FIRST DIVISION

[G.R. No. 182877 : August 09, 2010]

SCA HYGIENE PRODUCTS CORPORATION EMPLOYEES ASSOCIATION-FFW, PETITIONER, VS. SCA

HYGIENE PRODUCTS CORPORATION, RESPONDENT.

DECISION

PEREZ, J.:

For review on certiorari are the Decision[1] dated 19 February 2008 and the Resolution[2] dated 5 May 2008
of the Court of Appeals in CA-G.R. SP No. 100308, which reversed the Resolution [3] dated 2 August 2007 of
Voluntary Arbitrator Renato Q. Bello in V.A. Case No. 013-06.

The undisputed facts are as follows:

Respondent SCA Hygiene Products Corporation is a domestic corporation engaged in the manufacture, sale
and distribution of industrial paper, tissue and allied products. It has existing Collective Bargaining
Agreements (CBAs) with SCA Hygiene Products Corporation Monthly Employees Union-FSM (Monthly
Employees Union) and petitioner SCA Hygiene Products Corporation Employees Association-FFW (Daily
Employees Union), which represent the monthly and daily paid rank-and-file employees, respectively.

Both CBAs of the Monthly Employees Union and the Daily Employees Union contain provisions on Job
Evaluation which state that:

ARTICLE VIII
JOB EVALUATION

SECTION 1. The Management (COMPANY) will conduct Job Evaluation when deemed necessary. A third party
consultant may be tasked to conduct the program. The COMPANY agrees to maintain the practice of
involving the incumbent employee member of the UNION in writing the Job Description which serves as
input in the Job Evaluation Program. The third party consultant will conduct an orientation to both Union and
Management of the Job Evaluation Process.

xxxx

ARTICLE VIII
JOB EVALUATION

SECTION 1. The COMPANY and the UNION agrees to abide by the result of the Job Evaluation (JE)
conducted by the COMPANY's third party consultants. The UNION may participate in this activity in the form
of consultations and suggestions.

SECTION 2. The COMPANY agrees to advise the individual members of the UNION of the result of the JE
concerning their respective positions and shall furnish the employee a copy of his/her job description. [4]

Sometime in 2003, respondent conducted a company-wide job evaluation through an independent

consultant, Mercer Human Resource Consulting, Inc. As provided for in the CBAs, respondent conducted an
orientation on the job evaluation process. All covered employees executed written job descriptions which
were used in the job evaluation of their respective positions.

In February 2004, Mercer Human Resource Consulting, Inc. informed respondent of the result of the job
evaluation which led respondent to adopt eight new job grade levels: [5]

Job Grade Level Employee[s'] Category

8 Executive
7 Executive
6 Department Manager
5 Unit Manager
4 Unit Manager
3 Management Team Member
2 Rank-and-File
1 Rank-and-File
In a Letter dated 24 February 2004,[6] respondent informed 22 daily paid rank-and-file employees that their
positions had been classified as Job Grade Level 2.

1
As a result, the Monthly Employees Union demanded that the 22 daily paid rank-and-file employees be given
conversion increase, promotion increase as well as retroactive salary increase from the time the job
evaluation was completed on the ground that their positions had been converted into a higher job grade
level which amounted to a promotion. Likewise, the Daily Employees Union asked for the adjustment of said
employees' compensation since the conversion warranted their entitlement to the benefits, status and
privileges of a monthly paid rank-and-file employee.

As respondent failed to respond, both unions submitted their grievances for mediation. When the parties
failed to reach an amicable settlement, they submitted the case for voluntary arbitration.

The unions claimed that the 22 daily paid rank-and-file employees were entitled to conversion increase since
Job Grade Level 2 positions are meant for monthly paid rank-and-file employees and along with the
conversion, said employees were given additional job descriptions. They were also entitled to promotion
increase since such is the company practice everytime an employee's rank is converted to a higher job
grade level. The unions added that the company violated their CBAs by refusing to implement the result of
the job evaluation considering that those converted from Job Grade Level 2 positions to Job Grade Level 3
positions were granted the benefits concomitant to their new positions.

The company countered that the job evaluation was merely a process of determining the relative
contribution and value of the positions in its operations and does not provide for any adjustment in the
salaries of the covered employees. The subject employees cannot be converted to monthly paid rank-and-
file employees and given a conversion increase since they continue to occupy the same positions that they
were occupying prior to the job evaluation. They are not entitled to any promotion increase since they were
never promoted to a higher position as a Job Grade Level 2 position does not involve any increase in their
duties and responsibilities. The company added that those employees converted to Job Grade Level 3
positions are entitled to salary and benefits increase since they are classified as managerial employees. On
the other hand, those holding Job Grade Level 2 positions remained rank-and-file employees.

On 2 August 2007, Voluntary Arbitrator Renato Q. Bello ruled in favor of the unions and awarded conversion
increase and attorney's fees to the 22 daily paid rank-and-file employees. In so ruling, he noted that said
employees were performing the duties and responsibilities of a monthly paid rank-and-file employee. The
only difference was that there was no clear classification of their positions.

The dispositive portion of the resolution provides:

WHEREFORE, in view of the foregoing, this Voluntary Arbitrator promulgates the following:

1. Declaring that the following employees are now deemed monthly paid rank-and-file employees and thus
are entitled to conversion increase equivalent to ten per cent (10%) of their current basic salary as daily
paid rank-and-file employees, retroactive from 24 February 2006 up to the time that full payment thereof is
made by the Company:

Names Positions
1. Julius M. Concepcion Shift Mechanical Technician
2. Rolando C. Miel Shift Mechanical Technician
3. Leonilo T. Sabinada Electro Mechanical Technician
4. Danilo T. Maningas Electrical Technician
5. Rulen A. Acosta Back Tender
6. Luisito P. Diaz Back Tender
7. Reynaldo M. Legario Back Tender
8. Arnel T. Limbaring Back Tender
9. Arlon Sison Back Tender
10. Roberto dela Cruz Preventive Mechanical
Technician
11. Elaido V. Agbayani Preventive Mechanical
Technician
12. Charlie M. Manaois Mechanical Technician
13. Nelio E. Bejosano Warehouse Custodian
14. Inventor V. Florada, Jr. Mechanical Technician
15. Paulo B. Romero Electrical
16. Dennis A. Ligue Production Operator
17. Samuel F. Villosimo Boiler Tender
18. Marian F. Perolino Boiler Tender
19. Renante Anding Boiler Tender

2
 20. Gemar de Leola Electro Mechanical Technician
21. Julius Cellona Electro Mechanical Technician
22. Wenceslao B. Codizal Instrumentation Technician

2. Denying the Union's claim for retroactive payment of promotional increase for lack of merit; and

3. Dismissing the Unions' claim for damages also for lack of merit and awarding ten per cent (10%)
attorney's fees to the Unions based on the total computed conversion increase due the twenty two (22)
employees. For this purpose, the management of the Company and the duly authorized officers of the
Unions are enjoined to sit down and discuss the mechanics of the actual implementation of this judgment
award.[7]

On appeal, the Court of Appeals ruled in favor of respondent. First, it held that the job evaluation was
conducted as a reorganization process to standardize the company's organizational set-up. It was not
designed to provide any conversion or adjustment to the salaries of the employees. The CBAs merely
provided the procedure for the implementation of the job evaluation. It did not specifically state that the
covered employees are entitled to any salary adjustment after the job evaluation. Hence, in the absence of
any law or agreement between the parties, any conversion much less promotion is left entirely to
respondent's sound discretion. Second, the appellate court did not give credence to the unions' claim that
the grant of conversion/promotion increase was respondent's long-standing practice. To be considered a
regular practice, the grant of such increase should have been done over a long period of time and must be
shown to be consistent and deliberate. In this case, there was no evidence that respondent agreed to
continue giving the benefits knowing fully well that its employees are not covered by the law requiring
payment thereof. Third, the appellate court noted that those employees converted to Job Grade Level 3
positions were given salary and benefits increase since they became managerial employees after the job
evaluation. The same could not be said with regard to those holding Job Grade Level 2 positions since they
remained rank-and-file employees.

The decretal portion of the decision provides:

WHEREFORE, the petition for review is GRANTED and the Resolution dated August 2, 2007 of the
voluntary arbitrator is NULLIFIED and SET ASIDE.[8]

Hence, the instant petition raising the following issues:

I.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT DECIDED THE CASE IN UTTER DISREGARD
OF THE SUBSTANTIATED FACTS THAT A PROMOTION TOOK PLACE WHEN THE TWENTY-TWO (22) DAILY
PAID EMPLOYEES, WHO WERE PREVIOUSLY OCCUPYING JOB LEVEL I POSITIONS, WERE SUBSEQUENTLY
CONVERTED INTO OR PROMOTED TO JOB LEVEL 2 POSITIONS AFTER THE RESULT OF THE JOB
EVALUATION ON FEBRUARY 24, 2004.

II.

THE HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT DECIDED THE CASE IN UTTER DISREGARD
OF THE SUBSTANTIATED FACTS AND THE EVIDENCE ADDUCED TO THE EFFECT THAT THERE WAS A LONG-
STANDING [COMPANY PRACTICE] THAT EVERYTIME THERE IS A CHANGE IN THE JOB LEVEL POSITION OF
AN EMPLOYEE, THE COMPANY GRANTS A CORRESPONDING CONVERSION INCREASE OF TEN [PERCENT]
(10%), BASED ON THE EMPLOYEE'S CURRENT BASIC SALARY.[9]

Briefly, the key issues in this petition are: (1) Were the 22 daily paid rank-and-file employees promoted
after their positions have been converted from Job Grade Level 1 to Job Grade Level 2?; and (2) if so, are
they entitled to conversion increase equivalent to 10% of their current basic salary?

Petitioner contends that the 22 daily paid rank-and-file employees were promoted after the job evaluation.
In fact, they have been performing the duties and responsibilities of a monthly paid rank-and-file employee
occupying a Job Grade Level 2 position even before the job evaluation. Petitioner adds that said employees
are entitled to conversion increase since such has been the company practice everytime an employee's rank
is converted to a higher job grade level.

Respondent counters that the job evaluation was merely a process of determining the relative contribution
and value of the positions in its operations and does not provide for any adjustment in the salaries of the
covered employees. It adds that the 22 daily paid rank-and-file employees were not promoted since they
continue to occupy the same positions that they were occupying prior to the job evaluation. They also
perform the same functions and have the same responsibilities.

The petition has no merit.

It is a well-settled rule that labor laws do not authorize interference with the employer's judgment in the

3
conduct of its business. The Labor Code and its implementing rules do not vest managerial authority in the
labor arbiters or in the different divisions of the National Labor Relations Commission or in the courts. The
hiring, firing, transfer, demotion, and promotion of employees have been traditionally identified as a
management prerogative subject to limitations found in the law, a collective bargaining agreement, or in
general principles of fair play and justice. This is a function associated with the employer's inherent right to
control and manage effectively its enterprise. Even as the law is solicitous of the welfare of employees, it
must also protect the right of an employer to exercise what are clearly management prerogatives. The free
will of management to conduct its own business affairs to achieve its purpose cannot be denied.
Accordingly, this Court has recognized and affirmed the prerogative of management to implement a job
evaluation program or a re-organization for as long as it is not contrary to law, morals or public policy. [10]

In the case at bar, petitioner has miserably failed to convince this Court that respondent acted in bad faith
in implementing the job evaluation program. There is no showing that it was intended to circumvent the law
and deprive the 22 daily paid rank-and-file employees of the benefits they are supposed to receive.

The job evaluation program was undertaken to streamline respondent's operations and to place its
employees in their proper positions or groupings. A perusal of the CBAs of the parties showed that, as
correctly ruled by the Court of Appeals, it merely provided the procedure for the implementation of the job
evaluation and did not guarantee any adjustment in the salaries of the employees.

We are not prepared to grant any conversion or promotion increase to the 22 daily paid rank-and-file
employees since what transpired was only a promotion in nomenclature. Of primordial consideration is not
the nomenclature or title given to the employee, but the nature of his functions. [11] Based on the eight new
job grade levels which respondent adopted after the job evaluation, Job Grade Levels 1 and 2 positions are
both categorized as rank-and-file employees. Said employees continued to occupy the same positions they
were occupying prior to the job evaluation. Moreover, their job titles remained the same and they were not
given additional duties and responsibilities.

There is also no evidence to show that Job Grade Levels 1 and 2 positions are confined only to daily and
monthly paid rank-and-file employees, respectively, such that when a conversion from Job Grade Level 1 to
Job Grade Level 2 takes place, a promotion automatically ensues. The pronouncement of Voluntary
Arbitrator Renato Q. Bello that Job Grade Level 2 positions are mostly occupied by monthly paid rank-and-
file employees implies that some daily paid rank-and-file employees also occupy that position. [12] Thus, a
mere conversion from Job Grade Level 1 position to Job Grade Level 2 position does not, of course, make a
daily paid rank-and- filer a monthly paid one with a concomitant conversion and promotion increase.

Petitioner also failed to substantiate its allegation that it has been a long-standing company practice to grant
a conversion or promotion increase everytime an employee's rank is converted to a higher job grade level.
The instances which petitioner cited showed clear intent on respondent's part to promote the employees
concerned. The job titles and positions held by such employees have changed following the fact that they
have assumed additional duties and responsibilities.

Finally, we see why petitioners cannot make common cause with those whose positions were converted from
Job Grade Level 2 to Job Grade Level 3 and were, thereby, given the benefits concomitant to the higher
level. Those who were elevated to Job Grade Level 3 positions were rightfully given the additional benefits
since they have become managerial employees, specifically Management Team Members, and not merely
rank-and-file employees. The same cannot be said of the twenty-two (22) daily paid rank-and-file
employees involved in the case at bar.

WHEREFORE, the petition is DENIED. The Decision dated 19 February 2008 and the Resolution dated 5
May 2008 of the Court of Appeals in CA-G.R. SP No. 100308 are AFFIRMED.

SO ORDERED.

Corona, C.J., (Chairperson), Leonardo-De Castro, Bersamin,* and Mendoza, JJ.,** concur.

4
 SECOND DIVISION

[G.R. No. 182848 : October 05, 2011]

EMIRATE SECURITY AND MAINTENANCE SYSTEMS, INC. AND ROBERTO A. YAN, PETITIONERS, VS.
GLENDA M. MENESE, RESPONDENT.

DECISION

BRION, J.:

Before the Court is the petition for review on certiorari[1] which assails the decision[2] and the resolution[3] of
the Court of Appeals (CA) rendered on February 28, 2008 and May 14, 2008, respectively, in CA-G.R. SP.
No. 100073.[4]

The Antecedents

The facts of the case are summarized below.

On June 5, 2001, respondent Glenda M. Menese (Menese) filed a complaint for constructive dismissal; illegal
reduction of salaries and allowances; separation pay; refund of contribution to cash bond; overtime, holiday,
rest day and premium pay; damages; and attorney's fees against the petitioners, Emirate Security and
Maintenance Systems, Inc. (agency) and its General Manager, Robert A. Yan (Yan).

Menese alleged in the compulsory arbitration proceedings that on April 1, 1999, the agency engaged her
services as payroll and billing clerk. She was assigned to the agency's security detachment at the Philippine
General Hospital (PGH). She was given a monthly salary of P9,200.00 and an allowance of P2,500.00, for a
total of P11,700.00 in compensation. Effective May 2001, her allowance was allegedly reduced to P1,500.00
without notice, and P100.00 was deducted from her salary every month as her contribution to a cash bond
which lasted throughout her employment. She was required to work seven (7) days a week, from 8:00 a.m.
to 5:00 p.m. She was also required to report for work on holidays, except on New Year's Day and
Christmas. She claimed that she was never given overtime, holiday, rest day and premium pay.

Menese further alleged that on May 4, 2001, she started getting pressures from the agency for her to resign
from her position because it had been committed to a certain Amy Claro, a protegee of Mrs. Violeta G.
Dapula (Dapula) the new chief of the Security Division of the University of the Philippines (UP) Manila and
PGH. Menese raised the matter with Yan who told her that the agency was in the process of establishing
goodwill with Dapula, so it had to sacrifice her position to accommodate Dapula's request to hire Claro.

Menese claimed that she was told not to worry because if she was still interested in working with the
agency, she could still be retained as a lady guard with a salary equivalent to the minimum wage. She would
then be detailed to another detachment because Dapula did not like to see her around anymore. If the offer
was acceptable to her, she should report to the agency's personnel officer for the issuance of the necessary
duty detail order. Menese thought about the offer and soon realized that she was actually being demoted
in rank and salary. She eventually decided to decline the offer. She continued reporting to the PGH
detachment and performed her usual functions as if nothing happened.

Menese alleged that at this juncture, Claro reported at the agency's PGH detachment and performed the
functions she was doing. She bewailed that thereafter she continuously received harassment calls and
letters. She was also publicly humiliated and badly treated at the detachment. The agency, through Security
Officer Alton Acab, prohibited her from using the office computer. On May 18, 2001, Jose Dante Chan, the
agency's PGH detachment commander, arrogantly told her to leave PGH. Again on May 25, 2001, Chan
shouted at her and told her to pack her things and to leave immediately, and not to return to the
detachment anymore; otherwise, she would be physically driven out of the office.

Still not satisfied with what they did, the petitioners allegedly withheld her salary for May 16-31, 2001. She
claimed that the petitioners dismissed her from the service without just cause and due process.

The petitioners, for their part, denied liability. They alleged that on May 8, 2001, Dapula informed the
agency in writing,[5] through Yan, that she had been receiving numerous complaints from security guards
and other agency employees about Menese's unprofessional conduct. She told the petitioners that she was
not tolerating Menese's negative work attitude despite the fact that she is the wife of Special Police Major
Divino Menese who is a member of the UP Manila police force, and that as a matter of policy and out of
delicadeza, she does not condone nepotism in her division.

On the basis of Dapula's letter, Yan sent Menese a memorandum dated May 16, 2001, [6] instructing her to
report to the agency's head office and, there and then, discussed with her Dapula's letter. Yan informed
Menese that upon Dapula's request, she would be transferred to another assignment which would not
involve any demotion in rank or diminution in her salary and other benefits. Although Menese said that she
would think about the matter, the petitioners were surprised to receive summons from the labor arbiter
regarding the complaint.

The Compulsory Arbitration Rulings

5
In a decision dated March 14, 2002,[7] Labor Arbiter Jovencio LL. Mayor, Jr. declared Menese to have been
constructively dismissed. He found the petitioners wanting in good faith in transferring Menese to another
detachment as she would be suffering a demotion in rank and a diminution in pay. Accordingly, he ordered
the petitioners to immediately reinstate Menese and, solidarily, to pay her full backwages of P83,443.75
(latest computation); P66,924.00 in monetary benefits; P50,000.00 and P20,000.00 in moral and exemplary
damages, respectively; and attorney's fees of P15,036.74.

The petitioners appealed to the National Labor Relations Commission (NLRC). On September 30, 2003, the
NLRC Second Division issued a resolution[8] granting the appeal and reversing the labor arbiter's decision. It
ruled that Menese was not constructively dismissed but was merely transferred to another detachment. It
opined that the transfer was a valid exercise of the petitioners' management prerogative. However, it ruled
that despite Menese's refusal to accept the transfer, she cannot be made liable for abandonment as her
refusal was based on her honest belief that she was being constructively dismissed. The NLRC ordered
Menese, at her option, to immediately report to the agency's head office and the agency to accept her back
to work. It absolved Yan from liability, and deleted the award of backwages, overtime pay and damages.

On October 28, 2003, Menese filed a partial motion for reconsideration [9] of the NLRC resolution and later
(on June 17, 2005), a motion to recall the entry of judgment of October 31, 2003. On June 1, 2007, the
NLRC rendered a resolution[10] setting aside the entry of judgment and denying Menese's partial motion for
reconsideration.

The Petition for Certiorari

Menese elevated her case to the CA through a petition for certiorari[11] under Rule 65 of the Rules of Court.
In the main, she argued that the agency was in bad faith when it issued the memoranda dated May 16,
2001,[12] May 22, 2001[13] and May 28, 2001,[14] ordering her transfer from the PGH detachment to the
agency's head office. She posited that it was a ploy to create a vacancy in the detachment to accommodate
the entry of Claro, Dapula's protégée. She regarded the transfer as a removal from her position at PGH
-- a constructive dismissal.

The agency, in rebuttal, posited that Menese was not illegally dismissed, but was merely transferred to its
head office in response to the request of the new head of the UP-PGH security division for the transfer. The
action, it maintained, was a valid exercise of its management prerogative. Thus, Menese was guilty of
abandoning her employment when she refused to report for work at her new posting.

The CA Decision

The CA granted the petition in its decision of February 28, 2008. [15] It set aside the assailed resolutions of
the NLRC and reinstated the March 14, 2002 decision of the labor arbiter.

As the labor arbiter did, the CA found Menese to have been constructively, and therefore illegally, dismissed.
It noted that the memoranda[16] on Menese's transfer were prompted by Dacula's letter, dated May 8, 2001,
[17]
to Yan, which contained allegations on Menese's supposed unprofessional conduct and involvement in
nepotism. It further noted that when Yan asked Dapula in writing [18] to provide the agency with
documents/evidence that would support her allegations, she failed to do so. The CA thus concluded that the
reasons for Menese's transfer did not exist or that no substantial evidence was presented in that regard.

The CA brushed aside the petitioners' argument that it was their prerogative to transfer Menese from the
agency's PGH detachment to its head office at Ortigas Avenue, Mandaluyong City. Relying on applicable
jurisprudence, the appellate court pointed out that while it is the management's prerogative to transfer an
employee from one office to another within the business establishment, it is not without limitation. It must
be exercised in such a way that there is no demotion in rank or diminution in pay, benefits and other
privileges. Otherwise, the transfer amounts to a constructive dismissal, as correctly pointed out by the labor
arbiter in his decision of March 14, 2002.[19] In this light, the CA held that the petitioners failed to prove that
Menese abandoned her employment.

The CA sustained all the other findings of the labor arbiter. On the whole, it ruled that the NLRC
misappreciated the evidence in the case. The petitioners moved for reconsideration, but the CA denied the
motion in its resolution of May 14, 2008.[20]

The Petitioners' Case

Aside from the petition itself,[21] the petitioners filed a reply to Menese's comment[22] and a
memorandum[23] where they asked for a reversal of the assailed CA rulings on the ground that the CA
gravely erred in:

(1) Affirming the labor arbiter's findings that Menese was constructively dismissed;

(2) Holding Yan solidarily liable with the agency for damages; and

(3) Sustaining the award of backwages, damages and attorney's fees, as well as overtime pay.

6
The petitioners insist that Menese was not illegally dismissed. They argue that it was Menese who
deliberately and unjustifiably refused to work despite several notices [24] to her after she was validly relieved
from her current work assignment due to a client's request. They maintain that since Menese chose not to
return to work, she must be considered either to have resigned from or to have abandoned her
employment. They further maintain that nothing on record shows any positive or overt act of the agency in
dismissing Menese.

Moreover, the petitioners regard Menese's continued refusal to report to the agency's head office as an act
of gross insubordination constituting a just cause for termination under Article 282(a) of the Labor Code.
They argue that under this law, an employer may terminate an employment for serious misconduct or willful
disobedience by the employee of the lawful orders of his employer or his representative in connection with
his work.

The petitioners posit that she is not entitled to reinstatement and backwages since she failed to comply with
the reinstatement option stated in the NLRC resolution. Neither is she entitled to overtime pay because she
did not work beyond the eight (8)-hour working period; her one (1) hour time off from twelve noon to 1:00
p.m. is not compensable. Neither is Menese entitled to moral and exemplary damages because the evidence
on record does not show any malice or bad faith on their part to justify the award.

The petitioners likewise take exception to the award of attorney's fees as the labor arbiter's decision and the
NLRC's resolution failed to state the justification for the award. They further contend that the CA gravely
erred in upholding the labor arbiter's ruling that Yan is solidarily liable with the agency, as Yan was merely
acting in his capacity as the agency's general manager, and that there is no showing that Yan acted
maliciously or in bad faith when he ordered Menese's transfer. They also point out that Menese did not
challenge before the CA the NLRC ruling absolving Yan from any liability.

The Case for Menese

By way of her comment[25] and memorandum,[26] Menese asks that the appeal be denied for lack of merit.

She claims that at the arbitration stage, the petitioners readily admitted the fact of her removal, manifesting
in open session their lack of interest to settle the case amicably as they have a strong evidence to support
their defense of her dismissal for cause. She observed during the hearing that the petitioners were very
confident about their case, because according to them, they had Dapula's letter asking for her immediate
removal.[27]

Menese further claims that the petitioners realized that they did not have the necessary evidence, so Yan
wrote Dapula a letter asking her for proof of the complaints or grievances of the security guards against
Menese.[28] Dapula did not produce or present the evidence they asked for resulting in their failure to
substantiate their defense of dismissal for cause. Menese contends that the petitioners then revised their
theory of the case and made it appear that she was not actually dismissed but was merely transferred,
purportedly in the exercise of their management prerogative.

She posits that her transfer was motivated by ill will and bad faith, as it was done to facilitate the entry of a
favored applicant to the PGH detachment. She intimates that the labor arbiter resolved the case correctly
when he found her to have been constructively or illegally dismissed. She bewails the NLRC's surprising
reversal of the labor arbiter's decision, but feels vindicated when the CA set aside the NLRC ruling.

Menese submits that the CA is correct in nullifying the NLRC's reversal of her illegal dismissal case because
the labor tribunal closed its eyes to the fact that bad faith attended her transfer. She points out that the
petitioners' twin directives, vis-Ã -vis her transfer upon which the NLRC based its ruling, "were both issued
for a selfish and immoral purpose;"[29] the first, dated May 16, 2001,[30] was issued for the purpose of
creating a vacancy, and the second, dated May 22, 2001, [31] was intended to cover up the wrongdoing that
was earlier committed. In other words, the directives were tainted with malice and ill will. On the matter of
Yan's liability, Menese maintains that the NLRC committed a serious error in allowing him to get away with
his wrongdoing considering the injustice done to her as a result of her unceremonious dismissal.

In a different vein, Menese assails the NLRC's exclusion of the one-hour meal break as overtime work, for it
erroneously assumed that her employer had been giving its employees a 60 minute time-off for regular
meals and that she was not performing work during the period. She argues that this was not the actual
practice in the workplace, contending that she continued working even during the one-hour meal break.

Finally, Menese maintains that the CA correctly reinstated the labor arbiter's award of attorney's fees and
the imposition of solidary liability on Yan and the agency. She posits that in her quest for justice because of
her unceremonious dismissal, she was constrained to engage the services of a counsel to handle her case.

The Court's Ruling

We deny the petition for lack of merit. The evidence of Menese's unwarranted, unjustified and, in her
own language, "unceremonious" dismissal is so glaring that to ignore it is to commit, as the NLRC did, grave
abuse of discretion.

We note as a starting point that at the time material to the case, Menese ceased to be the agency's payroll

7
and billing clerk at its PGH detachment. The position was taken away from her as she had been transferred
to the agency's main office on Ortigas Avenue, Mandaluyong City, upon the request of Dapula, the new chief
of the UP-PGH Security Division. The transfer was to be carried out through a memorandum dated May 16,
2001[32] issued by Yan; a second memorandum dated May 22, 2001[33]issued by Personnel Officer Edwin J.
Yabes, reminding Menese of Yan's instruction for her to report to the main office; and a third memorandum
dated May 28, 2001,[34] also issued by Yabes informing Menese that it was her second notice to assume her
work detail at the main office. Yabes instructed her to report for work on May 30, 2001.

Citing Mendoza v. Rural Bank of Lucban,[35] the petitioners argue that the transfer was undertaken in the
exercise of management prerogative in the pursuit of their legitimate interests. They submit that Menese
refused to comply with the valid transfer orders they issued, making her liable for abandonment and
insubordination. They argue that nothing on record shows that she was illegally dismissed as no dismissal
had been imposed on her.

On a superficial consideration, the petitioners' position looks unassailable as indeed an employer can
regulate, generally without restraint and according to its own discretion and judgment, every aspect of its
business, including work assignments and transfer of employees, subject only to limitations imposed by law.
[36]
This submission, however, glossed over or suppressed a crucial factor in the present labor controversy.
We refer to Dapula's letter to Yan in early May 2001,[37] asking for Menese's transfer allegedly due to
numerous complaints from security guards and co-workers regarding her unprofessionalism and because of
nepotism; Menese is the wife of a member of the UP Manila police force.

