Adkin v. Children’s Hospital 261 U.S. 525
Syllabus
1. The Court of Appeals of the District of Columbia, while constituted of two of the three
Justices of that court and one Justice of the Supreme Court of the District, affirmed decrees
of the latter court dismissing bills; thereafter, at the same term, (the Supreme Court Justice
having been replaced by the third Justice of the Court of Appeals) it granted rehearings and
reversed the decrees, and, thereafter, on second appeals, it affirmed decrees entered
pursuant to the reversals. Held that objections to the jurisdiction to grant the rehearings did
not go to the jurisdiction over the second appeals, and need not be decided here upon review
of the decrees of affirmance. P. 261 U. S. 543.
2. Every possible presumption stands in favor of an act of Congress until overcome beyond
rational doubt. P. 261 U. S. 544.
3. But when, in the exercise of the judicial authority to ascertain and declare the law in a
given case, it is clear and indubitable that an act of Congress conflicts with the Constitution, it
is the duty of the Court so to declare, and to enforce the Constitution. Id.
4. This is not to exercise a power to review and nullify an act of Congress, for no such power
exists; it is simply a necessary concomitant of the power to hear and dispose of a case or
controversy properly before the court, to the determination of which must be brought the test
and measure of the law. Id.
5. That the right to contract about one's affairs is part of the liberty of the individual protected
by the Fifth Amendment, is settled by repeated decisions of this Court. P. 261 U. S. 545.
6. Within this liberty are contracts of employment of labor. In making these, generally
speaking, the parties have equal right to obtain from each other the best terms they can by
private bargaining. Id.
7. Legislative abridgment of this freedom can only be justified by the existence of exceptional
circumstances. P. 261 U. S. 546.
8. Review of former decisions concerning interferences with liberty of contract, by
(a) Statutes fixing the rates and charges of businesses affected by a public interest. P. 261
U. S. 546.
(b) Statutes relating to the performance of contracts for public work. P. 261 U. S. 547.
(c) Statutes prescribing the character, methods and time for payment of wages. Id.
(d) Statutes fixing hours of labor. Id.
9. Legislation fixing hours or conditions of work may properly take into account the physical
differences between men and women; but, in view of the equality of legal status, now
established in this country, the doctrine that women of mature age require, or may be
subjected to, restrictions upon their liberty of contract which could not lawfully be imposed on
men in similar circumstances, must be rejected. P. 261 U. S. 552.
10. The limited legislative authority to regulate hours of labor in special occupations, on the
ground of health, affords no support to a wage-fixing law -- the two subjects are essentially
different. P. 261 U. S. 553.
11. The Minimum Wage Act of Sept.19, 1918, c. 174, 40 Stat. 960, in assuming to authorize
the fixing of minimum wage standards for adult women, in any occupation in the District of
Columbia, such standards to be based wholly upon what a board and its advisers may find to
be an adequate wage to meet the necessary cost of living for women workers in each
particular calling and to maintain them in good health and protect their morals, is an
unconstitutional interference with the liberty of contract. P. 261 U. S. 554.
284 Fed. 613, affirmed.
APPEALS from decrees of the Court of Appeals of the District of Columbia, affirming two
decrees, entered, on mandate from that court, by the Supreme Court of the District,
permanently enjoining the appellants from enforcing orders fixing minimum wages under the
District of Columbia Minimum Wage Act.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
The question presented for determination by these appeals is the constitutionality of the Act
of September 19, 1918, providing for the fixing of minimum wages for women and children in
the District of Columbia. 40 Stat. 960, c. 174.
The act provides for a board of three members, to be constituted, as far as practicable, so as
to be equally representative of employers, employees and the public. The board is authorized
to have public hearings, at which persons interested in the matter being investigated may
appear and testify, to administer oaths, issue subpoenas requiring the attendance of
witnesses and production of books, etc., and to make rules and regulations for carrying the
act into effect.
By § 8, the board is authorized --
"(1) To investigate and ascertain the wages of women and minors in the different occupations
in which they are employed in the District of Columbia; (2) to examine, through any member
or authorized representative, any book, payroll or other record of any employer of women or
minors that, in any way appertains to or has a bearing upon the question of wages of any
such women or minors, and (3) to require from such employer full and true statements of the
wages paid to all women and minors in his employment."
And by § 9,
"to ascertain and declare, in the manner hereinafter provided, the following things: (a),
Standards of minimum wages for women in any occupation within the District of Columbia,
and what wages are inadequate to supply the necessary cost of living to any such women
workers to maintain them in good health and to protect their morals, and (b), standards of
minimum wages for minors in any occupation within the District of Columbia, and what wages
are unreasonably low for any such minor workers."
The act then provides (§ 10) that, if the board, after investigation, is of opinion that any
substantial number of women workers in any occupation are receiving wages inadequate to
supply them with the necessary cost of living, maintain them in health and protect their
morals, a conference may be called to consider and inquire into and report on the subject
investigated, the conference to be equally representative of employers and employees
in such occupation and of the public, and to include one or more members of the board.
The conference is required to make and transmit to the board a report including, among other
things,
"recommendations as to standards of minimum wages for women workers in the occupation
under inquiry and as to what wages are inadequate to supply the necessary cost of living to
women workers in such occupation and to maintain them in health and to protect their
morals."
§ 11.
The board is authorized (§ 12) to consider and review these recommendations and to
approve or disapprove any or all of them. If it approve any recommendations, it must give
public notice of its intention and hold a public hearing at which the persons interested will be
heard. After such hearing, the board is authorized to make such order as to it may appear
necessary to carry into effect the recommendations, and to require all employers in the
occupation affected to comply therewith. It is made unlawful for any such employer to violate
in this regard any provision of the order or to employ any woman worker at lower wages than
are thereby permitted.
There is a provision (§ 13) under which the board may issue a special license to a woman
whose earning capacity "has been impaired by age or otherwise," authorizing her
employment at less than the minimum wages fixed under the act.
All questions of fact (§ 17) are to be determined by the board, from whose decision there is
no appeal; but an appeal is allowed on questions of law.
Any violation of the act (§ 18) by an employer or his agent or by corporate agents is declared
to be a misdemeanor, punishable by fine and imprisonment.
Finally, after some further provisions not necessary to be stated, it is declared (§ 23) that the
purposes of the act are
"to protect the women and minors of the District from conditions detrimental to their health
and morals, resulting from wages which are inadequate to maintain decent standards of
living, and the Act in each of its provisions and in its entirety shall be interpreted to effectuate
these purposes."
The appellee in the first case is a corporation maintaining a hospital for children in the District.
It employs a large number of women in various capacities, with whom it had agreed upon
rates of wages and compensation satisfactory to such employees, but which in some
instances were less than the minimum wage fixed by an order of the board made in
pursuance of the act. The women with whom appellee had so contracted were all of full age
and under no legal disability. The instant suit was brought by the appellee in the Supreme
Court of the District to restrain the board from enforcing or attempting to enforce its order on
the ground that the same was in contravention of the Constitution, and particularly the due
process clause of the Fifth Amendment.
In the second case, the appellee, a woman twenty-one years of age, was employed by the
Congress Hall Hotel Company as an elevator operator, at a salary of $35 per month and two
meals a day. She alleges that the work was light and healthful, the hours short, with
surroundings clean and moral, and that she was anxious to continue it for the compensation
she was receiving, and that she did not earn more. Her services were satisfactory to the Hotel
Company, and it would have been glad to retain her but was obliged to dispense with her
services by reason of the order of the board and on account of the penalties prescribed by
the act. The wages received by this appellee were the best she was able to obtain for any
work she was capable of performing, and the enforcement of the order, she alleges, deprived
her of such employment and wages. She further averred that she could not secure any other
position at which she could make a living, with as good physical and moral surroundings, and
earn as good wages, and that she was desirous of continuing and would continue the
employment but for the order of the board. An injunction was prayed as in the other case.
