be suspended and/or
expelled by the UNION for:
a) Non-payment of dues or special assessment to the
UNION.
b) Organizing or joining another UNION or affiliating with a
labor federation.
c) Commission of a crime as defined by the Revised Penal
Code against any UNION officer in relation to activities for
and in behalf of the UNION.
d) Participation in an unfair labor practice or any derogatory
act against the UNION or any of its officers or members; and
e) Involvement in any violation of this Agreement or the
UNION's Constitution and By-Laws.
The UNION assumes full and complete responsibility for all dismiss of
any worker/employee effected by the UNION and conceded in turn, by
the COMPANY pursuant to the provisions hereof.
The UNION shall defend and hold the COMPANY free and harmless
against any and all claims the dismissed worker/employee might bring
and/or obtain from the Company for such dismissal. 2 (Emphasis
supplied)
95
b) The Constitution of the Union contains the following provisions:
Page
(i) Article X Section 5 reads:
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ARTICLE X-FEES, DUES SPECIAL ASSESSMENTS,

FINES AND OTHER PAYMENTS
xxx xxx xxx
Sec. 5. Special assessments or other extraordinary fees
such as for payment of attorney's fees shall be made only
upon a resolution duly ratified by the general membership by
secret balloting.
xxx xxx xxx
(Emphasis supplied.)
(ii) Article XV entitled "Discipline" provides in Section I
thereof that:
Sec. 1. Any individual union members and/or union officer
may be disciplined or expelled from the UNION by the
Executive Board if the latter should find the former guilty of
charges, based on the following grounds preferred officially
against him:
a) Non-payment of dues and other assessments for two (2)
months;
b) Culpable violation of the Constitution and By Laws;
c) Deliberate refusal to implement policies, rules and
regulations decisions and/or support the programs or
projects of the UNION as laid down by its governing organs
or its officers; and
d) Any act inimical to the interest of the UNION and/or its
officers, such as but not limited to rumor mongering which
tends to discredit the name and integrity of the UNION
and/or its officers and creating or causing to create
dissension among the UNION members thereof. 4 (Emphasis
supplied.)
Page
96
Article XVI entitled "Impeachment and Recall" specified, in Section 1

thereof, the grounds for impeachment or recall of the President and
other Union officers, in the following terms:
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a) Committing or causing the commission directly or

indirectly of acts against the interest and welfare of the
UNION;
b) Malicious attack against the UNION, its officers or against
a fellow UNION officer or member;
c) Failure to comply with the obligation to turn over and
return to the UNION Treasurer within three (3) days are [sic]
unexpected sum or sum of money received an authorized
UNION purpose;
d) Gross misconduct unbecoming of a UNION officer;
e) Misappropriation of UNION funds and property. This is
without prejudice to the filing of an appropriate criminal or
civil action against the responsible officer or officers by any
interested party
f) Willful violation of any provisions on this Constitution or
rules, regulations, measures, resolution and decisions of the
UNION. 5 (Emphasis supplied.)
It appears to the Court that the particular charges raised against
petitioner Cario, set out earlier, reasonably fall within the underscored
provisions of the foregoing documents. The NLRC impliedly recognized
this when it described the charges of mismanagement against Carino as
serious.
The Labor Arbiter, however, also held that petitioner Cario had been
deprived of procedural due process on the union level in view of alleged
failure to comply with the required procedure, governing impeachment
and recall proceedings set out in Article XVI, Section 2, of the
Constitution of the Union. Article XVI, Section 2 reads as follows:
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b) The Board Chairman shall then convene a general

membership fee to consider the impeachment or recall of an
officer or a group of officers, whether elective or appointive
97
a) Impeachment or recall proceedings shall be initiated by a

formal petition or resolution signed by at least thirty (30%)
percent of all bona fide members of the UNION and
addressed to the Chairman of the Executive board.

c) UNION officers against whom impeachment or recall

charges have been filed shall be given ample opportunity to
defend themselves before any impeachment or recall vote is
finally taken.
d) A majority of all members of the UNION shall be required
to impeach or recall UNION officers.
e) The UNION officers impeached shall ipso facto be
considered resigned or ousted from office and shall no
longer be elected nor appointed to any position in the
UNION.
f) The decision of the general membership on the
impeachment or recall charge shall be final and executory.
The NLRC, for its part, noted that while the prescribed procedural steps
had not all been followed or complied with, still,
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Page
It is true that the impeachment of Cario had not been initiated by a

formal petition or resolution signed by at least thirty percent (30%) of an
the bona fide members of the Union. A general meeting had, however,
been called to take up the charges against petitioner Carino who had
been given multiple opportunities to defend himself before the
investigating committee of the Union officers and before the general
Union members as well as before the Bureau of Labor Relations.
Petitioner Cario, however, chose to disregard all calls for him to appear
and defend himself. At the general membership meeting, therefore,
petitioner Cario was impeached and ordered recalled
98
Be that as it may, the general membership of the Union had

spoken and decided to expel complainant as Union
President and member and ultimately, requested the
company to terminate his services per CBA prescription. It is
worthy to note that the charges aired by Mr. Dante Maroya
are serious enough for complainant to specifically respond
and explain his side at the arbitral proceedings below. While
it appears that due process was lacking at the plant level,
this was cured by the arbitration process conducted by the
Labor Arbiter. Despite the ample opportunity to explain his
side, complainant failed to do so and instead, relied
completely on alleged denial of due process. Complainant's
silence in this respect is tantamount to [an] admission of
guilt. 7 (Emphasis supplied.)

by unanimous vote of the membership. Under these circumstances,

failure to comply literally with step (a) of Article XVI Section 2 of the
Union's Constitution must be regarded as non-material: the prescribed
impeachment and recall proceeding had been more than substantially
complied with.
4. Turning now to the involvement of the Company in the dismissal of
petitioner Cario we note that the Company upon being formally advised
in writing of the expulsion of petitioner Carino from the Union, in turn
simply issued a termination letter to Cario, the termination being made
effective the very next day. We believe that the Company should have
given petitioner Carino an opportunity to explain his side of the
controversy with the Union. Notwithstanding the Unions Security Clause
in the CBA, the Company should have reasonably satisfied itself by its
own inquiry that the Union had not been merely acting arbitrarily and
capriciously in impeaching and expelling petitioner Cario. From what
was already discussed above, it is quite clear that had the Company
taken the trouble to investigate the acts and proceedings of the Union, it
could have very easily determined that the Union had not acted
arbitrarily in impeaching and expelling from its ranks petitioner Cario.
The Company offered the excuse that the Union had threatened to go on
strike if its request had not been forthwith granted. Assuming that such a
threat had in fact been made, if a strike was in fact subsequently called
because the Company had insisted on conducting its own inquiry, the
Court considers that such would have been prima facie an illegal strike.
The Company also pleaded that for it to inquire into the lawfulness of the
acts of the Union in this regard would constitute interference by the
Company in the administration of Union affairs. We do not believe so.
In Liberty Cotton Mills Worker's Union, et al. v. Liberty Cotton Mills, et
al. 8 the Court held respondent company to have acted in bad faith in
dismissing the petitioner workers without giving them an opportunity to
present their side in their controversy with their own union.
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It is OUR considered view that respondent company is

equally liable for the payment of backwages for having acted
in bad faith in effecting the dismissal of the individual
petitioners. Bad faith on the part of respondent company may
be gleaned from the fact that the petitioner workers were
dismissed hastily and summarily. At best, it was guilty of a
tortious act, for which it must assume solidary liability,
99
xxx xxx xxx

since it apparently chose to summarily dismiss the workers

at the union's instance secure in the union's contractual
undertaking that the union would hold it "free from any
liability" arising from such dismissal.
xxx xxx xxx
While respondent company, under the Maintenance of
Membership prevision of the Collective Bargaining
Agreement, is bound to dismiss any employee expelled by
PAFLU for disloyalty, upon its written request, this
undertaking should not be done hastily and summarily. The
company acted in bad faith in dismissing petitioner workers
without giving them the benefit of a hearing. It did not even
bother to inquire from the workers concerned and from
PAFLU itself about the cause of the expulsion of the
petitioner workers. Instead, the company immediately
dismissed the workers on May 29, 1964 in a span of only
one day stating that it had no alternative but to comply
with its obligation under the Security Agreement in the
Collective Bargaining Agreement thereby disregarding the
right of the workers to due process, self-organization and
security of tenure.
xxx xxx xxx
The power to dismiss is a normal prerogative of the
employer. However, this is not without limitations.The
employer is bound to exercise caution in terminating the
services of his employee especially so when it is made upon
the request of a labor union pursuant to the Collective
Bargaining Agreement, as in the instant case. 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. . . .
In Manila Cordage Company v. Court of industrial Relations, et al., 10 the

Court stressed the requirement of good faith on the part of the company
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Page
100
xxx xxx xxx

in dismissing the complainant and in effect held that precipitate action in

dismissing the complainant is indication of lack of good faith.
xxx xxx xxx
The contention of the petitioners that they acted in good faith
in dismissing the complainants and, therefore, should not be
held liable to pay their back wages has no merit. The
dismissal of the complainants by the petitioners was
precipitate and done with undue haste. Considering that the
so-called "maintainance of membership" clause did not
clearly give the petitioners the right to dismiss the
complainants if said complainants did not maintain their
membership in the Manco Labor Union, the petitioners
should have raised the issue before the Court of industrial
Relations in a petition for permission to dismiss the
complainants.
xxx xxx xxx
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Page
The Court does not believe, however, that the grant of separation pay to
petitioner Cario was an appropriate response (there having been just
cause for the dismissal) to the failure of the Company to accord him his
full measure of due process. Since petitioner Cario had clearly
disdained answering the charges preferred against him within the Union,
there was no reason to suppose that if the Company had held formal
proceedings before dismissing him, he would have appeared in a
Company investigation and pleaded his defenses, if he had any, against
the charges against him. There was no indication that the Company had
in fact conspired with the Union to bring about the expulsion and
dismissal of petitioner Cario indeed, the Union membership believed it
101
5. We conclude that the Company had failed to accord to petitioner

Cario the latter's right to procedural due process. The right of an
employee to be informed of the charges against him and to reasonable
opportunity to present his side in a controversy with either the Company
or his own Union, is not wiped away by a Union Security Clause or a
Union Shop Clause in a CBA. An employee is entitled to be protected
not only from a company which disregards his rights but also from his
own Union the leadership of which could yield to the temptation of swift
and arbitrary expulsion from membership and hence dismissal from his
job.

was Cario who had conspired with the company in the course of
negotiating the CBA. Considering all the circumstances of this case, and
considering especially the nature of the charges brought against
petitioner Cario before his own Union, the Court believes that a penalty
of P5,000 payable to petitioner Carino should be quite adequate, the
penalty to be borne by the Company and the Union solidarily The Court
also considers that because the charges raised against petitioner and
unanswered by him have marked overtones of dishonesty, this is not a
case where "financial (humanitarian) assistance" to the dismissed
employee is warranted. 12
WHEREFORE, the Court DISMISSED the Petition for certiorari for lack
of merit but MODIFIED the Decision of the public respondent National
Labor Relations Commission dated 26 May 1989 by eliminating the
grant of separation pay and in lieu thereof imposing a penalty of
P5,000.00 payable to the petitioner to be borne solidarily by the
Company and the Union. No pronouncement as to costs.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes JJ., concur.
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Page
102
_______________________________________________________________
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NATIONAL UNION OF WORKERS

IN HOTELS, RESTAURANTS AND
ALLIED
INDUSTRIESMANILA
PAVILLION HOTEL CHAPTER,
G.R. No. 179402
Present:
Petitioner,
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
- versus -
REYES, JJ.
NATIONAL LABOR RELATIONS

COMMISSION
and
ACESITE
PHILIPPINES
HOTEL
CORPORATION,
Respondents.
Promulgated:
September 30, 2008

x---------------------------- ---------------------x
Page
103
DECISION
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CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court, assailing the Decision[1] dated 30 May 2007 rendered by the Court of
Appeals in CA-G.R. SP No. 96171, which affirmed the Resolution[2] dated 5 May
2006 of the National Labor Relations Commission (NLRC) in NLRC NCR CC No.
000307-05 NCMB NCR NS 09-199-05, dismissing for lack of merit the complaint
for unfair labor practice filed by petitioner National Union of Workers in
Hotels, Restaurants and Allied Industries-Manila Pavilion Hotel (NUWHRAIN)
against Manila Pavilion Hotel (the Hotel).
Petitioner NUWHRAIN is a legitimate labor organization composed of

rank-and-file employees of the Hotel,[3] whilerespondent Acesite Philippines
Hotel Corporation is the owner and operator of said Hotel.[4]
The factual antecedents of the instant Petition are as follows:
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During the 60-day freedom period which preceded the expiration of the
Collective Bargaining Agreement, starting on 1 May 2005 and ending on 30
June 2005, the Hotel and HIMPHLU negotiated the extension of the provisions
of the existing Collective Bargaining Agreement for two years, effective 1 July
104
The Hotel entered into a Collective Bargaining Agreement with HIMANILA PAVILION HOTEL LABOR UNION (HIMPHLU), the exclusive bargaining
agent of the rank-and-file employees of the Hotel. Both parties consented that
the representation aspect and other non-economic provisions of the Collective
Bargaining Agreement were to be effective for five years or until 30 June 2005;
and the economic provisions of the same were to be effective for three years
or until 30 June 2003. The parties subsequently re-negotiated the economic
provisions of the Collective Bargaining Agreement and extended the term of
theireffectivity for another two years or until 30 June 2005.[5]

2005 to 30 June 2007. The parties signed the Memorandum of Agreement

on20 May 2005 and the employees ratified it on 27 May 2005.[6]
On 21 June 2005, NUWHRAIN was accorded by the Labor Relations