Had Yan inquired into Dapula's claim of Menese's alleged unprofessionalism, ideally through an
administrative investigation, he could have been provided with a genuine reason -- assuming proof of
Dapula's accusation existed -- for Menese's transfer or even for her dismissal, if warranted. That the agency
did not get into the bottom of Dapula's letter before it implemented Menese's transfer is indicative of the
sheer absence of an objective justification for the transfer. The most that the agency did was to write
Dapula a letter, through Yan, asking her to provide documents/evidence in support of her request for
Menese's transfer.[38] Significantly, Yan's request came after the labor arbiter's summons to Yan regarding
Menese's complaint. Dapula never responded to Yan's letter and neither did she provide the evidence
needed for the agency's defense in the complaint.

As Menese noted, the petitioners did not submit as annex to the petition Yan's letter to Dapula, and the
reason appears to be obvious -- they were trying to avoid calling attention to the absence of proof of
Menese's alleged unprofessionalism and her involvement in nepotism. Evidently, the basis for Dapula's
request did not exist. We thus find credible Menese's contention that her transfer was a ploy to remove her
from the PGH detachment to accommodate the entry of Dapula's protegee. In short, the agency wanted to
create a vacancy for Claro, the protegee. Confronted with this clear intent of the petitioners, we cannot see
how Menese's transfer could be considered a valid exercise of management prerogative. As Menese rightly
put it, her transfer was arbitrarily done, motivated no less by ill will and bad faith.

In Blue Dairy Corporation v. NLRC,[39] the Court stressed as a matter of principle that the managerial
prerogative to transfer personnel must be exercised without abuse of discretion, bearing in mind the basic
elements of justice and fair play. Having the right should not be confused with the manner in which that
right is exercised. Thus, it should not be used as a subterfuge by the employer to get rid of "an undesirable
worker." Measured against this basic precept, the petitioners undoubtedly abused their discretion or
authority in transferring Menese to the agency's head office. She had become "undesirable" because she
stood in the way of Claro's entry into the PGH detachment. Menese had to go, thus the need for a pretext to
get rid of her. The request of a client for the transfer became the overriding command that prevailed over
the lack of basis for the transfer.

We cannot blame Menese for refusing Yan's offer to be transferred. Not only was the transfer arbitrary and
done in bad faith, it would also result, as Menese feared, in a demotion in rank and a diminution in pay.
Although Yan informed Menese that "based on the request of the client, she will be transferred to another
assignment which however will not involve any demotion in rank nor diminution in her salaries and other
benefits,"[40] the offer was such as to invite reluctance and suspicion as it was couched in a very general
manner. We find credible Menese's submission on this point, i.e., that under the offered transfer: (1) she
would hold the position of lady guard and (2) she would be paid in accordance with the statutory minimum
wage, or from P11,720.00 to P7,500.00.

In these lights, Menese's transfer constituted a constructive dismissal as it had no justifiable basis and
entailed a demotion in rank and a diminution in pay for her. For a transfer not to be considered a
constructive dismissal, the employer must be able to show that the transfer is for a valid reason, entails no
diminution in the terms and conditions of employment, and must be unreasonably inconvenient or
prejudicial to the employee. If the employer fails to meet these standards, the employee's transfer shall
amount, at the very least, to constructive dismissal. [41] The petitioners, unfortunately for them, failed to
come up to these standards.

In declaring Menese's transfer to be in the valid exercise of the petitioners' management prerogative, the
NLRC grossly misappreciated the evidence and, therefore, gravely abused its discretion in closing its eyes to
the patent injustice committed on Menese. It completely disregarded the obvious presence of bad faith in
Menese's transfer. Labor justice demands that Menese be awarded moral and exemplary damages [42]and, for
having been constrained to litigate in order to protect her rights, attorney's fees. [43]

8
Yan's solidary liability

Yan had been aware all the time of the utter lack of a valid reason for Menese's transfer. He had been aware
all the time that Dapula's charges against Menese -- the ostensible reason for the transfer -- were
nonexistent as Dapula failed to substantiate the charges. He was very much a part of the flagrant and
duplicitous move to get rid of Menese to give way to Claro, Dapula's protegee.

Based on the facts, Yan is as guilty as the agency in causing the transfer that was undertaken in bad faith
and in a wanton and oppressive manner. Thus, he should be solidarily liable with the agency for Menese's
monetary awards.

The overtime pay award

While the labor arbiter declared that Menese's claim for overtime pay is unrebutted [44] and, indeed, nowhere
in the petitioners' position paper did they controvert Menese's claim, we hold that the claim must still be
substantiated. In Global Incorporated v. Commissioner Atienza,[45] a claim for overtime pay will not be
granted for want of factual and legal basis. In this respect, the records indicate that the labor arbiter
granted Menese's claim for holiday pay, rest day and premium pay on the basis of payrolls. [46] There is no
such proof in support of Menese's claim for overtime pay other than her contention that she worked from
8:00 a.m. up to 5:00 p.m. She presented no evidence to show that she was working during the entire one
hour meal break. We thus find the NLRC's deletion of the overtime pay award in order.

Also, the NLRC noted that the award of P2,600.00 for the refund of the cash bond deposit is overstated and
should be adjusted to P600.00 only, as indicated by the payrolls. We likewise find the adjustment in order.

All told, except for the above clarifications on the overtime pay award and the refund of the cash bond
deposit, we reiterate and so declare the petition to be devoid of merit.

WHEREFORE, premises considered, except for the overtime pay award and the refund of deposit for the
cash bond, the petition is DENIED for lack of merit. The assailed decision and resolution of the Court of
Appeals are AFFIRMED, with the following modifications:

1) The deletion of the overtime pay award; and

2) Adjustment of the refund of the cash or surety bond deposit award from P2,500.00 to P600.00.

Costs against the petitioners.

SO ORDERED.

Carpio, (Chairperson), Perez, Sereno, and Reyes, JJ., concur.

Endnotes:

[1]
Rollo, pp. 3-44; filed pursuant to Rule 45 of the Rules of Court.

[2]
Id. at 45-62; penned by Associate Justice Arturo G. Tayag, and concurred in by Associate Justices Hakim
S. Abdulwahid and Jose C. Reyes, Jr.

[3]
Id. at 64-68.

Entitled "Glenda M. Menese v. National Labor Relations Commission, Second Division, Emirate Security
[4]

and Maintenance Systems, Inc. and Roberto A. Yan."

[5]
Rollo, p. 117; Petition, Annex "F."

[6]
Id. at 118; Petition, Annex "G."

[7]
Id. at 100-116; Petition, Annex "E."

Id. at 70-91; Petition, Annex "C," penned by Commissioner Victoriano R. Calaycay, and concurred in by
[8]

Presiding Commissioner Raul T. Aquino and Commissioner Angelita A. Gacutan.

[9]
Id. at 158-160; Petition, Annex "N."

[10]
Id. at 92-99; Petition, Annex "D."

[11]
Id. at 161-167; Petition, Annex "O"

[12]
Supra note 6.

[13]
Rollo, p. 119; Petition, Annex "H."

9
[14]
Id. at 120; Petition, Annex "I."

[15]
Supra note 2.

[16]
Supra notes 12, 13 and 14.

[17]
Supra note 5.

[18]
Rollo, p. 237; Menese's Rejoinder before the Labor Arbiter, Annex "F."

[19]
Supra note 7.

[20]
Supra note 3.

[21]
Supra note 1.

[22]
Rollo, pp. 242-269.

[23]
Id. at 272-310.

[24]
Supra notes 12, 13 and 14.

[25]
Rollo, pp. 221-230; filed on July 23, 2008.

[26]
Id. at 313-324; filed on March 23, 2009.

[27]
Supra note 5.

[28]
Supra note 18.

[29]
Rollo, pp. 320-321; Menese's Memorandum, pp. 8-9, par. 29.

[30]
Supra note 6.

[31]
Supra note 13.

[32]
Supra note 6.

[33]
Supra note 13.

[34]
Supra note 14.

[35]
G.R. No. 155421, July 7, 2004, 433 SCRA 756.

[36]
OSS Security and Allied Services, Inc. v. NLRC, 382 Phil. 35 (2000).

[37]
Supra note 5.

[38]
Supra note 18.

[39]
373 Phil. 179 (1999).

[40]
Supra note 1, at 14; Petition, p. 12, par. 17.

[41]
Aguilar v. Burger Machine Holdings Corporation, G.R. No. 172062, October 30, 2006, 506 SCRA 266.

[42]
Id. at 278.

LABOR CODE, Article III; Implementing Rules & Regulations, Book III, Rule VIII; and CIVIL CODE, Article
[43]

2208, (1) and (7).

[44]
Supra note 7, at 114.

[45]
227 Phil. 64 (1986).

[46]
Supra note 8, at 89.

10
 SECOND DIVISION

[G.R. No. 139013. September 17, 2002.]

ZEL T. ZAFRA and EDWIN B. ECARMA, Petitioners, v. HON. COURT OF APPEALS, PHILIPPINE LONG
DISTANCE TELEPHONE CO., INC., AUGUSTO COTELO, and ERIBERTO MELLIZA, Respondents.

DECISION

QUISUMBING, J.:

For review on certiorari is the decision 1 of the Court of Appeals dated December 22, 1998, in CA-G.R. SP.
No. 48578, reversing that of the voluntary arbitrator which ordered respondent Philippine Long Distance
Telephone Co. (PLDT) to reinstate petitioners. Also impugned is the resolution dated May 24, 1999, denying
petitioners’ motion for reconsideration.chanrob1es virtua1 1aw 1ibrary

The undisputed facts, as set forth in the decision of the Court of Appeals, are as follows: chanrob1es virtual 1aw library

Petitioner Zel T. Zafra was hired by PLDT on October 1, 1984 as Operations Analyst II with a monthly salary
of P14,382 while co-petitioner Edwin B. Ecarma was hired as Junior Operations Analyst I on September 16,
1987 at a monthly rate of P12,032. Both were regular rank-and-file employees assigned at the Regional
Operations and Maintenance Control Center (ROMCC) of PLDT’s Cebu Provincial Division. They were tasked
to maintain the operations and maintenance of the telephone exchanges in the Visayas and Mindanao areas.
2

In March 1995, petitioners were chosen for the OMC Specialist and System Software Acceptance Training
Program in Germany in preparation for "ALCATEL 1000 S12," a World Bank-financed PLDT project in line
with its Zero Backlog Program. ALCATEL, the foreign supplier, shouldered the cost of their training and
travel expenses. Petitioners left for Germany on April 10, 1995 and stayed there until July 21, 1995. 3

On July 12, 1995, while petitioners were in Germany, a certain Mr. R. Relucio, SwitchNet Division Manager,
requested advice, through an inter-office memorandum, from the Cebu and Davao Provincial Managers if
any of the training participants were interested to transfer to the Sampaloc ROMCC to address the
operational requirements therein. The transfer was to be made before the ALCATEL exchanges and
operations and maintenance center in Sampaloc would become operational.

Upon petitioners’ return from Germany, a certain Mr. W.P. Acantillado, Senior Manager of the PLDT Cebu
Plant,;informed them about the memorandum. They balked at the idea, but PLDT, through an inter-office
memorandum dated December 21, 1995, proceeded to transfer petitioners to the Sampaloc ROMCC
effective January 3, 1996. 4

Petitioners left Cebu for Manila on December 27, 1995 to air their grievance to PLDT and to seek assistance
from their union head office in Mandaluyong. PLDT ordered petitioners to report for work on January 16,
1996, but they asked for a deferment to February 1, 1996. Petitioners reported for work at the Sampaloc
office on January 29, 1996. Meanwhile PLDT moved the effectivity date of their transfer to March 1, 1996.
On March 13, 1996, petitioners again appealed to PLDT to no avail. And, because all their appeals fell on
deaf ears, Petitioners, while in Manila, tendered their resignation letters on March 21, 1996. Consequently,
the expenses for their training in Germany were deducted from petitioners’ final pay.

On September 11, 1996, petitioners filed a complaint with the National Labor Relations Commission Regional
Arbitration Branch No. 7 for alleged constructive dismissal and non-payment of benefits under the Collective
Bargaining Agreement. 5 In an order dated November 10, 1996, the presiding labor arbiter referred the
complaint to the National Conciliation and Mediation Board, Cebu City, for appropriate action. 6 On January
17, 1997, the parties agreed to designate lawyer Rolando M. Lim as their voluntary arbitrator. 7

In their complaint, petitioners prayed that their dismissal from employment be declared illegal. They also
asked for reinstatement with full backwages, refund of unauthorized deductions from their final pay,
including damages, costs of litigation, and attorney’s fees. 8

Respondent PLDT, for its part, averred that petitioners agreed to accept any assignment within PLDT in their
application for employment 9 and also in the undertaking 10 they executed prior to their training in
Germany. It prayed that petitioners’ complaint be dismissed.

After submission of their respective position papers and admission of facts, the case was set for hearing.
Petitioners presented their witnesses and made their formal offer of documentary evidence. PLDT, however,

11
requested for a re-setting of the hearing from October 9 and 10, 1997 to November 10 and 11, 1997. 11
But on those dates PLDT did not appear. Nor did it file any notice of postponement or motion to cancel the
hearings. 12

Upon petitioners’ motion and pursuant to Article 262-A of the Labor Code, 13 the voluntary arbitrator issued
an order admitting all documentary exhibits offered in evidence by petitioners and. submitting the case for
resolution. 14 In said order, PLDT was declared to have waived its right to present evidence on account of
its unjustified failure to appear in the November 10 to 11 hearings. chanrob1es virtua1 1aw 1ibrary

On December 1, 1997, the voluntary arbitrator issued a decision which reads: chanrob1es virtual 1aw library

IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in the above case, in
favor of complainants Zel Zafra and Edwin Ecarma and against respondent PLDT, as follows: chanrob1es virtual 1aw library

1. Declaring that complainants were illegally dismissed by reason of the forced resignations or constructive
discharge from their respective employment with PLDT;

2. Ordering the reinstatement of complainants without loss of seniority rights and other privileges, and
granting the award of full backwages from April 22, 1996, inclusive of allowances granted in the CBA or their
monetary equivalent computed from the time complainants’ compensation were withheld up to the time of
their actual reinstatement, or in lieu thereof, ordering the payment of separation pay with full backwages;

3. Ordering the refund of P35,721.81 to complainant Zafra and P24,186.67 to complainant Ecarma, which
amounts constitute as unauthorized deductions from their final pay;

4. Ordering payment of P50,000.00 as moral damages; P20,000.00 as exemplary damages and P20,000.00
as refund for litigation expenses;

5. Ordering payment of 10% Attorney’s Fees computed on all adjudicated claims.

SO ORDERED. 15

PLDT’s motion for reconsideration of the above decision was denied on July 10, 1998. 16 On August 7, 1998,
PLDT initiated a special civil action for certiorari with the Court of Appeals, 17 which was treated as a
petition for review. 18 On December 22, 1998, the CA ruled in favor of PLDT and reversed the voluntary
arbitrator’s decision, in this wise:
chanrob1es virtual 1aw library

WHEREFORE, the instant petition is hereby given due course. Accordingly, the assailed Order is hereby
REVERSED with the exception of the refund, which is hereby ordered, of the amount of P35,721.81 to
respondent Zafra and P24,186.67 to respondent Ecarma representing unauthorized deductions from their
final pay.

SO ORDERED. 19

Zafra and Ecarma as respondents below moved for reconsideration of the CA decision which, however, was
denied on May 24, 1999. 20

Petitioners now anchor their petition on the following grounds: chanrob1es virtual 1aw library

I. THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN THE RESPONDENTS’ PETITION IN
A WAY PROBABLY NOT IN ACCORD WITH THE LAW OR THE APPLICABLE DECISIONS OF THE SUPREME
COURT.

A. THE COURT A QUO, INSTEAD OF RESOLVING ERRORS OF JURISDICTION ALLEGED IN THE

RESPONDENTS’ PETITION ERRED IN RENDERING THE DECISION ON ITS MERITS, IN EFFECT NOT
ACCORDING RESPECT AND SETTING ASIDE THE VOLUNTARY ARBITRATOR’S EVALUATION OF THE
EVIDENCE AND FACTUAL FINDINGS BASED THEREON.

B. THE COURT A QUO, IN GIVING DUE COURSE TO THE RESPONDENTS’ PETITION ERRED IN PROCEEDING
TO RESOLVE THE SAME ON THE MERITS, WITHOUT FIRST REVIEWING THE ENTIRE RECORD OF THE
PROCEEDINGS OF THE VOLUNTARY ARBITRATOR.

II. THE COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS, AS TO CALL FOR AN EXERCISE OF THE HONORABLE SUPREME COURT’S SUPERVISION.

A. THE COURT A QUO COMMITTED GRAVE ABUSE OF DISCRETION IN RENDERING THE DECISION THROUGH
ITS UTTER DISREGARD OF THE APPROPRIATE MODE OF APPEAL TO BE TAKEN BY THE RESPONDENTS FROM
THE JUDGMENT OF THE VOLUNTARY ARBITRATOR. chanrob1es virtua1 1aw 1ibrary

B. THE COURT A QUO COMMITTED GRAVE ABUSE OF ITS DISCRETION IN TREATING JOINTLY THE
RESPONDENTS’ PETITION EITHER AS AN APPEAL UNDER RULE 43, OR IN THE ALTERNATIVE, A SPECIAL
CIVIL ACTION FOR CERTIORARI UNDER RULE 65.

C. THE COURT A QUO COMMITTED GRAVE ABUSE OF ITS DISCRETION IN FAILING TO DISMISS THE

12
RESPONDENTS’ PETITION FOR CERTIORARI OUTRIGHTLY FOR FAILURE TO COMPLY WITH THE STRICT
REQUIREMENTS IN THE FILING THEREOF. 21

Briefly, the issues in this case may be restated as follows: (1) whether or not the CA erred in treating the
special civil action for certiorari filed by respondent as a petition for review, and (2) whether or not the CA
erred in its appreciation of facts and the decision it rendered.

Petitioners invoke Luzon Development Bank v. Association of Luzon Development Bank Employees, Et. Al.
22 and Rule 43 of the 1997 Rules of Civil Procedure 23 in arguing that an appeal and not a petition
for certiorari should be the proper remedy to question the decision or award of the voluntary arbitrator.
Even assuming that Rule 65 applies, petitioners argue that PLDT, nevertheless, erred in not including the
voluntary arbitrator as one of the respondents in the petition and in not serving him a copy thereof. 24
These procedural flaws, they aver, merit the outright dismissal by the CA of the petition.25 cralaw:red

A perusal of the petition before the CA shows that the mode chosen by PLDT was a petition for review under
Rule 43 and not a special civil action for certiorari under Rule 65. While it was captioned as a petition
for certiorari, it is not the caption of the pleading but the allegations therein that determine the nature of the
action. 26 The appellate court was not precluded from granting relief as warranted by PLDT’s allegations in
the petition and the evidence it had presented to support the petition.

A perusal of the petition before the CA discloses the following: First, under the heading "Nature of the
Action", the PLDT averred it was "a petition for review on certiorari of the Decision dated December 1, 1997
and Order dated July 10, 1998 of Voluntary Arbitrator Atty. Rolando M. Lim." 27 Second, while the assigned
errors alleged that the voluntary arbitrator acted with grave abuse of discretion, nevertheless, the issue set
forth was whether or not there existed sufficient evidence to show that complainants [herein petitioners]
were constructively dismissed, and whether they were entitled to reinstatement, back wages and other
monetary awards. 28 Clearly, the issue was factual and not limited to questions of jurisdiction and grave
abuse of discretion. Third, the petition was filed within the 15-day period to perfect an appeal and did not
implead the voluntary arbitrator as a Respondent. All of these indicate that the petition below was indeed
one for review.

Moreover, contrary to petitioners’ contention that the voluntary arbitrator was not furnished a copy of the
petition, the records reveal otherwise. Attached to the petition filed before the appellate court was a registry
receipt of the copy sent to the voluntary arbitrator. 29

Coming now to the substantive merits of the petition before us. Considering that the CA’s findings of fact
clash with those of the voluntary arbitrator, with contradictory results, this Court is compelled to go over the
records of the case as well as the submissions of the parties. Having done so carefully, we are not convinced
that the voluntary arbitrator erred in his factual conclusions so as to justify reversal thereof by the appellate
court. We are persuaded to rule in favor of the complaining workers, herein petitioners, following the well-
established doctrine in labor-management relations that in case of doubt, labor should prevail.

The fact that petitioners, in their application for employment, 30 agreed to be transferred or assigned to any
branch 31 should not be taken in isolation, but rather in conjunction with the established company practice
in PLDT.

The standard operating procedure in PLDT is to inform personnel regarding the nature and location of their
future assignments after training abroad. This prevailing company practice is evidenced by the inter-office
memorandum 32 of a certain PLDT’s First Vice President (Reyes), dated May 3, 1996 to PLDT’s Chief
Operating Officer (Perez), duly-acknowledged by private respondents: chanrob1es virtual 1aw library

x x x

To : Atty. E.D. Perez, SEVP & COO

Thru : J.P. de Jesus, EVP — Meet Demand Group

From : FVP — Program Planning & Engineering Sector

Subject : NON-ASSIGNABLE TRAINED PERSONNEL

During the Group Head’s Meeting on 03 April 1996, Mr. R.R. Zarate reported on the case of some provincial
personnel who had foreign training for functions intended for Manila Operations but refused to be relocated
and assigned to Manila, and who eventually resigned on account of the said transfer. In view of this
situation, two (2) issues were raised as follows:chanrob1es virtua1 1aw 1ibrary

1. Network Services to be involved in the planning of facilities, specially when this involves trainees from
Network.

2. Actual training to be undertaken only after the sites where such training will be utilized have been
determined.

x x x

13
A total of 53 slots (for the Exchange O&M, System Software/Acceptance Engineering and OMC Specialist
Courses) were allocated to Network Services by the Steering Committee composed of representatives from
ProgPlan and TechTrain. The O&M slots were equally distributed to Provincial Operations on the basis where
Alcatel switches will be geographically installed. With regards to NSC, since the contract has defined its
location to be in Sampaloc and considering that its monitoring function would focus on provincial exchanges,
slots were opened both for Provincial and Metro Manila Operations. Please note that all these relevant
informations were disseminated to concerned parties as inputs, to enable them to recommend the
appropriate training participants.

The choice of trainees were made by Network and therefore, it is incumbent upon them to brief the
participants or trainees they selected on the nature and assignment of their employment after training.

To prevent similar instances in the future, we strongly recommend the following: chanrob1es virtual 1aw library

1. Prior to the training, all concerned groups should conform with the standard practice of informing
personnel regarding the nature and/or location of their future assignments after the training.

2. The contractual obligation of the trainees should include a provision on their willingness and commitment
to perform the related training functionalities required by the company.

x x x (Emphasis supplied.)

The want of notice of transfer to petitioners was the subject of another inter-office memorandum dated
November 24, 1995, from one Mr. Relucio, SwitchNet Division Manager, to a certain Mr. Albania, First Vice
President-Regional & Toll Network. It states: chanrob1es virtual 1aw library

As the cheaper option is to relocate personnel who have attended the training already, we have solicited the
desire of the Cebu and Davao-based provincial personnel to transfer to SwitchNet Sampaloc ROMCC which
they declined, . . . We should note that these personnel were not made aware prior to start of training that
they will be transferred to Manila. 33

A third inter-office memorandum dated November 29, 1995 confirmed this procedural flaw, thus: chanrob1es virtual 1aw library

Alternative 1: Require the four Jones and Davao ROMCC personnel to transfer [to] the Sampaloc ROMCC, as
service requirement. This is the least cost alternative. . . . We should note however, that these personnel
were not aware that they would relocate after training. 34

Under these circumstances, the need for the dissemination of notice of transfer to employees before sending
them abroad for training should be deemed necessary and later to have ripened into a company practice or
policy that could no longer be peremptorily withdrawn, discontinued, or eliminated by the employer.
Fairness at the workplace and settled expectations among employees require that we honor this practice
and commend this policy. chanrob1es virtua1 1aw 1ibrary

The appellate court’s justification that petitioners’ transfer was a management prerogative did not quite
square with the preceding evidence on record, which are not disputed. To say that petitioners were not
constructively dismissed inasmuch as the transfer was effected without demotion in rank or diminution of
salary benefits is, to our mind, inaccurate. It is well to remember that constructive dismissal does not
always involve forthright dismissal or diminution in rank, compensation, benefits, and privileges. For an act
of clear discrimination, insensibility, or disdain by an employer may become so unbearable on the part of the
employee that it could foreclose any choice by him except to forego his continued employment. 35 The
insensibility of private respondents is at once deducible from the foregoing circumstances.

Despite their knowledge that the lone operations and maintenance center of the 33 ALCATEL 1000 S12
Exchanges would be "homed" in Sampaloc, 36 PLDT officials neglected to disclose this vital piece of
information to petitioners before they acceded to be trained abroad. On arriving home, they did not give
complaining workers any other option but placed them in an either/or straightjacket, that appeared too
oppressive for those concerned.

As pointed out in the abovementioned inter-office memorandum by Mr. Reyes: chanrob1es virtual 1aw library

All sites where training will be utilized are already pre-determined and pinpointed in the contract documents
and technical protocols signed by PLDT and the contractor. Hence, there should be no reason or cause for
the misappointment of the training participants, 37

Needless to say, had they known about their pre-planned reassignments, petitioners could have declined the
foreign training intended for personnel assigned to the Manila office. The lure of a foreign trip is fleeting
while a reassignment from Cebu to Manila entails major and permanent readjustments for petitioners and
their families.

We are not unaware that the transfer of an employee ordinarily lies within the ambit of management
prerogatives. However, a transfer amounts to constructive dismissal when the transfer is unreasonable,
inconvenient, or prejudicial to the employee, and involves a demotion in rank or diminution of salaries,

14
benefits, and other privileges. 38 In the present case, petitioners were unceremoniously transferred,
necessitating their families’ relocation from Cebu to Manila. This act of management appears to be arbitrary
without the usual notice that should have been done even prior to their training abroad. From the
employees’ viewpoint, such action affecting their families are burdensome, economically and emotionally. It
is no exaggeration to say that their forced transfer is not only unreasonable, inconvenient, and prejudicial,
but to our mind, also in defiance of basic due process and fair play in employment relations.

WHEREFORE, this petition for review is GRANTED. The decision of the Court of Appeals in CA-G.R. SP No.
48578; dated December 22, 1998, is REVERSED and SET ASIDE. The decision of the Voluntary Arbitrator
dated December 1, 1997, is REINSTATED. No pronouncement as to costs. chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Bellosillo, Mendoza, Austria-Martinez and Callejo, Jr., JJ., concur.

Endnotes:

1. Rollo, pp. 36-43.

2. Id. at 37.

3. Ibid.

4. Id. at 37-38.

5. Id. at 36-37.

6. Id. at 37.

7. Ibid.

8. Id. at 38.

9. CA Rollo, pp. 49-50.

10. Id. at 45 and 47.

11. Rollo, p. 38.

12. Id. at 39.

13. Article 262-A, Labor Code. Procedures. —

x x x

Unless the parties agree otherwise, it shall be mandatory for the Voluntary Arbitrator or panel of Voluntary
Arbitrators to render an award or decision within twenty (20) calendar days from the date of the submission
of the dispute to voluntary arbitration.

x x x

14. CA Rollo, p. 42.

15. Rollo, pp. 77-78.

16. CA Rollo, p. 41.

17. Id. at 2.

18. Rollo, p. 36.

19. Id. at 43.

20. Id. at 56-A.

21. Id. at 20-21.

22. 249 SCRA 162, 170 (1995).

15
23. SEC. 5, Rule 43, 1997 Rules of Court. How appeal taken. — Appeal shall be taken by filing a verified
petition for review in seven (7) legible copies with the Court of Appeals, with proof of service of a copy
thereof on the adverse party and on the court or agency a quo. The original copy of the petition intended for
the Court of Appeals shall be indicated as such by the petitioner. (Emphasis ours.)

x x x

24. SEC. 5, Rule 65, 1997 Rules of Court. Respondents and costs in certain cases. — When the petition filed
relates to the acts or omissions of a judge, court, quasi-judicial agency, tribunal, corporation, board, officer
or person, the petitioner shall join, as private respondent or respondents with such public respondent or
respondents, the person or persons interested in sustaining the proceedings in the court; and it shall be the
duty of such private respondents to appear and defend, both in his or their own behalf and in behalf of the
public respondent or respondents affected by the proceedings, and the costs awarded in such proceedings in
favor of the petitioner shall be against the private respondents only, and not against the judge, court, quasi-
judicial agency, tribunal, corporation, board, officer or person impleaded as public respondent or
respondents. (Emphasis ours.)

x x x

25. Rollo, pp. 22-23.

26. Almuete, Et. Al. v. Andres, Et Al., G.R. No. 122276, November 20, 2001, p. 9.

27. Rollo, p. 80; CA Rollo, p. 3.

28. Id. at 90.

29. CA Rollo, p. 24.

30. Id. at 45-48.

31. Id. at 49-50.

32. Id. at 51-52.

33. Rollo, p. 73.

34. Id. at 74.

35. Litonjua Group of Companies, Et. Al. v. Vigan, G.R. No. 143723, June 28, 2001, p. 12. Stress supplied.

36. Rollo, pp. 193-194.

37. CA Rollo, p. 51.

38. OSS Security & Allied Services, Inc., Et. Al. v. NLRC, Et Al., 325 SCRA 157, 165 (2000). Stress supplied.

16
 SECOND DIVISION

[G.R. No. 152057. September 29, 2003.]