The Supreme Court of the District denied the injunction and dismissed the bill in each case.
Upon appeal, the Court of Appeals, by a majority, first affirmed and subsequently, on a
rehearing, reversed the trial court. Upon the first argument, a justice of the District Supreme
Court was called in to take the place of one of the Appellate Court justices, who was ill.
Application for rehearing was made and, by the court as thus constituted, was denied.
Subsequently, and during the term, a rehearing was granted by an order concurred in by two
of the Appellate Court justices, one being the justice whose place on the prior occasion had
been filled by the Supreme Court member. Upon the rehearing thus granted, the Court of
Appeals, rejecting the first opinion, held the act in question to be unconstitutional and
reversed the decrees of the trial court. Thereupon the cases were remanded, and the trial
court entered decrees in pursuance of the mandate, declaring the act in question to be
unconstitutional and granting permanent injunctions. Appeals to the Court of Appeals
followed, and the decrees of the trial court were affirmed. It is from these final decrees that
the cases come here.
Upon this state of facts the jurisdiction of the lower court to grant a rehearing, after first
denying it, is challenged. We do not deem it necessary to consider the matter farther than to
say that we are here dealing with the second appeals, while the proceedings complained of
occurred upon the first appeals. That the lower court could properly entertain the second
appeals and decide the cases does not admit of doubt, and this the appellants virtually
conceded by having themselves invoked the jurisdiction
We come then, at once, to the substantive question involved.
The judicial duty of passing upon the constitutionality of an act of Congress is one of great
gravity and delicacy. The statute here in question has successfully borne the scrutiny of the
legislative branch of the government, which, by enacting it, has affirmed its validity, and that
determination must be given great weight. This Court, by an unbroken line of decisions from
Chief Justice Marshall to the present day, has steadily adhered to the rule that every possible
presumption is in favor of the validity of an act of Congress until overcome beyond rational
doubt. But if, by clear and indubitable demonstration, a statute be opposed to the
Constitution, we have no choice but to say so. The Constitution, by its own terms, is the
supreme law of the land, emanating from the people, the repository of ultimate sovereignty
under our form of government. A congressional statute, on the other hand, is the act of an
agency of this sovereign authority, and, if it conflict with the Constitution, must fall; for that
which is not supreme must yield to that which is. To hold it invalid (if it be invalid) is a plain
exercise of the judicial power -- that power vested in courts to enable them to administer
justice according to law. From the authority to ascertain and determine the law in a given
case, there necessarily results, in case of conflict, the duty to declare and enforce the rule of
the supreme law and reject that of an inferior act of legislation which, transcending the
Constitution, is of no effect and binding on no one. This is not the exercise of a substantive
power to review and nullify acts of Congress, for no such substantive power exists. It is
simply a necessary concomitant of the power to hear and dispose of a case or controversy
properly before the court, to the determination of which must be brought the test and measure
of the law.
The statute now under consideration is attacked upon the ground that it authorizes an
unconstitutional interference with the freedom of contract included within the guaranties of the
due process clause of the Fifth Amendment. That the right to contract about one's affairs is a
part of the liberty of the individual protected by this clause, is settled by the decisions of this
Court and is no longer open to question. Allgeyer v. Louisiana, 165 U. S. 578, 165 U. S.
591; New York Life Insurance Co. v. Dodge, 246 U. S. 357, 246 U. S. 373-374; Coppage v.
Kansas, 236 U. S. 1, 236 U. S. 10, 236 U. S. 14; Adair v. United States, 208 U. S.
161; Lochner v. New York, 198 U. S. 45; Butchers' Union Co. v. Crescent City Co., 111 U. S.
746; Muller v. Oregon, 208 U. S. 412, 208 U. S. 421. Within this liberty are contracts of
employment of labor. In making such contracts, generally speaking, the parties have an equal
right to obtain from each other the best terms they can as the result of private bargaining.
In Adair v. United States, supra, Mr. Justice Harlan (pp. 208 U. S. 174, 208 U. S. 175),
speaking for the Court, said:
"The right of a person to sell his labor upon such terms as he deems proper is, in its essence,
the same as the right of the purchaser of labor to prescribe the conditions upon which he will
accept such labor from the person offering to sell. . . . In all such particulars, the employer
and employee have equality of right, and any legislation that disturbs that equality is an
arbitrary interference with the liberty of contract which no government can legally justify in a
free land."
In Coppage v. Kansas, supra, (p. 236 U. S. 14), this Court, speaking through Mr. Justice
Pitney, said:
"Included in the right of personal liberty and the right of private property -- partaking of the
nature of each -- is the right to make contracts for the acquisition of property. Chief among
such contracts is that of personal employment, by which labor and other services are
exchanged for money or other forms of property. If this right be struck down or arbitrarily
interfered with, there is a substantial impairment of liberty in the long-established
constitutional sense. The right is as essential to the laborer as to the capitalist, to the poor as
to the rich; for the vast majority of persons have no other honest way to begin to acquire
property, save by working for money."
"An interference with this liberty so serious as that now under consideration, and so
disturbing of equality of right, must be deemed to be arbitrary unless it be supportable as a
reasonable exercise of the police power of the State."
There is, of course, no such thing as absolute freedom of contract. It is subject to a great
variety of restraints. But freedom of contract is, nevertheless, the general rule, and restraint
the exception, and the exercise of legislative authority to abridge it can be justified only by the
existence of exceptional circumstances. Whether these circumstances exist in the present
case constitutes the question to be answered. It will be helpful to this end to review some of
the decisions where the interference has been upheld and consider the grounds upon which
they rest.
(1) Those dealing with statutes fixing rates and charges to be exacted by businesses
impressed with a public interest. There are many cases, but it is sufficient to cite Munn v.
Illinois, 94 U. S. 113. The power here rests upon the ground that, where property is devoted
to a public use, the owner thereby, in effect, grants to the public an interest in the use which
may be controlled by the public for the common good to the extent of the interest thus
created. It is upon this theory that these statutes have been upheld and, it may be noted in
passing, so upheld even in respect of their incidental and injurious or destructive effect upon
preexisting contracts. See Louisville & Nashville R.R. Co. v. Mottley, 219 U. S. 467. In the
case at bar, the statute does not depend upon the existence of a public interest in any
business to be affected, and this class of cases may be laid aside as inapplicable.
(2) Statutes relating to contracts for the performance of public work. Atkin v. Kansas, 191 U.
S. 207; Heim v. McCall, 239 U. S. 175; Ellis v. United States, 206 U. S. 246. These cases
sustain such statutes as depending not upon the right to condition private contracts, but upon
the right of the government to prescribe the conditions upon which it will permit work of a
public character to be done for it, or, in the case of a State, for its municipalities. We may,
therefore, in like manner, dismiss these decisions from consideration as inapplicable.