Division of the Department of Labor and Employment (DOLE) the status of a
legitimate labor organization.[7] Thereafter, NUWHRAIN exercised the right to
challenge the majority status of the incumbent union, HIMPHLU, by filing a
Petition for Certification Election on 28 June 2005.[8]
On 5 July 2007, the Industrial Relations Division of the DOLE allowed the
registration of the Memorandum of Agreement executed between HIMPHLU
and the Hotel, extending the effectivity of the existing Collective Bargaining
Agreement for another two years.[9]
After the lapse of the 60-day freedom period, but pending the
disposition of the Petition for Certification Election filed by NUWHRAIN,
HIMPHLU served the Hotel with a written demand dated 28 July 2005[10] for
the dismissal of 36 employees following their expulsion from HIMPHLU for
alleged acts of disloyalty and violation of its Constitution and by-laws. An
Investigation Report[11] was attached to the said written demand, stating that
the 36 employees, who were members of HIMPHLU, joined NUWHRAIN, in
violation of Section 2, Article IV of the Collective Bargaining Agreement, which
provided for a union security clause that reads: [12]
Page
105
Section 2. DISMISSAL PURSUANT TO UNION SECURITY

CLAUSE. Accordingly, failure to join the UNION within the period
specified in the immediately preceding section or failure to maintain
membership with the UNION in good standing either through
resignation or expulsion from the UNION in accordance with
the UNIONs Constitution and by-laws due to disloyalty, joining
another union or non-payment of UNION dues shall be a ground for
the UNION to demand the dismissal from the HOTEL of the
employee concerned. The demand shall be accompanied by
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the UNIONs investigation report and the HOTEL shall act

accordingly subject to existing laws and jurisprudence on the
matter, provided, however, that the UNION shall hold the HOTEL
free and harmless from any and all liabilities that may arise should
the dismissed employee question in any manner the dismissal. The
HOTEL shall not, however, be compelled to act on any such UNION
demand if made within a period of sixty (60) days prior to the
expiry date of this agreement. (Emphasis provided)
On 1 August 2005, the Hotel issued Disciplinary Action

Notices[13] (Notices) to the 36 employees identified in the written demand of
HIMPHLU. The Notices directed the 36 employees to submit a written
explanation for their alleged acts of disloyalty and violation of the union
security clause for which HIMPHLU sought their dismissal.
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NUWHRAIN asserted that the Hotel committed unfair labor practice

when it issued the Notices to the 36 employees who switched allegiance from
HIMPHLU to NUWHRAIN. During the reconciliatory conference held on 5
August 2005, respondents Vice President, Norma Azores, stated her
preference to deal with HIMPHLU, while blaming NUWHRAIN for the labor
problems of the Hotel. On 1 September 2005, the Resident Manager of the
Hotel, Bernardo Corpus, Jr., implored NUWHRAINs members to withdraw their
Petition for Certification Election and reaffirm their membership in
HIMPHLU. The Notices and the statements made by the officers of the
106
The Hotel called the contending unions and the employees concerned
for a reconciliatory conference in an attempt to avoid the dismissal of the 36
employees. The reconciliatory conferences facilitated by the Hotel were held
on 5 August 2005 and 1 September 2005.[14] However, NUWHRAIN proceeded
to file a Notice of Strike before the National Conciliation and Mediation Board
(NCMB) on 8 September 2005 on the ground of unfair labor practice under
Article 248, paragraphs (a) and (b) of the Labor Code.[15] The Secretary of
Labor intervened and certified the case for compulsory arbitration with the
NLRC. The case was docketed as NLRC NCR CC No. 000307-05 NCMB NCR NS
09-199-05, entitled IN RE: Labor Dispute at Manila Pavilion Hotel.[16]

respondent and the Hotel were allegedly intended to intimidate and coerce
the employees in the exercise of their right to self-organization. NUWHRAIN
claimed that it was entitled to moral damages in the amount of P50,000.00
and exemplary damages of P20,000.00[17]
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In a Resolution[19] dated 5 May 2006, the NLRC pronounced that the

Hotel was not guilty of unfair labor practice. Firstly, the NLRC adjudged that
the execution of the Memorandum of Agreement between respondent and
HIMPHLU, extending theeffectivity of the existing Collective Bargaining
Agreement, was entered into with the view of responding to the employees
economic needs, and not intended to interfere with or restrain the exercise of
the right to self-organization of NUWHRAINsmembers. Secondly, the NLRC
determined that the issuance of the Notices directing the 36 employees to
explain why they should not be dismissed was in compliance with the
Collective Bargaining Agreement provisions regarding the union security
clause. Even thereafter, the Hotel had not acted improperly as it did not
wrongfully terminate any of the 36 employees. Thirdly, the NLRC interpreted
the statements made by the officials of respondent and the Hotel during the
reconciliatory conferences encouraging the withdrawal of the Petition for
Certification Election and the reaffirmation by the 36 employees of their
membership in HIMPHLU as proposed solutions to avoid the dismissal of the
said employees. The NLRC concluded that these statements did not constitute
unfair labor practice for they could not have coerced or influenced either of
the contending unions, both of whom did not agree in the suggested course of
action or to any other manner of settling the dispute. Finally, the NLRC
declared that the claim for moral and exemplary damages of NUWHRAIN
lacked sufficient factual and legal bases.
107
Respondent countered that it merely complied with its contractual

obligations with HIMPHLU when it issued the assailed Notices, and clarified
that none of the 36 employees were dismissed by the Hotel. It further denied
that respondents Vice President Norma Azores and the Hotels Resident
Manager Bernardo Corpus, Jr. made the statements attributed to them,
purportedly expressing their preference for HIMPHLU during the reconciliatory
conferences. Thus, respondent insisted that it did not commit unfair labor
practice, nor was it liable for moral and exemplary damages.[18]

NUWHRAIN filed a Motion for Reconsideration of the foregoing NLRC

Resolution. It was denied by the NLRC in another Resolution dated 30 June
2006.[20] Thus, NUWHRAIN filed a Petition for Certiorari before the Court of
Appeals, docketed as C.A. G.R. SP No. 96171.
In the meantime, on 16 June 2006, the Certification Election for regular

rank and file employees of the Hotel was held, which HIMPHLU won. It was
accordingly certified as the exclusive bargaining agent for rank and file
employees of the Hotel.[21]
On 30 May 2007, the Court of Appeals promulgated its Decision[22] in

C.A. G.R. SP No. 96171, upholding the Resolution dated 5 May 2006 of the
NLRC in NLRC NCR CC No. 000307-05 NCMB NCR NS 09-199-05. It declared
that the Hotel had acted prudently when it issued the Notices to the 36
employees after HIMPHLU demanded their dismissal. It clarified that these
Notices did not amount to the termination of the employees concerned but
merely sought their explanation on why the union security clause should not
be applied to them. The appellate court also gave credence to the denial by
the officers of the respondent and the Hotel that they made statements
favoring HIMPHLU over NUWHRAIN during the reconciliatory conferences. The
Court of Appeals further noted that the unhampered organization and
registration of NUWHRAIN negated its allegation that the Hotel required its
employees not to join a labor organization as a condition for their
employment.
Page
Hence, the present Petition, in which NUWHRAIN makes the following

assignment of errors:
108
NUWHRAINs Motion for Reconsideration of the aforementioned

Decision of the Court of Appeals was denied by the same court in a Resolution
dated 24 August 2007.[23]
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THE COURT OF APPEALS GAVE MORE PROBATIVE VALUE TO

RESPONDENT HOTELS GENERAL AND UNSWORN DENIAL VERSUS
THAT OF PETITIONERS SWORN TESTIMONY NARRATING
RESPONDENTS HOTELS VIOLATION OF PETITIONERS RIGHT TO SELF
ORGANIZATION. SUCH A RULING CONTRADICTS EXISTING
JURISPRUDENCE SUCH AS MASAGANA CONCRETE PRODUCTS INC. V.
NLRC, G.R. NO. 106916, SEPTEBMER 3, 1999; JRS BUSINESS
CORPORATION V. NLRC, 246 SCRA 445 [1995]; and ASUNCION V.
NLRC, 362 SCRA 56 [2001].
II
THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT

HOTEL IS NOT GUILTY OF UNFAIR LABOR PRACTICE CONTRARY TO
ARTICLE 248 OF THE LABOR CODE AND THE SUPREME COURTS
RULING IN PROGRESSINVE DEVELOPMENT CORPORATION V. CIR, 80
SCRA 434 [1977] and INSULAR LIFE ASSURANCE CO. LTC EMPLOYEES
ASSOCIATION-NATU V. THE INSULAR LIFE ASSURANCE CO. LTD., 37
SCRA 244 [1971].[24]
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NUWHRAIN maintains that the respondent committed unfair labor

practice when (1) the Hotel issued the Notices to the 36 employees, former
members of HIMPHLU, who switched allegiance to NUWHRAIN; and (2) the
officers of the respondent and the Hotel allegedly uttered statements during
the reconciliatory conferences indicating their preference for HIMPHLU and
their disapproval of NUWHRAIN. This argument is specious.
109
The instant Petition lacks merit, and must accordingly be denied.

The records clearly show that the Notices were issued after HIMPHLU
served the Hotel with a letter dated 28 July 2005, demanding the dismissal of
36 of its former members who joined NUWHRAIN. In its letter, HIMPHLU
alleged that it had found these members guilty of disloyalty and demanded
their dismissal pursuant to the union security clause in the Collective
Bargaining Agreement. Had the Hotel totally ignored this demand,
as NUWHRAIN suggests it should have done, the Hotel would have been
subjected to a suit for its failure to comply with the terms of the Collective
Bargaining Agreement.
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.[25] Article
248(e) of the Labor Code recognizes the effectivity of a union shop clause:
Art. 248. Unfair labor practices of employers.
Page
The law allows stipulations for union shop and closed shop as a
means of encouraging workers to join and support the union of their choice in
the protection of their rights and interests vis--vis the employer. By thus
promoting unionism, workers are able to negotiate with management on an
even playing field and with more persuasiveness than if they were to
individually
and
separately
bargain
with
the
[26]
[27]
employer. In Villar v. Inciong, this Court held that employees have the
right to disaffiliate from their union and form a new organization of their own;
however, they must suffer the consequences of their separation from the
union under the security clause of the Collective Bargaining Agreement.
110
(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
prevent the parties from requiring membership in a recognized collective
bargaining agent as a condition for employment, except of those
employees who are already members of another union at the time of the
signing of the collective bargaining agreement x x x. (Emphasis supplied.)
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In the present case, the Collective Bargaining Agreement includes a

union security provision.[28] To avoid the clear possibility of liability for
breaching the union security clause of the Collective Bargaining Agreement
and to protect its own interests, the only sensible option left to the Hotel,
upon its receipt of the demand of HIMPHLU for the dismissal of the 36
employees, was to conduct its own inquiry so as to make its own findings on
whether there was sufficient ground to dismiss the said employees who
defected from HIMPHLU. The issuance by the respondent of the Notices
requiring the 36 employees to submit their explanations to the charges against
them was the reasonable and logical first step in a fair investigation. It is
important to note that the Hotel did not take further steps to terminate the 36
employees. Instead, it arranged for reconciliatory conferences between the
contending unions in order to avert the possibility of dismissing the 36
employees for violation of the union security clause of the Collective
Bargaining Agreement.
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The cases cited by NUWHRAIN are not applicable to the present case
given their diverse factual backgrounds. InProgressive Development
Corporation v. Court of Industrial Relations,[31] the Court declared the employer
guilty of unfair labor practice for singling out its workers who refused to join
111
This Court, in Malayang Samahan ng Manggagawa sa M. Greenfield v.

Ramos[29] clearly stated the general rule: the dismissal of an employee by the
company pursuant to a labor unions demand in accordance with a union
security agreement does not constitute unfair labor practice. An employer is
not considered guilty of unfair labor practice if it merely complied in good faith
with the request of the certified union for the dismissal of employees expelled
from the union pursuant to the union security clause in the Collective
Bargaining Agreement.[30] In the case at bar, there is even less possibility of
sustaining a finding of guilt for unfair labor practice where respondent did not
dismiss the 36 employees, despite the insistence of HIMPHLU, the sole
bargaining agent for the rank and file employees of the Hotel, on the basis of
the union security clause of the Collective Bargaining Agreement. The only act
attributed to the respondent is its issuance of the Notices which, contrary to
being an unfair labor practice, even afforded the employees involved a chance
to be heard.

the employers preferred union by not giving them work assignments and
regular status, and eventually dismissing said employees. The employer was
found guilty of unfair labor practice in Insular Life Assurance Co., Ltd.,
Employees Association-NATU v. Insular Life Assurance Co., Ltd.,[32] for (1) the
dismissal of some of its striking employees without even giving them an
opportunity to explain their side; and (2) the acts of discrimination, including
the delayed reinstatement of striking employees and the offering of bribes,
bonuses, and wage increases to loyal employees after refusing to bargain with
the union. None of these acts were attributed to the respondent in the
present case.
NUWHRAIN claimed that during the reconciliatory conferences,

respondents Vice President Norma Azores expressed her preference to deal
with HIMPHLU, while blaming NUWHRAIN for the Hotels labor problems; and
the Hotels Resident Manager Bernardo Corpus, Jr. implored NUWHRAINs
members to withdraw their Petition for Certification Election and reaffirm their
membership in HIMPHLU. Before the Court of Appeals, respondent denied
that such statements were made and that the officers of the respondent and
the Hotel were merely misquoted. During the reconciliatory conferences,
wherein the officers of the respondent and the Hotel acted as mediators, one
of the proposals laid on the table to settle the dispute between the unions and
preclude the dismissal of the 36 employees was for NUWHRAIN to withdraw its
Petition for Certification Election and, in return, for HIMPHLU to re-accept the
employees without sanctions.
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Page
NUWHRAIN has the burden of proving its allegation that Norma Azores
and Bernardo Corpus, Jr. did make the statements being attributed to
them. The burden of proof rests upon the party who asserts the affirmative of
an issue.[33] And in labor cases, the quantum of proof necessary is substantial
evidence, or such amount of relevant evidence which a reasonable mind might
112
Still, NUWHRAIN asserts that the sworn testimony signed by its six union
members that the officers of the respondent and the Hotel did utter the
offending statements deserve more credence than the unsworn denial of
respondent.