PHILIPPINE TELEGRAPH & TELEPHONE CORPORATION, Petitioner, v. COURT OF APPEALS,

NATIONAL LABOR RELATIONS COMMISSION, PT&T PROGRESSIVE WORKERS UNION-NAFLU-KMU,
CRISTINA RODIEL, JESUS PARACALE, ROMEO TEE, BENJAMIN LAKANDULA, AVELINO ACHA,
IGNACIO DELA CERNA and GUILLERMO DEMEGILLO, Respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review filed by petitioner Philippine Telegraph and Telephone Corporation (PT&T) of the
Decision 1 of the Court of Appeals in CA-G.R. SP No. 54346 promulgated on June 15, 2001 affirming the
resolution of the National Labor Relations Commission (NLRC) promulgated on May 31, 1999 reversing the
decision of the Labor Arbiter, and its Resolution dated February 6, 2002 denying the petitioner’s motion for
reconsideration.

The petitioner is a domestic corporation engaged in the business of providing telegraph and communication
services thru its branches all over the country. It employed various employees, among whom were the
following:chanrob1es virtual 1aw library

1. Cristina Rodiel, initially as a Probationary Junior Counter-Clerk on July 1, 1995 at the Cabanatuan Branch,
regularized on November 28, 1995;

2. Jesus Paracale as a Probationary Junior CW Operator in Padada, Davao del Sur on November 16, 1988,
regularized on April 15, 1990, transferred to Malita, Davao Branch on November 16, 1990, to Makar, South
Cotabato Branch on September 1, 1994 and to Kiamba, South Cotabato Branch on April 1, 1995,

3. Romeo Tee as Counter-Clerk at the Zamboanga Branch on January 16, 1982, as a TTY Operator on
November 16, 1986, promoted as TTY Operator General on November 1, 1989 and designated as TRITY
Operator Regions on July 1, 1997;

4. Benjamin Lakandula as a Counter-Clerk at the Iligan City Branch on January 16, 1982;

5. Avelino Acha as Probationary Junior Counter at the Naga City Branch, regularized on June 10, 1983,
transferred to Legaspi City Branch on November 16, 1989;

6. Ignacio Dela Cerna as a Probationary Junior CW-Operator in at the Pagadian City Branch regularized on
March 15, 1986 and designated as TR/TTY Operator Regions on July 1, 1993 at the Pagadian City Branch,
and

7. Guillermo Demigillo as Clerk. 2

Sometime in 1997, after conducting a series of studies regarding the profitability of its retail operations, its
existing branches and the number of employees, the petitioner came up with a Relocation and Restructuring
Program designed to (a) sustain its (PT&T’s) retail operations; (b) decongest surplus workforce in some
branches, to promote efficiency and productivity; (c) lower expenses incidental to hiring and training new
personnel; and (d) avoid retrenchment of employees occupying redundant positions. 3

On August 11, 1997, private respondents Cristina Rodiel, Jesus Paracale, Romeo Tee, Benjamin Lakandula,
Avelino Acha, Ignacio Dela Cerna and Guillermo Demigillo received separate letters from the petitioner,
giving them the option to choose the branch to which they could be transferred. Thereafter, through HRAG
Bulletin No. 97-06-16, the private respondents and other petitioner’s employees were directed to "relocate"
to their new PT&T Branches. The affected employees were directed to report to their respective relocation
assignments in a Letter dated September 16, 1997.

The petitioner offered benefits/allowances to those employees who would agree to be transferred under its
new program, thus: chanrob1es virtual 1aw library

EXISTING SPECIAL FLAT MOVING

RELOCATION RELOCATION RELOCATION EXPENSES

17
ALLOWANCE ALLOWANCE ALLOWANCE (FREIGHT)

1. Temporary 2.1 Married employee

relocation — per diem bringing along

of P260.00/day his family P17,500.00 P15,000

2. Permanent relocation 2.2 Married employee

— a flat monthly not bringing along

allowance of his family P10,000.00 N/A

P5,100.00 2.3 Single employee

bringing along his

qualified dependent/s P10,000.00 P15,000

2.4 Single employee

not bringing along

his dependent/s P7,000.00 N/A 4

Moreover, the employees who would agree to the transfers would be considered promoted, thus: chanrob1es virtual 1aw library

FROM TO

NAME POSITION/JG* WORK POSITION WORK

LOCATION LOCATION

1. ACHA, Jr. Counter - Legaspi (Br) Courier - JG3 Romblon /

AVELINO JG2 Odiongan (SL)

2. RODIEL, Jr. Counter Cabanatuan Clerk - JG4 Baguio (NWL)

CRISTINA Clerk - JG2 (CL)

3. DELA Jr. CW Cotabato City Clerk - JG4 Kidapawan (CM)

CERNA, Operator - JG2 (CM)

IGNACIO

4. DEMIGILLO Jr. CW Midsayap Courier - JG3 Lebak (CM)

GUILLERMO Operator - JG2 North

5. LAKANDULA, Counter - JG3 Iligan (NM) Clerk - JG4 Butuan (EM)

BENJAMIN

6. PARACALE, Jr. CW Makar, Gen. Clerk - Butuan (EM)

JESUS Operator - JG2 Santos (SM) JG4

7. TEE, ROMEO TTY Operator- Zamboanga Clerk - JG4 Jolo (WM) 5

Gen. JG4 City (WM)

The private respondents rejected the petitioner’s offer. On October 2, 1997, the petitioner sent letters to the
private respondents requiring them to explain in writing why no disciplinary action should be taken against
them for their refusal to be transferred/relocated. 6

In their respective replies to the petitioner’s letters, the private respondents explained that: chanrob1es virtual 1aw library

The transfers imposed by the management would cause enormous difficulties on the individual
complainants. For one, their new assignment involve distant places which would require their separation
from their respective families. For instance, in the case of Avelino Acha who would be coming from Bicol
Region, he would have to take a boat in going to his new assignment in Odiongan, Romblon. The voyage

18
would take a considerable period of time and it would be imperative for him to relocate to Romblon to be
able to attend to his new assignment.

The same holds true with the other complainants. Romeo Tee for instance, will have to take an overnight
boat trip from his previous assignment in Zamboanga to his new assignment in Jolo, Sulu. He would have to
part with his family and resettle to Jolo in connection with his transfer. Cristina Rodiel on the other hand,
would be transferred to Baguio City which is quite distant from her previous workbase and residence at
Cabanatuan. Jesus Paracale finds himself in the same difficult situation as he would be transferred from
General Santos City at the Southern tip of Mindanao to Butuan City, almost a day’s travel by bus and
located at the northernmost tip of the island. Benjamin Lakandula and Guillermo Demigillo, are also in the
same situation as their new assignments are quite distant from their previous places of work. 7

Dissatisfied with this explanation, the petitioner considered the private respondents’ refusal as
insubordination and willful disobedience to a lawful order; hence, the private respondents were dismissed
from work. 8 They forthwith filed their respective complaints against the petitioner before the appropriate
sub-regional branches of the NLRC. 9

Subsequently, the private respondents’ bargaining agent, PT&T Workers Union-NAFLU-KMU, filed a
complaint against the petitioner for illegal dismissal and unfair labor practice for and in behalf of the private
respondents, including Ignacio Dela Cerna, before the arbitration branch of the NLRC. 10

In their position paper, the complainants (herein private respondents) declared that their refusal to transfer
could not possibly give rise to a valid dismissal on the ground of willful disobedience, as their transfer was
prejudicial and inconvenient; thus unreasonable. The complainants further asserted that since they were
active union members, the petitioner was clearly guilty of unfair labor practice 11 especially considering
their new work stations: chanrob1es virtual 1aw library

1. Jesus Paracale, from General Santos Branch to Butuan City Branch;

2. Romeo Tee, from Zamboanga Branch to Jolo Branch;

3. Benjamin Lakandula, from Iligan City to Butuan City;

4. Avelino Acha, from Legaspi City Branch to Odiongan Branch;

5. Ignacio Dela Cerna, from Pagadian City Branch to Butuan Branch; and

6. Guillermo Demigillo, from Midsayap to Lebak Cotabato Branch. 12

For its part, the petitioner (respondent therein) alleged that the private respondents’ transfers were made in
the lawful exercise of its management prerogative and were done in good faith. The transfers were aimed at
decongesting surplus employees and detailing them to a more demanding branch.

In their reply to the petitioner’s position paper, the private respondents opined that since their respective
transfers resulted in their promotion, they had the right to refuse or decline the positions being offered to
them. Resultantly, the refusal to accept the transfers could not have amounted to insubordination or willful
disobedience to the "lawful orders of the employer." cralaw virtua1aw library

After the parties filed their respective pleadings, the Honorable Labor Arbiter Celenito N. Daing rendered a
Decision on September 25, 1998 dismissing the complaint for lack of merit. 13

The labor arbiter ratiocinated that an employer, in the exercise of his management prerogative, may cause
the transfer of his employees provided that the same is not attended by bad faith nor would result in the
demotion of the transferred employees. The labor arbiter ruled in favor of the petitioner, finding that the
aforesaid transfers indeed resulted in the private respondents’ promotion, and that the complaint for unfair
labor practice was not fully substantiated and supported by evidence.

Aggrieved, the private respondents appealed the aforesaid decision to the NLRC. chanrob1es virtua1 1aw 1ibrary

On May 31, 1999, the NLRC issued a Resolution which reversed and set aside the decision of the labor
arbiter. The NLRC ruled that the petitioner illegally dismissed the private respondents, thus: chanrob1es virtual 1aw library

WHEREFORE, premises considered, the Appeal is hereby GRANTED. Accordingly, the Decision appealed from
is REVERSED and SET ASIDE and a new one entered declaring respondent-appellee guilty of illegal dismissal
and ordering Philippine Telegraph and Telephone Corporation to reinstate individual complainants-appellants
to their former positions without loss of seniority rights and other privileges and to pay them full backwages
from the date of their dismissal up to the date of their actual reinstatement, computed as follows . . . 14

The NLRC interpreted the said transfers of the respondents as a promotion; that the movement was not
merely lateral but of scalar ascent, considering the movement of the job grades, and the corresponding
increase in salaries. As such, the respondents had the right to accept or refuse the said promotions. The
NLRC concluded that in the exercise of their right to refuse the promotions given them, they could not be
dismissed.

19
Without filing a motion for reconsideration, the petitioner filed a petition for certiorari under Rule 65 of the
1997 Rules of Civil Procedure before the Court of Appeals, assailing the May 31, 1999 Resolution of the
NLRC. The petitioner raised the following errors: chanrob1es virtual 1aw library

4.1

PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION

WHEN IT RULED AGAINST PRIVATE RESPONDENTS’ DISMISSAL ON THE GROUND OF INSUBORDINATION
FOR REFUSING TO HEED TO THE TRANSFER ORDER OF THE PETITIONER.

4.2

PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION

WHEN IT SUSTAINED PRIVATE RESPONDENTS’ CONTENTION THAT THEY WERE IN FACT BEING PROMOTED
AND NOT TRANSFERRED, THUS RENDERING THE LATTER’S DISOBEDIENCE JUSTIFIED.

PUBLIC RESPONDENTS (SIC) COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF

JURISDICTION WHEN IT RULED THAT PRIVATE RESPONDENTS ARE ENTITLED TO REINSTATEMENT
WITHOUT LOSS OF SENIORITY RIGHTS AND OTHER PRIVILEGES, AS WELL AS PAYMENT OF FULL
BACKWAGES FROM DATE OF DISMISSAL UP TO DATE OF ACTUAL REINSTATEMENT. 15

On June 15, 2001, the Court of Appeals rendered a Decision, affirming the resolution of the NLRC, the
dispositive portion of which reads: chanrob1es virtual 1aw library

WHEREFORE, finding no grave abuse of discretion on the part of the respondent commission, the petition is
hereby DISMISSED for lack of merit. The assailed May 31, 1999 Resolution of the National Labor Relations
Commission, Third Division is hereby AFFIRMED IN TOTO. 16

The petitioner filed a motion for reconsideration. On February 6, 2002, the CA issued a Resolution denying
the motion. 17

Dissatisfied, the petitioner filed its petition for review assailing the decision and resolution of the CA,
insisting that:
chanrob1es virtual 1aw library

PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO

LACK OF JURISDICTION WHEN IT ISSUED THE ORDERS DATED JUNE 15, 2001 AND FEBRUARY 6, 2002
AFFIRMING THE ORDER DATED MAY 31, 1999 OF THE THIRD DIVISION OF THE NATIONAL LABOR
RELATIONS COMMISSION, CONSIDERING THAT: chanrob1es virtual 1aw library

a. THE ORDER DATED MAY 31, 1999 OF THE NATIONAL LABOR RELATIONS COMMISSION IS NOT
SUPPORTED BY SUBSTANTIAL EVIDENCE;

b. THE PETITIONER DID NOT ADMIT IN ITS POSITION PAPER FILED BEFORE THE LABOR ARBITER THAT THE
PRIVATE RESPONDENTS WERE BEING PROMOTED. ON THE CONTRARY, IT HAS ALWAYS BEEN THE
CONTENTION OF THE PETITIONER THAT THE PRIVATE RESPONDENTS WERE SIMPLY ORDERED
TRANSFERRED TO OTHER WORK STATIONS WITHOUT DEMOTION IN RANK AND DIMINUTION IN SALARY;

c. THE PRIVATE RESPONDENTS WERE LEGALLY TERMINATED FOR JUST AND AUTHORIZED CAUSE FOR
WILFULL DISOBEDIENCE TO THE LAWFUL ORDERS OF THE PETITIONER (TRANSFER ORDER PURSUANT TO
ITS RELOCATION AND RESTRUCTURING PROGRAM), AFTER AFFORDING THEM DUE PROCESS OF LAW AND
THUS NOT ENTITLED TO REINSTATEMENT; AND

d. PETITIONER ACTED IN GOOD FAITH IN IMPLEMENTING ITS RELOCATION AND RESTRUCTURING

PROGRAM WHICH RESULTED IN THE TERMINATION OF THE PRIVATE RESPONDENTS, AND AS SUCH, THE
PRIVATE RESPONDENTS ARE NOT ENTITLED TO THE PAYMENT OF ANY BACKWAGES. 18

In their Comment, the private respondents argue that the petition should be dismissed for the following
reasons: (a) that a petition for review under Rule 45 is limited to questions of law; (b) the private
respondents were promoted and not only transferred as established by the evidence on record; and (c)
private respondents could not be penalized with dismissal for declining their promotions.

The petition is denied due course.

As has been enunciated in numerous cases, the issues that can be delved into in a petition for review under
Rule 45 are limited to questions of law. Thus, the Court is not tasked to calibrate and assess the probative
weight of evidence adduced by the parties during trial all over again. 19 The test of whether the question is
one of law or of fact is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of fact. 20

In the case at bar, the petitioner would want this Court to ascertain whether or not the findings of the NLRC,
as affirmed by the CA, are substantiated by the evidence on record; hence, requiring a review involving

20
questions of facts. For this reason alone, this case should be dismissed.

Even if the Court were to review the instant case on its merits, the dismissal of the petition is inevitable.

Section 3, Rule V of the NLRC provides that: chanrob1es virtual 1aw library

Section 3. Submission of Position Papers/Memorandum — Should the parties fail to agree upon an amicable
settlement, either in whole or in part, during the conferences, the Labor Arbiter shall issue an order stating
therein the matters taken up and agree upon during the conferences and directing the parties to
simultaneously file their respective verified position papers.

These verified position papers shall cover only those claims and causes of action raised in the complaint
excluding those that may have been amicably settled, and shall be accompanied by all supporting
documents including the affidavits of their respective witnesses which shall take the place of the latter’s
direct testimony. The parties shall thereafter not be allowed to allege facts, or present evidence to prove
facts, not referred to and any cause or causes of action not included in the complaint or position papers.
Without prejudice to the provisions of Section 2 of this Rule, the Labor Arbiter shall direct both parties to
submit simultaneously their position papers with supporting documents and affidavits within an inextendible
period of ten (10) days from notice of termination of the mandatory conciliation mediation conference.

In its position paper with the labor arbiter, the petitioner adverted that when the private respondents were
transferred, they were also promoted, thus: chanrob1es virtual 1aw library

Clearly, the transfer of the complainants is not unreasonable nor does it involve demotion in rank. They are
being moved to branches where the complainants will function with maximum benefit to the company and
they were in fact promoted not demoted from a lower job-grade to a higher job-grade and receive even
higher salaries than before. Thus, transfer of the complainants would not also result in diminution in pay
benefit and privilege since the salaries of the complainant would be receiving a bigger salary if not the same
salary plus additional special relocation package. Although the increase in the pay is not significant this
however would be translated into an increase rather than decrease in their salary because the complainants
who were transferred from the city to the province would greatly benefit because it is of judicial notice that
the cost of living in the province is much lower than in the city. This would mean a higher purchasing power
of the same salary previously being received by the complainants. 21

Indeed, the increase in the respondents’ responsibility can be ascertained from the scalar ascent of their job
grades. With or without a corresponding increase in salary, the respective transfers of the private
respondents were in fact promotions, following the ruling enunciated in Homeowners Savings and Loan
Association, Inc. v. NLRC: 22

. . . [P]romotion, as we defined in Millares v. Subido, is "the advancement from one position to another with
an increase in duties and responsibilities as authorized by law, and usually accompanied by an increase in
salary." Apparently, the indispensable element for there to be a promotion is that there must be an
"advancement from one position to another" or an upward vertical movement of the employee’s rank or
position. Any increase in salary should only be considered incidental but never determinative of whether or
not a promotion is bestowed upon an employee. This can be likened to the upgrading of salaries of
government employees without necessarily conferring upon them the concomitant elevation to higher
positions. . . . 23

The admissions of the petitioner are conclusive on it. An employee cannot be promoted, even if merely as a
result of a transfer, without his consent. A transfer that results in promotion or demotion, advancement or
reduction or a transfer that aims to ‘lure the employee away from his permanent position cannot be done
without the employees’ consent. 24

There is no law that compels an employee to accept a promotion for the reason that a promotion is in the
nature of a gift or reward, which a person has a right to refuse. 25 Hence, the exercise by the private
respondents of their right cannot be considered in law as insubordination, or willful disobedience of a lawful
order of the employer. As such, there was no valid cause for the private respondents’ dismissal.

As the questioned dismissal is not based on any of the just or valid grounds under Article 282 of the Labor
Code, the NLRC correctly ordered the private respondents’ reinstatement without loss of seniority rights and
the payment of backwages from the time of their dismissal up to their actual reinstatement.

IN LIGHT OF ALL THE FOREGOING, the Decision of the Court of Appeals dated June 15, 2001 is hereby
AFFIRMED. cralawlibrary : red

SO ORDERED.

Bellosillo, Quisumbing, Austria-Martinez and Tinga, JJ., concur.

Endnotes:

21
1. Penned by Associate Justice Perlita J. Tria Tirona with Associate Justices Eugenio S. Labitoria and Eloy R.
Bello, Jr., concurring.

2. Rollo, pp. 13–14.

3. Id. at 14.

4. Id. at 105.

5. Id. at 104.

6. Id. at 69–74.

7. Id. at 88–89.

8. Id. at 80–86.

9. Cristina Rodiel filed a complaint for illegal dismissal on October 21, 1997; Jesus Paracale, on October 20,
1997, Romeo Tee, on October 29, 1997. Benjamin Lakandula also filed a complaint for illegal dismissal.
Avelino Acha filed his complaint for illegal dismissal on November 18, 1997, while Guillermo Demigillo filed
his complaint on November 20, 1997. Ignacio Dela Cerna accepted the transfer order and was thus
reinstated (Rollo, p. 101).

10. Docketed as NLRC-NCR Case No. 00-11-08339-97.

11. Id. at 89–90.

12. Id. at 15.

13. Id. at 130.

14. Id. at 57.

15. Id. at 148–149.

16. Id. at 52.

17. Id. at 55.

18. Id. at 20.

19. Superlines Transportation Company, Inc. and Manolet Lavides v. ICC Leasing and Financing Corporation,
G.R. No. 150673, February 28, 2003.

20. Pilar Y. Goyena v. Amparo Ledesma-Gustilo, G.R. No. 147148, January 13, 2003.

21. Rollo, pp. 104–105.

22. 262 SCRA 406 (1996).

23. Id. at 416.

24. Editha H. Canonigo v. Court of Appeals, Et Al., G.R. No. 111144, July 18, 2002.

25. Ma. Erly P. Erasmo v. Home Insurance & Guaranty Corporation, G.R. No. 139251, August 29, 2002.

22
 FIRST DIVISION

ERNESTO G. YMBONG, G.R. No. 184885

Petitioner,
Present:

CORONA, C.J.,
Chairperson,
- versus - LEONARDO-DE CASTRO,
BERSAMIN,
VILLARAMA, JR., and
PERLAS-BERNABE,* JJ.

ABS-CBN BROADCASTING Promulgated:

CORPORATION, VENERANDA SY
AND DANTE LUZON, March 7, 2012
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
VILLARAMA, JR., J.:

Before us is a Rule 45 Petition seeking to set aside the August 22, 2007
Decision[1] and September 18, 2008 Resolution[2] of the Court of Appeals (CA) in
CA-G.R. SP No. 86206 declaring petitioner to have resigned from work and not
illegally dismissed.

The antecedent facts follow:

Petitioner Ernesto G. Ymbong started working for ABS-CBN Broadcasting

Corporation (ABS-CBN) in 1993 at its regional station in Cebu as a television
talent, co-anchoringHoy Gising and TV Patrol Cebu. His stint in ABS-CBN later
extended to radio when ABS-CBN Cebu launched its AM station DYAB in 1995
where he worked as drama and voice talent, spinner, scriptwriter and public affairs
program anchor.

Like Ymbong, Leandro Patalinghug also worked for ABS-CBN Cebu. Starting
1995, he worked as talent, director and scriptwriter for various radio programs
aired over DYAB.

23
On January 1, 1996, the ABS-CBN Head Office in Manila issued Policy No. HR-
ER-016 or the Policy on Employees Seeking Public Office. The pertinent portions
read:
1. Any employee who intends to run for any public office position, must file
his/her letter of resignation, at least thirty (30) days prior to the official
filing of the certificate of candidacy either for national or local election.

xxxx

3. Further, any employee who intends to join a political group/party or even

with no political affiliation but who intends to openly and aggressively
campaign for a candidate or group of candidates (e.g. publicly
speaking/endorsing candidate, recruiting campaign workers, etc.) must
file a request for leave of absence subject to managements approval.
For this particular reason, the employee should file the leave request at
least thirty (30) days prior to the start of the planned leave period.

x x x x[3] [Emphasis and underscoring supplied.]

Because of the impending May 1998 elections and based on his immediate
recollection of the policy at that time, Dante Luzon, Assistant Station Manager of
DYAB issued the following memorandum:
TO : ALL CONCERNED
FROM : DANTE LUZON
DATE : MARCH 25, 1998
SUBJECT : AS STATED

Please be informed that per company policy, any employee/talent who wants to
run for any position in the coming election will have to file a leave of
absence the moment he/she files his/her certificate of candidacy.

The services rendered by the concerned employee/talent to this company will then
be temporarily suspended for the entire campaign/election period.

For strict compliance.[4] [Emphasis and underscoring supplied.]

Luzon, however, admitted that upon double-checking of the exact text of the policy
and subsequent confirmation with the ABS-CBN Head Office, he saw that the
policy actually required suspension for those who intend to campaign for a
political party or candidate and resignation for those who will actually run in the
elections.[5]

After the issuance of the March 25, 1998 Memorandum, Ymbong got in touch
with Luzon. Luzon claims that Ymbong approached him and told him that he
would leave radio for a couple of months because he will campaign for the
administration ticket. It was only after the elections that they found out that
Ymbong actually ran for public office himself at the eleventh hour. Ymbong, on

24
the other hand, claims that in accordance with the March 25, 1998 Memorandum,
he informed Luzon through a letter that he would take a few months leave of
absence from March 8, 1998 to May 18, 1998 since he was running for councilor
of Lapu-Lapu City.

As regards Patalinghug, Patalinghug approached Luzon and advised him that he

will run as councilor for Naga, Cebu. According to Luzon, he clarified to
Patalinghug that he will be considered resigned and not just on leave once he files
a certificate of candidacy. Thus, Patalinghug wrote Luzon the following letter
on April 13, 1998:
Dear Mr. Luzon,

Im submitting to you my letter of resignation as your Drama Production Chief and

Talent due to your companys policy that every person connected to ABS-CBN
that should seek an elected position in the government will be forced to resigned
(sic) from his position. So herewith Im submitting my resignation with a hard
heart. But Im still hoping to be connected again with your prestigious company
after the election[s] should you feel that Im still an asset to your drama production
department. Im looking forward to that day and Im very happy and proud that I
have served for two and a half years the most stable and the most prestigious
Radio and TV Network in the Philippines.

As a friend[,] wish me luck and Pray for me. Thank you.

Very Truly Yours,

(Sgd.)
Leandro Boy Patalinghug[6]

Unfortunately, both Ymbong and Patalinghug lost in the May 1998 elections.

Later, Ymbong and Patalinghug both tried to come back to ABS-CBN Cebu.
According to Luzon, he informed them that they cannot work there anymore
because of company policy. This was stressed even in subsequent meetings and
they were told that the company was not allowing any exceptions. ABS-CBN,
however, agreed out of pure liberality to give them a chance to wind up their
participation in the radio drama, Nagbabagang Langit, since it was rating well and
to avoid an abrupt ending. The agreed winding-up, however, dragged on for so
long prompting Luzon to issue to Ymbong the following memorandum
dated September 14, 1998:
TO : NESTOR YMBONG
FROM : DANTE LUZON
SUBJECT : AS STATED
DATE : 14 SEPT. 1998

25
 Please be reminded that your services as drama talent had already been
automatically terminated when you ran for a local government position last
election.

The Management however gave you more than enough time to end your drama
participation and other involvement with the drama department.

It has been decided therefore that all your drama participation shall be terminated
effective immediately. However, your involvement as drama spinner/narrator of
the drama NAGBA[BA]GANG LANGIT continues until its writer/director Mr.
Leandro Patalinghug wraps it up one week upon receipt of a separate memo
issued to him.[7]

Ymbong in contrast contended that after the expiration of his leave of absence, he
reported back to work as a regular talent and in fact continued to receive his
salary. On September 14, 1998, he received a memorandum stating that his
services are being terminated immediately, much to his surprise. Thus, he filed an
illegal dismissal complaint[8]against ABS-CBN, Luzon and DYAB Station Manager
Veneranda Sy. He argued that the ground cited by ABS-CBN for his dismissal was
not among those enumerated in the Labor Code, as amended. And even granting
without admitting the existence of the company policy supposed to have been
violated, Ymbong averred that it was necessary that the company policy meet
certain requirements before willful disobedience of the policy may constitute a just
cause for termination. Ymbong further argued that the company policy violates his
constitutional right to suffrage.[9]

Patalinghug likewise filed an illegal dismissal complaint[10] against ABS-CBN.

ABS-CBN prayed for the dismissal of the complaints arguing that there is no
employer-employee relationship between the company and Ymbong and
Patalinghug. ABS-CBN contended that they are not employees but talents as
evidenced by their talent contracts. However, notwithstanding their status, ABS-
CBN has a standing policy on persons connected with the company whenever they
will run for public office.[11]

On July 14, 1999, the Labor Arbiter rendered a decision [12] finding the dismissal of
Ymbong and Patalinghug illegal, thus:
WHEREFORE, in the light of the foregoing, judgment is rendered finding the
dismissal of the two complainants illegal. An order is issued directing respondent
ABS[-]CBN to immediately reinstate complainants to their former positions
without loss of seniority rights plus the payment of backwages in the amount of
P200,000.00 to each complainant.

All other claims are dismissed.