(3) Statutes prescribing the character, methods and time for payment of wages. Under this
head may be included McLean v. Arkansas, 211 U. S. 539, sustaining a state statute
requiring coal to be measured for payment of miners' wages before screening; Knoxville Iron
Co. v. Harbison, 183 U. S. 13, sustaining a Tennessee statute requiring the redemption in
cash of store orders issued in payment of wages; Erie R.R. Co. v. Williams, 233 U. S. 685,
upholding a statute regulating the time within which wages shall be paid to employees in
certain specified industries, and other cases sustaining statutes of like import and effect. In
none of the statutes thus sustained was the liberty of employer or employee to fix the amount
of wages the one was willing to pay and the other willing to receive interfered with. Their
tendency and purpose was to prevent unfair and perhaps fraudulent methods in the payment
of wages, and in no sense can they be said to be, or to furnish a precedent for, wage-fixing
statutes.
(4) Statutes fixing hours of labor. It is upon this class that the greatest emphasis is laid in
argument, and therefore, and because such cases approach most nearly the line of principle
applicable to the statute here involved, we shall consider them more at length. In some
instances, the statute limited the hours of labor for men in certain occupations, and in others
it was confined in its application to women. No statute has thus far been brought to the
attention of this Court which by its terms, applied to all occupations. In Holden v. Hardy,169
U. S. 366, the Court considered an act of the Utah legislature, restricting the hours of labor in
mines and smelters. This statute was sustained as a legitimate exercise of the police power
on the ground that the legislature had determined that these particular employments, when
too long pursued, were injurious to the health of the employees, and that, as there were
reasonable grounds for supporting this determination on the part of the legislature, its
decision in that respect was beyond the reviewing power of the federal courts.
That this constituted the basis of the decision is emphasized by the subsequent decision
in Lochner v. New York, 198 U. S. 45, reviewing a state statute which restricted the
employment of all persons in bakeries to ten hours in anyone day. The Court referred
to Holden v. Hardy, supra, and, declaring it to be inapplicable, held the statute
unconstitutional as an unreasonable, unnecessary and arbitrary interference with the liberty
of contract, and therefore void under the Constitution.
Mr. Justice Peckham, speaking for the Court (p. 198 U. S. 56), said:
"It must, of course, be conceded that there is a limit to the valid exercise of the police power
by the State. There is no dispute concerning this general proposition. Otherwise, the
Fourteenth Amendment would have no efficacy, and the legislatures of the States would have
unbounded power, and it would be enough to say that any piece of legislation was enacted to
conserve the morals, the health or the safety of the people; such legislation would be valid,
no matter how absolutely without foundation the claim might be. The claim of the police
power would be a mere pretext -- become another and delusive name for the supreme
sovereignty of the State to be exercised free from constitutional restraint."
And again (pp. 198 U. S. 57-58):
"It is a question of which of two powers or rights shall prevail -- the power of the State to
legislate or the right of the individual to liberty of person and freedom of contract. The mere
assertion that the subject relates though but in a remote degree to the public health does not
necessarily render the enactment valid. The act must have a more direct relation, as a means
to an end, and the end itself must be appropriate and legitimate, before an act can be held to
be valid which interferes with the general right of an individual to be free in his person and in
his power to contract in relation to his own labor."
Coming then directly to the statute (p. 198 U. S. 58), the Court said:
"We think the limit of the police power has been reached and passed in this case. There is, in
our judgment, no reasonable foundation for holding this to be necessary or appropriate as a
health law to safeguard the public health or the health of the individuals who are following the
trade of a baker. If this statute be valid, and if, therefore, a proper case is made out in which
to deny the right of an individual, sui juris, as employer or employee, to make contracts for the
labor of the latter under the protection of the provisions of the Federal Constitution, there
would seem to be no length to which legislation of this nature might not go."
And, after pointing out the unreasonable range to which the principle of the statute might be
extended, the Court said (p. 198 U. S. 60):
"It is also urged, pursuing the same line of argument, that it is to the interest of the State that
its population should be strong and robust, and therefore any legislation which may be said to
tend to make people healthy must be valid as health laws, enacted under the police power. If
this be a valid argument and a justification for this kind of legislation, it follows that the
protection of the Federal Constitution from undue interference with liberty of person and
freedom of contract is visionary, wherever the law is sought to be justified as a valid exercise
of the police power. Scarcely any law but might find shelter under such assumptions, and
conduct, properly so called, as well as contract, would come under the restrictive sway of the
legislature."
And further (p. 198 U. S. 61):
"Statutes of the nature of that under review, limiting the hours in which grown and intelligent
men may labor to earn their living, are mere meddlesome interferences with the rights of the
individual, and they are not saved from condemnation by the claim that they are passed in the
exercise of the police power and upon the subject of the health of the individual whose rights
are interfered with, unless there be some fair ground, reasonable in and of itself, to say that
there is material danger to the public health or to the health of the employes, if the hours of
labor are not curtailed."
Subsequent cases in this Court have been distinguished from that decision, but the principles
therein stated have never been disapproved.
In Bunting v. Oregon, 243 U. S. 426, a state statute forbidding the employment of any person
in any mill, factory or manufacturing establishment more than ten hours in any one day, and
providing payment for overtime not exceeding three hours in any one day at the rate of time
and a half of the regular wage, was sustained on the ground that, since the state legislature
and State Supreme Court had found such a law necessary for the preservation of the health
of employees in these industries, this Court would accept their judgment, in the absence of
facts to support the contrary conclusion. The law was attacked on the ground that it
constituted an attempt to fix wages, but that contention was rejected and the law sustained as
a reasonable regulation of hours of service.
Wilson v. New, 243 U. S. 332, involved the validity of the so-called Adamson Law, which
established an eight-hour day for employees of interstate carriers for which it fixed a scale of
minimum wages with proportionate increases for overtime, to be enforced, however, only for
a limited period. The act was sustained primarily upon the ground that it was a regulation of a
business charged with a public interest. The Court, speaking through the Chief Justice,
pointed out that regarding
"the private right and private interest, as contradistinguished from the public interest, the
power exists between the parties, the employers and employees to agree as to a standard of
wages free from legislative interference,"
but that this did not affect the power to deal with the matter with a view to protect the public
right, and then said (p. 243 U. S. 353):
"And this emphasizes that there is no question here of purely private right since the law is
concerned only with those who are engaged in a business charged with a public interest
where the subject dealt with as to all the parties is one involved in that business and which
we have seen comes under the control of the right to regulate to the extent that the power to
do so is appropriate or relevant to the business regulated."
Moreover, in sustaining the wage feature of the law, emphasis was put upon the fact (p. 243
U. S. 345) that it was in this respect temporary, "leaving the employers and employees free
as to the subject of wages to govern their relations by their own agreements after the
specified time." The act was not only temporary in this respect, but it was passed to meet a
sudden and great emergency. This feature of the law was sustained principally because the
parties, for the time being, could not or would not agree. Here, they are forbidden to
agree. The same principle was applied in the Rent Cases (Block v. Hirsh, 256 U. S. 135,
and Marcus Brown Holding Co. v. Feldman, 256 U. S. 170), where this Court sustained the
legislative power to fix rents as between landlord and tenant upon the ground that the
operation of the statutes was temporary to tide over an emergency, and that the
circumstances were such as to clothe "the letting of buildings . . . with a public interest so
great as to justify regulation by law." The Court said (p. 256 U. S. 157):
"The regulation is put and justified only as a temporary measure [citing Wilson v. New, supra].
A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld
as a permanent change."
In a subsequent case, Pennsylvania Coal Co. v. Mahon, 260 U. S. 393, 260 U. S. 416, this
Court, after saying
"We are in danger of forgetting that a strong public desire to improve the public condition is
not enough to warrant achieving the desire by a shorter cut than the constitutional way of
paying for the change,"
pointed out that the Rent Cases dealt with laws intended to meet a temporary emergency and
"went to the verge of the law."