accept as adequate to justify a conclusion,[34] which NUWHRAIN failed to

discharge in the present case.
Undoubtedly, the members of NUWHRAIN would owe their loyalty to

their union, a natural bias which somewhat puts into question their credibility
as witnesses, especially since the success of this case would also redound to
their benefit. The fact that six members of the union signed a single statement,
instead of each member presenting their sincere and individual narrations of
events, gives the impression that it was signed in a perfunctory manner and
motivated by a sense of union solidarity. The self-serving statement signed by
six of NUWHRAINs members have very little weight, even if made under oath,
absent any other independent evidence which indicates that the officers of the
respondent and the Hotel made such hostile and coercive utterances that tend
to interfere or influence the employees exercise of the right to selforganization.
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Page
Even
the
surrounding
circumstances
would
contradict NUWHRAINs allegation that the respondent interfered with or
coerced its employees in their choice of union membership. In their Reply
before the NLRC, NUWHRAIN admitted that before issuing its Notices, the
respondent maintained a neutral stand in the dispute between HIMPHLU
and NUWHRAIN. [37] Neither did the respondent threaten the 36 employees
who shifted their allegiance to NUWHRAIN with any form of reprisal; they were
not dismissed for their affiliation with NUWHRAIN. The records are bereft of
113
In the case at bar, the NLRC found, and the Court of Appeals affirmed,
that the officers of the respondent and the Hotel did not make statements that
would have constituted unfair labor practice. Findings of fact of the NLRC are
given much weight and are considered conclusive by this Court. It is only when
such findings are not substantially supported by the records that this Court will
step in and make its independent evaluation of the facts. [35] Considering the
expertise of these agencies in matters pertaining to labor disputes, the findings
of administrative agencies of the Department of Labor are generally accorded
not only respect, but also finality.[36]

any instance that would show that respondent rode roughshod over its
employees freedom to decide which union to join.
In all, respondent had not committed any act which would constitute
unfair labor practice.
IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The

assailed Decision dated 30 May 2007 of the Court of Appeals in CA-G.R. SP No.
96171 is hereby AFFIRMED. Costs against petitioner NUWHRAIN.
SO ORDERED.
Page
114
MINITA V. CHICO-NAZARIO
Associate Justice
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G.R. No. L-54334 January 22, 1986

KIOK LOY, doing business under the name and style SWEDEN ICE
CREAM PLANT, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and
PAMBANSANG KILUSAN NG PAGGAWA (KILUSAN), respondents.
Ablan and Associates for petitioner.
Abdulcadir T. Ibrahim for private respondent.
CUEVAS, J.:
Petition for certiorari to annul the decision 1 of the National Labor
Relations Commission (NLRC) dated July 20, 1979 which found
petitioner Sweden Ice Cream guilty of unfair labor practice for unjustified
refusal to bargain, in violation of par. (g) of Article 249 2 of the New Labor
Code, 3 and declared the draft proposal of the Union for a collective
bargaining agreement as the governing collective bargaining agreement
between the employees and the management.
The pertinent background facts are as follows:
Page
Thereafter, and more specifically on December 7, 1978, the Union

furnished 4 the Company with two copies of its proposed collective
bargaining agreement. At the same time, it requested the Company for
its counter proposals. Eliciting no response to the aforesaid request, the
Union again wrote the Company reiterating its request for collective
bargaining negotiations and for the Company to furnish them with its
counter proposals. Both requests were ignored and remained unacted
upon by the Company.
115
In a certification election held on October 3, 1978, the Pambansang

Kilusang Paggawa (Union for short), a legitimate late labor federation,
won and was subsequently certified in a resolution dated November 29,
1978 by the Bureau of Labor Relations as the sole and exclusive
bargaining agent of the rank-and-file employees of Sweden Ice Cream
Plant (Company for short). The Company's motion for reconsideration of
the said resolution was denied on January 25, 1978.
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Left with no other alternative in its attempt to bring the Company to the
bargaining table, the Union, on February 14, 1979, filed a "Notice of
Strike", with the Bureau of Labor Relations (BLR) on ground of
unresolved economic issues in collective bargaining. 5
Conciliation proceedings then followed during the thirty-day statutory
cooling-off period. But all attempts towards an amicable settlement
failed, prompting the Bureau of Labor Relations to certify the case to the
National Labor Relations Commission (NLRC) for compulsory arbitration
pursuant to Presidential Decree No. 823, as amended. The labor arbiter,
Andres Fidelino, to whom the case was assigned, set the initial hearing
for April 29, 1979. For failure however, of the parties to submit their
respective position papers as required, the said hearing was cancelled
and reset to another date. Meanwhile, the Union submitted its position
paper. The Company did not, and instead requested for a resetting
which was granted. The Company was directed anew to submit its
financial statements for the years 1976, 1977, and 1978.
The case was further reset to May 11, 1979 due to the withdrawal of the
Company's counsel of record, Atty. Rodolfo dela Cruz. On May 24,
1978, Atty. Fortunato Panganiban formally entered his appearance as
counsel for the Company only to request for another postponement
allegedly for the purpose of acquainting himself with the case.
Meanwhile, the Company submitted its position paper on May 28, 1979.
When the case was called for hearing on June 4, 1979 as scheduled,
the Company's representative, Mr. Ching, who was supposed to be
examined, failed to appear. Atty. Panganiban then requested for another
postponement which the labor arbiter denied. He also ruled that the
Company has waived its right to present further evidence and, therefore,
considered the case submitted for resolution.
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Page
WHEREFORE, the respondent Sweden Ice Cream is hereby

declared guilty of unjustified refusal to bargain, in violation of
Section (g) Article 248 (now Article 249), of P.D. 442, as
amended. Further, the draft proposal for a collective
bargaining agreement (Exh. "E ") hereto attached and made
an integral part of this decision, sent by the Union (Private
respondent) to the respondent (petitioner herein) and which
116
On July 18, 1979, labor arbiter Andres Fidelino submitted its report to
the National Labor Relations Commission. On July 20, 1979, the
National Labor Relations Commission rendered its decision, the
dispositive portion of which reads as follows:

is hereby found to be reasonable under the premises, is

hereby declared to be the collective agreement which should
govern the relationship between the parties herein.
SO ORDERED. (Emphasis supplied)
Petitioner now comes before Us assailing the aforesaid decision
contending that the National Labor Relations Commission acted without
or in excess of its jurisdiction or with grave abuse of discretion
amounting to lack of jurisdiction in rendering the challenged decision. On
August 4, 1980, this Court dismissed the petition for lack of merit. Upon
motion of the petitioner, however, the Resolution of dismissal was
reconsidered and the petition was given due course in a Resolution
dated April 1, 1981.
Petitioner Company now maintains that its right to procedural due
process has been violated when it was precluded from presenting further
evidence in support of its stand and when its request for further
postponement was denied. Petitioner further contends that the National
Labor Relations Commission's finding of unfair labor practice for refusal
to bargain is not supported by law and the evidence considering that it
was only on May 24, 1979 when the Union furnished them with a copy of
the proposed Collective Bargaining Agreement and it was only then that
they came to know of the Union's demands; and finally, that the
Collective Bargaining Agreement approved and adopted by the National
Labor Relations Commission is unreasonable and lacks legal basis.
Page
Collective bargaining which is defined as negotiations towards a

collective agreement, 6 is one of the democratic frameworks under the
New Labor Code, designed to stabilize the relation between labor and
management and to create a climate of sound and stable industrial
peace. It is a mutual responsibility of the employer and the Union and is
characterized as a legal obligation. So much so that Article 249, par. (g)
of the Labor Code makes it an unfair labor practice for an employer to
refuse "to meet and convene promptly and expeditiously 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 grievance or question arising under such an
agreement and executing a contract incorporating such agreement, if
requested by either party.
117
The petition lacks merit. Consequently, its dismissal is in order.
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While it is a mutual obligation of the parties to bargain, the employer,

however, is not under any legal duty to initiate contract negotiation. 7 The
mechanics of collective bargaining is set in motion only when the
following jurisdictional preconditions are present, namely, (1) possession
of the status of majority representation of the employees' representative
in accordance with any of the means of selection or designation
provided for by the Labor Code; (2) proof of majority representation; and
(3) a demand to bargain under Article 251, par. (a) of the New Labor
Code . ... all of which preconditions are undisputedly present in the
instant case.
From the over-all conduct of petitioner company in relation to the task of
negotiation, there can be no doubt that the Union has a valid cause to
complain against its (Company's) attitude, the totality of which is
indicative of the latter's disregard of, and failure to live up to, what is
enjoined by the Labor Code to bargain in good faith.
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Page
The case at bar is not a case of first impression, for in the Herald
Delivery Carriers Union (PAFLU) vs. Herald Publications 11the rule had
been laid down that "unfair labor practice is committed when it is shown
that the respondent employer, after having been served with a written
bargaining proposal by the petitioning Union, did not even bother to
118
We are in total conformity with respondent NLRC's pronouncement that

petitioner Company is GUILTY of unfair labor practice. It has been
indubitably established that (1) respondent Union was a duly certified
bargaining agent; (2) it made a definite request to bargain, accompanied
with a copy of the proposed Collective Bargaining Agreement, to the
Company not only once but twice which were left unanswered and
unacted upon; and (3) the Company made no counter proposal
whatsoever all of which conclusively indicate lack of a sincere desire to
negotiate. 8 A Company's refusal to make counter proposal if considered
in relation to the entire bargaining process, may indicate bad faith and
this is specially true where the Union's request for a counter proposal is
left unanswered. 9 Even during the period of compulsory arbitration
before the NLRC, petitioner Company's approach and attitude-stalling
the negotiation by a series of postponements, non-appearance at the
hearing conducted, and undue delay in submitting its financial
statements, lead to no other conclusion except that it is unwilling to
negotiate and reach an agreement with the Union. Petitioner has not at
any instance, evinced good faith or willingness to discuss freely and fully
the claims and demands set forth by the Union much less justify its
opposition thereto. 10

submit an answer or reply to the said proposal This doctrine was

reiterated anew in Bradman vs. Court of Industrial Relations 12 wherein it
was further ruled that "while the law does not compel the parties to reach
an agreement, it does contemplate that both parties will approach the
negotiation with an open mind and make a reasonable effort to reach a
common ground of agreement
As a last-ditch attempt to effect a reversal of the decision sought to be
reviewed, petitioner capitalizes on the issue of due process claiming,
that it was denied the right to be heard and present its side when the
Labor Arbiter denied the Company's motion for further postponement.
Petitioner's aforesaid submittal failed to impress Us. Considering the
various postponements granted in its behalf, the claimed denial of due
process appeared totally bereft of any legal and factual support. As
herein earlier stated, petitioner had not even honored respondent Union
with any reply to the latter's successive letters, all geared towards
bringing the Company to the bargaining table. It did not even bother to
furnish or serve the Union with its counter proposal despite persistent
requests made therefor. Certainly, the moves and overall behavior of
petitioner-company were in total derogation of the policy enshrined in the
New Labor Code which is aimed towards expediting settlement of
economic disputes. Hence, this Court is not prepared to affix its
imprimatur to such an illegal scheme and dubious maneuvers.
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Page
We agree with the pronouncement that it is not obligatory upon either

side of a labor controversy to precipitately accept or agree to the
proposals of the other. But an erring party should not be tolerated and
allowed with impunity to resort to schemes feigning negotiations by
going through empty gestures. 13 More so, as in the instant case, where
the intervention of the National Labor Relations Commission was
properly sought for after conciliation efforts undertaken by the BLR
failed. The instant case being a certified one, it must be resolved by the
119
Neither are WE persuaded by petitioner-company's stand that the

Collective Bargaining Agreement which was approved and adopted by
the NLRC is a total nullity for it lacks the company's consent, much less
its argument that once the Collective Bargaining Agreement is
implemented, the Company will face the prospect of closing down
because it has to pay a staggering amount of economic benefits to the
Union that will equal if not exceed its capital. Such a stand and the
evidence in support thereof should have been presented before the
Labor Arbiter which is the proper forum for the purpose.

NLRC pursuant to the mandate of P.D. 873, as amended, which

authorizes the said body to determine the reasonableness of the terms
and conditions of employment embodied in any Collective Bargaining
Agreement. To that extent, utmost deference to its findings of
reasonableness of any Collective Bargaining Agreement as the
governing agreement by the employees and management must be
accorded due respect by this Court.
WHEREFORE, the instant petition is DISMISSED. The temporary
restraining order issued on August 27, 1980, is LIFTED and SET ASIDE.
No pronouncement as to costs.
SO ORDERED.
Page
120
_______________________________________________________
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G.R. No. 191714
February 26, 2014
T & H SHOPFITTERS CORPORATION/GIN QUEEN CORPORATION,

STINNES HUANG, BEN HUANG and ROGELIO
MADRIAGA, Petitioners,
vs.
T & H SHOPFITTERS CORPORATION/GIN QUEEN WORKERS
UNION, ELPIDIO ZALDIVAR, DARI OS GONZALES, WILLIAM
DOMINGO, BOBBY CASTILLO, JIMMY M. PASCUA, GERMANO M.
BAJO, RICO L. MANZANO, ALLAN L. CALLORINA, ROMEO
BLANCO, GILBERT M. GARCIA, CARLOS F. GERILLO, EDUARDO
A. GRANDE, EDILBRANDO MARTICIO, VIVENCIO SUSANO,
ROLANDO GARCIA, JR., MICHAEL FABABIER, ROWELL
MADRIAGA, PRESNIL TOLENTINO, MARVIN VENTURA,
FRANCISCO RIVARES, PLACIDO TOLENTINO and ROLANDO
ROMERO, Respondents.
DECISION
MENDOZA, J.:
Assailed in this petition for review on certiorari under Rule 45 of the
Rules of Court are: 1) the November 12, 2009 Decision1 of the Court of
Appeals (CA), in CA-G.R. SP No. 107188, which affirmed the July 24,
2007 and November 13, 2008 Decision2 of the National Labor Relations
Commission (NLRC); and 2) its March 24, 2010 Resolution3denying
reconsideration of its decision.
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Page
On September 7, 2004, the T&H Shopfitters Corporation/ Gin Queen