SO ORDERED.[13]

26
The Labor Arbiter found that there exists an employer-employee relationship
between ABS-CBN and Ymbong and Patalinghug considering the stipulations in
their appointment letters/talent contracts. The Labor Arbiter noted particularly that
the appointment letters/talent contracts imposed conditions in the performance of
their work, specifically on attendance and punctuality, which effectively placed
them under the control of ABS-CBN. The Labor Arbiter likewise ruled that
although the subject company policy is reasonable and not contrary to law, the
same was not made known to Ymbong and Patalinghug and in fact was superseded
by another one embodied in the March 25, 1998 Memorandum issued by
Luzon. Thus, there is no valid or authorized cause in terminating Ymbong and
Patalinghug from their employment.

In its memorandum of appeal[14] before the National Labor Relations Commission

(NLRC), ABS-CBN contended that the Labor Arbiter has no jurisdiction over the
case because there is no employer-employee relationship between the company
and Ymbong and Patalinghug, and that Sy and Luzon mistakenly assumed that
Ymbong and Patalinghug could just file a leave of absence since they are only
talents and not employees. In its Supplemental Appeal,[15] ABS-CBN insisted that
Ymbong and Patalinghug were engaged as radio talents for DYAB dramas and
personality programs and their contract is one between a self-employed contractor
and the hiring party which is a standard practice in the broadcasting industry. It
also argued that the Labor Arbiter should not have made much of the provisions on
Ymbongs attendance and punctuality since such requirement is a dictate of the
programming of the station, the slating of shows at regular time slots, and
availability of recording studios not an attempt to exercise control over the manner
of his performance of the contracted anchor work within his scheduled spot on
air. As for the pronouncement that the company policy has already been
superseded by the March 25, 1998 Memorandum issued by Luzon, the latter
already clarified that it was the very policy he sought to enforce. This matter was
relayed by Luzon to Patalinghug when the latter disclosed his plans to join the
1998 elections while Ymbong only informed the company that he was
campaigning for the administration ticket and the company had no inkling that he
will actually run until the issue was already moot and academic. ABS-CBN further
contended that Ymbong and Patalinghugs reinstatement is legally and physically
impossible as the talent positions they vacated no longer exist. Neither is there
basis for the award of back wages since they were not earning a monthly salary but
paid talent fees on a per production/per script basis. Attached to the Supplemental
Appeal is a Sworn Statement[16] of Luzon.

On March 8, 2004, the NLRC rendered a decision [17] modifying the labor arbiters
decision. The fallo of the NLRC decision reads:

27
 WHEREFORE, premises considered, the decision of Labor Arbiter
Nicasio C. Aninon dated 14 July 1999 is MODIFIED, to wit:

Ordering respondent ABS-CBN to reinstate complainant Ernesto G.

Ymbong and to pay his full backwages computed from 15 September 1998 up to
the time of his actual reinstatement.

SO ORDERED.[18]

The NLRC dismissed ABS-CBNs Supplemental Appeal for being filed out
of time. The NLRC ruled that to entertain the same would be to allow the parties to
submit their appeal on piecemeal basis, which is contrary to the agencys duty to
facilitate speedy disposition of cases. The NLRC also held that ABS-CBN wielded
the power of control over Ymbong and Patalinghug, thereby proving the existence
of an employer-employee relationship between them.

As to the issue of whether they were illegally dismissed, the NLRC treated
their cases differently. In the case of Patalinghug, it found that he voluntarily
resigned from employment on April 21, 1998 when he submitted his resignation
letter. The NLRC noted that although the tenor of the resignation letter is
somewhat involuntary, he knew that it is the policy of the company that every
person connected therewith should resign from his employment if he seeks an
elected position in the government. As to Ymbong, however, the NLRC ruled
otherwise. It ruled that the March 25, 1998 Memorandum merely states that an
employee who seeks any elected position in the government will only merit the
temporary suspension of his services. It held that under the principle of social
justice, the March 25, 1998 Memorandum shall prevail and ABS-CBN is estopped
from enforcing the September 14, 1998 memorandum issued to Ymbong stating
that his services had been automatically terminated when he ran for an elective
position.

ABS-CBN moved to reconsider the NLRC decision, but the same was denied in a
Resolution dated June 21, 2004.[19]

Imputing grave abuse of discretion on the NLRC, ABS-CBN filed a petition for
certiorari[20] before the CA alleging that:
I.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION
AND SERIOUSLY MISAPPRECIATED THE FACTS IN NOT HOLDING
THAT RESPONDENT YMBONG IS A FREELANCE RADIO TALENT AND
MEDIA PRACTITIONERNOT A REGULAR EMPLOYEE OF PETITIONERTO
WHOM CERTAIN PRODUCTION WORK HAD BEEN OUTSOURCED BY
ABS-CBN CEBU UNDER AN INDEPENDENT CONTRACTORSHIP
SITUATION, THUS RENDERING THE LABOR COURTS WITHOUT
JURISDICTION OVER THE CASE IN THE ABSENCE OF EMPLOYMENT
RELATIONS BETWEEN THE PARTIES.

28
 II.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN
DECLARING RESPONDENT YMBONG TO BE A REGULAR EMPLOYEE
OF PETITIONER AS TO CREATE A CONTRACTUAL EMPLOYMENT
RELATION BETWEEN THEM WHEN NONE EXISTS OR HAD BEEN
AGREED UPON OR OTHERWISE INTENDED BY THE PARTIES.

III.
EVEN ASSUMING THE ALLEGED EMPLOYMENT RELATION TO EXIST
FOR THE SAKE OF ARGUMENT, RESPONDENT NLRC IN ANY CASE
COMMITTED A GRAVE ABUSE OF DISCRETION IN NOT SIMILARLY
UPHOLDING AND APPLYING COMPANY POLICY NO. HR-ER-016 IN THE
CASE OF RESPONDENT YMBONG AND DEEMING HIM AS RESIGNED
AND DISQUALIFIED FROM FURTHER ENGAGEMENT AS A RADIO
TALENT IN ABS-CBN CEBU AS A CONSEQUENCE OF HIS CANDIDACY
IN THE 1998 ELECTIONS, AS RESPONDENT NLRC HAD DONE IN THE
CASE OF PATALINGHUG.

IV.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION
AND DENIED DUE PROCESS TO PETITIONER IN REFUSING TO
CONSIDER ITS SUPPLEMENTAL APPEAL, DATED OCTOBER 18, 1999,
FOR BEING FILED OUT OF TIME CONSIDERING THAT THE FILING OF
SUCH A PLEADING IS NOT IN ANY CASE PROSCRIBED AND
RESPONDENT NLRC IS AUTHORIZED TO CONSIDER ADDITIONAL
EVIDENCE ON APPEAL; MOREOVER, TECHNICAL RULES OF
EVIDENCE DO NOT APPLY IN LABOR CASES.

V.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN
GRANTING THE RELIEF OF REINSTATEMENT AND BACKWAGES TO
RESPONDENT YMBONG SINCE HE NEVER OCCUPIED ANY REGULAR
POSITION IN PETITIONER FROM WHICH HE COULD HAVE BEEN
ILLEGALLY DISMISSED, NOR ARE ANY OF THE RADIO PRODUCTIONS
IN WHICH HE HAD DONE TALENT WORK FOR PETITIONER STILL
EXISTING. INDEED, THERE IS NO BASIS WHATSOEVER FOR THE
AWARD OF BACKWAGES TO RESPONDENT YMBONG IN THE AMOUNT
OF P200,000.00 CONSIDERING THAT, AS SHOWN BY THE
UNCONTROVERTED EVIDENCE, HE WAS NOT EARNING A MONTHLY
SALARY OF P20,000.00, AS HE FALSELY CLAIMS, BUT WAS PAID
TALENT FEES ON A PER PRODUCTION/PER SCRIPT BASIS WHICH
AVERAGED LESS THAN P10,000.00 PER MONTH IN TALENT FEES ALL
IN ALL.[21]

On August 22, 2007, the CA rendered the assailed decision reversing and setting
aside the March 8, 2004 Decision and June 21, 2004 Resolution of the NLRC. The
CA declared Ymbong resigned from employment and not to have been illegally
dismissed. The award of full back wages in his favor was deleted accordingly.

The CA ruled that ABS-CBN is estopped from claiming that Ymbong was not its
employee after applying the provisions of Policy No. HR-ER-016 to him. It noted
that said policy is entitled Policy on Employees Seeking Public Office and the

29
guidelines contained therein specifically pertain to employees and did not even
mention talents or independent contractors. It held that it is a complete turnaround
on ABS-CBNs part to later argue that Ymbong is only a radio talent or independent
contractor and not its employee. By applying the subject company policy on
Ymbong, ABS-CBN had explicitly recognized him to be an employee and not
merely an independent contractor.

The CA likewise held that the subject company policy is the controlling guideline
and therefore, Ymbong should be considered resigned from ABS-
CBN. While Luzon has policy-making power as assistant radio manager, he had no
authority to issue a memorandum that had the effect of repealing or superseding a
subsisting policy. Contrary to the findings of the Labor Arbiter, the subject
company policy was effective at that time and continues to be valid and subsisting
up to the present. The CA cited Patalinghugs resignation letter to buttress this
conclusion, noting that Patalinghug openly admitted in his letter that his
resignation was in line with the said company policy. Since ABS-CBN applied
Policy No. HR-ER-016 to Patalinghug, there is no reason not to apply the same
regulation to Ymbong who was on a similar situation as the former. Thus, the CA
found that the NLRC overstepped its area of discretion to a point of grave abuse in
declaring Ymbong to have been illegally terminated. The CA concluded that there
is no illegal dismissal to speak of in the instant case as Ymbong is considered
resigned when he ran for an elective post pursuant to the subject company policy.

Hence, this petition.

Petitioner argues that the CA gravely erred: (1) in upholding Policy No. HR-ER-
016; (2) in upholding the validity of the termination of Ymbongs services; and (3)
when it reversed the decision of the NLRC 4 th Division of Cebu City which
affirmed the decision of Labor Arbiter Nicasio C. Anion.[22]

Ymbong argues that the subject company policy is a clear interference and a gross
violation of an employees right to suffrage. He is surprised why it was easy for the
CA to rule that Luzons memorandum ran counter to an existing policy while on the
other end, it did not see that it was in conflict with the constitutional right to
suffrage. He also points out that the issuance of the March 25, 1998 Memorandum
was precisely an exercise of the management power to which an employee like him
must respect; otherwise, he will be sanctioned for disobedience or worse, even
terminated. He was not in a position to know which between the two issuances was
correct and as far as he is concerned, the March 25, 1998 Memorandum superseded
the subject company policy. Moreover, ABS-CBN cannot disown acts of its
officers most especially since it prejudiced his property rights.[23]

30
As to the validity of his dismissal, Ymbong contends that the ground relied upon
by ABS-CBN is not among the just and authorized causes provided in the Labor
Code, as amended. And even assuming the subject company policy passes the test
of validity under the pretext of the right of the management to discipline and
terminate its employees, the exercise of such right is not without bounds. Ymbong
avers that his automatic termination was a blatant disregard of his right to due
process. He was never asked to explain why he did not tender his resignation
before he ran for public office as mandated by the subject company policy.[24]

Ymbong likewise asseverates that both the Labor Arbiter and the NLRC were
consistent in their findings that he was illegally dismissed. It is settled that factual
findings of labor administrative officials, if supported by substantial evidence, are
accorded not only great respect but even finality.[25]

ABS-CBN, for its part, counters that the validity of policies such as Policy No.
HR-ER-016 has long been upheld by this Court which has ruled that a media
company has a right to impose a policy providing that employees who file their
certificates of candidacy in any election shall be considered resigned. [26] Moreover,
case law has upheld the validity of the exercise of management prerogatives even
if they appear to limit the rights of employees as long as there is no showing that
management prerogatives were exercised in a manner contrary to law. [27] ABS-
CBN contends that being the largest media and entertainment company in the
country, its reputation stems not only from its ability to deliver quality
entertainment programs but also because of neutrality and impartiality in
delivering news.[28]

ABS-CBN further argues that nothing in the company policy prohibits its
employees from either accepting a public appointive position or from running for
public office. Thus, it cannot be considered as violative of the constitutional right
of suffrage. Moreover, the Supreme Court has recognized the employers right to
enforce occupational qualifications as long as the employer is able to show the
existence of a reasonable business necessity in imposing the questioned
policy. Here, Policy No. HR-ER-016 itself states that it was issued to protect the
company from any public misconceptions and [t]o preserve its objectivity,
neutrality and credibility. Thus, it cannot be denied that it is reasonable under the
circumstances.[29]

ABS-CBN likewise opposes Ymbongs claim that he was terminated. ABS-CBN

argues that on the contrary, Ymbongs unilateral act of filing his certificate of
candidacy is an overt act tantamount to voluntary resignation on his part by virtue
of the clear mandate found in Policy No. HR-ER-016. Ymbong, however, failed to
file his resignation and in fact misled his superiors by making them believe that he

31
was going on leave to campaign for the administration candidates but in fact, he
actually ran for councilor. He also claims to have fully apprised Luzon through a
letter of his intention to run for public office, but he failed to adduce a copy of the
same.[30]

As to Ymbongs argument that the CA should not have reversed the findings of the
Labor Arbiter and the NLRC, ABS-CBN asseverates that the CA is not precluded
from making its own findings most especially if upon its own review of the case, it
has been revealed that the NLRC, in affirming the findings of the Labor Arbiter,
committed grave abuse of discretion amounting to lack or excess of jurisdiction
when it failed to apply the subject company policy in Ymbongs case when it
readily applied the same to Patalinghug.[31]

Essentially, the issues to be resolved in the instant petition are: (1) whether Policy
No. HR-ER-016 is valid; (2) whether the March 25, 1998 Memorandum issued
by Luzonsuperseded Policy No. HR-ER-016; and (3) whether Ymbong, by seeking
an elective post, is deemed to have resigned and not dismissed by ABS-CBN.

Policy No. HR-ER-016 is valid.

This is not the first time that this Court has dealt with a policy similar to Policy No.
HR-ER-016. In the case of Manila Broadcasting Company v. NLRC,[32] this Court
ruled:
What is involved in this case is an unwritten company policy considering
any employee who files a certificate of candidacy for any elective or local office
as resigned from the company. Although 11(b) of R.A. No. 6646 does not require
mass media commentators and announcers such as private respondent to resign
from their radio or TV stations but only to go on leave for the duration of the
campaign period, we think that the company may nevertheless validly require
them to resign as a matter of policy. In this case, the policy is justified on the
following grounds:
Working for the government and the company at the same time is
clearly disadvantageous and prejudicial to the rights and interest
not only of the company but the public as well. In the event an
employee wins in an election, he cannot fully serve, as he is
expected to do, the interest of his employer. The employee has to
serve two (2) employers, obviously detrimental to the interest of
both the government and the private employer.
In the event the employee loses in the election, the
impartiality and cold neutrality of an employee as broadcast
personality is suspect, thus readily eroding and adversely affecting
the confidence and trust of the listening public to employers
station.[33]

32
ABS-CBN, like Manila Broadcasting Company, also had a valid justification for
Policy No. HR-ER-016. Its rationale is embodied in the policy itself, to wit:

Rationale:
ABS-CBN BROADCASTING CORPORATION strongly believes that it is to
the best interest of the company to continuously remain apolitical. While it
encourages and supports its employees to have greater political awareness
and for them to exercise their right to suffrage, the company, however,
prefers to remain politically independent and unattached to any political
individual or entity.

Therefore, employees who [intend] to run for public office or accept political
appointment should resign from their positions, in order to protect the
company from any public misconceptions. To preserve its objectivity,
neutrality and credibility, the company reiterates the following policy guidelines
for strict implementation.

x x x x[34] [Emphasis supplied.]

We have consistently held that so long as a companys management

prerogatives are exercised in good faith for the advancement of the employers
interest and not for the purpose of defeating or circumventing the rights of the
employees under special laws or under valid agreements, this Court will uphold
them.[35] In the instant case, ABS-CBN validly justified the implementation of
Policy No. HR-ER-016. It is well within its rights to ensure that it maintains its
objectivity and credibility and freeing itself from any appearance of impartiality so
that the confidence of the viewing and listening public in it will not be in any way
eroded. Even as the law is solicitous of the welfare of the employees, it must also
protect the right of an employer to exercise what are clearly management
prerogatives. The free will of management to conduct its own business affairs to
achieve its purpose cannot be denied.[36]

It is worth noting that such exercise of management prerogative has earned a stamp
of approval from no less than our Congress itself when on February 12, 2001, it
enacted Republic Act No. 9006, otherwise known as the Fair Election Act. Section
6.6 thereof reads:
6.6. Any mass media columnist, commentator, announcer, reporter, on-air
correspondent or personality who is a candidate for any elective public office
or is a campaign volunteer for or employed or retained in any capacity by
any candidate or political party shall be deemed resigned, if so required by
their employer, or shall take a leave of absence from his/her work as such during
the campaign period: Provided, That any media practitioner who is an official of a
political party or a member of the campaign staff of a candidate or political party
shall not use his/her time or space to favor any candidate or political
party. [Emphasis and underscoring supplied.]

33
Policy No. HR-ER-016 was not
superseded by the March 25, 1998
Memorandum

The CA correctly ruled that though Luzon, as Assistant Station Manager for Radio
of ABS-CBN, has policy-making powers in relation to his principal task of
administering the networks radio station in the Cebu region, the exercise of such
power should be in accord with the general rules and regulations imposed by the
ABS-CBN Head Office to its employees. Clearly, the March 25,
1998 Memorandum issued by Luzon which only requires employees to go on leave
if they intend to run for any elective position is in absolute contradiction with
Policy No. HR-ER-016 issued by the ABS-CBN Head Office in Manila which
requires the resignation, not only the filing of a leave of absence, of any employee
who intends to run for public office. Having been issued beyond the scope of his
authority, the March 25, 1998 Memorandum is therefore void and did not
supersede Policy No. HR-ER-016.

Also worth noting is that Luzon in his Sworn Statement admitted the
inaccuracy of his recollection of the company policy when he issued the March 25,
1998 Memorandum and stated therein that upon double-checking of the exact text
of the policy statement and subsequent confirmation with the ABS-CBN Head
Office in Manila, he learned that the policy required resignation for those who will
actually run in elections because the company wanted to maintain its
independence. Since the officer who himself issued the subject memorandum
acknowledged that it is not in harmony with the Policy issued by the upper
management, there is no reason for it to be a source of right for Ymbong.

Ymbong is deemed resigned when he

ran for councilor.

As Policy No. HR-ER-016 is the subsisting company policy and not Luzons March
25, 1998 Memorandum, Ymbong is deemed resigned when he ran for councilor.

We find no merit in Ymbongs argument that [his] automatic termination x x x was

a blatant [disregard] of [his] right to due process as he was never asked to explain
why he did not tender his resignation before he ran for public office as mandated
by [the subject company policy].[37] Ymbongs overt act of running for councilor
of Lapu-Lapu City is tantamount to resignation on his part. He was separated from
ABS-CBN not because he was dismissed but because he resigned. Since there was
no termination to speak of, the requirement of due process in dismissal cases
cannot be applied to Ymbong. Thus, ABS-CBN is not duty-bound to ask him to

34
explain why he did not tender his resignation before he ran for public office as
mandated by the subject company policy.

In addition, we do not subscribe to Ymbongs claim that he was not in a position to

know which of the two issuances was correct. Ymbong most likely than not, is
fully aware that the subsisting policy is Policy No. HR-ER-016 and not the March
25, 1998 Memorandum and it was for this reason that, as stated by Luzon in his
Sworn Statement, he only told the latter that he will only campaign for the
administration ticket and not actually run for an elective post. Ymbong claims he
had fully apprised Luzon by letter of his plan to run and even filed a leave of
absence but records are bereft of any proof of said claim. Ymbong claims that the
letter stating his intention to go on leave to run in the election is attached to his
Position Paper as Annex A, a perusal of said pleading attached to his petition
before this Court, however, show that Annex A was not his letter to Luzon but the
September 14, 1998 Memorandum informing Ymbong that his services had been
automatically terminated when he ran for a local government position.

Moreover, as pointed out by ABS-CBN, had Ymbong been truthful to his

superiors, they would have been able to clarify to him the prevailing company
policy and inform him of the consequences of his decision in case he decides to
run, as Luzon did in Patalinghugs case.

WHEREFORE, the petition for review on certiorari is DENIED for lack of

merit.

With costs against petitioner.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO LUCAS P. BERSAMIN

Associate Justice Associate Justice

35
 ESTELA M. PERLAS-BERNABE
Associate Justice

C E RT I FI CAT I O N

Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

*
Designated additional member per Special Order No. 1207 dated February 23, 2012.
[1]
Rollo, pp. 150-161. Penned by Associate Justice Agustin S. Dizon with Associate Justices Francisco P. Acosta and
Stephen C. Cruz concurring.
[2]
Id. at 169-170. Penned by Associate Justice Francisco P. Acosta with Associate Justices Priscilla Baltazar-Padilla
and Stephen C. Cruz concurring.
[3]
Id. at 54.
[4]
CA rollo, p. 168.
[5]
Id. at 157.
[6]
Id. at 171.
[7]
Id. at 172.
[8]
Id. at 65.
[9]
Id. at 67-70.
[10]
Id. at 64.
[11]
Id. at 76.
[12]
Id. at 86-93.
[13]
Id. at 92-93.
[14]
Rollo, pp. 268-272.
[15]
CA rollo, pp. 101-146.
[16]
Id. at 147-161.
[17]
Rollo, pp. 74-82.
[18]
Id. at 82.
[19]
CA rollo, pp. 61-62.
[20]
Id. at 2-48.
[21]
Id. at 13-14.
[22]
Rollo, p. 19.
[23]
Id. at 21-23.
[24]
Id. at 27-32.
[25]
Id. at 33.
[26]
Id. at 212-213.
[27]
Id. at 213.
[28]
Id. at 217.
[29]
Id. at 217-218.

36
[30]
Id. at 219-220.
[31]
Id. at 231.
[32]
G.R. No. 121975, August 20, 1998, 294 SCRA 486.
[33]
Id. at 490-491.
[34]
Rollo, p. 54.
[35]
San Miguel Brewery Sales Force Union (PTGWO) v. Ople, G.R. No. 53515, February 8, 1989, 170 SCRA 25, 28,
citing LVN Pictures Employees and Workers Asso. v. LVN Pictures, Inc., Nos. L-23495 & L-26432, September
30, 1970, 35 SCRA 147; Phil. American Embroideries, Inc. v. Embroidery and Garment Workers Union, No. L-
20143, January 27, 1969, 26 SCRA 634; and Phil. Refining Co., Inc. v. Garcia, Nos. L-21871 & L-
21962, September 27, 1966, 18 SCRA 107.
[36]
Abbot Laboratories (Phils.) Inc. v. NLRC, No. L-76959, October 12, 1987, 154 SCRA 713, 717, citing Dangan v.
National Labor Relations Commission, Nos. 63127-28, February 20, 1984, 127 SCRA 706.
[37]
Rollo, pp. 31-32.

37
 THIRD DIVISION

G.R. No. 174912, July 24, 2013

BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITY-FUBU), Petitioner, v. 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 Bank 5 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.

A service agreement between BPI and BOMC was initially implemented in BPI’s 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.

The Manila chapter of BPI Employees Union (BPIEU-Metro Manila-FUBU) 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 Manila-FUBU filed a petition for certiorari before the
CA which denied it, holding that BPI transferred the employees in the affected departments in the 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, BPI’s cashiering function and FEBTC’s cashiering, distribution and
bookkeeping functions were handled by BOMC. Consequently, twelve (12) former FEBTC employees were
transferred to BOMC to complete the latter’s service complement.

BPI Davao’s 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

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
unit’s 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

38
the union.

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: cralavvonlinelawlibrary

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:cralavvonlinelawlibrary

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 latter’s equipment and facilities.

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

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 self-organization. 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 NLRC’s 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 BPI’s 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 employees 17 as the Union’s right to
represent said employees did not arise until it was chosen by them. 18

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.

Not satisfied, the Union filed a motion for reconsideration which was, however, denied by the CA.

39
Hence, the present petition with the following

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 BPI’S 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 Union’s membership. For
the Union, BPI’s 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.

Position of BPI-Davao

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
within management prerogatives intended to streamline the operations and provide focus for BPI’s 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 company’s 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
Union’s 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 Union’s 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.

The Court’s Ruling

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 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,

40
Ltd.24

The Union’s 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: cralavvonlinelawlibrary

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.

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 bank’s 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

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

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: cralavvonlinelawlibrary

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 BOMC’s service complement, was motivated by ill will, anti-unionism
or bad faith so as to affect or interfere with the employees’ right to self-organization.

It is to be emphasized that contracting out of services is not illegal per se. 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.

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.

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

41
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.

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. 138838 enumerated 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 BPI’s actual and intended contracting out to BOMC as follows: cralavvonlinelawlibrary

“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

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

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:
cralavvonlinelawlibrary

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.45

WHEREFORE, the petition is DENIED.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Abad, and Leonen, JJ., concur.

July 29, 2013

N O T I C E OF J U D G M E N T

Sirs/Mesdames: cralavvonlinelawlibrary

Please take notice that on July 24, 2013 a Decision, copy attached herewith, was rendered by the Supreme

42
Court in the above-entitled case, the original of which was received by this Office on July 29, 2013 at 1:45
p.m.

Very truly yours,

(SGD)
LUCITA ABJELINA SORIANO
Division Clerk of Court

Endnotes:

1
Penned by Associate Justice Rodrigo F. Lim, Jr., with Associate Justices Teresita Dy-Liacco Flores and
Ramon R. Garcia, concurring; rollo, pp. 84-103. cralawlibrary

2
Id. at 105-107. cralawlibrary

3
Id. at 53-79. cralawlibrary

4
Id. at 81-82. cralawlibrary

5
Now Bangko Sentral ng Pilipinas (BSP). cralawlibrary

Rollo, p. 181.
6
cralawlibrary

7
Id. at 87-88. cralawlibrary

8
Id. at 88. cralawlibrary

9
Id. at 90. cralawlibrary

10
Id. at 91. cralawlibrary

11
Id. at 93. cralawlibrary

12
Id. at 92. cralawlibrary

13
Id. at 93. cralawlibrary

14
Id. at 96. cralawlibrary

15
Id. at 97. cralawlibrary

16
Id. at 98. cralawlibrary

17
Id. at 99. cralawlibrary

18
Id. cralawlibrary

19
351 Phil. 1013 (1998). cralawlibrary

20
148-A Phil. 229 (1971). cralawlibrary

21
Section 1, Article IV. Exclusive Rights and Prerogatives – The UNION all all its members hereby recognize
that the management and operation of the business of the BANK which include, among others, the hiring of
employees, promotion, transfers, and dismissal for just cause as well as the maintenance of order, discipline
and efficiency in its operation are the sole and exclusive prerogative of the BANK.. cralawlibrary

22
Supra note 20. cralawlibrary

23
Cecille de Ocampo v. NLRC, G.R. No. 101539, September 4, 1992, 213 SCRA 652; Asian Alcohol
Corporation v. NLRC, 364 Phil. 912 (1999). G.R. No. 131108, March 25, 1999, Manila Electric Company v.
Quisumbing, 383 Phil. 47 (2000). cralawlibrary

24
Supra note 20. cralawlibrary

25
Bustamante v. NLRC, 332 Phil. 833, 839 (1996). cralawlibrary

26
Rollo, p. 57. cralawlibrary

27
Id. at 125. cralawlibrary

28
Id. at 37. cralawlibrary

43
29
Id. at 72-73. cralawlibrary

30
Id. at 125-126. cralawlibrary

31
Id. cralawlibrary

32
Manila Electric Company v. Secretary Quisumbing, 383 Phil. 47, 60 (2000). cralawlibrary

33
CBP CIRCULAR NO. 1388

Series of 1993

The Monetary Board, in its Resolution No. 231 dated March 19, 1993, approved the following amendments
to Book I of the Manual of Regulations for Banks and Other Financial Intermediaries: cralavvonlinelawlibrary

SECTION 1. The following new section is hereby added after Section 1176 of the Manual: cralavvonlinelawlibrary

SECTION 1177. Bank Service Contract. — A bank with expanded commercial banking authority or a
commercial bank may engage a bank service bureau or corporation to perform the following services: cralavvonlinelawlibrary

(a) data processing systems development and maintenance; chanroblesvirtualawlibrary

(b) deposit and withdrawal recording; chanroblesvirtualawlibrary

(c) computation and recording of interests, service charges, penalties, and other fees; chanroblesvirtualawlibrary

(d) check-clearing processing, such as the transmission and receipt of check-clearing items/tapes to and
from the Central Bank (CB), collection and delivery of checks not included in the Philippine Clearing House
System, as well as the recording of the same; chanroblesvirtualawlibrary

(e) printing and delivery of bank statements; and

(f) providing general support services, such as purchasing of bank forms, equipment and supplies;
messengerial, janitorial and services; necessary budget and expense accounting, and other similar services.