In addition to the cases cited above, there are the decisions of this Court dealing with laws
especially relating to hours of labor for women: Muller v. Oregon, 208 U. S. 412; Riley v.
Massachusetts, 232 U. S. 671; Miller v. Wilson, 236 U. S. 373; Bosley v. McLaughlin, 236 U.
S. 385.
In the Muller case, the validity of an Oregon statute, forbidding the employment of any female
in certain industries more than ten hours during anyone day was upheld. The decision
proceeded upon the theory that the difference between the sexes may justify a different rule
respecting hours of labor in the case of women than in the case of men. It is pointed out that
these consist in differences of physical structure, especially in respect of the maternal
functions, and also in the fact that, historically, woman has always been dependent upon
man, who has established his control by superior physical strength. The cases of Riley,
Miller, and Bosley follow in this respect the Muller case. But the ancient inequality of the
sexes, otherwise than physical, as suggested in the Muller case (p. 208 U. S. 421) has
continued "with diminishing intensity." In view of the great -- not to say revolutionary --
changes which have taken place since that utterance, in the contractual, political and civil
status of women, culminating in the Nineteenth Amendment, it is not unreasonable to say that
these differences have now come almost, if not quite, to the vanishing point. In this aspect of
the matter, while the physical differences must be recognized in appropriate cases, and
legislation fixing hours or conditions of work may properly take them into account, we cannot
accept the doctrine that women of mature age, sui juris, require or may be subjected to
restrictions upon their liberty of contract which could not lawfully be imposed in the case of
men under similar circumstances. To do so would be to ignore all the implications to be
drawn from the present day trend of legislation, as well as that of common thought and
usage, by which woman is accorded emancipation from the old doctrine that she must be
given special protection or be subjected to special restraint in her contractual and civil
relationships. In passing, it may be noted that the instant statute applies in the case of a
woman employer contracting with a woman employee as it does when the former is a man.
The essential characteristics of the statute now under consideration, which differentiate it
from the laws fixing hours of labor, will be made to appear as we proceed. It is sufficient now
to point out that the latter, as well as the statutes mentioned under paragraph (3), deal with
incidents of the employment having no necessary effect upon the heart of the contract, that
is, the amount of wages to be paid and received. A law forbidding work to continue beyond a
given number of hours leaves the parties free to contract about wages, and thereby equalize
whatever additional burdens may be imposed upon the employer as a result of the
restrictions as to hours, by an adjustment in respect of the amount of wages. Enough has
been said to show that the authority to fix hours of labor cannot be exercised except in
respect of those occupations where work of long continued duration is detrimental to health.
This Court has been careful, in every case where the question has been raised, to place its
decision upon this limited authority of the legislature to regulate hours of labor and to disclaim
any purpose to uphold the legislation as fixing wages, thus recognizing an essential
difference between the two. It seems plain that these decisions afford no real support for any
form of law establishing minimum wages.
If now, in the light furnished by the foregoing exceptions to the general rule forbidding
legislative interference with freedom of contract, we examine and analyze the statute in
question, we shall see that it differs from them in every material respect. It is not a law dealing
with any business charged with a public interest or with public work, or to meet and tide over
a temporary emergency. It has nothing to do with the character, methods or periods of wage
payments. It does not prescribe hours of labor or conditions under which labor is to be done.
It is not for the protection of persons under legal disability or for the prevention of fraud. It is
simply and exclusively a price-fixing law, confined to adult women (for we are not now
considering the provisions relating to minors), who are legally as capable of contracting for
themselves as men. It forbids two parties having lawful capacity -- under penalties as to the
employer -- to freely contract with one another in respect of the price for which one shall
render service to the other in a purely private employment where both are willing, perhaps
anxious, to agree, even though the consequence may be to oblige one to surrender a
desirable engagement and the other to dispense with the services of a desirable
employee. * The price fixed by the board need have no relation to the capacity or earning
power of the employee, the number of hours which may happen to constitute the day's work,
the character of the place where the work is to be done, or the circumstances or surroundings
of the employment; and, while it has no other basis to support its validity than the assumed
necessities of the employee, it takes no account of any independent resources she may
have. It is based wholly on the opinions of the members of the board and their advisers --
perhaps an average of their opinions, if they do not precisely agree -- as to what will be
necessary to provide a living for a woman, keep her in health and preserve her morals. It
applies to any and every occupation in the District, without regard to its nature or the
character of the work.
The standard furnished by the statute for the guidance of the board is so vague as to be
impossible of practical application with any reasonable degree of accuracy. What is sufficient
to supply the necessary cost of living for a woman worker and maintain her in good health
and protect her morals is obviously not a precise or unvarying sum -- not even approximately
so. The amount will depend upon a variety of circumstances: the individual temperament,
habits of thrift, care, ability to buy necessaries intelligently, and whether the woman live alone
or with her family. To those who practice economy, a given sum will afford comfort, while to
those of contrary habit the same sum will be wholly inadequate. The cooperative economics
of the family group are not taken into account though they constitute an important
consideration in estimating the cost of living, for it is obvious that the individual expense will
be less in the case of a member of a family than in the case of one living alone. The relation
between earnings and morals is not capable of standardization. It cannot be shown that well
paid women safeguard their morals more carefully than those who are poorly paid. Morality
rests upon other considerations than wages, and there is, certainly, no such prevalent
connection between the two as to justify a broad attempt to adjust the latter with reference to
the former. As a means of safeguarding morals the attempted classification in our opinion, is
without reasonable basis. No distinction can be made between women who work for others
and those who do not; nor is there ground for distinction between women and men, for,
certainly, if women require a minimum wage to preserve their morals men require it to
preserve their honesty. For these reasons, and others which might be stated, the inquiry in
respect of the necessary cost of living and of the income necessary to preserve health and
morals, presents an individual, and not a composite, question, and must be answered for
each individual considered by herself, and not by a general formula prescribed by a statutory
bureau.
This uncertainty of the statutory standard is demonstrated by a consideration of certain orders
of the board already made. These orders fix the sum to be paid to a woman employed in a
place where food is served or in a mercantile establishment, at $16.50 per week; in a printing
establishment, at $15.50 per week, and in a laundry, at $15 per week, with a provision
reducing this to $9 in the case of a beginner. If a woman employed to serve food requires a
minimum of $16.50 per week, it is hard to understand how the same woman working in a
printing establishment or in a laundry is to get on with an income lessened by from $1 to
$7.50 per week. The board probably found it impossible to follow the indefinite standard of
the statute, and brought other and different factors into the problem, and this goes far in the
direction of demonstrating the fatal uncertainty of the act, an infirmity which, in our opinion,
plainly exists.
The law takes account of the necessities of only one party to the contract. It ignores the
necessities of the employer by compelling him to pay not less than a certain sum not only
whether the employee is capable of earning it, but irrespective of the ability of his business to
sustain the burden, generously leaving him, of course, the privilege of abandoning his
business as an alternative for going on at a loss. Within the limits of the minimum sum, he is
precluded, under penalty of fine and imprisonment, from adjusting compensation to the
differing merits of his employees. It compels him to pay at least the sum fixed in any event,
because the employee needs it, but requires no service of equivalent value from the
employee. It therefore undertakes to solve but one-half of the problem. The other half is the
establishment of a corresponding standard of efficiency, and this forms no part of the policy of
the legislation, although in practice the former half without the latter must lead to ultimate
failure, in accordance with the inexorable law that no one can continue indefinitely to take out
more than he puts in without ultimately exhausting the supply. The law is not confined to the
great and powerful employers, but embraces those whose bargaining power may be as weak
as that of the employee. It takes no account of periods of stress and business depression, of
crippling losses, which may leave the employer himself without adequate means of livelihood.