Corporation workers union (THS-GQ Union) and Elpidio
Zaldivar,4 Darios Gonzales, William Domingo, Bobby Castillo, Jimmy M.
Pascua, Germano M. Bajo,5Rico L. Manzano, Allan L. Callorina,6 Romeo
Blanco, Gilbert M. Garcia, Carlos F. Gerillo, Eduardo A. Grande,
Edilbrando Marticio, Vivencio Susano, Rolando Garcia, Jr., Michael
Fababier, Rowell Madriaga, Presnil Tolentino, Marvin Ventura, Francisco
Rivares, Placido Tolentino, and Rolando Romero (respondents), all of
whom are officers and/or members of THS-GQ union, filed their
Complaint7 for Unfair Labor Practice (ULP) by way of union busting, and
Illegal Lockout, with moral and exemplary damages and attorneys fees,
against T&H Shopfitters Corporation (T&H Shopfitters) and Gin Queen
121
The Facts

Corporation (Gin Queen) (collectively referred to as "petitioners"), before

the Labor Arbiter (LA).
Respondents treated T&H Shopfitters and Gin Queen as a single entity
and their sole employer. In their desire to improve their working
conditions, respondents and other employees of petitioners held their
first formal meeting on November 23, 2003 to discuss the formation of a
union. The following day or on November 24, 2003, seventeen (17)
employees were barred from entering petitioners factory premises
located in Castillejos, Zambales, and ordered to transfer to T&H
Shopfitters warehouse at Subic Bay Freeport Zone (SBFZ) purportedly
because of its expansion. Afterwards, the said seventeen (17)
employees were repeatedly ordered to go on forced leave due to the
unavailability of work.
On December 18, 2003, the Department of Labor and Employment
(DOLE), Regional Office No. III issued a certificate of registration in favor
of THS-GQ Union.
Respondents contended that the affected employees were not given
regular work assignments, while subcontractors were continuously hired
to perform their functions. This development prompted respondents to
seek the assistance of the National Conciliation and Mediation Board.
Subsequently, an agreement between petitioners and THS-GQ Union
was reached. Petitioners agreed to give priority to regular employees in
the distribution of work assignments. Respondents averred, however,
that petitioners never complied with its commitment but instead hired
contractual workers.
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Page
Meanwhile, through a memorandum, dated August 17, 2004, petitioner

Ben Huang (Huang), Director for Gin Queen, informed its employees of
the expiration of the lease contract between Gin Queen and its lessor in
Castillejos, Zambales and announced the relocation of its office and
workers to Cabangan, Zambales. Some of the respondents, who visited
the site in Cabangan, discovered that it was a "talahiban" or grassland.
Later, the said union officers and members were made to work as grass
cutters in Cabangan, under the supervision of a certain Barangay
Captain Greg Pangan. Due to these circumstances, the employees
assigned in Cabangan did not report for work. As a consequence, the
122
On March 24, 2004, THS-GQ Union filed a petition for certification

election. On July 12, 2004, an order was issued to hold the certification
election in both T&H Shopfitters and Gin Queen. Eventually, the
certification election was scheduled on October 11, 2004.

THS-GQ Union president was made to explain why he should not be

terminated for insubordination. The other employees who likewise failed
to report in Cabangan were meted out with suspension.
On October 10, 2004, petitioners sponsored a field trip to Iba, Zambales,
for its employees. The officers and members of the THS-GQ Union were
purportedly excluded from the field trip. On the evening of the field trip, a
certain Angel Madriaga, a sales officer of petitioners, campaigned
against the union in the forthcoming certification election.
The following day or on October 11, 2004, the employees were escorted
from the field trip to the polling center in Zambales to cast their votes. On
October 13, 2004, the remaining employees situated at the SBFZ plant
cast their votes as well. Due to the heavy pressure exerted by
petitioners, the votes for "no union" prevailed. On October 14, 2004, the
THS-GQ Union filed its protest with respect to the certification election
proceedings.
Respondents averred that the following week after the certification
elections were held, petitioners retrenched THG-GQ Union officers and
members assigned at the Zambales plant. Respondents claimed that the
work weeks of those employees in the SBFZ plant were drastically
reduced to only three (3) days in a month.
In its defense, Gin Queen, claiming that it is a corporation separate and
distinct from T&H Shopfitters, stressed that respondents were all
employees. Gin Queen claimed that due to the decrease in orders from
its customers, they had to resort to cost cutting measures to avoid
anticipated financial losses. Thus, it assigned work on a rotational basis.
It was of the impression that the employees, who opposed its economic
measures, were merely motivated by spite in filing the complaint for ULP
against it.
In addition, Gin Queen explained that its transfer from Castillejos,
Zambales to Cabangan, Zambales was a result of the expiration of its
lease agreement with Myra D. Lumibao (Myra), its lessor. Since the
Cabangan site was bare and still required construction, Gin Queen
offered work, to employees who opted to stay, on rotation as well.
123
In its Decision,8 dated December 21, 2005, the LA dismissed

respondents complaint and all their money claims for lack of merit.
Page
In dismissing the complaint, the LA explained:
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x x x x.
In the case at bar, we carefully examined the grounds raised by the
complainants [herein respondents] as basis for claiming that the
respondents [herein petitioners] committed unfair labor practices by way
of illegal lockout, one of which is the alleged transfer of 17 workers to
Subic Bay Freeport Zone, however, we are dismay (sic) to know that not
even one of these 17 workers is a complainant in these cases. While the
labor union may represent its members in filing cases before this Office,
at least these members must show their intention to file a case by
signing in the complaint to prove that they have grievances against their
employer which was lacking in these cases. Further, there was no
showing that the transfer of these 17 workers is considered an unfair
labor practice of the respondents considering that their transfer was
effected long before the union was organized.
We also analyzed the allegations of the complainants that the transfer of
the working cite (sic) of the respondent Gin Queen Corporation was a
part of the unfair labor practices committed by the respondents,
however, the complainants failed miserably to controvert the
documentary evidence adduced by the respondent Gin Queen
Corporation that the lease contract agreement of the place had already
expired and it was the management prerogative to transfer as a cost
cutting measures. Again the transfer of the place of work would not be
considered as unfair labor practice.
Complainants rather submitted several notices showing that the

company has no sufficient orders coming from clients and does not have
enough raw materials for production as basis for these complainants not
to render work and be rotated, and thus controvert their allegations that
there was lockout committed by the respondents. Further, the
documentary evidences adduced by the complainants clearly show that
respondents never terminated the complainants when they were given
their notices of suspension negating the claim that there was lockout
committed by respondents.
124
x x x x.9
Page
Complainants alleged that the respondents committed unfair labor

practices by means of lockout wherein the respondents should have
temporarily refused to provide work to the complainants by a result of
labor or industrial dispute. Complainants failed to show that the rotation
of work for them is considered an unfair labor practice and considered a
Lockout.
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Aggrieved, respondents appealed to the NLRC. In its July 24, 2007

Decision, the NLRC reversed the LA decision and ruled in favor of
respondents. The dispositive portion of the said decision reads:
WHEREFORE, the decision appealed from is hereby REVERSED.
Respondents T & H Shopfitters Corp., Gin Queen Corp. (or MDL, as it
is now called), Stennis Huang, as well as the presidents of the
respondent corporations as of November 2003 and the date of the
execution of this decision are hereby ordered to pay each of the
complainants moral and exemplary damages amounting to P50,000.00
andP35,000.00 respectively. In addition, they shall pay the complainants
attorneys fees equivalent to ten percent (10%) of the total judgment
award.
SO ORDERED.
In granting the appeal, the NLRC reasoned:
Based on the above-mentioned affidavits,10 it may be concluded that the
respondents [herein petitioners] committed unfair labor practice acts
consisting in interfering with the exercise of the employees right to selforganization (specifically, sponsoring a field trip on the day preceding
the certification election, warning the employees of dire consequences
should the union prevail, and escorting them to the polling center) and
discriminating in regard to conditions of employment in order to
discourage union membership (assigning union officers and active union
members as grass cutters on rotation basis).
Page
Furthermore, it is noteworthy that, based on their Articles of

Incorporation, T & H Corporation and Gin Queen Corporation are
engaged in the same line of business. It should also be noted that
respondents did not controvert the allegations to the effect that Myra D.
Lumibao, the supposed lessor of respondent corporations, is the wife of
respondent Stennis Huang, and that Gin Queen Corporation has been
renamed MDL, but still carries on the same business in the same
premises using the same machines and facilities. These circumstances,
together with the supposed assignment of respondent Stennis Huangs
interest in Gin Queen Corporation to a third party are badges of fraud
that justify the piercing of the veil of corporate fiction. x x x
125
xxxx
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Thus, based on the foregoing, respondents T & H Shopfitters

Corporation, Gin Queen Corporation (now known as MDL) and Stennis
Huang, as well as the presidents of the respondent corporations as of
November 2003 and the date of execution of this decision may be held
liable for unfair labor practice and the corresponding award of moral and
exemplary damages.11
Petitioners filed a motion for reconsideration but the NLRC denied the
same in its November 13, 2008 Decision.
Dissatisfied with the adverse ruling, petitioners instituted a petition for
certiorari under Rule 65 of the Rules of Court before the CA arguing
grave abuse of discretion on the part of the NLRC in reversing the LA
decision.
In its Decision, dated November 12, 2009, the CA sustained the NLRC
ruling. The fallo of which reads:
WHEREFORE, premises considered, the petition for certiorari is
DENIED. The NLRC Decisions dated July 24, 2007 and November 13,
2008 in NLRC NCR CA NO. 048258 (NLRC RAB III-09-7882-04, NLRC
RAB III-09-7980-04) are AFFIRMED.
SO ORDERED.
The CA held that errors of judgment are not within the province of a
special civil action for certiorari. It declared that factual findings of quasijudicial agencies that had acquired expertise in matters entrusted to their
jurisdiction were accorded not only respect but finality if they were
supported by substantial evidence. The CA noted that the NLRC
considered the evidence and applied the law in this case, thus, no grave
abuse of discretion could be imputed on the part of the NLRC in
reversing the LA ruling.
Petitioners moved for reconsideration but the same was denied by the
CA in its March 24, 2010 Resolution.
Not in conformity with the ruling of the CA, petitioners seek relief with
this Court raising the following ISSUES
Page
126
I. WHETHER OR NOT PETITIONERS T & H SHOPFITTERS

CORPORATION AND GIN QUEEN CORPORATION ARE ONE
AND THE SAME CORPORATION.
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II. WHETHER OR NOT PETITIONER GIN QUEEN

CORPORATION IS LIABLE TO THE RESPONDENTS FOR
UNFAIR LABOR PRACTICE.
III. WHETHER OR NOT THE AWARD OF MORAL AND
EXEMPLARY DAMAGES IN FAVOR OF THE RESPONDENTS IS
PROPER.
IV. WHETHER OR NOT THE AWARD OF TEN PERCENT (10%)
ATTORNEYS FEES IN FAVOR OF THE RESPONDENT IS
PROPER.12
Simply put, the issue for the Courts resolution is whether ULP acts were
committed by petitioners against respondents in the case at bench.
In support of their position, petitioners stress that T&H Shopfitters and
Gin Queen are corporations separate and distinct from each other.
Consequently, T&H Shopfitters and Stinnes Huang, an officer of T&H
Shopfitters, cannot be held liable for ULP for the reason that there is no
employer-employee relationship between the former and respondents.
Further, Gin Queen avers that its decision to implement an enforced
rotation of work assignments for respondents was a management
prerogative permitted by law, justified by the decrease in the orders it
received from its customers. It explains that its failure to present
concrete proof of its decreasing orders was due to the impossibility of
proving a negative assertion. It also asserts that the transfer from
Castillejos to Cabangan was made in good faith and solely because of
the expiration of its lease contract in Castillejos.
The Courts Ruling
As to the issue of ULP, petitioners argument is utterly without merit.
In the case at bench, petitioners are being accused of violations of
paragraphs (a), (c), and (e) of Article 257 (formerly Article 248) of the
Labor Code,13 to wit:
Page
(a) To interfere with, restrain or coerce employees in the exercise of their

right to self-organization;
127
Article 257. Unfair labor practices of employers.It shall be unlawful for

an employer to commit any of the following unfair labor practices:
xxxx
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(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;
xxxx
(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. x x x
The concept of ULP is embodied in Article 256 (formerly Article 247) of
the Labor Code,14 which provides:
Article 256. 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.
xxxx
In essence, ULP relates to the commission of acts that transgress the
workers right to organize. As specified in Articles 248 [now Article 257]
and 249 [now Article 258] of the Labor Code, the prohibited acts must
necessarily relate to the workers' right to self-organization x x x.15
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Page
The questioned acts of petitioners, namely: 1) sponsoring a field trip to

Zambales for its employees, to the exclusion of union members, before
the scheduled certification election; 2) the active campaign by the sales
officer of petitioners against the union prevailing as a bargaining agent
128
In the case of Insular Life Assurance Co., Ltd. Employees Association

NATU v. Insular Life Assurance Co. Ltd.,16this Court had occasion to lay
down the test of whether an employer has interfered with and coerced
employees in the exercise of their right to self-organization, that is,
whether the employer has engaged in conduct which, it may reasonably
be said, tends to interfere with the free exercise of employees rights;
and that 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.