Banks may enter into contracts covering above-mentioned services, provided that: cralavvonlinelawlibrary

1. The performance by the Service Bureau of aforesaid bank services pertinent to deposit operations will not
in any way violate laws on secrecy of bank deposits; chanroblesvirtualawlibrary

2. There will be no diminution of Central Bank's supervisory and examining authority over banks, nor in any
manner impede CB's exercise thereof; chanroblesvirtualawlibrary

3. The administrative powers of CB over the bank, its directors and officers shall not be impaired by such
transfer of activities; chanroblesvirtualawlibrary

4. The bank remains responsible for the performance of subject activities in the same manner and to the
same extent as it was before the transfer of said services to the Bureau; chanroblesvirtualawlibrary

5. The Service Bureau shall be owned exclusively by banks and shall render services to banks; and

6. The bank shall continue to comply with all laws and regulations, covering the activities performed by the
Service Bureau for and in its behalf such as, but may not be limited to, keeping of records and preparation
of reports, signing authorities, internal control, and clearing regulations."

SECTION 2. Section 1379(a) is hereby amended by adding a paragraph after item (10), as follows: cralavvonlinelawlibrary

"(11) Bank service corporations all of the capital of which is owned by one or more banks and organized to
perform for and in behalf of banks the services enumerated in Section 1177."

This Circular shall take effect immediately.

JOSE L. CUISIA, JR.

Governor

34
Rollo, pp. 100-101. cralawlibrary

35
Dreamwork Construction, Inc. v. Janiola, G.R. No. 184861, June 30, 2009, 591 SCRA 466, 474; CSC v. CA,
G.R. No. 176162, October 9, 2012, sc.judiciary.gov.ph/jurisprudence/2012/october2012/176162.pdf, (last
visited June 17, 2013). cralawlibrary

36
Remo v. The Honorable Secretary of Foregin Affairs, G.R. No. 169202, March 5, 2010, 614 SCRA 281,
290. cralawlibrary

37
Dreamwork Construction, Inc. v. Janiola, supra note 35 at 475. cralawlibrary

38
See Note 33. cralawlibrary

44
39
Rollo, p. 181-182. cralawlibrary

40
Rollo, p. 219. cralawlibrary

41
Rollo, p. 201. cralawlibrary

42
Sec. 3.1., Chapter I, R.A. No. 8191, The General Banking Law of 2000; First Planters Pawnshop, Inc. v.
CIR, G.R. No. 174134, July 30, 2008, 560 SCRA 606, 619; Galvez v. CA, G.R. No. 187919, April 25, 2012,
671 SCRA 223, 238. cralawlibrary

43
§X162.1 (2008 – X169.1), Manual of Regulations for Banks. cralawlibrary

44
Alviado v. Procter & Gamble Phils., Inc., G.R. No. 160506, March 9, 2010, 614 SCRA 563, 577. cralawlibrary

45
Id.; Art. 106, Labor Code of the Philippines.

45
 SECOND DIVISION

[G.R. NO. 162994 : September 17, 2004]

DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON, Petitioners, v. GLAXO

WELLCOME PHILIPPINES, INC., Respondent.

RESOLUTION

TINGA, J.:

Confronting the Court in this petition is a novel question, with constitutional overtones, involving the
validity of the policy of a pharmaceutical company prohibiting its employees from marrying employees
of any competitor company.

This is a Petition for Review on Certiorari assailing the Decision1 dated May 19, 2003 and
the Resolution dated March 26, 2004 of the Court of Appeals in CA-G.R. SP No. 62434. 2

Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo)
as medical representative on October 24, 1995, after Tecson had undergone training and orientation.

Thereafter, Tecson signed a contract of employment which stipulates, among others, that he agrees to
study and abide by existing company rules; to disclose to management any existing or future
relationship by consanguinity or affinity with co-employees or employees of competing drug
companies and should management find that such relationship poses a possible conflict of interest, to
resign from the company.

The Employee Code of Conduct of Glaxo similarly provides that an employee is expected to inform
management of any existing or future relationship by consanguinity or affinity with co-employees or
employees of competing drug companies. If management perceives a conflict of interest or a potential
conflict between such relationship and the employee's employment with the company, the
management and the employee will explore the possibility of a "transfer to another department in a
non-counterchecking position" or preparation for employment outside the company after six months.

Tecson was initially assigned to market Glaxo's products in the Camarines Sur-Camarines Norte sales
area.

Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of Astra
Pharmaceuticals3 (Astra), a competitor of Glaxo. Bettsy was Astra's Branch Coordinator in Albay. She
supervised the district managers and medical representatives of her company and prepared marketing
strategies for Astra in that area.

Even before they got married, Tecson received several reminders from his District Manager regarding
the conflict of interest which his relationship with Bettsy might engender. Still, love prevailed, and
Tecson married Bettsy in September 1998.

In January 1999, Tecson's superiors informed him that his marriage to Bettsy gave rise to a conflict of
interest. Tecson's superiors reminded him that he and Bettsy should decide which one of them would
resign from their jobs, although they told him that they wanted to retain him as much as possible
because he was performing his job well.

Tecson requested for time to comply with the company policy against entering into a relationship with
an employee of a competitor company. He explained that Astra, Bettsy's employer, was planning to
merge with Zeneca, another drug company; and Bettsy was planning to avail of the redundancy
package to be offered by Astra. With Bettsy's separation from her company, the potential conflict of
interest would be eliminated. At the same time, they would be able to avail of the attractive
redundancy package from Astra.

In August 1999, Tecson again requested for more time resolve the problem. In September 1999,
Tecson applied for a transfer in Glaxo's milk division, thinking that since Astra did not have a milk

46
division, the potential conflict of interest would be eliminated. His application was denied in view of
Glaxo's "least-movement-possible" policy.

In November 1999, Glaxo transferred Tecson to the Butuan City-Surigao City-Agusan del Sur sales
area. Tecson asked Glaxo to reconsider its decision, but his request was denied.

Tecson sought Glaxo's reconsideration regarding his transfer and brought the matter to Glaxo's
Grievance Committee. Glaxo, however, remained firm in its decision and gave Tescon until February 7,
2000 to comply with the transfer order. Tecson defied the transfer order and continued acting as
medical representative in the Camarines Sur-Camarines Norte sales area.

During the pendency of the grievance proceedings, Tecson was paid his salary, but was not issued
samples of products which were competing with similar products manufactured by Astra. He was also
not included in product conferences regarding such products.

Because the parties failed to resolve the issue at the grievance machinery level, they submitted the
matter for voluntary arbitration. Glaxo offered Tecson a separation pay of one-half (' ) month pay for
every year of service, or a total of P50,000.00 but he declined the offer. On November 15, 2000, the
National Conciliation and Mediation Board (NCMB) rendered its Decision declaring as valid Glaxo's
policy on relationships between its employees and persons employed with competitor companies, and
affirming Glaxo's right to transfer Tecson to another sales territory.

Aggrieved, Tecson filed a Petition for Review with the Court of Appeals assailing the NCMB Decision.

On May 19, 2003, the Court of Appeals promulgated its Decision denying the Petition for Review on
the ground that the NCMB did not err in rendering its Decision. The appellate court held that Glaxo's
policy prohibiting its employees from having personal relationships with employees of competitor
companies is a valid exercise of its management prerogatives. 4

Tecson filed a Motion for Reconsideration of the appellate court's Decision, but the motion was denied
by the appellate court in its Resolution dated March 26, 2004.5

Petitioners filed the instant petition, arguing therein that (i) the Court of Appeals erred in affirming the
NCMB's finding that the Glaxo's policy prohibiting its employees from marrying an employee of a
competitor company is valid; and (ii) the Court of Appeals also erred in not finding that Tecson was
constructively dismissed when he was transferred to a new sales territory, and deprived of the
opportunity to attend products seminars and training sessions. 6

Petitioners contend that Glaxo's policy against employees marrying employees of competitor
companies violates the equal protection clause of the Constitution because it creates invalid
distinctions among employees on account only of marriage. They claim that the policy restricts the
employees' right to marry.7

They also argue that Tecson was constructively dismissed as shown by the following circumstances:
(1) he was transferred from the Camarines Sur-Camarines Norte sales area to the Butuan-Surigao-
Agusan sales area, (2) he suffered a diminution in pay, (3) he was excluded from attending seminars
and training sessions for medical representatives, and (4) he was prohibited from promoting
respondent's products which were competing with Astra's products. 8

In its Comment on the petition, Glaxo argues that the company policy prohibiting its employees from
having a relationship with and/or marrying an employee of a competitor company is a valid exercise of
its management prerogatives and does not violate the equal protection clause; and that Tecson's
reassignment from the Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao City and
Agusan del Sur sales area does not amount to constructive dismissal. 9

Glaxo insists that as a company engaged in the promotion and sale of pharmaceutical products, it has
a genuine interest in ensuring that its employees avoid any activity, relationship or interest that may
conflict with their responsibilities to the company. Thus, it expects its employees to avoid having
personal or family interests in any competitor company which may influence their actions and
decisions and consequently deprive Glaxo of legitimate profits. The policy is also aimed at preventing
a competitor company from gaining access to its secrets, procedures and policies. 10

It likewise asserts that the policy does not prohibit marriage per se but only proscribes existing or
future relationships with employees of competitor companies, and is therefore not violative of the
equal protection clause. It maintains that considering the nature of its business, the prohibition is
based on valid grounds.11

According to Glaxo, Tecson's marriage to Bettsy, an employee of Astra, posed a real and potential
conflict of interest. Astra's products were in direct competition with 67% of the products sold by

47
Glaxo. Hence, Glaxo's enforcement of the foregoing policy in Tecson's case was a valid exercise of its
management prerogatives.12 In any case, Tecson was given several months to remedy the situation,
and was even encouraged not to resign but to ask his wife to resign form Astra instead. 13

Glaxo also points out that Tecson can no longer question the assailed company policy because when
he signed his contract of employment, he was aware that such policy was stipulated therein. In said
contract, he also agreed to resign from respondent if the management finds that his relationship with
an employee of a competitor company would be detrimental to the interests of Glaxo. 14

Glaxo likewise insists that Tecson's reassignment to another sales area and his exclusion from
seminars regarding respondent's new products did not amount to constructive dismissal.

It claims that in view of Tecson's refusal to resign, he was relocated from the Camarines Sur-
Camarines Norte sales area to the Butuan City-Surigao City and Agusan del Sur sales area. Glaxo
asserts that in effecting the reassignment, it also considered the welfare of Tecson's family. Since
Tecson's hometown was in Agusan del Sur and his wife traces her roots to Butuan City, Glaxo
assumed that his transfer from the Bicol region to the Butuan City sales area would be favorable to
him and his family as he would be relocating to a familiar territory and minimizing his travel
expenses.15

In addition, Glaxo avers that Tecson's exclusion from the seminar concerning the new anti-asthma
drug was due to the fact that said product was in direct competition with a drug which was soon to be
sold by Astra, and hence, would pose a potential conflict of interest for him. Lastly, the delay in
Tecson's receipt of his sales paraphernalia was due to the mix-up created by his refusal to transfer to
the Butuan City sales area (his paraphernalia was delivered to his new sales area instead of Naga City
because the supplier thought he already transferred to Butuan). 16

The Court is tasked to resolve the following issues: (1) Whether the Court of Appeals erred in ruling
that Glaxo's policy against its employees marrying employees from competitor companies is valid, and
in not holding that said policy violates the equal protection clause of the Constitution; (2) Whether
Tecson was constructively dismissed.

The Court finds no merit in the petition.

The stipulation in Tecson's contract of employment with Glaxo being questioned by petitioners
provides:

10. You agree to disclose to management any existing or future relationship you may have, either by

consanguinity or affinity with co-employees or employees of competing drug companies. Should it

pose a possible conflict of interest in management discretion, you agree to resign voluntarily from the

Company as a matter of Company policy.

' 17

The same contract also stipulates that Tescon agrees to abide by the existing company rules of Glaxo,
and to study and become acquainted with such policies. 18 In this regard, the Employee Handbook of
Glaxo expressly informs its employees of its rules regarding conflict of interest:

1. Conflict of Interest

Employees should avoid any activity, investment relationship, or interest that may run counter to the

responsibilities which they owe Glaxo Wellcome.

Specifically, this means that employees are expected:

A. To avoid having personal or family interest, financial or otherwise, in any competitor supplier or

other businesses which may consciously or unconsciously influence their actions or decisions and thus

deprive Glaxo Wellcome of legitimate profit.

48
b. To refrain from using their position in Glaxo Wellcome or knowledge of Company plans to advance

their outside personal interests, that of their relatives, friends and other businesses.

c. To avoid outside employment or other interests for income which would impair their effective job

performance.

d. To consult with Management on such activities or relationships that may lead to conflict of interest.

1.1. Employee Relationships

Employees with existing or future relationships either by consanguinity or affinity with co-employees

of competing drug companies are expected to disclose such relationship to the Management. If

management perceives a conflict or potential conflict of interest, every effort shall be made, together

by management and the employee, to arrive at a solution within six (6) months, either by transfer to

another department in a non-counter checking position, or by career preparation toward outside

employment after Glaxo Wellcome. Employees must be prepared for possible resignation within six (6)

months, if no other solution is feasible. 19

No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxo's policy prohibiting
an employee from having a relationship with an employee of a competitor company is a valid exercise
of management prerogative.

Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategies and other
confidential programs and information from competitors, especially so that it and Astra are rival
companies in the highly competitive pharmaceutical industry.

The prohibition against personal or marital relationships with employees of competitor companies
upon Glaxo's employees is reasonable under the circumstances because relationships of that nature
might compromise the interests of the company. In laying down the assailed company policy, Glaxo
only aims to protect its interests against the possibility that a competitor company will gain access to
its secrets and procedures.

That Glaxo possesses the right to protect its economic interests cannot be denied. No less than the
Constitution recognizes the right of enterprises to adopt and enforce such a policy to protect its right
to reasonable returns on investments and to expansion and growth. 20 Indeed, while our laws endeavor
to give life to the constitutional policy on social justice and the protection of labor, it does not mean
that every labor dispute will be decided in favor of the workers. The law also recognizes that
management has rights which are also entitled to respect and enforcement in the interest of fair
play.21

As held in a Georgia, U.S.A case,22 it is a legitimate business practice to guard business confidentiality
and protect a competitive position by even-handedly disqualifying from jobs male and female
applicants or employees who are married to a competitor. Consequently, the court ruled than an
employer that discharged an employee who was married to an employee of an active competitor did
not violate Title VII of the Civil Rights Act of 1964. 23 The Court pointed out that the policy was applied
to men and women equally, and noted that the employer's business was highly competitive and that
gaining inside information would constitute a competitive advantage.

The challenged company policy does not violate the equal protection clause of the Constitution as
petitioners erroneously suggest. It is a settled principle that the commands of the equal protection
clause are addressed only to the state or those acting under color of its authority. 24 Corollarily, it has
been held in a long array of U.S. Supreme Court decisions that the equal protection clause erects no
shield against merely private conduct, however, discriminatory or wrongful. 25 The only exception
occurs when the state29 in any of its manifestations or actions has been found to have become
entwined or involved in the wrongful private conduct. 27 Obviously, however, the exception is not
present in this case. Significantly, the company actually enforced the policy after repeated requests to
the employee to comply with the policy. Indeed, the application of the policy was made in an impartial
and even-handed manner, with due regard for the lot of the employee.

49
In any event, from the wordings of the contractual provision and the policy in its employee handbook,
it is clear that Glaxo does not impose an absolute prohibition against relationships between its
employees and those of competitor companies. Its employees are free to cultivate relationships with
and marry persons of their own choosing. What the company merely seeks to avoid is a conflict of
interest between the employee and the company that may arise out of such relationships. As
succinctly explained by the appellate court, thus:

The policy being questioned is not a policy against marriage. An employee of the company remains

free to marry anyone of his or her choosing. The policy is not aimed at restricting a personal

prerogative that belongs only to the individual. However, an employee's personal decision does not

detract the employer from exercising management prerogatives to ensure maximum profit and

business success. . .28

The Court of Appeals also correctly noted that the assailed company policy which forms part of
respondent's Employee Code of Conduct and of its contracts with its employees, such as that signed
by Tescon, was made known to him prior to his employment. Tecson, therefore, was aware of that
restriction when he signed his employment contract and when he entered into a relationship with
Bettsy. Since Tecson knowingly and voluntarily entered into a contract of employment with Glaxo, the
stipulations therein have the force of law between them and, thus, should be complied with in good
faith."29 He is therefore estopped from questioning said policy.

The Court finds no merit in petitioners' contention that Tescon was constructively dismissed when he
was transferred from the Camarines Norte-Camarines Sur sales area to the Butuan City-Surigao City-
Agusan del Sur sales area, and when he was excluded from attending the company's seminar on new
products which were directly competing with similar products manufactured by Astra. Constructive
dismissal is defined as a quitting, an involuntary resignation resorted to when continued employment
becomes impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in pay;
or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to the
employee.30 None of these conditions are present in the instant case. The record does not show that
Tescon was demoted or unduly discriminated upon by reason of such transfer. As found by the
appellate court, Glaxo properly exercised its management prerogative in reassigning Tecson to the
Butuan City sales area:

. . . In this case, petitioner's transfer to another place of assignment was merely in keeping with the

policy of the company in avoidance of conflict of interest, and thus valid Note that [Tecson's] wife

holds a sensitive supervisory position as Branch Coordinator in her employer-company which requires

her to work in close coordination with District Managers and Medical Representatives. Her duties

include monitoring sales of Astra products, conducting sales drives, establishing and furthering

relationship with customers, collection, monitoring and managing Astra's inventory'she therefore takes

an active participation in the market war characterized as it is by stiff competition among

pharmaceutical companies. Moreover, and this is significant, petitioner's sales territory covers

Camarines Sur and Camarines Norte while his wife is supervising a branch of her employer in Albay.

The proximity of their areas of responsibility, all in the same Bicol Region, renders the conflict of

interest not only possible, but actual, as learning by one spouse of the other's market strategies in the

region would be inevitable. [Management's] appreciation of a conflict of interest is therefore not

merely illusory and wanting in factual basis' 31

In Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission, 32 which involved a
complaint filed by a medical representative against his employer drug company for illegal dismissal for
allegedly terminating his employment when he refused to accept his reassignment to a new area, the
Court upheld the right of the drug company to transfer or reassign its employee in accordance with its
operational demands and requirements. The ruling of the Court therein, quoted hereunder, also finds
application in the instant case:

50
By the very nature of his employment, a drug salesman or medical representative is expected to

travel. He should anticipate reassignment according to the demands of their business. It would be a

poor drug corporation which cannot even assign its representatives or detail men to new markets

calling for opening or expansion or to areas where the need for pushing its products is great. More so

if such reassignments are part of the employment contract. 33

As noted earlier, the challenged policy has been implemented by Glaxo impartially and disinterestedly
for a long period of time. In the case at bar, the record shows that Glaxo gave Tecson several chances
to eliminate the conflict of interest brought about by his relationship with Bettsy. When their
relationship was still in its initial stage, Tecson's supervisors at Glaxo constantly reminded him about
its effects on his employment with the company and on the company's interests. After Tecson married
Bettsy, Glaxo gave him time to resolve the conflict by either resigning from the company or asking his
wife to resign from Astra. Glaxo even expressed its desire to retain Tecson in its employ because of
his satisfactory performance and suggested that he ask Bettsy to resign from her company instead.
Glaxo likewise acceded to his repeated requests for more time to resolve the conflict of interest. When
the problem could not be resolved after several years of waiting, Glaxo was constrained to reassign
Tecson to a sales area different from that handled by his wife for Astra. Notably, the Court did not
terminate Tecson from employment but only reassigned him to another area where his home
province, Agusan del Sur, was included. In effecting Tecson's transfer, Glaxo even considered the
welfare of Tecson's family. Clearly, the foregoing dispels any suspicion of unfairness and bad faith on
the part of Glaxo.34

WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

Puno, Austria-Martinez, Callejo, Sr., and Chico-Nazario *, JJ., concur.

Endnotes:

1
Penned by Associate Justice Rosmari D. Carandang and concurred in by Justices Conrado M.

Vasquez, Jr. and Mercedes Gozo-Dadole. Rollo,pp. 22-32.

2
Duncan Association of Detailman-PTGWO and Pedro A. Tecson, petitioners, v. Glaxo Wellcome

Philippines, Inc., respondent.

3
Now Astra Zeneca Pharmaceuticals, Inc.

4
Rollo, pp. 28-32.

Id. at 55.
5

Id. at 9.
6

Id. at 9-11.
7

Id. at 14-17.
8

Id. at 96-112.
9

10
Id. at 99-100.

11
Id. at 101-102.

51
 Id. at 102-103.
12

Id. at 102-104.
13

Id. at 104-105.
14

Id. at 64.
15

Id. at 106-110.
16

See Decision of the Court of Appeals; Rollo, pp. 23-24.

17

18
Item No. 6 of Tecson's employment contract cited by the Court of Appeals in its Decision, Id.

19
Excerpt of Glaxo's Employee Handbook, Annex "A" of respondent's Comment, Id. at 114.

20
Section 3, Article XIII of the Constitution provides:

The State shall regulate the relations between workers and employers, recognizing the right of labor

to its just share in the fruits of production and the right of enterprises to reasonable returns on

investments, and to expansion and growth.

21
Sta. Catalina College v. National Labor Relations Commission, G.R. No. 144483, November 19,

2003.

22
Emory v. Georgia Hospital Service Association (1971), DC Ga., 4 CCH EPD - 7785, 4 BNA FEP Cas

891, affd (CA5) 446 F2d 897, 4 CCH EPD - 7786; Cited 45 Am Jr 2d Sec. 469.

23
42 USCS 2000e 2002e 17. Title VII prohibits certain employers, employment agencies, labor

organizations, and joint labor-management training committees from discriminating against applicants

and employees on the basis of race or color, religion, sex, national origin, or opposition to

discriminatory practices.

There is no similar legislation in the Philippines.

24
Avery v. Midland County, 390 US 474, 20 L. Ed 2d 45, 88 S Ct 1114, on remand (Tex) 430 SW2d

487; Cooper v. Aaron, 358 US 1, 3 L Ed 2d 5, 78 S Ct 1401.

25
District of Columbia v. Carter, 409 US 418, 34 L.Ed.2d 613, 93 S. Ct. 602, 35 L.Ed.2d 694, 93 S. Ct.

1411; Moose Lodge No. 107 v. Irvis, 407 US 163, 32 L.Ed.2d 627, 92 S. Ct. 1965; United States v.

Price, 383 US 787, 16 L.Ed. 2d 267, 86 S. Ct. 1152; Burton v. Wilmington Parking Authority, 365 US

715, 6 L.Ed.2d 45, 81 S. Ct. 856; Shelley v. Kraemer, 334 US 1, 92 L.Ed.1161, 68 S. Ct. 836, 3

ALR2d 441; United States v. Classic, 313 US 299, 85 L.Ed 1368, 61 S. Ct. 1031, 86 L.Ed 565, 62 S.

Ct. 51; Nixon v. Condon, 286 US 73, 76 L.Ed. 984, 52 S. Ct. 484, 88 ALR 458; Iowa-Des Moines Nat.

Bank v. Bennet, 284 US 239, 76 L.Ed 265, 52 S. Ct. 133; Corrigan v. Buckley, 271 US 323, 70 L.Ed.

969, 46 S. Ct. 521; U.S. 'Adickes v. S. H. Kress & Co., N.Y., 90 S. Ct. 1598, 398 U.S. 144, 26 L. Ed.

2d 142.

52
26
The equal protection clause contained in the Fourteenth Amendment of the U.S. Constitution is a

restriction on the state governments and operates exclusively upon them. It does not extend to

authority exercised by the Government of the United States. 16 A Am Jur 2d '742.

27
Gilmore v. Montgomery, 417 US 556, 41 L Ed 2d 304, 94 S Ct 2416; Evans v. Newton, 382 US 296,

15 L Ed 2d 373, 86 S Ct 486; Anderson v. Martin, 375 US 399, 11 L Ed 2d 430, 84 S Ct 454; Peterson

v. Greenville, 373 US 244, 10 L Ed 2d 323, 83 S Ct 1119; Burton v. Wilmington Parking

Authority, supra note 25.

28
Decision of the Court of Appeals, Rollo, p. 28.

29
Article 1159, Civil Code. See National Sugar Trading and/or the Sugar Regulatory Administration v.

Philippine National Bank, G.R. No. 151218, January 18, 2003, 396 SCRA 528; Pilipinas Hino, Inc. v.

Court of Appeals, G.R. No. 126570, August 18, 2000, 338 SCRA 355.

30
Leonardo v. National Labor Relations Commission, et al., G.R. NOS. 125303, and 126937, June 16,

2000, 333 SCRA 589.

31
Rollo, pp. 30-31.

32
G.R. No. L-76959, October 12, 1987, 154 SCRA 713.

Id. at 719.
33

34
Decision of the Court of Appeals, Rollo, pp. 24-27.

SECOND DIVISION

STAR PAPER CORPORATION, G.R. No. 164774

JOSEPHINE ONGSITCO &
SEBASTIAN CHUA,
Petitioners, Present:

PUNO, J., Chairman,

SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and

53
 -versus- GARCIA, JJ.

Promulgated:
RONALDO D. SIMBOL, April 12, 2006
WILFREDA N. COMIA &
LORNA E. ESTRELLA,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

PUNO, J.:

We are called to decide an issue of first impression: whether the policy of the
employer banning spouses from working in the same company violates the rights
of the employee under the Constitution and the Labor Code or is a valid exercise of
management prerogative.
At bar is a Petition for Review on Certiorari of the Decision of the Court of
Appeals dated August 3, 2004 in CA-G.R. SP No. 73477 reversing the decision of
the National Labor Relations Commission (NLRC) which affirmed the ruling of
the Labor Arbiter.
Petitioner Star Paper Corporation (the company) is a corporation engaged in
trading principally of paper products. Josephine Ongsitco is its Manager of the
Personnel and Administration Department while Sebastian Chua is its Managing
Director.
The evidence for the petitioners show that respondents Ronaldo D. Simbol
(Simbol), Wilfreda N. Comia (Comia) and Lorna E. Estrella (Estrella) were all
regular employees of the company.[1]
Simbol was employed by the company on October 27, 1993. He met Alma Dayrit,
also an employee of the company, whom he married on June 27, 1998. Prior to the
marriage, Ongsitco advised the couple that should they decide to get married, one
of them should resign pursuant to a company policy promulgated in 1995,[2] viz.:
1. New applicants will not be allowed to be hired if in case he/she has [a] relative,
up to [the] 3rd degree of relationship, already employed by the company.

2. In case of two of our employees (both singles [sic], one male and
another female) developed a friendly relationship during the course of their
employment and then decided to get married, one of them should resign to
preserve the policy stated above.[3]

54
Simbol resigned on June 20, 1998 pursuant to the company policy.[4]
Comia was hired by the company on February 5, 1997. She met Howard Comia, a
co-employee, whom she married on June 1, 2000. Ongsitco likewise reminded
them that pursuant to company policy, one must resign should they decide to get
married. Comia resigned on June 30, 2000.[5]
Estrella was hired on July 29, 1994. She met Luisito Zuiga (Zuiga), also a co-
worker. Petitioners stated that Zuiga, a married man, got Estrella pregnant. The
company allegedly could have terminated her services due to immorality but she
opted to resign on December 21, 1999.[6]
The respondents each signed a Release and Confirmation Agreement. They stated
therein that they have no money and property accountabilities in the company and
that they release the latter of any claim or demand of whatever nature.[7]

Respondents offer a different version of their dismissal. Simbol and Comia allege
that they did not resign voluntarily; they were compelled to resign in view of an
illegal company policy. As to respondent Estrella, she alleges that she had a
relationship with co-worker Zuiga who misrepresented himself as a married but
separated man. After he got her pregnant, she discovered that he was not separated.
Thus, she severed her relationship with him to avoid dismissal due to the company
policy. On November 30, 1999, she met an accident and was advised by the doctor
at the Orthopedic Hospital to recuperate for twenty-one (21) days. She returned to
work on December 21, 1999 but she found out that her name was on-hold at the
gate. She was denied entry. She was directed to proceed to the personnel office
where one of the staff handed her a memorandum. The memorandum stated that
she was being dismissed for immoral conduct. She refused to sign the
memorandum because she was on leave for twenty-one (21) days and has not been
given a chance to explain. The management asked her to write an explanation.
However, after submission of the explanation, she was nonetheless dismissed by
the company. Due to her urgent need for money, she later submitted a letter of
resignation in exchange for her thirteenth month pay.[8]
Respondents later filed a complaint for unfair labor practice, constructive
dismissal, separation pay and attorneys fees. They averred that the aforementioned
company policy is illegal and contravenes Article 136 of the Labor Code. They
also contended that they were dismissed due to their union membership.
On May 31, 2001, Labor Arbiter Melquiades Sol del Rosario dismissed the
complaint for lack of merit, viz.:
[T]his company policy was decreed pursuant to what the respondent
corporation perceived as management prerogative. This management prerogative
is quite broad and encompassing for it covers hiring, work assignment, working
method, time, place and manner of work, tools to be used, processes to be
followed, supervision of workers, working regulations, transfer of employees,
work supervision, lay-off of workers and the discipline, dismissal and recall of
workers. Except as provided for or limited by special law, an employer is free to
regulate, according to his own discretion and judgment all the aspects of
employment.[9] (Citations omitted.)