To the extent that the sum fixed exceeds the fair value of the services rendered, it amounts to
a compulsory exaction from the employer for the support of a partially indigent person, for
whose condition there rests upon him no peculiar responsibility, and therefore, in effect,
arbitrarily shifts to his shoulders a burden which, if it belongs to anybody, belongs to society
as a whole.
The feature of this statute which, perhaps more than any other, puts upon it the stamp of
invalidity is that it exacts from the employer an arbitrary payment for a purpose and upon a
basis having no causal connection with his business, or the contract or the work the
employee engages to do. The declared basis, as already pointed out, is not the value of the
service rendered, but the extraneous circumstance that the employee needs to get a
prescribed sum of money. to insure her subsistence, health and morals. The ethical right of
every worker, man or woman, to a living wage may be conceded. One of the declared and
important purposes of trade organizations is to secure it. And with that principle, and with
every legitimate effort to realize it in fact, no one can quarrel; but the fallacy of the proposed
method of attaining it is that it assumes that every employer is bound at all events to furnish
it. The moral requirement implicit in every contract of employment, viz.,that the amount to be
paid and the service to be rendered shall bear to each other some relation of just
equivalence, is completely ignored. The necessities of the employee are alone considered,
and these arise outside of the employment, are the same when there is no employment, and
as great in one occupation as in another. Certainly the employer, by paying a fair equivalent
for the service rendered, though not sufficient to support the employee, has neither caused
nor contributed to her poverty. On the contrary, to the extent of what he pays, he has relieved
it. In principle, there can be no difference between the case of selling labor and the case of
selling goods. If one goes to the butcher, the baker or grocer to buy food, he is morally
entitled to obtain the worth of his money, but he is not entitled to more. If what he gets is
worth what he pays, he is not justified in demanding more simply because he needs more,
and the shopkeeper, having dealt fairly and honestly in that transaction, is not concerned in
any peculiar sense with the question of his customer's necessities. Should a statute
undertake to vest in a commission power to determine the quantity of food necessary for
individual support and require the shopkeeper, if he sell to the individual at all, to furnish that
quantity at not more than a fixed maximum, it would undoubtedly fall before the constitutional
test. The fallacy of any argument in support of the validity of such a statute would be quickly
exposed. The argument in support of that now being considered is equally fallacious, though
the weakness of it may not be so plain. A statute requiring an employer to pay in money, to
pay at prescribed and regular intervals, to pay the value of the services rendered, even to pay
with fair relation to the extent of the benefit obtained from the service, would be
understandable. But a statute which prescribes payment without regard to any of these things
and solely with relation to circumstances apart from the contract of employment, the business
affected by it and the work done under it, is so clearly the product of a naked, arbitrary
exercise of power that it cannot be allowed to stand under the Constitution of the United
States.
We are asked, upon the one hand, to consider the fact that several States have adopted
similar statutes, and we are invited, upon the other hand, to give weight to the fact that three
times as many States, presumably as well informed and as anxious to promote the health
and morals of their people, have refrained from enacting such legislation. We have also been
furnished with a large number of printed opinions approving the policy of the minimum wage,
and our own reading has disclosed a large number to the contrary. These are all proper
enough for the consideration of the lawmaking bodies, since their tendency is to establish the
desirability or undesirability of the legislation; but they reflect no legitimate light upon the
question of its validity, and that is what we are called upon to decide. The elucidation of that
question cannot be aided by counting heads.
It is said that great benefits have resulted from the operation of such statutes, not alone in the
District of Columbia, but in the several States where they have been in force. A mass of
reports, opinions of special observers and students of the subject, and the like has been
brought before us in support of this statement, all of which we have found interesting but only
mildly persuasive. That the earnings of women now are greater than they were formerly, and
that conditions affecting women have become better in other respects, may be conceded, but
convincing indications of the logical relation of these desirable changes to the law in question
are significantly lacking. They may be, and quite probably are, due to other causes. We
cannot close our eyes to the notorious fact that earnings everywhere in all occupations have
greatly increased -- not alone in States where the minimum wage law obtains, but in the
country generally -- quite as much or more among men as among women and in occupations
outside the reach of the law as in those governed by it. No real test of the economic value of
the law can be had during periods of maximum employment, when general causes keep
wages up to or above the minimum; that will come in periods of depression and struggle for
employment, when the efficient will be employed at the minimum rate, while the less capable
may not be employed at all.
Finally, it may be said that if, in the interest of the public welfare, the police power may be
invoked to justify the fixing of a minimum wage, it may, when the public welfare is thought to
require it, be invoked to justify a maximum wage. The power to fix high wages connotes, by
like course of reasoning, the power to fix low wages. If, in the face of the guaranties of the
Fifth Amendment, this form of legislation shall be legally justified, the field for the operation of
the police power will have been widened to a great and dangerous degree. If, for example, in
the opinion of future lawmakers, wages in the building trades shall become so high as to
preclude people of ordinary means from building and owning homes, an authority which
sustains the minimum wage will be invoked to support a maximum wage for building laborers
and artisans, and the same argument which has been here urged to strip the employer of his
constitutional liberty of contract in one direction will be utilized to strip the employee of his
constitutional liberty of contract in the opposite direction. A wrong decision does not end with
itself: it is a precedent, and, with the swing of sentiment, its bad influence may run from one
extremity of the arc to the other.
It has been said that legislation of the kind now under review is required in the interest of
social justice, for whose ends freedom of contract may lawfully be subjected to restraint. The
liberty of the individual to do as he pleases, even in innocent matters, is not absolute. It must
frequently yield to the common good, and the line beyond which the power of interference
may not be pressed is neither definite nor unalterable, but may be made to move, within limits
not well defined, with changing need and circumstance. Any attempt to fix a rigid boundary
would be unwise, as well as futile. But, nevertheless, there are limits to the power, and when
these have been passed, it becomes the plain duty of the courts in the proper exercise of
their authority to so declare. To sustain the individual freedom of action contemplated by the
Constitution is not to strike down the common good, but to exalt it, for surely the good of
society as a whole cannot be better served than by the preservation against arbitrary restraint
of the liberties of its constituent members.
It follows from what has been said that the act in question passes the limit prescribed by the
Constitution, and, accordingly, the decrees of the court below are
Affirmed.
G.R. No. L-22008 November 3, 1924
THE PEOPLE OF THE PHILIPPINE ISLANDS, Plaintiff-Appellee, vs. JULIO
POMAR, Defendant-Appellant.