during the field trip; 3) escorting its employees after the field trip to the
polling center; 4) the continuous hiring of subcontractors performing
respondents functions; 5) assigning union members to the Cabangan
site to work as grass cutters; and 6) the enforcement of work on a
rotational basis for union members, all reek of interference on the part of
petitioners.
Indubitably, the various acts of petitioners, taken together, reasonably
support an inference that, indeed, such were all orchestrated to restrict
respondents free exercise of their right to self-organization. The Court is
of the considered view that petitioners undisputed actions prior and
immediately before the scheduled certification election, while seemingly
innocuous, unduly meddled in the affairs of its employees in selecting
their exclusive bargaining representative. In Holy Child Catholic School
v. Hon. Patricia Sto. Tomas,17 the Court ruled that a certification election
was the sole concern of the workers, save when the employer itself had
to file the petition x x x, but even after such filing, its role in the
certification process ceased and became merely a bystander. Thus,
petitioners had no business persuading and/or assisting its employees in
their legally protected independent process of selecting their exclusive
bargaining representative. The fact and peculiar timing of the field trip
sponsored by petitioners for its employees not affiliated with THS-GQ
Union, although a positive enticement, was undoubtedly extraneous
influence designed to impede respondents in their quest to be certified.
This cannot be countenanced.
Page
More importantly, petitioners' bare denial of some of the complained acts

and unacceptable explanations, a mere afte1ihought at best, cannot
prevail over respondents' detailed narration of the events that transpired.
At this juncture, it bears to emphasize that in labor cases, the quantum
of proof necessary is substantial evidence,18 or that amount of relevant
evidence as a reasonable mind might accept as adequate to suppoti a
conclusion, even if other minds, equally reasonable, might conceivably
opine otherwise.19
129
Not content with achieving a "no union" vote in the certification election,
petitioners launched a vindictive campaign against union members by
assigning work on a rotational basis while subcontractors performed the
latters functions regularly. Worse, some of the respondents were made
to work as grass cutters in an effort to dissuade them from further
collective action.1wphi1 Again, this cannot be countenanced.
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In fine, mindful of the nature of the charge of ULP, including its civil
and/or criminal consequences, the Court finds that the NLRC, as
correctly sustained by the CA, had sufficient factual and legal bases to
support its finding of ULP.
Anent the issue on the award of attorney's fees, the applicable law
concerning the grant thereof in labor cases is Article 11120 of the Labor
Code. Pursuant thereto, the award of 10% attorney's fees is limited to
cases of unlawful withholding of wages. In this case, however, the Court
cannot find any claim or proof that petitioners unlawfully withheld the
wages of respondents. Consequently, the grant of 10% attorney's fees in
favor of respondents is not justified under the circumstances.
Accordingly, the Court deems it proper to delete the same.
WHEREFORE, the November 12, 2009 Decision of the Court of Appeals
and its March 24, 2010 Resolution, in CA-G.R. SP No. 107188, are
AFFIRMED, except with respect to the award of attorney's fees which is
hereby DELETED.
SO ORDERED.
Page
130
JOSE CATRAL MENDOZA

Associate Justice
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G.R. Nos. 184903
October 10, 2012
DIGITAL TELECOMMUNICATIONS PHILIPPINES, INC., Petitioner,

vs.
DIGITEL EMPLOYEES UNION (DEU), ARCELO RAFAEL A.
ESPLANA, ALAN D. LICANDO, FELICITO C. ROMERO, JR.,
ARNOLD D. GONZALES, REYNEL FRANCISCO B. GARCIA, ZOSIMO
B. PERALTA, REGINO T. UNIDAD and JIM L. JAVIER, Respondents.
DECISION
PEREZ, J.:
This treats of the petition for review filed by Digital Telecommunications
Philippines, Inc. (Digitel) assailing the 18 June 2008 Decision1 and 9
October 2008 Resolution of the Court of Appeals 10th Division in CAG.R. SP No. 91719, which affirms the Order of the Secretary of Labor
and Employment directing Digitel to commence Collective Bargaining
Agreement (CBA) negotiations and in CA-G.R. SP No. 94825, which
declares the dismissal of affected Digitel employees as illegal.
The facts, as borne by the records, follow.
By virtue of a certification election, Digitel Employees Union (Union)
became the exclusive bargaining agent of all rank and file employees of
Digitel in 1994. The Union and Digitel then commenced collective
bargaining negotiations which resulted in a bargaining deadlock. The
Union threatened to go on strike, but then Acting Labor Secretary
Bienvenido E. Laguesma assumed jurisdiction over the dispute and
eventually directed the parties to execute a CBA.2
However, no CBA was forged between Digitel and the Union. Some
Union members abandoned their employment with Digitel. The Union
later became dormant.
Page
131
Ten (10) years thereafter or on 28 September 2004, Digitel received

from Arceo Rafael A. Esplana (Esplana), who identified himself as
President of the Union, a letter containing the list of officers, CBA
proposals and ground rules.3The officers were respondents Esplana,
Alan D. Licando (Vice-President), Felicito C. Romero, Jr. (Secretary),
Arnold D. Gonzales (Treasurer), Reynel Francisco B. Garcia (Auditor),
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Zosimo B. Peralta (PRO), Regino T. Unidad (Sgt. at Arms), and Jim L.

Javier (Sgt. at Arms).
Digitel was reluctant to negotiate with the Union and demanded that the
latter show compliance with the provisions of the Unions Constitution
and By-laws on union membership and election of officers.
On 4 November 2004, Esplana and his group filed a case for Preventive
Mediation before the National Conciliation and Mediation Board based
on Digitels violation of the duty to bargain. On 25 November 2004,
Esplana filed a notice of strike.
On 10 March 2005, then Labor Secretary Patricia A. Sto. Tomas issued
an Order4 assuming jurisdiction over the labor dispute.
During the pendency of the controversy, Digitel Service, Inc. (Digiserv),
a non-profit enterprise engaged in call center servicing, filed with the
Department of Labor and Employment (DOLE) an Establishment
Termination Report stating that it will cease its business operation. The
closure affected at least 100 employees, 42 of whom are members of
the herein respondent Union.
Alleging that the affected employees are its members and in reaction to
Digiservs action, Esplana and his group filed another Notice of Strike for
union busting, illegal lock-out, and violation of the assumption order.
On 23 May 2005, the Secretary of Labor ordered the second notice of
strike subsumed by the previous Assumption Order.5
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Page
In a Decision dated 11 May 2005, the Regional Director of the DOLE

dismissed the petition for cancellation of union registration for lack of
merit. The Regional Director ruled that it does not have jurisdiction over
the issue of non-compliance with the reportorial requirements. He also
held that Digitel failed to adduce substantial evidence to prove
misrepresentation and the mixing of non-Digitel employees with the
Union. Finally, he declared that the inclusion of supervisory and
132
Meanwhile, on 14 March 2005, Digitel filed a petition with the Bureau of

Labor Relations (BLR) seeking cancellation of the Unions registration on
the following grounds: 1) failure to file the required reports from 19942004; 2) misrepresentation of its alleged officers; 3) membership of the
Union is composed of rank and file, supervisory and managerial
employees; and 4) substantial number of union members are not Digitel
employees.6

managerial employees with the rank and file employees is no longer a

ground for cancellation of the Unions certificate of registration.7
The appeal filed by Digitel with the BLR was eventually dismissed for
lack of merit in a Resolution dated 9 March 2007, thereby affirming the
11 May 2005 Decision of the Regional Director.
CA-G.R. SP No. 91719
In an Order dated 13 July 2005, the Secretary of Labor directed Digitel
to commence the CBA negotiation with the Union. Thus:
WHEREFORE, all the foregoing premises considered, this Office hereby
orders:
1. DIGITEL to commence collective bargaining negotiation with DEU
without further delay; and,
2. The issue of unfair labor practice, consisting of union-busting, illegal
termination/lockout and violation of the assumption of jurisdiction,
specifically the return-to-work aspect of the 10 March 2005 and 03 June
2005 orders, be CERTIFIED for compulsory arbitration to the NLRC.8
Digitel moved for reconsideration on the contention that the pendency of
the petition for cancellation of the Unions certificate of registration is a
prejudicial question that should first be settled before the DOLE could
order the parties to bargain collectively. On 19 August 2005, then Acting
Secretary Manuel G. Imson of DOLE denied the motion for
reconsideration, affirmed the 13 July 2005 Order and reiterated the order
directing parties to commence collective bargaining negotiations.9
On 14 October 2005, Digitel filed a petition, docketed as CA-G.R. SP
No. 91719, before the Court of Appeals assailing the 13 July and 19
August 2005 Orders of the DOLE Secretary and attributing grave abuse
of discretion on the part of the DOLE Secretary for ordering Digitel to
commence bargaining negotiations with the Union despite the pendency
of the issue of union legitimacy.
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Page
In accordance with the 13 July 2005 Order of the Secretary of Labor, the
unfair labor practice issue was certified for compulsory arbitration before
the NLRC, which, on 31 January 2006, rendered a Decision dismissing
the unfair labor practice charge against Digitel but declaring the
133
CA-G.R. SP No. 94825

dismissal of the 13 employees of Digiserv as illegal and ordering their

reinstatement. The Union manifested that out of 42 employees, only 13
remained, as most had already accepted separation pay. The dispositive
portion of the Decision reads:
WHEREFORE, premises considered, the charge of unfair labor practice
is hereby DISMISSED for lack of merit. However, the dismissal of the
remaining thirteen (13) affected employees is hereby declared illegal
and DIGITEL is hereby ORDERED to reinstate them to their former
position with full backwages up to the time they are reinstated, computed
as follows:
x x x x.10
Upon motion for reconsideration filed by Digitel, four (4) affected
employees, namely Ma. Loreta Eser, Marites Jereza, Leonore Tuliao
and Aline G. Quillopras, were removed from entitlement to the awards
pursuant to the deed of quitclaim and release which they all signed.11
In view of this unfavorable decision, Digitel filed another petition on 9
June 2006 in CA-G.R. SP No. 94825 before the Court of Appeals,
challenging the above NLRC Decision and Resolution and arguing
mainly that Digiserv employees are not employees of Digitel.
Ruling of the Court of Appeals
On 18 June 2008, the Tenth Division of the Court of Appeals
consolidated the two petitions in CA-G.R. SP No. 91719 and CA-G.R.
SP No. 94825, and disposed as follows:
WHEREFORE, the petition in CA-G.R. SP No. 91719 is DISMISSED.
The July 13, 2005 Order and the August 19, 2005 Resolution of the
DOLE Secretary are AFFIRMED in toto. With costs.
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Page
1) In addition to the order directing reinstatement and payment of full

backwages to the nine (9) affected employees, Digital
Telecommunications Philippines, Inc. is furthered ORDERED, should
reinstatement is no longer feasible, to pay separation pay equivalent to
one (1) month pay, or one-half (1/2) month pay for every year of service,
whichever is higher.
134
The petition in CA-G.R. SP No. 94825 is partially GRANTED, with the

effect that the assailed dispositions must be MODIFIED, as follows:

2) The one hundred thousand (PhP 100,000.00) peso-fine imposed on

Digital Telecommunications Philippines, Inc. is DELETED. No costs.12
The Court of Appeals upheld the Secretary of Labors Order for Digitel to
commence CBA negotiations with the Union and emphasized that the
pendency of a petition for the cancellation of a unions registration does
not bar the holding of negotiations for a CBA. The Court of Appeals
sustained the finding that Digiserv is engaged in labor-only contracting
and that its employees are actually employees of Digitel.
Digitel filed a motion for reconsideration but was denied in a Resolution
dated 9 October 2008.
Hence, this petition for review on certiorari.
Digitel argues that the Court of Appeals seriously erred when it
condoned the act of the Secretary of Labor in issuing an assumption
order despite the pendency of an appeal on the issue of union
registration. Digitel maintains that it cannot be compelled to negotiate
with a union for purposes of collective bargaining when the very status of
the same as the exclusive bargaining agent is in question.
Digitel insists that had the Court of Appeals considered the nature of the
activities performed by Digiserv, it would reach the conclusion that
Digiserv is a legitimate contractor. To bolster its claim, Digitel asserts
that the affected employees are registered with the Social Security
System, Pag-ibig, Bureau of Internal Revenue and Philhealth with
Digiserv as their employer. Digitel further contends that assuming that
the affected Digiserv employees are employees of Digitel, they were
nevertheless validly dismissed on the ground of closure of a department
or a part of Digitels business operation.
The three issues raised in this petition are: 1) whether the Secretary of
Labor erred in issuing the assumption order despite the pendency of the
petition for cancellation of union registration; 2) whether Digiserv is a
legitimate contractor; and 3) whether there was a valid dismissal.
Page
135
The pendency of a petition

for cancellation of union
registration does not preclude
collective bargaining.
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The first issue raised by Digitel is not novel. It is well-settled that the
pendency of a petition for cancellation of union registration does not
preclude collective bargaining.
The 2005 case of Capitol Medical Center, Inc. v. Hon. Trajano13 is
apropos. The respondent union therein sent a letter to petitioner
requesting a negotiation of their CBA. Petitioner refused to bargain and
instead filed a petition for cancellation of the unions certificate of
registration. Petitioners refusal to bargain forced the union to file a
notice of strike. They eventually staged a strike. The Secretary of Labor
assumed jurisdiction over the labor dispute and ordered all striking
workers to return to work. Petitioner challenged said order by contending
that its petition for cancellation of unions certificate of registration
involves a prejudicial question that should first be settled before the
Secretary of Labor could order the parties to bargain collectively. When
the case eventually reached this Court, we agreed with the Secretary of
Labor that the pendency of a petition for cancellation of union
registration does not preclude collective bargaining, thus:
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Page
Trajano was reiterated in Legend International Resorts Limited v.

Kilusang Manggagawa ng Legenda (KML-Independent).15 Legend
International Resorts reiterated the rationale for allowing the continuation
of either a CBA process or a certification election even during the
pendency of proceedings for the cancellation of the unions certificate of
registration. Citing the cases of Association of Court of Appeals
Employees v. Ferrer- Calleja16 and Samahan ng Manggagawa sa Pacific
Plastic v. Hon. Laguesma,17 it was pointed out at the time of the filing of
the petition for certification election or a CBA process as in the instant
case the union still had the personality to file a petition for certification
or to ask for a CBA negotiation as in the present case.
136
That there is a pending cancellation proceeding against the respondent

Union is not a bar to set in motion the mechanics of collective
bargaining. If a certification election may still be ordered despite the
pendency of a petition to cancel the unions registration certificate
(National Union of Bank Employees vs. Minister of Labor, 110 SCRA
274), more so should the collective bargaining process continue despite
its pendency. We must emphasize that the majority status of the
respondent Union is not affected by the pendency of the Petition for
Cancellation pending against it. Unless its certificate of registration and
its status as the certified bargaining agent are revoked, the Hospital is,
by express provision of the law, duty bound to collectively bargain with
the Union.14

Digiserv is a labor-only contractor.