On appeal to the NLRC, the Commission affirmed the decision of the Labor
Arbiter on January 11, 2002. [10]

55
Respondents filed a Motion for Reconsideration but was denied by the NLRC in a
Resolution[11] dated August 8, 2002. They appealed to respondent court via Petition
for Certiorari.
In its assailed Decision dated August 3, 2004, the Court of Appeals reversed the
NLRC decision, viz.:
WHEREFORE, premises considered, the May 31, 2002 (sic)[12] Decision of the
National Labor Relations Commission is hereby REVERSED and SET ASIDE
and a new one is entered as follows:

(1) Declaring illegal, the petitioners dismissal from employment

and ordering private respondents to reinstate petitioners to their
former positions without loss of seniority rights with full
backwages from the time of their dismissal until actual
reinstatement; and

(2) Ordering private respondents to pay petitioners attorneys fees

amounting to 10% of the award and the cost of this suit.[13]

On appeal to this Court, petitioners contend that the Court of Appeals erred in
holding that:
1. X X X THE SUBJECT 1995 POLICY/REGULATION IS VIOLATIVE OF
THE CONSTITUTIONAL RIGHTS TOWARDS MARRIAGE AND THE
FAMILY OF EMPLOYEES AND OF ARTICLE 136 OF THE LABOR CODE;
AND
2. X X X RESPONDENTS RESIGNATIONS WERE FAR FROM
[14]
VOLUNTARY.

We affirm.

The 1987 Constitution[15] states our policy towards the protection of labor
under the following provisions, viz.:

Article II, Section 18. The State affirms labor as a primary social economic force.
It shall protect the rights of workers and promote their welfare.

xxx

Article XIII, Sec. 3. The State shall afford full protection to labor, local and
overseas, organized and unorganized, and promote full employment and equality
of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective
bargaining and negotiations, and peaceful concerted activities, including the right
to strike in accordance with law. They shall be entitled to security of tenure,
humane conditions of work, and a living wage. They shall also participate in
policy and decision-making processes affecting their rights and benefits as may be
provided by law.

56
 The State shall promote the principle of shared responsibility between workers
and employers, recognizing the right of labor to its just share in the fruits of
production and the right of enterprises to reasonable returns on investments, and
to expansion and growth.

The Civil Code likewise protects labor with the following provisions:
Art. 1700. The relation between capital and labor are not merely contractual. They
are so impressed with public interest that labor contracts must yield to the
common good. Therefore, such contracts are subject to the special laws on labor
unions, collective bargaining, strikes and lockouts, closed shop, wages, working
conditions, hours of labor and similar subjects.

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be
construed in favor of the safety and decent living for the laborer.

The Labor Code is the most comprehensive piece of legislation protecting

labor. The case at bar involves Article 136 of the Labor Code which provides:
Art. 136. It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman employee shall not get
married, or to stipulate expressly or tacitly that upon getting married a woman
employee shall be deemed resigned or separated, or to actually dismiss, discharge,
discriminate or otherwise prejudice a woman employee merely by reason of her
marriage.

Respondents submit that their dismissal violates the above provision. Petitioners
allege that its policy may appear to be contrary to Article 136 of the Labor Code
but it assumes a new meaning if read together with the first paragraph of the rule.
The rule does not require the woman employee to resign. The employee spouses
have the right to choose who between them should resign. Further, they are free to
marry persons other than co-employees. Hence, it is not the marital status of the
employee, per se, that is being discriminated. It is only intended to carry out its no-
employment-for-relatives-within-the-third-degree-policy which is within the ambit
of the prerogatives of management.[16]
It is true that the policy of petitioners prohibiting close relatives from working in
the same company takes the nature of an anti-nepotism employment policy.
Companies adopt these policies to prevent the hiring of unqualified persons based
on their status as a relative, rather than upon their ability.[17] These policies focus
upon the potential employment problems arising from the perception of favoritism
exhibited towards relatives.
With more women entering the workforce, employers are also enacting
employment policies specifically prohibiting spouses from working for the same
company. We note that two types of employment policies involve spouses: policies
banning only spouses from working in the same company (no-spouse
employment policies), and those banning all immediate family members,
including spouses, from working in the same company (anti-nepotism
employment policies).[18]

57
Unlike in our jurisdiction where there is no express prohibition on marital
discrimination,[19] there are twenty state statutes[20] in the United States prohibiting
marital discrimination. Some state courts[21] have been confronted with the issue of
whether no-spouse policies violate their laws prohibiting both marital status and
sex discrimination.
In challenging the anti-nepotism employment policies in the United States,
complainants utilize two theories of employment discrimination:
the disparate treatment and the disparate impact. Under the disparate
treatment analysis, the plaintiff must prove that an employment policy is
discriminatory on its face. No-spouse employment policies requiring an employee
of a particular sex to either quit, transfer, or be fired are facially discriminatory.
For example, an employment policy prohibiting the employer from hiring wives of
male employees, but not husbands of female employees, is discriminatory on its
face.[22]
On the other hand, to establish disparate impact, the complainants must prove
that a facially neutral policy has a disproportionate effect on a particular class. For
example, although most employment policies do not expressly indicate which
spouse will be required to transfer or leave the company, the policy often
disproportionately affects one sex.[23]
The state courts rulings on the issue depend on their interpretation of the scope of
marital status discrimination within the meaning of their respective civil rights
acts. Though they agree that the term marital status encompasses discrimination
based on a person's status as either married, single, divorced, or widowed, they are
divided on whether the term has a broader meaning. Thus, their decisions vary.[24]
The courts narrowly[25] interpreting marital status to refer only to a person's status
as married, single, divorced, or widowed reason that if the legislature intended a
broader definition it would have either chosen different language or specified its
intent. They hold that the relevant inquiry is if one is married rather than to whom
one is married. They construe marital status discrimination to include only whether
a person is single, married, divorced, or widowed and not the identity, occupation,
and place of employment of one's spouse. These courts have upheld the questioned
policies and ruled that they did not violate the marital status discrimination
provision of their respective state statutes.
The courts that have broadly[26] construed the term marital status rule that it
encompassed the identity, occupation and employment of one's spouse. They strike
down the no-spouse employment policies based on the broad legislative intent of
the state statute. They reason that the no-spouse employment policy violate the
marital status provision because it arbitrarily discriminates against all spouses of
present employees without regard to the actual effect on the individual's
qualifications or work performance.[27] These courts also find the no-spouse
employment policy invalid for failure of the employer to present any evidence
of business necessity other than the general perception that spouses in the same
workplace might adversely affect the business.[28] They hold that the absence of
such a bona fide occupational qualification[29] invalidates a rule denying

58
employment to one spouse due to the current employment of the other spouse in
the same office.[30] Thus, they rule that unless the employer can prove that the
reasonable demands of the business require a distinction based on marital status
and there is no better available or acceptable policy which would better accomplish
the business purpose, an employer may not discriminate against an employee based
on the identity of the employees spouse.[31] This is known as the bona fide
occupational qualification exception.
We note that since the finding of a bona fide occupational qualification justifies an
employers no-spouse rule, the exception is interpreted strictly and narrowly by
these state courts. There must be a compelling business necessity for which no
alternative exists other than the discriminatory practice. [32] To justify a bona fide
occupational qualification, the employer must prove two factors: (1) that the
employment qualification is reasonably related to the essential operation of the job
involved; and, (2) that there is a factual basis for believing that all or substantially
all persons meeting the qualification would be unable to properly perform the
duties of the job.[33]
The concept of a bona fide occupational qualification is not foreign in our
jurisdiction. We employ the standard of reasonableness of the company policy
which is parallel to the bona fide occupational qualification requirement. In the
recent case of Duncan Association of Detailman-PTGWO and
[34]
Pedro Tecson v. Glaxo Wellcome Philippines, Inc., we passed on the
validity of the policy of a pharmaceutical company prohibiting its employees from
marrying employees of any competitor company. We held that Glaxohas a right to
guard its trade secrets, manufacturing formulas, marketing strategies and other
confidential programs and information from competitors. We considered the
prohibition against personal or marital relationships with employees of competitor
companies upon Glaxos employees reasonable under the circumstances because
relationships of that nature might compromise the interests of Glaxo. In laying
down the assailed company policy, we recognized that Glaxo only aims to protect
its interests against the possibility that a competitor company will gain access to its
secrets and procedures.[35]

The requirement that a company policy must be reasonable under the

circumstances to qualify as a valid exercise of management prerogative was also at
issue in the 1997 case of Philippine Telegraph and Telephone Company v.
NLRC.[36] In said case, the employee was dismissed in violation of petitioners
policy of disqualifying from work any woman worker who contracts marriage. We
held that the company policy violates the right against discrimination afforded all
women workers under Article 136 of the Labor Code, but established a permissible
exception, viz.:
[A] requirement that a woman employee must remain unmarried could be
justified as a bona fide occupational qualification, or BFOQ, where the
particular requirements of the job would justify the same, but not on the ground of
a general principle, such as the desirability of spreading work in the workplace. A
requirement of that nature would be valid provided it reflects an inherent
quality reasonably necessary for satisfactory job performance.[37] (Emphases
supplied.)

59
 The cases of Duncan and PT&T instruct us that the requirement of
reasonableness must be clearly established to uphold the questioned employment
policy. The employer has the burden to prove the existence of a reasonable
business necessity. The burden was successfully discharged in Duncan but not in
PT&T.

We do not find a reasonable business necessity in the case at bar.

Petitioners sole contention that the company did not just want to have two
(2) or more of its employees related between the third degree by affinity and/or
consanguinity[38] is lame. That the second paragraph was meant to give teeth to the
first paragraph of the questioned rule[39] is evidently not the valid reasonable
business necessity required by the law.

It is significant to note that in the case at bar, respondents were hired after
they were found fit for the job, but were asked to resign when they married a co-
employee. Petitioners failed to show how the marriage of Simbol, then a Sheeting
Machine Operator, to Alma Dayrit, then an employee of the Repacking Section,
could be detrimental to its business operations. Neither did petitioners explain how
this detriment will happen in the case of Wilfreda Comia, then a Production Helper
in the Selecting Department, who married Howard Comia, then a helper in the
cutter-machine. The policy is premised on the mere fear that employees married to
each other will be less efficient. If we uphold the questioned rule without valid
justification, the employer can create policies based on an unproven presumption
of a perceived danger at the expense of an employees right to security of tenure.

Petitioners contend that their policy will apply only when one employee
marries a co-employee, but they are free to marry persons other than co-
employees. The questioned policy may not facially violate Article 136 of the Labor
Code but it creates a disproportionate effect and under the disparate impact
theory, the only way it could pass judicial scrutiny is a showing that it
is reasonable despite the discriminatory, albeit disproportionate, effect. The
failure of petitioners to prove a legitimate business concern in imposing the
questioned policy cannot prejudice the employees right to be free from arbitrary
discrimination based upon stereotypes of married persons working together in
one company.[40]

Lastly, the absence of a statute expressly prohibiting marital discrimination

in our jurisdiction cannot benefit the petitioners. The protection given to labor in
our jurisdiction is vast and extensive that we cannot prudently draw inferences
from the legislatures silence[41] that married persons are not protected under our
Constitution and declare valid a policy based on a prejudice or stereotype. Thus,
for failure of petitioners to present undisputed proof of a reasonable business
necessity, we rule that the questioned policy is an invalid exercise of management

60
prerogative. Corollarily, the issue as to whether respondents Simbol and Comia
resigned voluntarily has become moot and academic.
As to respondent Estrella, the Labor Arbiter and the NLRC based their ruling
on the singular fact that her resignation letter was written in her own handwriting.
Both ruled that her resignation was voluntary and thus valid. The respondent
court failed to categorically rule whether Estrella voluntarily resigned but ordered
that she be reinstated along with Simbol and Comia.

Estrella claims that she was pressured to submit a resignation letter

because she was in dire need of money. We examined the records of the case and
find Estrellascontention to be more in accord with the evidence. While findings of
fact by administrative tribunals like the NLRC are generally given not only respect
but, at times, finality, this rule admits of exceptions,[42] as in the case at bar.

Estrella avers that she went back to work on December 21, 1999 but was
dismissed due to her alleged immoral conduct. At first, she did not want to sign
the termination papers but she was forced to tender her resignation letter in
exchange for her thirteenth month pay.

The contention of petitioners that Estrella was pressured to resign because

she got impregnated by a married man and she could not stand being looked
upon or talked about as immoral[43] is incredulous. If she really wanted to avoid
embarrassment and humiliation, she would not have gone back to work at all. Nor
would she have filed a suit for illegal dismissal and pleaded for reinstatement. We
have held that in voluntary resignation, the employee is compelled by personal
reason(s) to dissociate himself from employment. It is done with the intention of
relinquishing an office, accompanied by the act of abandonment. [44] Thus, it is
illogical for Estrella to resign and then file a complaint for illegal dismissal. Given
the lack of sufficient evidence on the part of petitioners that the resignation was
voluntary, Estrellas dismissal is declared illegal.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. SP No.

73477 dated August 3, 2004 is AFFIRMED.

SO ORDERED.

61
REYNATO S. PUNO
Associate Justice

WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Associate Justice

CANCIO C. GARCIA

62
 Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairman

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans
Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice

[1]
Petition for Review on Certiorari, 2; rollo, p. 9.

63
[2]
The records do not state the exact date when the policy in question was promulgated. The date
of reference is sometime in 1995.
[3]
Petition for Review on Certiorari, p. 3; rollo, p. 10.
[4]
Id. at 4; Id. at 11.

[5]
Ibid.
[6]
Ibid.
[7]
Petition for Review on Certiorari, pp. 4-5; rollo, pp. 11-12. See CA rollo, pp. 40-49.
[8]
CA Decision, p. 4; rollo, p. 29.
[9]
Decision of Labor Arbiter Melquiades Sol del Rosario; CA rollo, pp. 40-49.
[10]
Resolution, p. 7; CA rollo, p. 36.
[11]
Resolution; Id. at 37.
[12]
Should be January 11, 2002.
[13]
CA Decision, p. 11; rollo, p. 36.
[14]
Petition, p. 7; rollo, p. 14. Lower case in the original.
[15]
The questioned Decision also invokes Article II, Section 12. The State recognizes the sanctity
of family life and shall protect and strengthen the family as a basic autonomous social
institution. It shall equally protect the life of the mother and the life of the unborn from
conception. The natural and primary right and duty of parents in the rearing of the youth
for civic efficiency and the development of moral character shall receive the support of
the Government.
[16]
Memorandum [for Petitioners], p. 11; rollo, p. 73.
[17]
A. Giattina, Challenging No-Spouse Employment Policies As Marital Status Discrimination: A Balancing
Approach, 33 Wayne L. Rev. 1111 (Spring, 1987).

[18]
Ibid.
[19]
See Note 23, Duncan Association of Detailman-PTGWO and
Pedro Tecson v. Glaxo Wellcome Philippines, Inc., G.R. No. 162994, September 17,
2004.
[20]
ALASKA STAT. 18.80.200 (1986); CAL. GOV'T CODE 12940 (West 1980 & Supp.
1987); CONN. GEN. STAT. 46a-60 (1986); DEL. CODE ANN. tit. 19, 711 (1985); D.C.
CODE ANN. 1-2512 (1981); FLA. STAT. 760.01 (1986); HAWAII REV. STAT. 378-2
(1985); ILL. REV. STAT. ch. 68, 1- 103, 2-102 (Supp. 1986); MD. ANN. CODE art. 49B,
16 (1986); MICH. COMP. LAWS ANN. 37.2202 (West 1985); MINN. STAT. ANN.
363.03 (West Supp. 1987); MONT. CODE ANN. 49-2-303 (1986); NEB. REV. STAT. 48-
1104 (1984); N.H. REV. STAT. ANN. 354-A:2 (1984); N.J. REV. STAT. 10:5-12 (1981 &
Supp. 1986); N.Y. EXEC. LAW 296 (McKinney 1982 & Supp. 1987); N.D. CENT.
CODE 14-02.4-03 (1981 & Supp. 1985); OR. REV. STAT. 659.030 (1985); WASH. REV.
CODE 49.60.180 (Supp. 1987); WIS. STAT. 111.321 (Supp. 1986). Cited in Note 34, A.
Giattina, supra note 18.

64
[21]
State courts in Michigan, Minnesota, Montana, New York, and Washington have interpreted
the marital status provision of their respective state statutes. See Note 10, A. Giattina,
supra note 18.
[22]
Supra note 18.
[23]
Ibid.
[24]
Ibid.
[25]
Whirlpool Corp. v. Michigan Civil Rights Comm'n, 425 Mich. 527, 390 N.W.2d 625
(1986); Maryland Comm'n on Human Relations v. Greenbelt Homes, Inc., 300 Md. 75,
475 A.2d 1192 (1984);Manhattan Pizza Hut, Inc. v. New York State Human Rights
Appeal Bd., 51 N.Y.2d 506, 434 N.Y.S.2d 961, 415 N.E.2d 950 (1980); Thompson v.
Sanborn's Motor Express Inc., 154 N.J. Super. 555, 382 A.2d 53 (1977).
[26]
Ross v. Stouffer Hotel Co., 72 Haw. 350, 816 P.2d 302 (1991); Thompson v. Board of
Trustees, 192 Mont. 266, 627 P.2d 1229 (1981); Kraft, Inc. v. State, 284 N.W.2d 386
(Minn.1979); Washington Water Power Co. v. Washington State Human Rights Comm'n,
91 Wash.2d 62, 586 P.2d 1149 (1978).
[27]
See note 55, A. Giattina, supra note 18.
[28]
See note 56, ibid.
[29]
Also referred to as BFOQ.
[30]
See note 67, A. Giattina, supra note 18.
[31]
See Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783, 73 Fair Empl.Prac.Cas. (BNA) 579,
69.
[32]
See note 117, A. Giattina, supra note 18.
[33]
Richard G. Flood and Kelly A. Cahill, The River Bend Decision and How It Affects
Municipalities Personnel Rule and Regulations, Illinois Municipal Review, June 1993, p.
7.
[34]
G.R. No. 162994, September 17, 2004.
[35]
Ibid.
[36]
G.R. No. 118978, May 23, 1997.
[37]
Ibid.
[38]
Petition, p. 9; rollo, p. 16.
[39]
Ibid.
[40]
See A. Giattina, supra note 18.
[41]
See dissenting opinion of Chief Justice Compton in Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783
(1996).
[42]
In Employees Association of the Philippine American Life Insurance Co. v. NLRC (G.R. No.
82976, July 26, 1991), the established exceptions are as follows:

a) the conclusion is a finding of fact grounded on speculations, surmises

and conjectures;
b) the inferences made are manifestly mistaken, absurd or impossible;
c) there is a grave abuse of discretion;
d) there is misappreciation of facts; and

65
 e) the court, in arriving in its findings, went beyond the issues of the case
and the same are contrary to the admission of the parties or the
evidence presented.
[43]
Petition, p. 11; rollo, p. 18.
[44]
Great Southern Maritime Services Corporation v. Acua, et al., G.R. No. 140189, February 28,
2005.

66
 FIRST DIVISION

AVON COSMETICS, G. R. No. 153674

INCORPORATED and
MARIE FRANCO,
P e t i t i o n e r s,
- versus -
LETICIA H. LUNA,
R e s p o n d e n t.
JOSE
Present:
PANGANIBAN, CJ,*
YNARES-SANTIAGO
(Working Chairman)
AUSTRIA-MARTINEZ,
CALLEJO, SR., and *
CHICO-NAZARIO, JJ.

Promulgated:

December 20, 2006

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

DECISION

CHICO-NAZARIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules

of Court, seeking to reverse and set aside the Decision [1] dated 20 May 2002 of the
Court of Appeals in CA-G.R. CV No. 52550, which affirmed in toto the
Decision[2] dated 26 January 1996 of the Regional Trial Court (RTC) of Makati
City, Branch 138, in Civil Case No. 88-2595, in favor of herein respondent Leticia

67
H. Luna (Luna), rendered by the Honorable Ed Vicente S. Albano, designated as
the assisting judge pursuant to Supreme Court Administrative Order No. 70-94,
dated 16 June 1994.

The Facts

The facts of the case are not in dispute. As culled from the records, they are
as follows:

The present petition stemmed from a complaint [3] dated 1 December 1988,
filed by herein respondent Luna alleging, inter alia that she began working for
Beautifont, Inc. in 1972, first as a franchise dealer and then a year later, as a
Supervisor.

Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired

and took over the management and operations of Beautifont, Inc. Nonetheless,
respondent Luna continued working for said successor company.

Aside from her work as a supervisor, respondent Luna also acted as a make-
up artist of petitioner Avons Theatrical Promotions Group, for which she received
a per diem for each theatrical performance.

On 5 November 1985, petitioner Avon and respondent Luna entered into an

agreement, entitled Supervisors Agreement, whereby said parties contracted in the
manner quoted below:

The Company agrees:

xxxx

1) To allow the Supervisor to purchase at wholesale the products of the Company.

xxxx

The Supervisor agrees:

1) To purchase products from the Company exclusively for resale and to be

responsible for obtaining all permits and licenses required to sell the
products on retail.

xxxx

The Company and the Supervisor mutually agree:

68
 xxxx

2) That this agreement in no way makes the Supervisor an employee or agent of

the Company, therefore, the Supervisor has no authority to bind the
Company in any contracts with other parties.

3) That the Supervisor is an independent retailer/dealer insofar as the Company is

concerned, and shall have the sole discretion to determine where and how
products purchased from the Company will be sold. However, the
Supervisor shall not sell such products to stores, supermarkets or to any
entity or person who sells things at a fixed place of business.

4) That this agreement supersedes any agreement/s between the Company and the
Supervisor.

5) That the Supervisor shall sell or offer to sell, display or promote only and
exclusively products sold by the Company.

6) Either party may terminate this agreement at will, with or without cause, at any
time upon notice to the other.

x x x x.[4]

By virtue of the execution of the aforequoted Supervisors Agreement,

respondent Luna became part of the independent sales force of petitioner Avon.

Sometime in the latter part of 1988, respondent Luna was invited by a

former Avon employee who was then currently a Sales Manager of Sandr
Philippines, Inc., a domestic corporation engaged in direct selling of vitamins
and other food supplements, to sell said products. Respondent Luna apparently
accepted the invitation as she then became a Group Franchise Director of Sandr
Philippines, Inc. concurrently with being a Group Supervisor of petitioner Avon.
As Group Franchise Director, respondent Luna began selling and/or promoting
Sandr products to other Avon employees and friends. On 23 September 1988,
she requested a law firm to render a legal opinion as to the legal consequence
of the Supervisors Agreement she executed with petitioner Avon. In response
to her query, a lawyer of the firm opined that the Supervisors Agreement was
contrary to law and public policy.

Wanting to share the legal opinion she obtained from her legal counsel,
respondent Luna wrote a letter to her colleagues and attached mimeographed
copies of the opinion and then circulated them. The full text of her letter reads:

69
 We all love our work as independent dealers and we all love to continue in this
livelihood. Because my livelihood is important to me, I have asked the legal opinion of a
leading Makatilaw office regarding my status as an independent dealer, I am sharing this
opinion with you.

I have asked their advice on three specific things:

1) May the company legally change the conditions of the existing Supervisors
Agreement without the Supervisors consent? If I should refuse to sign the new
Agreement, may the company terminate my dealership?

On the first issue, my lawyers said that the company cannot change the existing
Agreement without my consent, and that it would be illegal if the company will compel
me to sign the new agreement.

2) Is Section 5 of the Supervisors Agreement which says that a dealer may only
sell products sold by the company, legal?

My lawyers said that Section 5 of the Supervisors Agreement is NOT valid

because it is contrary to public policy, being an unreasonable restraint of trade.

3) Is Section 6 of the Supervisors Agreement which authorizes the company to

terminate the contract at any time, with or without cause, legal?

My lawyer said Section 6 is NOT valid because it is contrary to law and public
policy. The company cannot terminate the Supervisors Agreement without a valid cause.

Therefore, I can conclude that I dont violate Section 5 if I sell any product which
is not in direct competition with the companys products, and there is no valid reason for
the company to terminate my dealership contract if I sell a non-competitive product.

Dear co-supervisor[s], let us all support the reasonable and legal policies of the
company. However, we must all be conscious of our legal rights and be ready to protect
ourselves if they are trampled upon.

I hope we will all stay together selling Avon products for a long time and at the
same time increase our earning opportunity by engaging in other businesses without
being afraid to do so.

70
 In a letter[5] dated 11 October 1988, petitioner Avon, through its President
and General Manager, Jose Mari Franco, notified respondent Luna of the
termination or cancellation of her Supervisors Agreement with petitioner Avon.
Said letter reads in part:

In September, (sic) 1988, you brought to our attention that you signed up as
Group Franchise Director of another company, Sandr Philippines, Inc. (SPI).

Not only that. You have also sold and promoted products of SPI (please refer for
example to SPI Invoice No. 1695 dated Sept. 30, 1988). Worse, you promoted/sold SPI
products even to several employees of our company including Mary Arlene Nolasco,
Regina Porter, Emelisa Aguilar, Hermie Esteller and Emma Ticsay.

To compound your violation of the above-quoted provision, you have written

letters to other members of the Avon salesforce inducing them to violate their own
contracts with our company. x x x.

For violating paragraph 5 x x x, the Company, pursuant to paragraph 6 of the

same Agreement, is terminating and canceling its Supervisors Agreement with
you effective upon your receipt of this notice. We regret having to do this, but your
repeated disregard of the Agreement, despite warnings, leaves (sic) the Company no
other choice.

xxxx

Aggrieved, respondent Luna filed a complaint for damages before the RTC
of Makati City, Branch 138. The complaint was docketed as Civil Case No. 88-2595.

On 26 January 1996, after trial on the merits, the RTC rendered judgment in
favor of respondent Luna stating that:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in

favor of the plaintiff, and against defendant, Avon, ordering the latter:

1) to pay moral damages to the plaintiff in the amount of P100,000.00 with

interest from the date of this judgment up to the time of complete payment;

2) to pay attorneys fees in the amount of P20,000.00;

71
 3) to pay the costs.[6]

On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the

same day. In an Order[7] dated 15 February 1996, the RTC gave due course to the
appeal and directed its Branch Clerk of Court to transmit the entire records of
the case to the Court of Appeals, which docketed the appeal as CA G.R. CV No.
52550.

On 20 May 2002, the Court of Appeals promulgated the assailed

Decision, the dispositive part of which states thus:

WHEREFORE, the foregoing premises considered, the decision appealed from is

hereby AFFIRMED in toto.[8]

The Issues

In predictable displeasure with the conclusions reached by the appellate

court, petitioner Avon now implores this Court to review, via a petition for review
on certiorari under Rule 45 of the Revised Rules of Court, the formers decision
and to resolve the following assigned errors:[9]

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING

THAT THE SUPERVISORS AGREEMENT EXECUTED
BETWEEN AVONAND RESPONDENT LUNA AS NULL AND VOID FOR
BEING AGAINST PUBLIC POLICY;

II.

72
 THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING
THAT AVON HAD NO RIGHT TO TERMINATE OR CANCEL THE
SUPERVIOSRS AGREEMENT;

III.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN

UPHOLDING THE AWARD OF MORAL DAMAGES AND ATTORNEYS
FEES IN FAVOR OF RESPONDENT LUNA; and

IV.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT

AWARDING ATTORNEYS FEES AND LITIGATION EXPENSES IN FAVOR OF
PETITIONER.

The Courts Ruling

A priori, respondent Luna objects to the presentation, and eventual

resolution, of the issues raised herein as they allegedly involve questions of facts.