JOHNSON, J.:
The only question presented by this appeal is whether or not the provisions of sections 13
and 15 of Act No. 3071 are a reasonable and lawful exercise of the police power of the
state.chanroblesvirtualawlibrary chanrobles virtual law library
It appears from the record that on the 26th day of October, 1923, the prosecuting attorney of
the City of Manila presented a complaint in the Court of First Instance, accusing the
defendant of a violation of section 13 in connection with section 15 of Act No. 3071 of the
Philippine Legislature. The complaint alleged:
That on or about the 27th day of August, 1923, and sometime prior thereto, in the City of
Manila, Philippine Islands, the said accused, being the manager and person in charge of La
Flor de la Isabela, a tobacco factory pertaining to La Campania General de Tabacos de
Filipinas, a corporation duly authorized to transact business in said city, and having, during
the year 1923, in his employ and service as cigar-maker in said factory, a woman by the
name of Macaria Fajardo, whom he granted vacation leave which began on the 16th day of
July, 1923, by reason of her pregnancy, did then and there willfully, unlawfully, and
feloniously fail and refuse to pay to said woman the sum of eighty pesos (P80), Philippine
currency, to which she was entitled as her regular wages corresponding to thirty days before
and thirty days after her delivery and confinement which took place on the 12th day of
August, 1923, despite and over the demands made by her, the said Macaria Fajardo, upon
said accused, to do so.
To said complaint, the defendant demurred, alleging that the facts therein contained did not
constitute an offense. The demurrer was overruled, whereupon the defendant answered and
admitted at the trial all of the allegations contained in the complaint, and contended that the
provisions of said Act No. 3071, upon which the complaint was based were illegal,
unconstitutional and void.chanroblesvirtualawlibrary chanrobles virtual law library
Upon a consideration of the facts charged in the complaint and admitted by the defendant,
the Honorable C. A. Imperial, judge, found the defendant guilty of the alleged offense
described in the complaint, and sentenced him to pay a fine of P50, in accordance with the
provisions of section 15 of said Act, to suffer subsidiary imprisonment in case of insolvency,
and to pay the costs.chanroblesvirtualawlibrary chanrobles virtual law library
From that sentence the defendant appealed, and now makes the following assignments of
error: That the court erred in overruling the demurrer; in convicting him of the crime charged
in the information; and in not declaring section 13 of Act No. 3071,
unconstitutional:chanrobles virtual law library
Section 13 of Act No. 3071 is as follows:
Every person, firm or corporation owning or managing a factory, shop or place of labor of any
description shall be obliged to grant to any woman employed by it as laborer who may be
pregnant, thirty days vacation with pay before and another thirty days after
confinement: Provided, That the employer shall not discharge such laborer without just
cause, under the penalty of being required to pay to her wages equivalent to the total of two
months counted from the day of her discharge.
Section 15 of the same Act is as follows:
Any person, firm or corporation violating any of the provisions of this Act shall be punished by
a fine of not less than fifty pesos nor more than two hundred and fifty, or by imprisonment for
not less than ten days nor more than six months, or both, in the discretion of the
court.chanroblesvirtualawlibrary chanrobles virtual law library
In the case of firms or corporations, the presidents, directors or managers thereof or, in their
default, the persons acting in their stead, shall be criminally responsible for each violation of
the provisions of this Act.
Said section 13 was enacted by the Legislature of the Philippine Islands in the exercise of its
supposed police power, with the praiseworthy purpose of safeguarding the health of pregnant
women laborers in "factory, shop or place of labor of any description," and of insuring to
them, to a certain extent, reasonable support for one month before and one month after their
delivery. The question presented for decision by the appeal is whether said Act has been
adopted in the reasonable and lawful exercise of the police power of the
state.chanroblesvirtualawlibrary chanrobles virtual law library
In determining whether a particular law promulgated under the police power of the state is, in
fact, within said power, it becomes necessary first, to determine what that power is, its limits
and scope. Literally hundreds of decisions have been promulgated in which definitions of the
police power have been attempted. An examination of all of said decisions will show that the
definitions are generally limited to particular cases and examples, which are as varied as they
are numerous.chanroblesvirtualawlibrary chanrobles virtual law library
By reason of the constant growth of public opinion in a developing civilization, the term
"police power" has never been, and we do not believe can be, clearly and definitely defined
and circumscribed. One hundred years ago, for example, it is doubtful whether the most
eminent jurist, or court, or legislature would have for a moment thought that, by any
possibility, a law providing for the destruction of a building in which alcoholic liquors were
sold, was within a reasonable and lawful exercise of the police power. (Mugler vs.Kansas,
123 U. S., 623.) The development of civilization, the rapidly increasing population, the growth
of public opinion, with a desire on the part of the masses and of the government to look after
and care for the interests of the individuals of the state, have brought within the police power
of the state many questions for regulation which formerly were not so considered. In a
republican form of government public sentiment wields a tremendous influence upon what the
state may or may not do, for the protection of the health and public morals of the people. Yet,
neither public sentiment, nor a desire to ameliorate the public morals of the people of the
state will justify the promulgation of a law which contravenes the express provisions of the
fundamental law of the people - the constitutional of the
state.chanroblesvirtualawlibrary chanrobles virtual law library
A definition of the police power of the state must depend upon the particular law and the
particular facts to which it is to be applied. The many definitions which have been given by
the highest courts may be examined, however, for the purpose of giving us a compass or
guide to assist us in arriving at a correct conclusion in the particular case before us. Sir
William Blackstone, one of the greatest expounders of the common law, defines the police
power as "the due regulation and domestic order of the kingdom, whereby the inhabitants of
a state, like members of a well-governed family, are bound to conform their general behavior
to the rules of propriety, good neighborhood, and good manners, and to be decent,
industrious, and inoffensive in their respective stations." (4 Blackstone's Commentaries,
162.) chanrobles virtual law library
Mr. Jeremy Bentham, in his General View of Public Offenses, gives us the following
definition: "Police is in general a system of precaution, either for the prevention of crimes or of
calamities. Its business may be distributed into eight distinct branches: (1) Police for the
prevention of offenses; (2) police for the prevention of calamities; (3) police for the prevention
of endemic diseased; (4) police of charity; (5) police of interior communications; (6) police of
public amusements; (7) police for recent intelligence; (8) police for registration." chanrobles
virtual law library
Mr. Justice Cooley, perhaps the greatest expounder of the American Constitution, says: "The
police power is the power vested in the legislature by the constitution to make, ordain, and
establish all manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for the good
and welfare of the commonwealth, and of the subject of the same. . . ." (Cooley's
Constitutional Limitations, p. 830.) chanrobles virtual law library
In the case of Commonwealth of Massachusetts vs. Alger (7 Cushing, 53), we find a very
comprehensive definition of the police power of the state. In that case it appears that the
colony of Massachusetts in 1647 adopted an Act to preserve the harbor of Boston and to
prevent encroachments therein. The defendant unlawfully erected, built, and established in
said harbor, and extended beyond said lines and into and over the tide water of the
Commonwealth a certain superstructure, obstruction and encumbrance. Said Act provided a
penalty for its violation of a fine of not less than $1,000 nor more than $5,000 for every
offense, and for the destruction of said buildings, or structures, or obstructions as a public
nuisance. Alger was arrested and placed on trial for violation of said Act. His defense was
that the Act of 1647 was illegal and void, because if permitted the destruction of private
property without compensation. Mr. Justice Shaw, speaking for the court in that said, said:
"We think it is a settled principle, growing out of the nature of well-ordered civil society, that
every holder of property, however absolute and unqualified may be his title, holds it under the
implied liability that his use of it may be so regulated, that it shall not be injurious to the equal
environment of others having an equal right to the enjoyment of their property nor injurious to
the rights of the community. All property in this commonwealth, as well that in the interior as