Labor-only contracting is expressly prohibited by our labor laws. Article
106 of the Labor Code defines labor-only contracting as "supplying
workers to an employer [who] does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises,
among others, and the workers recruited and placed by such person are
performing activities which are directly related to the principal business
of such employer."
Section 5, Rule VIII-A, Book III of the Omnibus Rules Implementing the
Labor Code (Implementing Rules), as amended by Department Order
No. 18-02, expounds on the prohibition against labor-only contracting,
thus:
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies or places workers to perform a
job, work or service for a principal, and any of the following elements are
present:
i) The contractor or subcontractor does not have substantial capital or
investment which relates to the job, work or service to be performed and
the employees recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly related to the
main business of the principal; or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.
The foregoing provisions shall be without prejudice to the application of
Article 248 (c) of the Labor Code, as amended.
xxxx
137
The "right to control" shall refer to the right reserved to the person for
whom, the services of the contractual workers are performed, to
determine not only the end to be achieved, but also the manner and
means to be used in reaching that end.
Page
The law and its implementing rules allow contracting arrangements for
the performance of specific jobs, works or services. Indeed, it is
management prerogative to farm out any of its activities, regardless of
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whether such activity is peripheral or core in nature. However, in order

for such outsourcing to be valid, it must be made to an independent
contractor because the current labor rules expressly prohibit labor-only
contracting.18
After an exhaustive review of the records, there is no showing that first,
Digiserv has substantial investment in the form of capital, equipment or
tools. Under the Implementing Rules, substantial capital or investment
refers to "capital stocks and subscribed capitalization in the case of
corporations, tools, equipment, implements, machineries and work
premises, actually and directly used by the contractor or subcontractor in
the performance or completion of the job, work or service contracted
out." The NLRC, as echoed by the Court of Appeals, did not find
substantial Digiservs authorized capital stock of One Million Pesos
(P 1,000,000.00). It pointed out that only Two Hundred Fifty Thousand
Pesos (P 250,000.00) of the authorized capital stock had been
subscribed and only Sixty-Two Thousand Five Hundred Pesos
(P 62,500.00) had been paid up. There was no increase in capitalization
for the last ten (10) years.19
Page
It is undisputed that as early as March 1994, the affected employees,

except for two, were already performing their job as Traffic Operator
which was later renamed as Customer Service Representative (CSR). It
is equally undisputed that all throughout their employment, their function
as CSR remains the same until they were terminated effective May 30,
2005. Their long period of employment as such is an indication that their
job is directly related to the main business of DIGITEL which is
telecommunications. Because, if it was not, DIGITEL would not have
allowed them to render services as Customer Service Representative for
such a long period of time.21
138
Moreover, in the Amended Articles of Incorporation, as well as in the

General Information Sheets for the years 1994, 2001 and 2005, the
primary purpose of Digiserv is to provide manpower services. In PCI
Automation Center, Inc. v. National Labor Relations Commission,20 the
Court made the following distinction: "the legitimate job contractor
provides services while the labor-only contractor provides only
manpower. The legitimate job contractor undertakes to perform a
specific job for the principal employer while the labor-only contractor
merely provides the personnel to work for the principal employer." The
services provided by employees of Digiserv are directly related to the
business of Digitel, as rationalized by the NLRC in this wise:
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Furthermore, Digiserv does not exercise control over the affected

employees. The NLRC highlighted the fact that Digiserv shared the
same Human Resources, Accounting, Audit and Legal Departments with
Digitel which manifested that it was Digitel who exercised control over
the performance of the affected employees. The NLRC also relied on the
letters of commendation, plaques of appreciation and certification issued
by Digitel to the Customer Service Representatives as evidence of
control.
Considering that Digiserv has been found to be engaged in labor-only
contracting, the dismissed employees are deemed employees of Digitel.
Section 7 of the Implementing Rules holds that labor-only contracting
would give rise to: (1) the creation of an employer-employee relationship
between the principal and the employees of the contractor or subcontractor; and (2) the solidary liability of the principal and the contractor
to the employees in the event of any violation of the Labor Code.
Accordingly, Digitel is considered the principal employer of respondent
employees.
The affected employees were
illegally dismissed.
In addition to finding that Digiserv is a labor-only contractor, records
teem with proof that its dismissed employees are in fact employees of
Digitel. The NLRC enumerated these evidences, thus:
Page
It is undisputed that the remaining affected employees, except for two

(2), were already hired by DIGITEL even before the existence of
DIGISERV. (The other two (2) were hired after the existence of
DIGISERV). The UNION submitted a sample copy of their appointment
paper (Annex "A" of UNIONs Position Paper, Records, Vol. 1, p. 100)
showing that they were appointed on March 1, 1994, almost three (3)
months before DIGISERV came into existence on May 30, 1994 (Annex
"B", Ibid, Records, Vol. 1, p. 101). On the other hand, not a single
appointment paper was submitted by DIGITEL showing that these
remaining affected employees were hired by DIGISERV.
139
That the remaining thirteen (13) affected employees are indeed

employees of DIGITEL is sufficiently established by the facts and
evidence on record.
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It is equally undisputed that the remaining, affected employees

continuously held the position of Customer Service Representative,
which was earlier known as Traffic Operator, from the time they were
appointed on March 1, 1994 until they were terminated on May 30, 2005.
The UNION alleges that these Customer Service Representatives were
under the Customer Service Division of DIGITEL. The UNIONs
allegation is correct. Sample of letter of commendations issued to
Customer Service Representatives (Annexes "C" and "C-1" of UNIONs
Position Paper, Records, p. 100 and 111) indeed show that DIGITEL
has a Customer Service Division which handles its Call Center
operations.
Further, the Certificates issued to Customer Service Representative
likewise show that they are employees of DIGITEL (Annexes "C-5", "C6" - "C-7" of UNIONs Position Paper, Records, Vol. 1, pp. 115 to 117),
Take for example the "Service Award" issued to Ma. Loretta C. Esen,
one of the remaining affected employees (Annex "C-5", Supra). The
"Service Award" was signed by the officers of DIGITEL the VPCustomer Services Division, the VP-Human Resources Division and the
Group Head-Human Resources Division. It was issued by DIGITEL to
Esen thru the above named officers "In recognition of her seven (7)
years continuous and valuable contributions to the achievement of
Digitels organization objectives". It cannot be gainsaid that it is only the
employer that issues service award to its employees.22 (Emphasis not
supplied)
As a matter of fact, even before the incorporation of Digiserv, the
affected employees were already employed by Digitel as Traffic
Operators, later renamed as Customer Service Representatives.
As an alternative argument, Digitel maintains that the affected
employees were validly dismissed on the grounds of closure of Digiserv,
a department within Digitel.
In the recent case of Waterfront Cebu City Hotel v. Jimenez,23 we
referred to the closure of a department or division of a company as
retrenchment. The dismissed employees were undoubtedly retrenched
with the closure of Digiserv.
140
For a valid retrenchment, the following elements must be present:
Page
(1) That retrenchment is reasonably necessary and likely to prevent

business losses which, if already incurred, are not merely de minimis,
but substantial, serious, actual and real, or if only expected, are
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reasonably imminent as perceived objectively and in good faith by the

employer;
(2) That the employer served written notice both to the employees and to
the Department of Labor and Employment at least one month prior to the
intended date of retrenchment;
(3) That the employer pays the retrenched employees separation pay
equivalent to one (1) month pay or at least month pay for every year
of service, whichever is higher;
(4) That the employer exercises its prerogative to retrench employees in
good faith for the advancement of its interest and not to defeat or
circumvent the employees right to security of tenure; and
(5) That the employer used fair and reasonable criteria in ascertaining
who would be dismissed and who would be retained among the
employees, such as status, efficiency, seniority, physical fitness, age,
and financial hardship for certain workers.24
Only the first 3 elements of a valid retrenchment had been here satisfied.
Indeed, it is management prerogative to close a department of the
company. Digitels decision to outsource the call center operation of the
company is a valid reason to close down the operations of a department
under which the affected employees were employed. Digitel cited the
decline in the volume of transaction of operator-assisted call services as
supported by Financial Statements for the years 2003 and 2004, during
which Digiserv incurred a deficit of P 163,624.00 and P 164,055.00,
respectively.25 All affected employees working under Digiserv were
served with individual notices of termination. DOLE was likewise served
with the corresponding notice. All affected employees were offered
separation pay. Only 9 out of the 45 employees refused to accept the
separation pay and chose to contest their dismissal before this Court.
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Page
Prior to the cessation of Digiservs operations, the Secretary of Labor

had issued the first assumption order to enjoin an impending strike.
When Digiserv effected the dismissal of the affected employees, the
Union filed another notice of strike. Significantly, the Secretary of Labor
141
The fifth element regarding the criteria to be observed by Digitel clearly

does not apply because all employees under Digiserv were dismissed.
The instant case is all about the fourth element, that is, whether or not
the affected employees were dismissed in good faith. We find that there
was no good faith in the retrenchment.

ordered that the second notice of strike be subsumed by the previous

assumption order. Article 263(g) of the Labor Code provides:
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 the compliance with this provision as well as with such orders
as he may issue to enforce the same.
The effects of the assumption order issued by the Secretary of Labor are
two-fold. It enjoins an impending strike on the part of the employees and
orders the employer to maintain the status quo.
Pending resolution of the dispute, St. John closed the school prompting
the Union to file a complaint for illegal dismissal and unfair labor
practice. The Union members alleged that the closure of the high school
was done in bad faith in order to get rid of the Union and render useless
any decision of the SOLE on the CBA deadlocked issues. We held that
closure was done to defeat the affected employees security of tenure,
thus:
Page
The determination of whether SJCI acted in bad faith depends on the

particular facts as established by the evidence on record. Bad faith is,
142
There is no doubt that Digitel defied the assumption order by abruptly

closing down Digiserv. The closure of a department is not illegal per se.
What makes it unlawful is when the closure is undertaken in bad faith. In
St. John Colleges, Inc. v. St. John Academy Faculty and Employees
Union,26 bad faith was evidenced by the timing of and reasons for the
closure and the timing of and reasons for the subsequent opening.
There, the collective bargaining negotiations between St. John and the
Union resulted in a bargaining deadlock that led to the filing of a notice
of strike. The labor dispute was referred to the Secretary of Labor who
assumed jurisdiction.
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after all, an inference which must be drawn from the peculiar

circumstances of a case. The two decisive factors in determining
whether SJCI acted in bad faith are (1) the timing of, and reasons for the
closure of the high school, and (2) the timing of, and the reasons for the
subsequent opening of a college and elementary department, and,
ultimately, the reopening of the high school department by SJCI after
only one year from its closure.
Prior to the closure of the high school by SJCI, the parties agreed to
refer the 1997 CBA deadlock to the SOLE for assumption of jurisdiction
under Article 263 of the Labor Code. As a result, the strike ended and
classes resumed. After the SOLE assumed jurisdiction, it required the
parties to submit their respective position papers. However, instead of
filing its position paper, SJCI closed its high school, allegedly because of
the "irreconcilable differences between the school management and the
Academys Union particularly the safety of our students and the financial
aspect of the ongoing CBA negotiations." Thereafter, SJCI moved to
dismiss the pending labor dispute with the SOLE contending that it had
become moot because of the closure. Nevertheless, a year after said
closure, SJCI reopened its high school and did not rehire the previously
terminated employees.
Page
As in St. John, bad faith was manifested by the timing of the closure of
Digiserv and the rehiring of some employees to Interactive Technology
Solutions, Inc. (I-tech), a corporate arm of Digitel. The assumption order
directs employees to return to work, and the employer to reinstate the
employees. The existence of the assumption order should have
prompted Digitel to observe the status quo. Instead, Digitel proceeded to
close down Digiserv. The Secretary of Labor had to subsume the
143
Under these circumstances, it is not difficult to discern that the closure

was done to defeat the parties agreement to refer the labor dispute to
the SOLE; to unilaterally end the bargaining deadlock; to render
nugatory any decision of the SOLE; and to circumvent the Unions right
to collective bargaining and its members right to security of tenure. By
admitting that the closure was due to irreconcilable differences between
the Union and school management, specifically, the financial aspect of
the ongoing CBA negotiations, SJCI in effect admitted that it wanted to
end the bargaining deadlock and eliminate the problem of dealing with
the demands of the Union. This is precisely what the Labor Code abhors
and punishes as unfair labor practice since the net effect is to defeat the
Unions right to collective bargaining.27 (Emphasis not supplied)
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second notice of strike in the assumption order. This order

notwithstanding, Digitel proceeded to dismiss the employees.
The timing of the creation of I-tech is dubious. It was incorporated on 18
January 2005 while the labor dispute within Digitel was pending. I-techs
primary purpose was to provide call center/customer contact service, the
same service provided by Digiserv. It conducts its business inside the
Digitel office at 110 E. Rodriguez Jr. Avenue, Bagumbayan, Quezon
City. The former head of Digiserv, Ms. Teresa Taniega, is also an officer
of I-tech. Thus, when Digiserv was closed down, some of the employees
presumably non-union members were rehired by I-tech.
Thus, the closure of Digiserv pending the existence of an assumption
order coupled with the creation of a new corporation performing similar
functions as Digiserv leaves no iota of doubt that the target of the
closure are the union member-employees. These factual circumstances
prove that Digitel terminated the services of the affected employees to
defeat their security of tenure. The termination of service was not a valid
retrenchment; it was an illegal dismissal of employees.
It needs to be mentioned too that the dismissal constitutes an unfair
labor practice under Article 248(c) of the Labor Code which refers to
contracting out services or functions being performed by union members
when such will interfere with, restrain or coerce employees in the
exercise of their rights to self-organization. At the height of the labor
dispute, occasioned by Digitels reluctance to negotiate with the Union, Itech was formed to provide, as it did provide, the same services
performed by Digiserv, the Union members nominal employer.
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Page
Indeed, while we have found that the closure of Digiserv was undertaken
in bad faith, badges thereof evident in the timing of Digiservs closure,
hand in hand, with I-techs creation, the closure remains a foregone
conclusion. There is no finding, and the Union makes no such assertion,
that Digiserv and I-tech are one and the same corporation. The timing of
Digiservs closure and I-techs ensuing creation is doubted, not the
legitimacy of I-tech as a business process outsourcing corporation
144
Under Article 279 of the Labor Code, an illegally dismissed employee is