To be sure, questions of law are those that involve doubts or controversies

on what the law is on certain state of facts; and questions of fact, on the other
hand, are those in which there is doubt or difference as to the truth or falsehood
of the alleged facts. One test, it has been held, is whether the appellate court can

73
determine the issue raised without reviewing or evaluating the evidence, in which
case it is a question of law, otherwise it will be a question of fact.[10]

In the present case, the threshold issues are a) whether or not paragraph
5 of the Supervisors Agreement is void for being violative of law and public
policy; and b) whether or not paragraph 6 of the Supervisors Agreement which
authorizes petitioner Avon to terminate or cancel the agreement at will is void
for being contrary to law and public policy.Certainly, it is quite obvious that the
foregoing issues are questions of law.

In affirming the decision of the RTC declaring the subject contract null
and void for being against public policy, the Court of Appeals ruled that
the exclusivity clause, which states that:

The Company and the Supervisor mutually agree:

xxxx

5) That the Supervisor shall sell or offer to sell, display or promote only and
exclusively products sold by the Company. [Emphasis supplied.]

should be interpreted to apply solely to those products directly in competition

with those of petitioner Avons, i.e., cosmetics and/or beauty supplies and
lingerie products. Its declaration is anchored on the fact that Avon products, at
that time, were not in any way similar to the products sold by Sandr Philippines,
Inc. At that time, the latter was merely selling vitamin products. Put simply, the
products of the two companies do not compete with each other. The appellate
court ratiocinated that:

x x x If the agreement were interpreted otherwise, so as to include products that do not

directly compete with the products of defendant-appellant Avon, such would result in
absurdity. x x x [A]greements which prohibit a person from engaging in any enterprise
whether similar or not to the enterprise of the employer constitute an unreasonable
restraint of trade, thus, it is void as against public policy. [11]

Petitioner Avon disputes the abovestated conclusion reached by the

Court of Appeals. It argues that the latter went beyond the literal and obvious
intent of the parties to the subject contract when it interpreted the
abovequoted clause to apply only to those products that do not compete with

74
that of petitioner Avons; and that the words only and exclusively need no other
interpretation other than the literal meaning that THE SUPERVISORS CANNOT
SELL THE PRODUCTS OF OTHER COMPANIES WHETHER OR NOT THEY ARE
COMPETING PRODUCTS.[12]

Moreover, petitioner Avon reasons that:

The exclusivity clause was directed against the supervisors selling other
products utilizing their training and experience, and capitalizing on Avons existing
network for the promotion and sale of the said products. The exclusivity clause was
meant to protect Avon from other companies, whether competitors or not, who would
exploit the sales and promotions network already established by Avon at great expense
and effort.

xxxx

Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and
network to sell and promote its products. It was precisely why Sandre simply invited,
and then and there hired Luna and other Avon supervisors and dealers to sell and
promote its products. They had the training and experience, they also had a ready
market for the other products the customers to whom they had been selling
the Avon products. It was easy to entice the supervisors to sign up. The supervisors
could continue to sell Avon products, and at the same time earn additional income by
selling other products.

This is most unfair to Avon. The other companies cannot ride on and exploit the
training and experience of the Avon sales force to sell and promote their own products.
[Emphasis supplied.]

On the other hand, in her Memorandum, respondent Luna counters that

there is no allegation nor any finding by the trial court or the Court of Appeals
of an existing nationwide sales and promotions network established by Avon or
Avons existing sales promotions network or Avons tried and tested sales and
promotions network nor the alleged damage caused to such system caused by
other companies. Further, well worth noting is the opinion of respondent Lunas
counsel which started the set off the series of events which culminated to the
termination or cancellation of the Supervisors Agreement. In response to the
query-letter[13] of respondent Luna, the latters legal counsel opined that, as
allegedly held in the case of Ferrazzini v. Gsell,[14] paragraph 5 of the subject
Supervisors Agreement not only prohibits the supervisor from selling products
which compete with the companys product but restricts likewise the supervisor
from engaging in any industry which involves sales in general. [15] Said counsel
thereafter concluded that the subject provision in the Supervisors Agreement

75
constitutes an unreasonable restraint of trade and, therefore, void for being
contrary to public policy.

At the crux of the first issue is the validity of paragraph 5 of the

Supervisors Agreement, viz:

The Company and the Supervisor mutually agree:

xxxx

5) That the Supervisor shall sell or offer to sell, display or promote only and
exclusively products sold by the Company. [Emphasis supplied.]

In business parlance, this is commonly termed as the exclusivity clause. This is

defined as agreements which prohibit the obligor from engaging in business in
competition with the obligee.

This exclusivity clause is more often the subject of critical scrutiny when it
is perceived to collide with the Constitutional proscription against reasonable
restraint of trade or occupation. The pertinent provision of the Constitution is
quoted hereunder. Section 19 of Article XII of the 1987 Constitution on the
National Economy and Patrimony states that:

SEC. 19. The State shall regulate or prohibit monopolies when the public interest
so requires. No combinations in restraint of trade or unfair competition shall be allowed.

First off, restraint of trade or occupation embraces acts, contracts,

agreements or combinations which restrict competition or obstruct due course
of trade.[16]

Now to the basics. From the wordings of the Constitution, truly then,
what is brought about to lay the test on whether a given agreement constitutes
an unlawful machination or combination in restraint of trade is whether under
the particular circumstances of the case and the nature of the particular
contract involved, such contract is, or is not, against public interest.[17]

Thus, restrictions upon trade may be upheld when not contrary to public
welfare and not greater than is necessary to afford a fair and reasonable

76
protection to the party in whose favor it is imposed. [18] Even contracts which
prohibit an employee from engaging in business in competition with the
employer are not necessarily void for being in restraint of trade.

In sum, contracts requiring exclusivity are not per se void. Each contract
must be viewed vis--vis all the circumstances surrounding such agreement in
deciding whether a restrictive practice should be prohibited as imposing an
unreasonable restraint on competition.

The question that now crops up is this, when is a restraint in trade

unreasonable? Authorities are one in declaring that a restraint in trade is
unreasonable when it is contrary to public policy or public welfare. As far back
as 1916, in the case of Ferrazzini v. Gsell,[19] this Court has had the occasion to
declare that:

[T]here is no difference in principle between the public policy (orden pblico) in the in the
two jurisdictions (United States and the Philippine Islands) as determined by the
Constitution, laws, and judicial decisions.

In the United States it is well settled that contracts in undue or unreasonable

restraint of trade are unenforcible because they are repugnant to the established public
policy in that country. Such contracts are illegal in the sense that the law will not enforce
them. The Supreme Court in the United States, in Oregon Steam Navigation Co.
vs. Winsor )20 Will., 64), quoted with approval in Gibbs v. Consolidated gas Co. of
Baltimore (130 U.S., 396), said:

Cases must be judged according to their circumstances, and can

only be rightly judged when reason and grounds of the rule are carefully
considered. There are two principle grounds on which the doctrine is
founded that a contract in restraint of trade is void as against public
policy. One is, the injury to the public by being deprived of the restricted
partys industry; and the other is, the injury to the party himself by being
precluded from pursuing his occupation, and thus being prevented from
supporting himself and his family.

And what is public policy? In the words of the eminent Spanish jurist,
Don Jose Maria Manresa, in his commentaries of the Codigo Civil, public policy
(orden pblico):

[R]epresents in the law of persons the public, social and legal interest, that which is
permanent and essential of the institutions, that which, even if favoring an individual in

77
 whom the right lies, cannot be left to his own will. It is an idea which, in cases of the
waiver of any right, is manifested with clearness and force. [20]

As applied to agreements, Quintus Mucius Scaevola, another

distinguished civilist gives the term public policy a more defined meaning:

Agreements in violation of orden pblico must be considered as those which

conflict with law, whether properly, strictly and wholly a public law (derecho) or whether
a law of the person, but law which in certain respects affects the interest of society. [21]

Plainly put, public policy is that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be injurious to
the public or against the public good.[22] As applied to contracts, in the absence
of express legislation or constitutional prohibition, a court, in order to declare a
contract void as against public policy, must find that the contract as to the
consideration or thing to be done, has a tendency to injure the public, is against
the public good, or contravenes some established interests of society, or is
inconsistent with sound policy and good morals, or tends clearly to undermine
the security of individual rights, whether of personal liability or of private
property.[23]

From another perspective, the main objection to exclusive dealing is its

tendency to foreclose existing competitors or new entrants from competition in
the covered portion of the relevant market during the term of the agreement.
[24]
Only those arrangements whose probable effect is to foreclose competition
in a substantial share of the line of commerce affected can be considered as
void for being against public policy. The foreclosure effect, if any, depends on
the market share involved. The relevant market for this purpose includes the
full range of selling opportunities reasonably open to rivals, namely, all the
product and geographic sales they may readily compete for, using easily
convertible plants and marketing organizations.[25]

Applying the preceding principles to the case at bar, there is nothing

invalid or contrary to public policy either in the objectives sought to be attained
by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and
all other Avon supervisors, from selling products other than those
manufactured by petitioner Avon. We quote with approval the determination of

78
the U.S. Supreme Court in the case of Board of Trade of Chicago v. U.S.[26] that
the question to be determined is whether the restraint imposed is such as
merely regulates and perhaps thereby promotes competition, or whether it is
such as may suppress or even destroy competition.

Such prohibition is neither directed to eliminate the competition like

Sandr Phils., Inc. nor foreclose new entrants to the market. In its Memorandum,
it admits that the reason for such exclusion is to safeguard the network that it
has cultivated through the years. Admittedly, both companies employ the direct
selling method in order to peddle their products. By direct selling,
petitioner Avon and Sandre, the manufacturer, forego the use of a middleman
in selling their products, thus, controlling the price by which they are to be sold.
The limitation does not affect the public at all. It is only a means by which
petitioner Avon is able to protect its investment.

It was not by chance that Sandr Philippines, Inc. made respondent Luna
one of its Group Franchise Directors. It doesnt take a genius to realize that by
making her an important part of its distribution arm, Sandr Philippines, Inc., a
newly formed direct-selling business, would be saving time, effort and money
as it will no longer have to recruit, train and motivate supervisors and dealers.
Respondent Luna, who learned the tricks of the trade from petitioner Avon, will
do it for them. This is tantamount to unjust enrichment. Worse, the goodwill
established by petitioner Avon among its loyal customers will be taken
advantaged of by Sandre Philippines, Inc. It is not so hard to imagine the
scenario wherein the sale of Sandr products by Avon dealers will engender a
belief in the minds of loyal Avon customers that the product that they are
buying had been manufactured by Avon. In other words, they will be misled
into thinking that the Sandr products are in fact Avon products. From the
foregoing, it cannot be said that the purpose of the subject exclusivity clause is
to foreclose the competition, that is, the entrance of Sandr products in to the
market. Therefore, it cannot be considered void for being against public policy.
How can the protection of ones property be violative of public
policy? Sandr Philippines, Inc. is still very much free to distribute its products in
the market but it must do so at its own expense. The exclusivity clause does not
in any way limit its selling opportunities, just the undue use of the resources of
petitioner Avon.

79
 It has been argued that the Supervisors Agreement is in the nature of a
contract of adhesion; but just because it is does not necessarily mean that it is
void. A contract of adhesion is so-called because its terms are prepared by only
one party while the other party merely affixes his signature signifying his
adhesion thereto.[27] Such contract is just as binding as ordinary contracts. It is
true that we have, on occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant bargaining party
and is reduced to the alternative of taking it or leaving it, completely deprived
of the opportunity to bargain on equal footing. Nevertheless, contracts of
adhesion are not invalid per se and they are not entirely prohibited. The one
who adheres to the contract is in reality free to reject it entirely, if he adheres,
he gives his consent.[28] In the case at bar, there was no indication that
respondent Luna was forced to sign the subject agreement. Being of age,
financially stable and with vast business experience, she is presumed to have
acted with due care and to have signed the assailed contract with full
knowledge of its import. Under the premises, it would be difficult to assume
that she was morally abused. She was free to reject the agreement if she
wanted to.

Accordingly, a contract duly executed is the law between the parties, and
they are obliged to comply fully and not selectively with its terms. A contract of
adhesion is no exception.[29]

The foregoing premises noted, the Court of Appeals, therefore,

committed reversible error in interpreting the subject exclusivity clause to apply
merely to those products in direct competition to those manufactured and sold
by petitioner Avon. When the terms of the agreement are clear and explicit,
that they do not justify an attempt to read into any alleged intention of the
parties, the terms are to be understood literally just as they appear on the face
of the contract.[30] Thus, in order to judge the intention of the contracting
parties, the circumstances under which it was made, including the situation of
the subject thereof and of the parties to it, may be shown, so that the judge
may be placed in the position of those whose language he is to interpret. [31] It
has been held that once this intention of the parties has been ascertained, it

80
 becomes an integral part of the contract as though it has been originally
expressed therein in unequivocal terms.[32]

Having held that the exclusivity clause as embodied in paragraph 5 of the

Supervisors Agreement is valid and not against public policy, we now pass to a
consideration of respondent Lunas objections to the validity of her termination
as provided for under paragraph 6 of the Supervisors Agreement giving
petitioner Avon the right to terminate or cancel such contract. The paragraph 6
or the termination clause therein expressly provides that:

The Company and the Supervisor mutually agree:

xxxx

6) Either party may terminate this agreement at will, with or without cause, at any
time upon notice to the other. [Emphasis supplied.]

In the case of Petrophil Corporation v. Court of Appeals,[33] this Court

already had the opportunity to opine that termination or cancellation clauses such
as that subject of the case at bar are legitimate if exercised in good faith. The facts
of said case likewise involved a termination or cancellation clause that clearly
provided for two ways of terminating the contract, i.e., with or without cause. The
utilization of one mode will not preclude the use of the other. Therein, we stated
that the finding that the termination of the contract was for cause, is immaterial.
When petitioner terminated the contract without cause, it was required only to give
x x x a 30-day prior written notice, which it did.

In the case at bar, the termination clause of the Supervisors Agreement

clearly provides for two ways of terminating and/or canceling the contract. One
mode does not exclude the other. The contract provided that it can be terminated or
cancelled for cause, it also stated that it can be terminated without cause, both at
any time and after written notice. Thus, whether or not the termination or
cancellation of the Supervisors Agreement was for cause, is immaterial. The only
requirement is that of notice to the other party. When petitioner Avon chose to
terminate the contract, for cause, respondent Luna was duly notified thereof.

Worth stressing is that the right to unilaterally terminate or cancel the

Supervisors Agreement with or without cause is equally available to respondent

81
Luna, subject to the same notice requirement. Obviously, no advantage is taken
against each other by the contracting parties.

WHEREFORE, in view of the foregoing, the instant petition is GRANTED.

The Decision dated 20 May 2002 rendered by the Court of Appeals in CA-G.R. CV
No. 52550, affirming the judgment of the RTC of Makati City, Branch 138, in Civil
Case No. 88-2595, are hereby REVERSED and SET ASIDE. Accordingly, let a new
one be entered dismissing the complaint for damages. Costs against respondent
Leticia Luna.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES SANTIAGO

Associate Justice
Working Chairman

(No Part)

82
 MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES SANTIAGO

Associate Justice
Working Chairman

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans
Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.

83
 REYNATO S. PUNO
Chief Justice

* Retired as of 7 December 2006.

* No part.
[1]
Penned by Court of Appeals Associate Justice Remedios A. Salazar-Fernando and concurred in by Associate
Justices Romeo J. Callejo, Sr. (now Associate Justice of this Court) and Danilo B. Pine; Annex A of the
Petition; rollo, pp. 32-40.
[2]
Records, pp. 980-996.
[3]
Id. at 1-8.
[4]
Id. at 9.
[5]
Annex B of the Complaint; id. at 10-11.
[6]
Id. at 996.
[7]
Id. at 1001.
[8]
Rollo, p. 39.
[9]
Petition, p. 7; rollo, p. 15.
[10]
Vda. de Arroyo v. El Beaterio del Santissimo Rosario de Molo, 132 Phil. 9, 12-13 (1968).
[11]
Rollo, p. 38.
[12]
Petitioners Memorandum, p. 8; rollo, p. 173.
[13]
Dated 23 September 1988
[14]
34 Phil. 697 (1916).
[15]
Records, p. 110.
[16]
Pulpwood Co. v. Green Bay Paper & Fiber Co., 170 N.W. 230, 232, 168 Wis. 400.
[17]
Supra note 12 at 712; citing Gibbs v. Consolidated Gas Co. of Baltimore (130 U.S. 396).
[18]
Ollendorf v. Abrahamson, 38 Phil. 585, 592 (1918).
[19]
Supra note 15 at 24.
[20]
Commentaries, Vol. 8, p. 606.
[21]
Vol. 20, p. 505.
[22]
F.B. MORENO, Philippine Law Dictionary (3rd ed., 1988).
[23]
Gabriel v. Monte de Piedad, 71 Phil. 497, 500-501 (1941).
[24]
Roland Machinery Co. v. Dresser Industries, Inc., 749 F. 2d 380, 393 (7th Cir. 1984).
[25]
Tampa Electric Company v. Nashville Coal Company, 365 U.S. 320, 81 S. Ct., 623.
[26]
246 U.S. 231, 62 L. ed. 683 (1918).
[27]
Spouses Ermitao v. Court of Appeals, 365 Phil. 671, 678-679 (1999).
[28]
Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (1999).
[29]
Philippine Airlines, Inc. v. Court of Appeals, 325 Phil. 303 (1996).
[30]
Honrado, Jr. v. Court of Appeals, G.R. No. 83086, 19 June 1991, 198 SCRA 326, 330-331.
[31]
Sec. 11, Rule 130 of the Revised Rules of Court.
[32]
Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 125 Phil. 204 (1966).
[33]
423 Phil. 182 (2001).

84
 THIRD DIVISION

[G.R. No. 198783, April 15, 2013]

ROYAL PLANT WORKERS UNION, Petitioner, v. COCA-COLA BOTTLERS PHILIPPINES, INC.-CEBU

PLANT, Respondent.

DECISION

MENDOZA, J.:

Assailed in this petition is the May 24, 2011 Decision1 and the September 2, 2011 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 05200, entitled Coca-Cola Bottlers Philippines, Inc.-Cebu Plant v. Royal
Plant Workers Union, which nullified and set aside the June 11, 2010 Decision 3 of the Voluntary Arbitration
Panel (Arbitration Committee) in a case involving the removal of chairs in the bottling plant of Coca-Cola
Bottlers Philippines, Inc. (CCBPI).

The Factual and Procedural

Antecedents

The factual and procedural antecedents have been accurately recited in the May 24, 2011 CA decision as
follows:chanroblesvirtuallawlibrary

Petitioner Coca-Cola Bottlers Philippines, Inc. (CCBPI) is a domestic corporation engaged in the
manufacture, sale and distribution of softdrink products. It has several bottling plants all over the country,
one of which is located in Cebu City. Under the employ of each bottling plant are bottling operators. In the
case of the plant in Cebu City, there are 20 bottling operators who work for its Bottling Line 1 while there
are 12-14 bottling operators who man its Bottling Line 2. All of them are male and they are members of
herein respondent Royal Plant Workers Union (ROPWU).

The bottling operators work in two shifts. The first shift is from 8 a.m. to 5 p.m. and the second shift is from
5 p.m. up to the time production operations is finished. Thus, the second shift varies and may end beyond
eight (8) hours. However, the bottling operators are compensated with overtime pay if the shift extends
beyond eight (8) hours. For Bottling Line 1, 10 bottling operators work for each shift while 6 to 7 bottling
operators work for each shift for Bottling Line 2.

Each shift has rotations of work time and break time. Prior to September 2008, the rotation is this: after two
and a half (2 ½) hours of work, the bottling operators are given a 30-minute break and this goes on until
the shift ends. In September 2008 and up to the present, the rotation has changed and bottling operators
are now given a 30-minute break after one and one half (1 ½) hours of work.

In 1974, the bottling operators of then Bottling Line 2 were provided with chairs upon their request. In
1988, the bottling operators of then Bottling Line 1 followed suit and asked to be provided also with chairs.
Their request was likewise granted. Sometime in September 2008, the chairs provided for the operators
were removed pursuant to a national directive of petitioner. This directive is in line with the “I Operate, I
Maintain, I Clean” program of petitioner for bottling operators, wherein every bottling operator is given the
responsibility to keep the machinery and equipment assigned to him clean and safe. The program reinforces
the task of bottling operators to constantly move about in the performance of their duties and
responsibilities.

With this task of moving constantly to check on the machinery and equipment assigned to him, a bottling
operator does not need a chair anymore, hence, petitioner’s directive to remove them. Furthermore, CCBPI
rationalized that the removal of the chairs is implemented so that the bottling operators will avoid sleeping,
thus, prevent injuries to their persons. As bottling operators are working with machines which consist of
moving parts, it is imperative that they should not fall asleep as to do so would expose them to hazards and
injuries. In addition, sleeping will hamper the efficient flow of operations as the bottling operators would be
unable to perform their duties competently.

The bottling operators took issue with the removal of the chairs. Through the representation of herein
respondent, they initiated the grievance machinery of the Collective Bargaining Agreement (CBA) in
November 2008. Even after exhausting the remedies contained in the grievance machinery, the parties were
still at a deadlock with petitioner still insisting on the removal of the chairs and respondent still against such
measure. As such, respondent sent a Notice to Arbitrate, dated 16 July 2009, to petitioner stating its
position to submit the issue on the removal of the chairs for arbitration. Nevertheless, before submitting to

85
arbitration the issue, both parties availed of the conciliation/mediation proceedings before the National
Conciliation and Mediation Board (NCMB) Regional Branch No. VII. They failed to arrive at an amicable
settlement.

Thus, the process of arbitration continued and the parties appointed the chairperson and members of the
Arbitration Committee as outlined in the CBA. Petitioner and respondent respectively appointed as members
to the Arbitration Committee Mr. Raul A. Kapuno, Jr. and Mr. Luis Ruiz while they both chose Atty. Alice
Morada as chairperson thereof. They then executed a Submission Agreement which was accepted by the
Arbitration Committee on 01 October 2009. As contained in the Submission Agreement, the sole issue for
arbitration is whether the removal of chairs of the operators assigned at the production/manufacturing line
while performing their duties and responsibilities is valid or not.

Both parties submitted their position papers and other subsequent pleadings in amplification of their
respective stands. Petitioner argued that the removal of the chairs is valid as it is a legitimate exercise of
management prerogative, it does not violate the Labor Code and it does not violate the CBA it contracted
with respondent. On the other hand, respondent espoused the contrary view. It contended that the bottling
operators have been performing their assigned duties satisfactorily with the presence of the chairs; the
removal of the chairs constitutes a violation of the Occupational Health and Safety Standards, the policy of
the State to assure the right of workers to just and humane conditions of work as stated in Article 3 of the
Labor Code and the Global Workplace Rights Policy.

Ruling of the Arbtration Committee

On June 11, 2010, the Arbitration Committee rendered a decision in favor of the Royal Plant Workers
Union (the Union) and against CCBPI, the dispositive portion of which reads, as follows: chanroblesvirtuallawlibrary

Wherefore, the undersigned rules in favor of ROPWU declaring that the removal of the operators chairs is
not valid. CCBPI is hereby ordered to restore the same for the use of the operators as before their removal
in 2008.4

The Arbitration Committee ruled, among others, that the use of chairs by the operators had been a company
practice for 34 years in Bottling Line 2, from 1974 to 2008, and 20 years in Bottling Line 1, from 1988 to
2008; that the use of the chairs by the operators constituted a company practice favorable to the Union;
that it ripened into a benefit after it had been enjoyed by it; that any benefit being enjoyed by the
employees could not be reduced, diminished, discontinued, or eliminated by the employer in accordance
with Article 100 of the Labor Code, which prohibited the diminution or elimination by the employer of the
employees’ benefit; and that jurisprudence had not laid down any rule requiring a specific minimum number
of years before a benefit would constitute a voluntary company practice which could not be unilaterally
withdrawn by the employer.

The Arbitration Committee further stated that, although the removal of the chairs was done in good faith,
CCBPI failed to present evidence regarding instances of sleeping while on duty. There were no specific
details as to the number of incidents of sleeping on duty, who were involved, when these incidents
happened, and what actions were taken. There was no evidence either of any accident or injury in the
many years that the bottling operators used chairs. To the Arbitration Committee, it was puzzling why it
took 34 and 20 years for CCBPI to be so solicitous of the bottling operators’ safety that it removed their
chairs so that they would not fall asleep and injure themselves.

Finally, the Arbitration Committee was of the view that, contrary to CCBPI’s position, line efficiency was the
result of many factors and it could not be attributed solely to one such as the removal of the chairs.

Not contented with the Arbitration Committee’s decision, CCBPI filed a petition for review under Rule 43
before the CA.

Ruling of the CA

On May 24, 2011, the CA rendered a contrasting decision which nullified and set aside the decision of the
Arbitration Committee. The dispositive portion of the CA decision reads: chanroblesvirtuallawlibrary

WHEREFORE, premises considered, the petition is hereby GRANTED and the Decision, dated 11 June 2010,
of the Arbitration Committee in AC389-VII-09-10-2009D is NULLIFIED and SET ASIDE. A new one is entered
in its stead SUSTAINING the removal of the chairs of the bottling operators from the
manufacturing/production line.5

The CA held, among others, that the removal of the chairs from the manufacturing/production lines by
CCBPI is within the province of management prerogatives; that it was part of its inherent right to control
and manage its enterprise effectively; and that since it was the employer’s discretion to constantly develop
measures or means to optimize the efficiency of its employees and to keep its machineries and equipment in
the best of conditions, it was only appropriate that it should be given wide latitude in exercising it.

The CA stated that CCBPI complied with the conditions of a valid exercise of a management prerogative
when it decided to remove the chairs used by the bottling operators in the manufacturing/production lines.

86
The removal of the chairs was solely motivated by the best intentions for both the Union and CCBPI, in line
with the “I Operate, I Maintain, I Clean” program for bottling operators, wherein every bottling operator was
given the responsibility to keep the machinery and equipment assigned to him clean and safe. The program
would reinforce the task of bottling operators to constantly move about in the performance of their duties
and responsibilities. Without the chairs, the bottling operators could efficiently supervise these machineries’
operations and maintenance. It would also be beneficial for them because the working time before the break
in each rotation for each shift was substantially reduced from two and a half hours (2 ½ ) to one and a half
hours (1 ½) before the 30-minute break. This scheme was clearly advantageous to the bottling operators
as the number of resting periods was increased. CCBPI had the best intentions in removing the chairs
because some bottling operators had the propensity to fall asleep while on the job and sleeping on the job
ran the risk of injury exposure and removing them reduced the risk.

The CA added that the decision of CCBPI to remove the chairs was not done for the purpose of defeating or
circumventing the rights of its employees under the special laws, the Collective Bargaining
Agreement (CBA) or the general principles of justice and fair play. It opined that the principles of justice and
fair play were not violated because, when the chairs were removed, there was a commensurate reduction of
the working time for each rotation in each shift. The provision of chairs for the bottling operators was never
part of the CBAs contracted between the Union and CCBPI. The chairs were not provided as a benefit
because such matter was dependent upon the exigencies of the work of the bottling operators. As such,
CCBPI could withdraw this provision if it was not necessary in the exigencies of the work, if it was not
contributing to the efficiency of the bottling operators or if it would expose them to some hazards. Lastly,
the CA explained that the provision of chairs to the bottling operators cannot be covered by Article 100 of
the Labor Code on elimination or diminution of benefits because the employee’s benefits referred to therein
mainly involved monetary considerations or privileges converted to their monetary equivalent.

Disgruntled with the adverse CA decision, the Union has come to this Court praying for its reversal on the
following

GROUNDS

THAT WITH DUE RESPECT, THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT A
PETITION FOR REVIEW UNDER RULE 43 OF THE RULES OF COURT IS THE PROPER REMEDY OF
CHALLENGING BEFORE SAID COURT THE DECISION OF THE VOLUNTARY ARBITRATOR OR PANEL OF
VOLUNTARY ARBITRATORS UNDER THE LABOR CODE.

II

THAT WITH DUE RESPECT, THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN NULLIFYING
AND SETTING ASIDE THE DECISION OF THE PANEL OF VOLUNTARY ARBITRATORS WHICH DECLARED AS
NOT VALID THE REMOVAL OF THE CHAIRS OF THE OPERATORS IN THE MANUFACTURING AND/OR
PRODUCTION LINE.

In advocacy of its positions, the Union argues that the proper remedy in challenging the decision of the
Arbitration Committee before the CA is a petition for certiorari under Rule 65. The petition for review under
Rule 43 resorted to by CCBPI should have been dismissed for being an improper remedy. The Union points
out that the parties agreed to submit the unresolved grievance involving the removal of chairs to voluntary
arbitration pursuant to the provisions of Article V of the existing CBA. Hence, the assailed decision of the
Arbitration Committee is a judgment or final order issued under the Labor Code of the Philippines. Section 2,
Rule 43 of the 1997 Rules of Civil Procedure, expressly states that the said rule does not cover cases under
the Labor Code of the Philippines. The judgments or final orders of the Voluntary Arbitrator or Panel of
Voluntary Arbitrators are governed by the provisions of Articles 260, 261, 262, 262-A, and 262-B of the
Labor Code of the Philippines.