that bordering on tide waters, is derived directly or indirectly from the government and held
subject to those general regulations, which are necessary to the common good and general
welfare. Rights of property, like all other social and conventional rights, are subject to such
reasonable limitations in their enjoyment, as shall prevent them from being injurious, and to
such reasonable restraints and regulations established by law, as the legislature, under the
governing and controlling power vested in them by the constitution, may think necessary and
expedient." Mr. Justice Shaw further adds: ". . . The power we allude to is rather the police
power, the power vested in the legislature by the constitution, to make, ordain and establish
all manner of wholesome and reasonable laws, statutes and ordinances, either with penalties
or without, not repugnant to the constitution, as they shall judge to be for the good and
welfare of the commonwealth, and of the subjects of the same." chanrobles virtual law library
This court has, in the case of Case vs. Board of Health and Heiser (24 Phil., 250), in
discussing the police power of the state, had occasion to say: ". . . It is a well settled principle,
growing out of the nature of well-ordered and civilized society, that every holder of property,
however absolute and unqualified may be his title, holds it under the implied liability that his
use of it shall not be injurious to the equal enjoyment of others having an equal right to the
enjoyment of their property, nor injurious to the rights of the community. All property in the
state is held subject to its general regulations, which are necessary to the common good and
general welfare. Rights of property, like all other social and conventional rights, are subject to
such reasonable limitations in their enjoyment as shall prevent them from being injurious, and
to such reasonable restraints and regulations, established by law, as the legislature, under
the governing and controlling power vested in them by the constitution, may think necessary
and expedient. The state, under the police power is possessed with plenary power to deal
with all matters relating to the general health, morals, and safety of the people, so long as it
does not contravene any positive inhibition of the organic law and providing that such power
is not exercised in such a manner as to justify the interference of the courts to prevent
positive wrong and oppression." chanrobles virtual law library
Many other definitions have been given not only by the Supreme Court of the United States
but by the Supreme Court of every state of the Union. The foregoing definitions, however,
cover the general field of all of the definitions, found in jurisprudence. From all of the
definitions we conclude that it is much easier to perceive and realize the existence and
sources of the police power than to exactly mark its boundaries, or prescribe limits to its
exercise by the legislative department of the
government.chanroblesvirtualawlibrary chanrobles virtual law library
The most recent definition which has been called to our attention is that found in the case of
Adkins vs. Children's Hospital of the District of Columbia (261 U. S., 525). In that case the
controversy arose in this way: A children's hospital employed a number of women at various
rates of wages, which were entirely satisfactory to both the hospital and the employees. A
hotel company employed a woman as elevator operator at P35 per month and two meals a
day under healthy and satisfactory conditions, and she did not risk to lose her position as she
could not earn so much anywhere else. Her wages were less than the minimum fixed by a
board created under a law for the purpose of fixing a minimum wage for women and children,
with a penalty providing a punishment for a failure or refusal to pay the minimum wage fixed.
The wage paid by the hotel company of P35 per month and two meals a day was less than
the minimum wage fixed by said board. By reason of the order of said board, the hotel
company, was about to discharge her, as it was unwilling to pay her more and could not give
her employment at that salary without risking the penalty of a fine and imprisonment under
the law. She brought action to enjoin the hotel company from discharging her upon the
ground that the enforcement of the "Minimum Wage Act" would deprive her of her
employment and wages without due process of law, and that she could not get as good a
position anywhere else. The constitutionality of the Act was squarely presented to the
Supreme Court of the United States for decision.chanroblesvirtualawlibrary chanrobles virtual
law library
The Supreme Court of the United States held that said Act was void on the ground that
the right to contract about one's own affairs was a part of the liberty of the individual under
the constitution, and that while there was no such thing as absolute freedom of contract, and
it was necessary subject to a great variety of restraints, yet none of the exceptional
circumstances, which at times justify a limitation upon one's right to contract for his own
services, applied in the particular case.chanroblesvirtualawlibrary chanrobles virtual law
library
In the course of the decision in that case (Adkins vs. Children's Hospital of the District of
Columbia, 261 U. S., 525), Mr. Justice Sutherland, after a statement of the fact and making
reference to the particular law, said:
The statute now under consideration is attacked upon the ground that it authorizes an
unconstitutional interference with the freedom of contract including within the guarantees of
the due process clause of the 5th Amendment. That the right to contract about one's affairs is
a part of the liberty of the individual protected by this clause is settled by the decision of this
court, and is no longer open to question. Within this liberty are contracts of employment of
labor. In making such contracts, generally speaking, the parties have an equal right to obtain
from each other the best terms they can as the result of private bargaining.
(Allgeyer vs.Louisiana, 165 U. S., 578; 591; Adair vs. United States, 208 U. S., 161;
Muller vs. Oregon, 208 U. S., 412, 421.)
xxx xxx x x xchanrobles virtual law library
The law takes account of the necessities of only one party to the contract. It ignores the
necessities of the employer by compelling him to pay not less than a certain sum, not only
whether the employee is capable of earning it, but irrespective of the ability of his business to
sustain the burden, generously leaving him, of course, the privilege of abandoning his
business as an alternative for going on at a loss. Within the limits of the minimum sum, he is
precluded, under penalty of fine and imprisonment, from adjusting compensation to the
differing merits of his employees. It compels him to pay at least the sum fixed in any event,
because the employee needs it, but requires no service of equivalent value from the
employee. It (the law) therefore undertakes to solve but one-half of the problem. The other
half is the establishment of a corresponding standard of efficiency; and this forms no part of
the policy of the legislation, although in practice the former half without the latter must lead to
ultimate failure, in accordance with the inexorable law that no one can continue indefinitely to
take out more than he puts in without ultimately exhausting the supply. The law . . . takes no
account of periods of distress and business depression, or crippling losses, which may leave
the employer himself without adequate means of livelihood. To the extent that the sum fixed
exceeds the fair value of the services rendered, it amounts to a compulsory exaction from the
employer for the support of a partially indigent person, for whose condition there rests upon
him no peculiar responsibility, and therefore, in effect, arbitrarily shifts to his shoulders a
burden which, if it belongs to anybody, belongs to society as a
whole.chanroblesvirtualawlibrary chanrobles virtual law library
The failure of this state which, perhaps more than any other, puts upon it the stamp of
invalidity is that it exacts from the employer an arbitrary payment for a purpose and upon a
basis having no casual connection with his business, or the contract, or the work the
employee engages to do. The declared basis, as already pointed out, is not the value of the
service rendered, but the extraneous circumstances that the employee needs to get a
prescribed sum of money to insure her subsistence, health and morals. . . . The necessities of
the employee are alone considered, and these arise outside of the employment, are the same
when there is no employment, and as great in one occupation as in another. . . . In principle,
there can be no difference between the case of selling labor and the case of selling goods. If
one goes to the butcher, the baker, or grocer to buy food, he is morally entitled to obtain the
worth of his money, but he is not entitle to more. If what he gets is worth what he pays, he is
not justified in demanding more simply because he needs more; and the shopkeeper, having
dealt fairly and honestly in that transaction, is not concerned in any peculiar sense with the
question of his customer's necessities. Should a statute undertake to vest in a commission
power to determine the quantity of food necessary for individual support, and require the
shopkeeper, if he sell to the individual at all, to furnish that quantity at not more than a fixed
maximum, it would undoubtedly fall before the constitutional test. The fallacy of any argument
in support of the validity of such a statute would be quickly exposed. The argument in support
of that now being considered is equally fallacious, though the weakness of it may not be so
plain. . . .