entitled to backwages and reinstatement. Where reinstatement is no
longer viable as an option, as in this case where Digiserv no longer
exists, separation pay equivalent to one (1) month salary, or one-half
(1/2) month pay for every year of service, whichever is higher, should be
awarded as an alternative.28 The payment of separation pay is in
addition to payment of backwages.29

providing both inbound and outbound services to an expanded local and

international clientele.30
The finding of unfair labor practice hinges on Digitels contracting-out
certain services performed by union member-employees to interfere
with, restrain or coerce them in the exercise of their right to selforganization.
We have no basis to direct reinstatement of the affected employees to
an ostensibly different corporation. The surrounding circumstance of the
creation of I-tech point to bad faith on the part of Digitel, as well as
constitutive of unfair labor practice in targeting the dismissal of the union
member-employees. However, this bad faith does not contradict, much
less negate, the impossibility of the employees reinstatement because
Digiserv has been closed and no longer exists.
Even if it is a possibility that I-tech, as though Digitel, can absorb the
dismissed union member-employees as I-tech was incorporated during
the time of the controversy with the same primary purpose as Digiserv,
we would be hard pressed to mandate the dismissed employees
reinstatement given the lapse of more than seven (7) years.
Page
Under the doctrine of strained relations, the payment of separation pay

is considered an acceptable alternative to reinstatement when the latter
option is no longer desirable or viable. On one hand, such payment
liberates the employee from what could be a highly oppressive work
environment. On the other hand, it releases the employer from the
grossly unpalatable obligation of maintaining in its employ a worker it
could no longer trust.33
145
This length of time from the date the incident occurred to its
Resolution31 coupled with the demonstrated litigiousness of the
disputants: (1) with all sorts of allegations thrown by either party against
the other; (2) the two separate filings of a notice of strike by the Union;
(3) the Assumption Orders of the DOLE; (4) our own finding of unfair
labor practice by Digitel in targeting the union member-employees,
abundantly show that the relationship between Digitel and the union
member-employees is strained. Indeed, such discordance between the
parties can very well be a necessary consequence of the protracted and
branched out litigation. We adhere to the oft-quoted doctrine that
separation pay may avail in lieu of reinstatement if reinstatement is no
longer practical or in the best interest of the parties.32
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Finally, an illegally dismissed employee should be awarded moral and

exemplary damages as their dismissal was tainted with unfair labor
practice.34 Depending on the factual milieu, jurisprudence has awarded
varying amounts as moral and exemplary damages to illegally dismissed
employees when the dismissal is attended by bad faith or fraud; or
constitutes an act oppressive to labor; or is done in a manner contrary to
good morals, good customs or public policy; or if the dismissal is
effected in a wanton, oppressive or malevolent manner.351wphi1
In Nueva Ecija I Electric Cooperative, Inc. (NEECO I) Employees
Association v. National Labor Relations Commission, we intoned:
Unfair labor practices violate the constitutional rights 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; and disrupt industrial peace and hinder the promotion of
healthy and stable labor-management relations. As the conscience of
the government, it is the Courts sworn duty to ensure that none trifles
with labor rights.36
We awarded moral damages in the amount of P 10,000.00 and likewise
awarded P 5,000.00 as exemplary damages for each dismissed
employee.
In the recent case of Purefoods Corporation v. Nagkakaisang Samahang
Manggagawa ng Purefoods Rank-and-File,37 we awarded the aggregate
amount of P 500,000.00 as moral and exemplary damages to the
illegally dismissed union member-employees which exact number was
undetermined.
In the case at hand, with the Unions manifestation that only 13
employees remain as respondents, as most had already accepted
separation pay, and consistent with our finding that Digitel committed an
unfair labor practice in violation of the employees constitutional right to
self-organization, we deem it proper to award each of the illegally
dismissed union member-employees the amount of P 10,000.00
and P 5,000.00 as moral and exemplary damages, respectively.
Page
146
WHEREFORE, the Petition is DENIED. The Decision of the Court of

Appeals in CA-G.R. SP No. 91719 isAFFIRMED, while the Decision in
CA-G.R. SP No. 94825 declaring the dismissal of affected union
member-employees as illegal is MODIFIED to include the payment of
moral and exemplary damages in amount of P10,000.00
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and P 5,000.00, respectively, to each of the thirteen (13) illegally

dismissed union-member employees.
Petitioner Digital Telecommunications Philippines, Inc. is ORDERED to
pay the affected employees backwages and separation pay equivalent
to one (1) month salary, or one-half (1/2) month pay for every year of
service, whichever is higher.
Let this case be REMANDED to the Labor Arbiter for the computation of
monetary claims due to the affected employees.
SO ORDERED.
Page
147
JOSE PORTUGAL PEREZ

Associate Justice
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G.R. No. 174912
July 24, 2013
BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITYFUBU), Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS (BPI), and BPI OFFICERS
CLARO M. REYES, CECIL CONANAN and GEMMA
VELEZ, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, assailing the April 5, 2006 Decision1 and
August 17, 2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP
No. 74595 affirming the December 21, 20013 and August 23,
20024 Resolutions of the National Labor Relations Commission (NLRC)
in declaring as valid and legal the action of respondent Bank of the
Philippine Islands-Davao City (BPI-Davao) in contracting out certain
functions to BPI Operations Management Corporation (BOMC).
The Factual Antecedents
BOMC, which was created pursuant to Central Bank5 Circular No. 1388,
Series of 1993 (CBP Circular No. 1388, 1993), and primarily engaged in
providing and/or handling support services for banks and other financial
institutions, is a subsidiary of the Bank of Philippine Islands (BPI)
operating and functioning as an entirely separate and distinct entity.
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Page
The Manila chapter of BPI Employees Union (BPIEU-Metro

ManilaFUBU) then filed a complaint for unfair labor practice (ULP). The
Labor Arbiter (LA) decided the case in favor of the union. The decision
was, however, reversed on appeal by the NLRC. BPIEU-Metro ManilaFUBU filed a petition for certiorari before the CA which denied it, holding
that BPI transferred the employees in the affected departments in the
148
A service agreement between BPI and BOMC was initially implemented

in BPIs Metro Manila branches. In this agreement, BOMC undertook to
provide services such as check clearing, delivery of bank statements,
fund transfers, card production, operations accounting and control, and
cash servicing, conformably with BSP Circular No. 1388. Not a single
BPI employee was displaced and those performing the functions, which
were transferred to BOMC, were given other assignments.

pursuit of its legitimate business. The employees were neither demoted

nor were their salaries, benefits and other privileges diminished.6
On January 1, 1996, the service agreement was likewise implemented in
Davao City. Later, a merger between BPI and Far East Bank and Trust
Company (FEBTC) took effect on April 10, 2000 with BPI as the
surviving corporation. Thereafter, BPIs cashiering function and FEBTCs
cashiering, distribution and bookkeeping functions were handled by
BOMC. Consequently, twelve (12) former FEBTC employees were
transferred to BOMC to complete the latters service complement.
BPI Davaos rank and file collective bargaining agent, BPI Employees
Union-Davao City-FUBU (Union), objected to the transfer of the
functions and the twelve (12) personnel to BOMC contending that the
functions rightfully belonged to the BPI employees and that the Union
was deprived of membership of former FEBTC personnel who, by virtue
of the merger, would have formed part of the bargaining unit represented
by the Union pursuant to its union shop provision in the CBA.7
The Union then filed a formal protest on June 14, 2000 addressed to BPI
Vice Presidents Claro M. Reyes and Cecil Conanan reiterating its
objection. It requested the BPI management to submit the BOMC issue
to the grievance procedure under the CBA, but BPI did not consider it as
"grievable." Instead, BPI proposed a Labor Management Conference
(LMC) between the parties.8
Page
Thereafter, the Union demanded that the matter be submitted to the

grievance machinery as the resort to the LMC was unsuccessful. As BPI
allegedly ignored the demand, the Union filed a notice of strike before
the National Conciliation and Mediation Board (NCMB) on the following
grounds:
149
During the LMC, BPI invoked management prerogative stating that the
creation of the BOMC was to preserve more jobs and to designate it as
an agency to place employees where they were most needed. On the
other hand, the Union charged that BOMC undermined the existence of
the union since it reduced or divided the bargaining unit. While BOMC
employees perform BPI functions, they were beyond the bargaining
units coverage. In contracting out FEBTC functions to BOMC, BPI
effectively deprived the union of the membership of employees handling
said functions as well as curtailed the right of those employees to join
the union.
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a) Contracting out services/functions performed by union members

that interfered with, restrained and/or coerced the employees in
the exercise of their right to self-organization;
b) Violation of duty to bargain; and
c) Union busting.9
BPI then filed a petition for assumption of jurisdiction/certification with
the Secretary of the Department of Labor and Employment (DOLE), who
subsequently issued an order certifying the labor dispute to the NLRC
for compulsory arbitration. The DOLE Secretary directed the parties to
cease and desist from committing any act that might exacerbate the
situation.
On October 27, 2000, a hearing was conducted. Thereafter, the parties
were required to submit their respective position papers. On November
29, 2000, the Union filed its Urgent Omnibus Motion to Cease and
Desist with a prayer that BPI-Davao and/or Mr. Claro M. Reyes and Mr.
Cecil Conanan be held in contempt for the following alleged acts of BPI:
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Page
2. On November 27, 2000, the bank integrated the clearing

operations of the BPI and the FEBTC. The clearing function of BPI,
then solely handled by the BPI Processing Center prior to the labor
dispute, is now encroached upon by the BOMC because with the
merger, differences between BPI and FEBTC operations were
diminished or deleted. What the bank did was simply to get the
total of all clearing transactions under BPI but the BOMC
employees process the clearing of checks at the Clearing House
as to checks coming from former FEBTC branches. Prior to the
labor dispute, the run-up and distribution of the checks of BPI were
returned to the BPI processing center, now all checks whether of
BPI or of FEBTC were brought to the BOMC. Since the clearing
operations were previously done by the BPI processing center with
BPI employees, said function should be performed by BPI
employees and not by BOMC.10
150
1. The Bank created a Task Force Committee on November 20,

2000 composed of six (6) former FEBTC employees to handle the
Cashiering, Distributing, Clearing, Tellering and Accounting
functions of the former FEBTC branches but the "task force"
conducts its business at the office of the BOMC using the latters
equipment and facilities.

On December 21, 2001, the NLRC came out with a resolution upholding
the validity of the service agreement between BPI and BOMC and
dismissing the charge of ULP. It ruled that the engagement by BPI of
BOMC to undertake some of its activities was clearly a valid exercise of
its management prerogative.11 It further stated that the spinning off by
BPI to BOMC of certain services and functions did not interfere with,
restrain or coerce employees in the exercise of their right to selforganization.12 The Union did not present even an iota of evidence
showing that BPI had terminated employees, who were its members. In
fact, BPI exerted utmost diligence, care and effort to see to it that no
union member was terminated.13 The NLRC also stressed that
Department Order (D.O.) No. 10 series of 1997, strongly relied upon by
the Union, did not apply in this case as BSP Circular No. 1388, series of
1993, was the applicable rule.
After the denial of its motion for reconsideration, the Union elevated its
grievance to the CA via a petition for certiorari under Rule 65. The CA,
however, affirmed the NLRCs December 21, 2001 Resolution with
modification that the enumeration of functions listed under BSP Circular
No. 1388 in the said resolution be deleted. The CA noted at the outset
that the petition must be dismissed as it merely touched on factual
matters which were beyond the ambit of the remedy availed of.14 Be that
as it may, the CA found that the factual findings of the NLRC were
supported by substantial evidence and, thus, entitled to great respect
and finality. To the CA, the NLRC did not act with grave abuse of
discretion as to merit the reversal of the resolution.15
Furthermore, the CA ratiocinated that, considering the ramifications of
the corporate merger, it was well within BPIs prerogatives "to determine
what additional tasks should be performed, who should best perform it
and what should be done to meet the exigencies of business."16 It
pointed out that the Union did not, by the mere fact of the merger,
become the bargaining agent of the merged employees17 as the Unions
right to represent said employees did not arise until it was chosen by
them.18
151
As to the applicability of D.O. No. 10, the CA agreed with the NLRC that
the said order did not apply as BPI, being a commercial bank, its
transactions were subject to the rules and regulations of the BSP.
Page
Not satisfied, the Union filed a motion for reconsideration which was,
however, denied by the CA.1wphi1
Hence, the present petition with the following
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ASSIGNMENT OF ERRORS:
A. THE PETITION BEFORE THE COURT OF APPEALS
INVOLVED QUESTIONS OF LAW AND ITS DECISION DID NOT
ADDRESS THE ISSUE OF WHETHER BPIS ACT OF
OUTSOURCING FUNCTIONS FORMERLY PERFORMED BY
UNION MEMBERS VIOLATES THE CBA.
B. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT DOLE DEPARTMENT ORDER NO. 10 DOES
NOT APPLY IN THIS CASE.
The Union is of the position that the outsourcing of jobs included in the
existing bargaining unit to BOMC is a breach of the union-shop
agreement in the CBA. In transferring the former employees of FEBTC
to BOMC instead of absorbing them in BPI as the surviving corporation
in the merger, the number of positions covered by the bargaining unit
was decreased, resulting in the reduction of the Unions membership.
For the Union, BPIs act of arbitrarily outsourcing functions formerly
performed by the Union members and, in fact, transferring a number of
its members beyond the ambit of the Union, is a violation of the CBA and
interfered with the employees right to self organization. The Union
insists that the CBA covers the agreement with respect, not only to
wages and hours of work, but to all other terms and conditions of work.
The union shop clause, being part of these conditions, states that the
regular employees belonging to the bargaining unit, including those
absorbed by way of the corporate merger, were required to join the
bargaining union "as a condition for employment." Simply put, the
transfer of former FEBTC employees to BOMC removed them from the
coverage of unionized establishment. While the Union admitted that BPI
has the prerogative to determine what should be done to meet the
exigencies of business in accordance with the case of Sime Darby
Pilipinas, Inc. v. NLRC,19 it insisted that the exercise of management
prerogative is not absolute, thus, requiring good faith and adherence to
the law and the CBA. Citing the case of Shell Oil Workers Union v. Shell
Company of the Philippines, Ltd.,20 the Union claims that it is unfair labor
practice for an employer to outsource the positions in the existing
bargaining unit.
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Page
For its part, BPI defended the validity of its service agreement with
BOMC on three (3) grounds: 1] that it was pursuant to the prevailing law
at that time, CBP Circular No. 1388; 2] that the creation of BOMC was
152
Position of BPI-Davao