On the substantive aspect, the Union argues that there is no connection between CCBPI’s “I Operate, I
Maintain, I Clean” program and the removal of the chairs because the implementation of the program was in
2006 and the removal of the chairs was done in 2008. The 30-minute break is part of an operator’s working
hours and does not make any difference. The frequency of the break period is not advantageous to the
operators because it cannot compensate for the time they are made to stand throughout their working time.
The bottling operators get tired and exhausted after their tour of duty even with chairs around. How much
more if the chairs are removed?

The Union further claims that management prerogatives are not absolute but subject to certain limitations
found in law, a collective bargaining agreement, or general principles of fair play and justice. The operators
have been performing their assigned duties and responsibilities satisfactorily for thirty (30) years using
chairs. There is no record of poor performance because the operators are sitting all the time. There is no
single incident when the attention of an operator was called for failure to carry out his assigned tasks. CCBPI
has not submitted any evidence to prove that the performance of the operators was poor before the removal
of the chairs and that it has improved after the chairs were removed. The presence of chairs for more than
30 years made the operators awake and alert as they could relax from time to time. There are sanctions for
those caught sleeping while on duty. Before the removal of the chairs, the efficiency of the operators was
much better and there was no recorded accident. After the removal of the chairs, the efficiency of the

87
operators diminished considerably, resulting in the drastic decline of line efficiency.

Finally, the Union asserts that the removal of the chairs constitutes violation of the Occupational Health and
Safety Standards, which provide that every company shall keep and maintain its workplace free from
hazards that are likely to cause physical harm to the workers or damage to property. The removal of the
chairs constitutes a violation of the State policy to assure the right of workers to a just and humane
condition of work pursuant to Article 3 of the Labor Code and of CCBPI’s Global Workplace Rights Policy.
Hence, the unilateral withdrawal, elimination or removal of the chairs, which have been in existence for
more than 30 years, constitutes a violation of existing practice.

The respondent’s position

CCBPI reiterates the ruling of the CA that a petition for review under Rule 43 of the Rules of Court was the
proper remedy to question the decision of the Arbitration Committee. It likewise echoes the ruling of the CA
that the removal of the chairs was a legitimate exercise of management prerogative; that it was done not to
harm the bottling operators but for the purpose of optimizing their efficiency and CCBPI’s machineries and
equipment; and that the exercise of its management prerogative was done in good faith and not for the
purpose of circumventing the rights of the employees under the special laws, the CBA or the general
principles of justice and fair play.

The Court’s Ruling

The decision in this case rests on the resolution of two basic questions. First, is an appeal to the CA via a
petition for review under Rule 43 of the 1997 Rules of Civil Procedure a proper remedy to question the
decision of the Arbitration Committee? Second, was the removal of the bottling operators’ chairs from
CCBPI’s production/manufacturing lines a valid exercise of a management prerogative?

The Court sustains the ruling of the CA on both issues.

Regarding the first issue, the Union insists that the CA erred in ruling that the recourse taken by CCBPI in
appealing the decision of the Arbitration Committee was proper. It argues that the proper remedy in
challenging the decision of the Voluntary Arbitrator before the CA is by filing a petition for certiorari under
Rule 65 of the Rules of Court, not a petition for review under Rule 43.

CCBPI counters that the CA was correct in ruling that the recourse it took in appealing the decision of the
Arbitration Committee to the CA via a petition for review under Rule 43 of the Rules of Court was proper and
in conformity with the rules and prevailing jurisprudence.

A Petition for Review

under Rule 43 is the
proper remedy

CCBPI is correct. This procedural issue being debated upon is not novel. The Court has already ruled in a
number of cases that a decision or award of a voluntary arbitrator is appealable to the CA via a petition for
review under Rule 43. The recent case of Samahan Ng Mga Manggagawa Sa Hyatt (SAMASAH-NUWHRAIN)
v. Hon. Voluntary Arbitrator Buenaventura C. Magsalin and Hotel Enterprises of the Philippines 6 reiterated
the well-settled doctrine on this issue, to wit: chanroblesvirtuallawlibrary

In the case of Samahan ng mga Manggagawa sa Hyatt-NUWHRAIN-APL v. Bacungan,7 we repeated the well-
settled rule that a decision or award of a voluntary arbitrator is appealable to the CA via petition for review
under Rule 43. We held that: chanroblesvirtuallawlibrary

“The question on the proper recourse to assail a decision of a voluntary arbitrator has already been settled
in Luzon Development Bank v. Association of Luzon Development Bank Employees, where the Court held
that the decision or award of the voluntary arbitrator or panel of arbitrators should likewise be appealable to
the Court of Appeals, in line with the procedure outlined in Revised Administrative Circular No. 1-95 (now
embodied in Rule 43 of the 1997 Rules of Civil Procedure), just like those of the quasi-judicial agencies,
boards and commissions enumerated therein, and consistent with the original purpose to provide a uniform
procedure for the appellate review of adjudications of all quasi-judicial entities.

Subsequently, in Alcantara, Jr. v. Court of Appeals, and Nippon Paint Employees Union-Olalia v. Court of
Appeals, the Court reiterated the aforequoted ruling. In Alcantara, the Court held that notwithstanding
Section 2 of Rule 43, the ruling in Luzon Development Bank still stands. The Court explained, thus:
‘The provisions may be new to the Rules of Court but it is far from being a new law. Section 2, Rules 42 of
the 1997 Rules of Civil Procedure, as presently worded, is nothing more but a reiteration of the exception to
the exclusive appellate jurisdiction of the Court of Appeals, as provided for in Section 9, Batas Pambansa
Blg. 129, as amended by Republic Act No. 7902: cralaw

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the
Securities and Exchange Commission, the Employees’ Compensation Commission and the Civil Service
Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with
the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the

88
provisions of this Act and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth
paragraph of Section 17 of the Judiciary Act of 1948.’
The Court took into account this exception in Luzon Development Bank but, nevertheless, held that the
decisions of voluntary arbitrators issued pursuant to the Labor Code do not come within its ambit x x x.”
Furthermore, Sections 1, 3 and 4, Rule 43 of the 1997 Rules of Civil Procedure, as amended, provide: chanroblesvirtuallawlibrary

“SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these agencies are the x x x, and voluntary
arbitrators authorized by law.

xxxx

SEC. 3. Where to appeal. - An appeal under this Rule may be taken to the Court of Appeals within the period
and in the manner therein provided, whether the appeal involves questions of fact, of law, or mixed
questions of fact and law.

SEC. 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its last publication, if publication is required by law
for its effectivity, or of the denial of petitioner’s motion for new trial or reconsideration duly filed in
accordance with the governing law of the court or agency a quo. x x x. (Emphasis supplied.)’

Hence, upon receipt on May 26, 2003 of the Voluntary Arbitrator’s Resolution denying petitioner’s motion for
reconsideration, petitioner should have filed with the CA, within the fifteen (15)-day reglementary period, a
petition for review, not a petition for certiorari.

On the second issue, the Union basically claims that the CCBPI’s decision to unilaterally remove the
operators’ chairs from the production/manufacturing lines of its bottling plants is not valid because it
violates some fundamental labor policies. According to the Union, such removal constitutes a violation of the
1) Occupational Health and Safety Standards which provide that every worker is entitled to be provided by
the employer with appropriate seats, among others; 2) policy of the State to assure the right of workers to a
just and humane condition of work as provided for in Article 3 of the Labor Code; 8 3) Global Workplace
Rights Policy of CCBPI which provides for a safe and healthy workplace by maintaining a productive
workplace and by minimizing the risk of accident, injury and exposure to health risks; and 4) diminution of
benefits provided in Article 100 of the Labor Code.9 cralawvllred

Opposing the Union’s argument, CCBPI mainly contends that the removal of the subject chairs is a valid
exercise of management prerogative. The management decision to remove the subject chairs was made in
good faith and did not intend to defeat or circumvent the rights of the Union under the special laws, the CBA
and the general principles of justice and fair play.

Again, the Court agrees with CCBPI on the matter.

A Valid Exercise of
Management Prerogative

The Court has held that management is free to regulate, according to its own discretion and judgment, all
aspects of employment, including hiring, work assignments, working methods, time, place, and manner of
work, processes to be followed, supervision of workers, working regulations, transfer of employees, work
supervision, lay-off of workers, and discipline, dismissal and recall of workers. The exercise of management
prerogative, however, is not absolute as it must be exercised in good faith and with due regard to the rights
of labor.10
cralawvllred

In the present controversy, it cannot be denied that CCBPI removed the operators’ chairs pursuant to a
national directive and in line with its “I Operate, I Maintain, I Clean” program, launched to enable the Union
to perform their duties and responsibilities more efficiently. The chairs were not removed indiscriminately.
They were carefully studied with due regard to the welfare of the members of the Union. The removal of the
chairs was compensated by: a) a reduction of the operating hours of the bottling operators from a
two-and-one-half (2 ½)-hour rotation period to a one-and-a-half (1 ½) hour rotation period;
and b) an increase of the break period from 15 to 30 minutes between rotations.

Apparently, the decision to remove the chairs was done with good intentions as CCBPI wanted to avoid
instances of operators sleeping on the job while in the performance of their duties and responsibilities and
because of the fact that the chairs were not necessary considering that the operators constantly move about
while working. In short, the removal of the chairs was designed to increase work efficiency. Hence, CCBPI’s
exercise of its management prerogative was made in good faith without doing any harm to the workers’
rights.

The fact that there is no proof of any operator sleeping on the job is of no moment. There is no guarantee
that such incident would never happen as sitting on a chair is relaxing. Besides, the operators constantly
move about while doing their job. The ultimate purpose is to promote work efficiency.

89
No Violation of Labor Laws

The rights of the Union under any labor law were not violated. There is no law that requires employers to
provide chairs for bottling operators. The CA correctly ruled that the Labor Code, specifically Article
13211thereof, only requires employers to provide seats for women. No similar requirement is mandated for
men or male workers. It must be stressed that all concerned bottling operators in this case are men.

There was no violation either of the Health, Safety and Social Welfare Benefit provisions under Book IV of
the Labor Code of the Philippines. As shown in the foregoing, the removal of the chairs was compensated by
the reduction of the working hours and increase in the rest period. The directive did not expose the bottling
operators to safety and health hazards.

The Union should not complain too much about standing and moving about for one and one-half (1 ½) hours
because studies show that sitting in workplaces for a long time is hazardous to one’s health. The report of
VicHealth, Australia,12 disclosed that “prolonged workplace sitting is an emerging public health and
occupational health issue with serious implications for the health of our working population. Importantly,
prolonged sitting is a risk factor for poor health and early death, even among those who meet, or exceed,
national13 activity guidelines.” In another report,14 it was written:
chanroblesvirtuallawlibrary

Workers needing to spend long periods in a seated position on the job such as taxi drivers, call centre and
office workers, are at risk for injury and a variety of adverse health effects.

The most common injuries occur in the muscles, bones, tendons and ligaments, affecting the neck and lower
back regions. Prolonged sitting:

 reduces body movement making muscles more likely to pull, cramp or strain when
stretched suddenly,

 causes fatigue in the back and neck muscles by slowing the blood supply and puts
high tension on the spine, especially in the low back or neck, and

 causes a steady compression on the spinal discs that hinders their nutrition and
can contribute to their premature degeneration.

Sedentary employees may also face a gradual deterioration in health if they do not exercise or do not lead
an otherwise physically active life. The most common health problems that these employees experience are
disorders in blood circulation and injuries affecting their ability to move. Deep Vein Thrombosis (DVT),
where a clot forms in a large vein after prolonged sitting (eg after a long flight) has also been shown to be a
risk.

Workers who spend most of their working time seated may also experience other, less specific adverse
health effects. Common effects include decreased fitness, reduced heart and lung efficiency, and digestive
problems. Recent research has identified too much sitting as an important part of the physical activity and
health equation, and suggests we should focus on the harm caused by daily inactivity such as prolonged
sitting.

Associate professor David Dunstan leads a team at the Baker IDI in Melbourne which is specifically
researching sitting and physical activity. He has found that people who spend long periods of time seated
(more than four hours per day) were at risk of:

 higher blood levels of sugar and fats,

 larger waistlines, and

 higher risk of metabolic syndrome

regardless of how much moderate to vigorous exercise they had.

In addition, people who interrupted their sitting time more often just by standing or with light activities
such as housework, shopping, and moving about the office had healthier blood sugar and fat levels, and
smaller waistlines than those whose sitting time was not broken up.

Of course, in this case, if the chairs would be returned, no risks would be involved because of the shorter
period of working time. The study was cited just to show that there is a health risk in prolonged sitting.

No Violation of the CBA

The CBA15 between the Union and CCBPI contains no provision whatsoever requiring the management to
provide chairs for the operators in the production/manufacturing line while performing their duties and
responsibilities. On the contrary, Section 2 of Article 1 of the CBA expressly provides as follows:chanroblesvirtuallawlibrary

90
 Article I

SCOPE

SECTION 2. Scope of the Agreement. All the terms and conditions of employment of employees and workers
within the appropriate bargaining unit (as defined in Section 1 hereof) are embodied in this Agreement and
the same shall govern the relationship between the COMPANY and such employees and/or workers. On the
other hand, all such benefits and/or privileges as are not expressly provided for in this
Agreement but which are now being accorded, may in the future be accorded, or might have
previously been accorded, to the employees and/or workers, shall be deemed as purely voluntary
acts on the part of the COMPANY in each case, and the continuance and repetition thereof now
or in the future, no matter how long or how often, shall not be construed as establishing an
obligation on the part of the COMPANY. It is however understood that any benefits that are agreed upon
by and between the COMPANY and the UNION in the Labor-Management Committee Meetings regarding the
terms and conditions of employment outside the CBA that have general application to employees who are
similarly situated in a Department or in the Plant shall be implemented. [emphasis and underscoring
supplied]

As can be gleaned from the aforecited provision, the CBA expressly provides that benefits and/or privileges,
not expressly given therein but which are presently being granted by the company and enjoyed by the
employees, shall be considered as purely voluntary acts by the management and that the continuance of
such benefits and/or privileges, no matter how long or how often, shall not be understood as establishing an
obligation on the company’s part. Since the matter of the chairs is not expressly stated in the CBA, it is
understood that it was a purely voluntary act on the part of CCBPI and the long practice did not convert it
into an obligation or a vested right in favor of the Union.

No Violation of the general principles

of justice and fair play

The Court completely agrees with the CA ruling that the removal of the chairs did not violate the general
principles of justice and fair play because the bottling operators’ working time was
considerably reduced from two and a half (2 ½) hours to just one and a half (1 ½) hours and the break
period, when they could sit down, was increased to 30 minutes between rotations. The bottling operators’
new work schedule is certainly advantageous to them because it greatly increases their rest period and
significantly decreases their working time. A break time of thirty (30) minutes after working for only one and
a half (1 ½) hours is a just and fair work schedule.

No Violation of Article 100

of the Labor Code

The operators’ chairs cannot be considered as one of the employee benefits covered in Article 100 16 of the
Labor Code. In the Court’s view, the term “benefits” mentioned in the non-diminution rule refers to
monetary benefits or privileges given to the employee with monetary equivalents. Such benefits or
privileges form part of the employees’ wage, salary or compensation making them enforceable obligations.

This Court has already decided several cases regarding the non-diminution rule where the benefits or
privileges involved in those cases mainly concern monetary considerations or privileges with monetary
equivalents. Some of these cases are: Eastern Telecommunication Phils. Inc. v. Eastern Telecoms
Employees Union,17 where the case involves the payment of 14th, 15th and 16th month bonuses; Central
Azucarera De Tarlac v. Central Azucarera De Tarlac Labor Union-NLU,18 regarding the 13th month pay,
legal/special holiday pay, night premium pay and vacation and sick leaves; TSPIC Corp. v. TSPIC
Employees Union, 19 regarding salary wage increases; and American Wire and Cable Daily Employees Union
vs. American Wire and Cable Company, Inc.,20 involving service awards with cash incentives, premium pay,
Christmas party with incidental benefits and promotional increase.

In this regard, the Court agrees with the CA when it resolved the matter and wrote: chanroblesvirtuallawlibrary

Let it be stressed that the aforequoted article speaks of non-diminution of supplements and other employee
benefits. Supplements are privileges given to an employee which constitute as extra remuneration besides
his or her basic ordinary earnings and wages. From this definition, We can only deduce that the other
employee benefits spoken of by Article 100 pertain only to those which are susceptible of monetary
considerations. Indeed, this could only be the most plausible conclusion because the cases tackling Article
100 involve mainly with monetary considerations or privileges converted to their monetary equivalents.

xxxx

Without a doubt, equating the provision of chairs to the bottling operators as something within the ambit of
“benefits” in the context of Article 100 of the Labor Code is unduly stretching the coverage of the law. The
interpretations of Article 100 of the Labor Code do not show even with the slightest hint that such provision
of chairs for the bottling operators may be sheltered under its mantle. 21

Jurisprudence recognizes the exercise of management prerogatives. Labor laws also discourage interference
with an employer’s judgment in the conduct of its business. For this reason, the Court often declines to

91
interfere in legitimate business decisions of employers. The law must protect not only the welfare of the
employees, but also the right of the employers.22 cralawvllred

WHEREFORE, the petition is DENIED.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Abad, and Leonen, JJ., cocnur.

Endnotes:

1
Rollo, pp. 23-35 (Penned by Associate Justice Pampio A. Abarintos and concurred in by Associate Justices
Eduardo B. Peralta, Jr. and Gabriel T. Ingles).

2
Id. at 36-37.

3
Voluntary Arbitration Panel Decision, id. at 227-238.

4
Id. at 227-238.

5
Id. at 23-35.

6
G.R. No. 164939, June 6, 2011, 650 SCRA 445, 454-456.

7
G.R. No. 149050, March 25, 2009, 582 SCRA 369, 374-375, citing Luzon Development Bank v. Association
of Luzon Development Bank Employees, 319 Phil. 262 (1995); Alcantara, Jr. v. Court of Appeals, 435 Phil.
395 (2002); and Nippon Paint Employees Union-Olalia v. Court of Appeals, G.R. No. 159010, November 19,
2004, 443 SCRA 286.

8
Article 3. Declaration of basic policy. The State shall afford protection to labor, promote full employment,
ensure equal work opportunities regardless of sex, race or creed and regulate the relations between workers
and employers. The State shall assure the rights of workers to self-organization, collective bargaining,
security of tenure, and just and humane conditions of work.

9
ART. 100. Prohibition against elimination or diminution of benefits. – Nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the
time of promulgation of this Code.

10
Julie’s Bakeshop v. Arnaiz,, G.R. No. 173882, February 15, 2012, 666 SCRA 101, 115.

11
Art. 132. Facilities for Women. The Secretary of Labor shall establish standards that will insure the safety
and health of women employees. In appropriate cases, he shall by regulations, require employers to: cralaw

(a) Provide seats proper for women and permit them to use such seats when they are free from work and
during working hours, provided they can perform their duties in this position without detriment to efficiency.

12
http://www.vichealth.vic.gov.au/About-VicHealth.aspx. Last visited March 28, 2013.

13
Australian.

14
http://www.ohsrep.org.au/hazards/workplace-conditions/sedentary-work/index.cfm. Last visited March
28, 2013.

15
Rollo, pp. 127-148.

16
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed
to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.

17
G.R. No. 185665, February 8, 2012, 665 SCRA 516.

18
G.R. No. 188949, July 26, 2010, 625 SCRA 622.

19
G.R. 163419, February 13, 2008, 545 SCRA 215.

20
497 Phil. 213 (2005).

21
Rollo, pp. 23-35.

Arnulfo O. Endico v. Quantum Foods Distribution Center, G.R. No. 161615, January 30, 2009, 577 SCRA
22

299, 309.

92
93
 SECOND DIVISION

[G.R. NO. 163512 : February 28, 2007]

DAISY B. TIU, Petitioner, v. PLATINUM PLANS PHIL., INC., Respondent.

DECISION

QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 20, 2004 of the Court of Appeals in CA-G.R. CV No.
74972, and its Resolution2 dated May 4, 2004 denying reconsideration. The Court of Appeals had affirmed
the decision3 dated February 28, 2002 of the Regional Trial Court (RTC) of Pasig City, Branch 261, in an
action for damages, ordering petitioner to pay respondent P100,000 as liquidated damages.

The relevant facts are as follows:

Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry.
From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director.

On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial
Operations Head in charge of its Hongkong and Asean operations. The parties executed a contract of
employment valid for five years.4

On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-
President for Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry.

Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261.
Respondent alleged, among others, that petitioner's employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her contract of employment, to wit:

8. NON INVOLVEMENT PROVISION - The EMPLOYEE further undertakes that during his/her engagement with
EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not,
for the next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity,
whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as
the EMPLOYER. Any breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in
the amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages. 5

Respondent thus prayed for P100,000 as compensatory damages; P200,000 as moral damages; P100,000
as exemplary damages; and 25% of the total amount due plus P1,000 per counsel's court appearance, as
attorney's fees.

Petitioner countered that the non-involvement clause was unenforceable for being against public order or
public policy: First, the restraint imposed was much greater than what was necessary to afford respondent a
fair and reasonable protection. Petitioner contended that the transfer to a rival company was an accepted
practice in the pre-need industry. Since the products sold by the companies were more or less the same,
there was nothing peculiar or unique to protect. Second, respondent did not invest in petitioner's training or
improvement. At the time petitioner was recruited, she already possessed the knowledge and expertise
required in the pre-need industry and respondent benefited tremendously from it. Third, a strict application
of the non-involvement clause would amount to a deprivation of petitioner's right to engage in the only work
she knew.

In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of
trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need
industry, the trial court found the two-year restriction to be valid and reasonable. The dispositive portion of
the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the
latter to pay the following:

94
1. the amount of One Hundred Thousand Pesos (P100,000.00) for and as damages, for the breach of the
non-involvement provision (Item No. 8) of the contract of employment;

2. costs of suit.

There being no sufficient evidence presented to sustain the grant of attorney's fees, the Court deems it
proper not to award any.

SO ORDERED.6

On appeal, the Court of Appeals affirmed the trial court's ruling. It reasoned that petitioner entered into the
contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly
stipulated in the contract, but also all its consequences that were not against good faith, usage, and law.
The appellate court also ruled that the stipulation prohibiting non-employment for two years was valid and
enforceable considering the nature of respondent's business.

Petitioner moved for reconsideration but was denied. Hence, this appeal by certiorari where petitioner
alleges that the Court of Appeals erred when:

A.

'[IT SUSTAINED] THE VALIDITY OF THE NON-INVOLVEMENT CLAUSE IN PETITIONER'S CONTRACT

CONSIDERING THAT THE PERIOD FIXED THEREIN IS VOID FOR BEING OFFENSIVE TO PUBLIC POLICY

B.

'[IT SUSTAINED] THE AWARD OF LIQUIDATED DAMAGES CONSIDERING THAT IT BEING IN THE NATURE OF
A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS OR UNCONSCIONABLE 7

Plainly stated, the core issue is whether the non-involvement clause is valid.

Petitioner avers that the non-involvement clause is offensive to public policy since the restraint imposed is
much greater than what is necessary to afford respondent a fair and reasonable protection. She adds that
since the products sold in the pre-need industry are more or less the same, the transfer to a rival company
is acceptable. Petitioner also points out that respondent did not invest in her training or improvement. At the
time she joined respondent, she already had the knowledge and expertise required in the pre-need industry.
Finally, petitioner argues that a strict application of the non-involvement clause would deprive her of the
right to engage in the only work she knows.

Respondent counters that the validity of a non-involvement clause has been sustained by the Supreme
Court in a long line of cases. It contends that the inclusion of the two-year non-involvement clause in
petitioner's contract of employment was reasonable and needed since her job gave her access to the
company's confidential marketing strategies. Respondent adds that the non-involvement clause merely
enjoined her from engaging in pre-need business akin to respondent's within two years from petitioner's
separation from respondent. She had not been prohibited from marketing other service plans.

As early as 1916, we already had the occasion to discuss the validity of a non-involvement clause. In
Ferrazzini v. Gsell,8 we said that such clause was unreasonable restraint of trade and therefore against
public policy. In Ferrazzini, the employee was prohibited from engaging in any business or occupation in the
Philippines for a period of five years after the termination of his employment contract and must first get the
written permission of his employer if he were to do so. The Court ruled that while the stipulation was indeed
limited as to time and space, it was not limited as to trade. Such prohibition, in effect, forces an employee
to leave the Philippines to work should his employer refuse to give a written permission.

In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar stipulation as void for being an unreasonable
restraint of trade. There, the employee was prohibited from engaging in any business similar to that of his
employer for a period of one year. Since the employee was employed only in connection with the purchase
and export of abaca, among the many businesses of the employer, the Court considered the restraint too
broad since it effectively prevented the employee from working in any other business similar to his employer
even if his employment was limited only to one of its multifarious business activities.

However, in Del Castillo v. Richmond,10 we upheld a similar stipulation as legal, reasonable, and not contrary
to public policy. In the said case, the employee was restricted from opening, owning or having any
connection with any other drugstore within a radius of four miles from the employer's place of business
during the time the employer was operating his drugstore. We said that a contract in restraint of trade is
valid provided there is a limitation upon either time or place and the restraint upon one party is not greater
than the protection the other party requires.

95
Finally, in Consulta v. Court of Appeals, 11 we considered a non-involvement clause in accordance with Article
130612 of the Civil Code. While the complainant in that case was an independent agent and not an
employee, she was prohibited for one year from engaging directly or indirectly in activities of other
companies that compete with the business of her principal. We noted therein that the restriction did not
prohibit the agent from engaging in any other business, or from being connected with any other company,
for as long as the business or company did not compete with the principal's business. Further, the
prohibition applied only for one year after the termination of the agent's contract and was therefore a
reasonable restriction designed to prevent acts prejudicial to the employer.

Conformably then with the aforementioned pronouncements, a non-involvement clause is not necessarily
void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place.

In this case, the non-involvement clause has a time limit: two years from the time petitioner's employment
with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any
pre-need business akin to respondent's. ςηαñrοblεš νιr†υαl lαω lιbrαrà ¿

More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in
charge of respondent's Hongkong and Asean operations, she had been privy to confidential and highly
sensitive marketing strategies of respondent's business. To allow her to engage in a rival business soon after
she leaves would make respondent's trade secrets vulnerable especially in a highly competitive marketing
environment. In sum, we find the non-involvement clause not contrary to public welfare and not greater
than is necessary to afford a fair and reasonable protection to respondent. 13

In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.

Article 115914 of the same Code also provides that obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. Courts cannot stipulate for the
parties nor amend their agreement where the same does not contravene law, morals, good customs, public
order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to
the function of the courts to give force and effect thereto. 15 Not being contrary to public policy, the non-
involvement clause, which petitioner and respondent freely agreed upon, has the force of law between
them, and thus, should be complied with in good faith. 16

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay respondent P100,000 as
liquidated damages. While we have equitably reduced liquidated damages in certain cases, 17 we cannot do
so in this case, since it appears that even from the start, petitioner had not shown the least intention to
fulfill the non-involvement clause in good faith.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20, 2004, and the
Resolution dated May 4, 2004, of the Court of Appeals in CA-G.R. CV No. 74972, are AFFIRMED. Costs
against petitioner.

SO ORDERED.

Endnotes:

1
Rollo, pp. 58-64. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Jose L.
Sabio, Jr. and Hakim S. Abdulwahid concurring.

2
Id. at 66.

3
Records, Vol. I, pp. 213-219.

4
Id. at 175-178.

5
Id. at 176.

6
Id. at 219.

7
Rollo, p. 44.

8
34 Phil. 697, 714 (1916).

96
9
39 Phil. 120, 125 (1918).

10
45 Phil. 679, 683 (1924).

11
G.R. No. 145443, March 18, 2005, 453 SCRA 732, 745.

12
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.

13
See Ollendorff v. Abrahamsom, 38 Phil. 585, 592 (1918).

14
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.

15
Philippine Communications Satellite Corporation v. Globe Telecom, Inc., G.R. NOS. 147324 & 147334, May
25, 2004, 429 SCRA 153, 164.

16
Duncan Association of Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc., G.R. No. 162994,
September 17, 2004, 438 SCRA 343, 356.

17
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of
breach thereof.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.

97