within management prerogatives intended to streamline the operations

and provide focus for BPIs core activities; and 3] that the Union
recognized, in its CBA, the exclusive right and prerogative of BPI to
conduct the management and operation of its business.21
BPI argues that the case of Shell Oil Workers Union v. Shell Company
of the Philippines, Ltd.,22 cited by the Union, is not on all fours with the
present case. In said case, the company dissolved its security guard
section and replaced it with an outside agency, claiming that such act
was a valid exercise of management prerogative. The Court, however,
ruled against the said outsourcing because there was an express
assurance in the CBA that the security guard section would continue to
exist. Having failed to reserve its right to effect a dissolution, the
companys act of outsourcing and transferring security guards was
invalidated by the Court, ruling that the unfair labor practice strike called
by the Union did have the impression of validity. In contrast, there is no
provision in the CBA between BPI and the Union expressly stipulating
the continued existence of any position within the bargaining unit. For
BPI, the absence of this peculiar fact is enough reason to prevent the
application of Shell to this case.
BPI likewise invokes settled jurisprudence,23 where the Court upheld the
acts of management to contract out certain functions held by employees,
and even notably those held by union members. In these cases, the
decision to outsource certain functions was a justifiable business
judgment which deserved no judicial interference. The only requisite of
this act is good faith on the part of the employer and the absence of
malicious and arbitrary action in the outsourcing of functions to BOMC.
On the issue of the alleged curtailment of the right of the employees to
self-organization, BPI refutes the Unions allegation that ULP was
committed when the number of positions in the bargaining was reduced.
It cites as correct the CA ruling that the representation of the Unions
prospective members is contingent on the choice of the employee, that
is, whether or not to join the Union. Hence, it was premature for the
Union to claim that the rights of its prospective members to self-organize
were restrained by the transfer of the former FEBTC employees to
BOMC.
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Page
In essence, the primordial issue in this case is whether or not the act of
BPI to outsource the cashiering, distribution and bookkeeping functions
to BOMC is in conformity with the law and the existing CBA. Particularly
153
The Courts Ruling

in dispute is the validity of the transfer of twelve (12) former FEBTC

employees to BOMC, instead of being absorbed in BPI after the
corporate merger. The Union claims that a union shop agreement is
stipulated in the existing CBA. It is unfair labor practice for employer to
outsource the positions in the existing bargaining unit, citing the case of
Shell Oil
Workers Union v. Shell Company of the Philippines, Ltd.24
The Unions reliance on the Shell Case is misplaced. The rule now is
covered by Article 261 of the Labor Code, which took effect on
November 1, 1974.25 Article 261 provides:
ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary
Arbitrators. x x x Accordingly, violations of a Collective Bargaining
Agreement, except those which are gross in character, shall no longer
be treated as unfair labor practice and shall be resolved as grievances
under the Collective Bargaining Agreement. For purposes of this article,
gross violations of Collective Bargaining Agreement shall mean flagrant
and/or malicious refusal to comply with the economic provisions of such
agreement. [Emphases supplied]
Clearly, only gross violations of the economic provisions of the CBA are
treated as ULP. Otherwise, they are mere grievances.
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Page
The Union, however, insists that jobs being outsourced to BOMC were
included in the existing bargaining unit, thus, resulting in a reduction of a
number of positions in such unit. The reduction interfered with the
employees right to self-organization because the power of a union
primarily depends on its strength in number.28
154
In the present case, the alleged violation of the union shop agreement in
the CBA, even assuming it was malicious and flagrant, is not a violation
of an economic provision in the agreement. The provisions relied upon
by the Union were those articles referring to the recognition of the union
as the sole and exclusive bargaining representative of all rank-and-file
employees, as well as the articles on union security, specifically, the
maintenance of membership in good standing as a condition for
continued employment and the union shop clause.26 It failed to take into
consideration its recognition of the banks exclusive rights and
prerogatives, likewise provided in the CBA, which included the hiring of
employees, promotion, transfers, and dismissals for just cause and the
maintenance of order, discipline and efficiency in its operations.27

It is incomprehensible how the "reduction of positions in the collective

bargaining unit" interferes with the employees right to self-organization
because the employees themselves were neither transferred nor
dismissed from the service. As the NLRC clearly stated:
In the case at hand, the union has not presented even an iota of
evidence that petitioner bank has started to terminate certain
employees, members of the union. In fact, what appears is that the Bank
has exerted utmost diligence, care and effort to see to it that no union
member has been terminated. In the process of the consolidation or
merger of the two banks which resulted in increased diversification of
functions, some of these non-banking functions were merely transferred
to the BOMC without affecting the union membership.29
BPI stresses that not a single employee or union member was or would
be dislocated or terminated from their employment as a result of the
Service Agreement.30 Neither had it resulted in any diminution of salaries
and benefits nor led to any reduction of union membership.31
As far as the twelve (12) former FEBTC employees are concerned, the
Union failed to substantially prove that their transfer, made to complete
BOMCs service complement, was motivated by ill will, anti-unionism or
bad faith so as to affect or interfere with the employees right to selforganization.
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Page
Much has been said about the applicability of D.O. No. 10. Both the
NLRC and the CA agreed with BPI that the said order does not apply.
With BPI, as a commercial bank, its transactions are subject to the rules
and regulations of the governing agency which is the Bangko Sentral ng
Pilipinas.34 The Union insists that D.O. No. 10 should prevail.
155
It is to be emphasized that contracting out of services is not illegal

perse.1wphi1 It is an exercise of business judgment or management
prerogative. Absent proof that the management acted in a malicious or
arbitrary manner, the Court will not interfere with the exercise of
judgment by an employer.32 In this case, bad faith cannot be attributed to
BPI because its actions were authorized by CBP Circular No. 1388,
Series of 199333 issued by the Monetary Board of the then Central Bank
of the Philippines (now Bangko Sentral ng Pilipinas). The circular
covered amendments in Book I of the Manual of Regulations for Banks
and Other Financial Intermediaries, particularly on the matter of bank
service contracts. A finding of ULP necessarily requires the alleging
party to prove it with substantial evidence. Unfortunately, the Union
failed to discharge this burden.

The Court is of the view, however, that there is no conflict between D.O.
No. 10 and CBP Circular No. 1388. In fact, they complement each other.
Consistent with the maxim, interpretare et concordare leges legibus est
optimus interpretandi modus, a statute should be construed not only to
be consistent with itself but also to harmonize with other laws on the
same subject matter, as to form a complete, coherent and intelligible
system of jurisprudence.35 The seemingly conflicting provisions of a law
or of two laws must be harmonized to render each effective.36 It is only
when harmonization is impossible that resort must be made to choosing
which law to apply.37
In the case at bench, the Union submits that while the Central Bank
regulates banking, the Labor Code and its implementing rules regulate
the employment relationship. To this, the Court agrees. The fact that
banks are of a specialized industry must, however, be taken into
account. The competence in determining which banking functions may
or may not be outsourced lies with the BSP. This does not mean that
banks can simply outsource banking functions allowed by the BSP
through its circulars, without giving regard to the guidelines set forth
under D.O. No. 10 issued by the DOLE.
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Page
"As an initiatory move, the functions of the Cashiering Unit of the

Processing Center of BPI, handled by its regular rank and file employees
who are members of the Union, xxx [were] transferred to BOMC with the
Accounting Department as next in line. The Distributing, Clearing and
Bookkeeping functions of the Processing Center of the former FEBTC
were likewise contracted out to BOMC."40
156
While D.O. No. 10, Series of 1997, enumerates the permissible

contracting or subcontracting activities, it is to be observed that,
particularly in Sec. 6(d) invoked by the Union, the provision is general in
character "x x x Works or services not directly related or not integral to
the main business or operation of the principal x x x." This does not
limit or prohibit the appropriate government agency, such as the BSP, to
issue rules, regulations or circulars to further and specifically determine
the permissible services to be contracted out. CBP Circular No.
138838enumerated functions which are ancillary to the business of
banks, hence, allowed to be outsourced. Thus, sanctioned by said
circular, BPI outsourced the cashiering (i.e., cash-delivery and deposit
pick-up) and accounting requirements of its Davao City branches.39 The
Union even described the extent of BPIs actual and intended
contracting out to BOMC as follows:

Thus, the subject functions appear to be not in any way directly related
to the core activities of banks. They are functions in a processing center
of BPI which does not handle or manage deposit transactions. Clearly,
the functions outsourced are not inherent banking functions, and, thus,
are well within the permissible services under the circular.
The Court agrees with BPI that D.O. No. 10 is but a guide to determine
what functions may be contracted out, subject to the rules and
established jurisprudence on legitimate job contracting and prohibited
labor-only contracting.41 Even if the Court considers D.O. No. 10 only,
BPI would still be within the bounds of D.O. No. 10 when it contracted
out the subject functions. This is because the subject functions were not
related or not integral to the main business or operation of the principal
which is the lending of funds obtained in the form of deposits.42 From the
very definition of "banks" as provided under the General Banking Law, it
can easily be discerned that banks perform only two (2) main or basic
functions deposit and loan functions. Thus, cashiering, distribution and
bookkeeping are but ancillary functions whose outsourcing is sanctioned
under CBP Circular No. 1388 as well as D.O. No. 10. Even BPI itself
recognizes that deposit and loan functions cannot be legally contracted
out as they are directly related or integral to the main business or
operation of banks. The CBP's Manual of Regulations has even
categorically stated and emphasized on the prohibition against
outsourcing inherent banking functions, which refer to any contract
between the bank and a service provider for the latter to supply, or any
act whereby the latter supplies, the manpower to service the deposit
transactions of the former.43
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i) The contractor or subcontractor does not have substantial capital

or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by
such contractor or subcontractor are performing activities which
are directly related to the main business of the principal; or
157
In one case, the Court held that it is management prerogative to farm out
any of its activities, regardless of whether such activity is peripheral or
core in nature.44 What is of primordial importance is that the service
agreement does not violate the employee's right to security of tenure
and payment of benefits to which he is entitled under the law.
Furthermore, the outsourcing must not squarely fall under labor-only
contracting where the contractor or sub-contractor merely recruits,
supplies or places workers to perform a job, work or service for a
principal or if any of the following elements are present:

ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.45
WHEREFORE, the petition is DENIED.
SO ORDERED.
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158
JOSE CATRAL MENDOZA

Associate Justice
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Labor Relations- full text cases

LLB II A BULSU LAW 1314

[G.R. No. 108855. February 28, 1996]

METROLAB INDUSTRIES, INC., petitioner, vs. HONORABLE MA.

Labor Relations- full text cases

LABOR AND SOCIAL LEGISLATION; TERMINATION OF

when petitioner implemented the subject layoffs. As a result, motions

Labor Relations- full text cases

ID.; LABOR RELATIONS; INELIGIBILITY OF MANAGERIAL

ID.; ID.; EXCLUSION OF CONFIDENTIAL EMPLOYEES FROM THE

This is a petition for certiorari under Rule 65 of the Revised Rules of

Labor Relations- full text cases

On 31 December 1990, the Collective Bargaining Agreement (CBA)

On 27 December 1991, then Labor Secretary Torres issued an order

Labor Relations- full text cases

the automation of the manufacture of its product Eskinol, the number of

Thereafter, on various dates, Metrolab recalled some of the laid off

On 6 March 1992, Metrolab filed a Partial Motion for Reconsideration

On 15 October 1992, Labor Secretary Confesor again issued a cease

Pending the resolution of the aforestated motions, on 2 October 1992,

Labor Relations- full text cases

On 25 January 1993, Labor Secretary Confesor issued the assailed

1. MIIs motion for partial reconsideration of our 14 April 1992 resolution

Labor Secretary Confesor also ruled that executive secretaries are

THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND

Labor Relations- full text cases

THE PUBLIC RESPONDENT HON. SECRETARY OF LABOR AND

In PAL v. NLRC, we issued this reminder:

. . .the exercise of management prerogatives was never considered boundless.

The case at bench constitutes one of the exceptions. The Secretary of

Labor Relations- full text cases

That Metrolabs business is of national interest is not

Labor Relations- full text cases

After a judicious review of the record, we find no compelling reason to

The Secretary of Labor ruled, thus:

3. This unilateral action of management is a blatant violation of the injunction of

Labor Relations- full text cases

We agree with the ruling of the Secretary of Labor, thus:

Labor Relations- full text cases

We are not convinced by this argument. International Hardware involves a case

The second issue raised by petitioner merits our consideration.

Appropriateness of the bargaining unit.

Exclusions. In our 14 April 1992 resolution, we ruled on the issue of

Managerial employees; and

Labor Relations- full text cases

5. Newly-hired secretaries of Branch Managers and Regional Managers.

Labor Relations- full text cases

This reading is obviously contrary to the intent of our 14 April 1992

The basis for the questioned exclusions, it should be noted, is no other

Metrolab, however, maintains that executive secretaries of the General

Labor Relations- full text cases

exempted from the closed-shop provision but should be excluded from

We concur with Metrolab.

The rationale behind the exclusion of confidential employees from the

Labor Relations- full text cases

Similarly, in National Association of Trade Union - Republic Planters

. . . As regards the other claim of respondent Bank that Branch Managers/OICs,

. . .(I)n the collective bargaining process, managerial employees are supposed to be

Labor Relations- full text cases

employers. It is not farfetched that in the course of collective bargaining, they

There would be no danger of company domination of the Union since the

Labor Relations- full text cases

The Unions assurances fail to convince. The dangers sought to be