It has been said that the particular statute before us is required in the interest of social justice
for whose end freedom of contract may lawfully be subjected to restraint. The liberty of the
individual to do as he pleases, even in innocent matters, is not absolute. That liberty must
frequently yield to the common good, and the line beyond which the power of interference
may not be pressed is neither definite nor unalterable, may be made to move, within limits not
well defined, with changing needs and circumstances.chanroblesvirtualawlibrary chanrobles
virtual law library
The late Mr. Justice Harlan, in the case of Adair vs. United States (208 U. S., 161, 174), said
that the right of a person to sell his labor upon such terms as he deems proper is, in its
essence, the same as the right of the purchaser of labor to prescribe the conditions upon
which he will accept such labor from the person offering to sell. In all such particulars the
employer and the employee have equality of right, and any legislation that disturbs that
equality is an arbitrary interference with the liberty of contract, which no government can
legally justify in a free land, under a constitution which provides that no person shall be
deprived of his liberty without due process of law.chanroblesvirtualawlibrary chanrobles
virtual law library
Mr. Justice Pitney, in the case of Coppage vs.Kansas (235 U. S., 1, 14), speaking for the
Supreme Court of the United States, said: ". . . Included in the right of personal liberty and the
right of private property - partaking of the nature of each - is the right to make contracts for
the acquisition of property. Chief among such contracts is that of personal employment, by
which labor and other services are exchange for money or other forms of property. If this right
be struck down or arbitrarily interfered with, there is a substantial impairment of liberty in the
long established constitutional sense. The right is as essential to the laborer as to the
capitalist, to the poor as to the rich; for the vast majority of persons have no other honest way
to begin to acquire property, save by working for money." chanrobles virtual law library
The right to liberty includes the right to enter into contracts and to terminate contracts. In the
case of Gillespie vs. People (118 Ill., 176, 183-185) it was held that a statute making it
unlawful to discharge an employee because of his connection with any lawful labor
organization, and providing a penalty therefor, is void, since the right to terminate a contract,
subject to liability to respond in a civil action for an unwarranted termination, is within the
protection of the state and Federal constitutions which guarantee that no person shall be
deprived of life, liberty or property without due process of law. The court said in part: ". . . One
citizen cannot be compelled to give employment to another citizen, nor can anyone be
compelled to be employed against his will. The Act of 1893, now under consideration,
deprives the employer of the right to terminate his contract with his employee. The right to
terminate such a contract is guaranteed by the organic law of the state. The legislature is
forbidden to deprive the employer or employee of the exercise of that right. The legislature
has no authority to pronounce the performance of an innocent act criminal when the public
health, safety, comfort or welfare is not interfered with. The statute in question says that, if a
man exercises his constitutional right to terminate a contract with his employee, he shall,
without a hearing, be punished as for the commission of a crime.
xxx xxx x x xchanrobles virtual law library
Liberty includes not only the right to labor, but to refuse to labor, and, consequently, the right
to contract to labor or for labor, and to terminate such contracts, and to refuse to make such
contracts. The legislature cannot prevent persons, who are sui juris, from laboring, or from
making such contracts as they may see fit to make relative to their own lawful labor; nor has it
any power by penal laws to prevent any person, with or without cause, from refusing to
employ another or to terminate a contract with him, subject only to the liability to respond in a
civil action for an unwarranted refusal to do that which has been agreed upon. Hence, we are
of the opinion that this Act contravenes those provisions of the state and Federal
constitutions, which guarantee that no person shall be deprived of life, liberty or property
without due process of law.
The statute in question is exactly analogous to the "Minimum Wage Act" referred to above. In
section 13 it will be seen that no person, firm, or corporation owning or managing a factory
shop, or place of labor of any description, can make a contract with a woman without
incurring the obligation, whatever the contract of employment might be, unless he also
promise to pay to such woman employed as a laborer, who may become pregnant, her
wages for thirty days before and thirty days after confinement. In other words, said section
creates a term or condition in every contract made by every person, firm, or corporation with
any woman who may, during the course of her employment, become pregnant, and a failure
to include in said contract the terms fixed to a fine and imprisonment. Clearly, therefore, the
law has deprived, every person, firm, or corporation owning or managing a factory, shop or
place of labor of any description within the Philippine Islands, of his right to enter into
contracts of employment upon such terms as he and the employee may agree upon. The law
creates a term in every such contract, without the consent of the parties. Such persons are,
therefore, deprived of their liberty to contract. The constitution of the Philippine Islands
guarantees to every citizen his liberty and one of his liberties is the liberty to
contract.chanroblesvirtualawlibrary chanrobles virtual law library
It is believed and confidently asserted that no case can be found, in civilized society and well-
organized governments, where individuals have been deprived of their property, under the
police power of the state, without compensation, except in cases where the property in
question was used for the purpose of violating some legally adopted, or constitutes a
nuisance. Among such cases may be mentioned: Apparatus used in counterfeiting the money
of the state; firearms illegally possessed; opium possessed in violation of law; apparatus used
for gambling in violation of law; buildings and property used for the purpose of violating laws
prohibiting the manufacture and sale of intoxicating liquors; and all cases in which the
property itself has become a nuisance and dangerous and detrimental to the public health,
morals and general welfare of the state. In all of such cases, and in many more which might
be cited, the destruction of the property is permitted in the exercise of the police power of the
state. But it must first be established that such property was used as the instrument for the
violation of a valid existing law. (Mugler vs. Kansas, 123 U. S., 623; Slaughter-House Cases,
16 Wall., [U. S.], 36; Butchers' Union, etc., Co. vs.Crescent City, etc., Co., 111 U. S., 746
John Stuart Mill - "On Liberty," 28, 29.) chanrobles virtual law library
Without further attempting to define what are the peculiar subjects or limits of the police
power, it may safely be affirmed, that every law for the restraint and punishment of crimes, for
the preservation of the public peace, health, and morals, must come within this category. But
the state, when providing by legislation for the protection of the public health, the public
morals, or the public safety, is subject to and is controlled by the paramount authority of the
constitution of the state, and will not be permitted to violate rights secured or guaranteed by
that instrument or interfere with the execution of the powers and rights guaranteed to the
people under their law - the constitution. (Mugler vs. Kansas, 123 U. S., 623.) chanrobles
virtual law library
The police power of the state is a growing and expanding power. As civilization develops and
public conscience becomes awakened, the police power may be extended, as has been
demonstrated in the growth of public sentiment with reference to the manufacture and sale of
intoxicating liquors. But that power cannot grow faster than the fundamental law of the state,
nor transcend or violate the express inhibition of the people's law - the constitution. If the
people desire to have the police power extended and applied to conditions and things
prohibited by the organic law, they must first amend that
law.chanroblesvirtualawlibrary chanrobles virtual law library
It will also be noted from an examination of said section 13, that it takes no account of
contracts for the employment of women by the day nor by the piece. The law is equally
applicable to each case. It will hardly be contended that the person, firm or corporation
owning or managing a factory, shop or place of labor, who employs women by the day or by
the piece, could be compelled under the law to pay for sixty days during which no services
were rendered.chanroblesvirtualawlibrary chanrobles virtual law library
It has been decided in a long line of decisions of the Supreme Court of the United States, that
the right to contract about one's affairs is a part of the liberty of the individual, protected by
the "due process of law" clause of the constitution. (Allgeyer vs. Louisiana, 165 U. S., 578,
591; New York Life Ins. Co. vs. Dodge, 246 U. S., 357, 373, 374; Coppage vs. Kansas, 236
U. S., 1, 10, 14; Adair vs. United States, 208 U. S., 161; Lochner vs. New York, 198 U. S.; 45,
49; Muller vs. Oregon, 208 U. S., 412, 421.) chanrobles virtual law library
The rule in this jurisdiction is, that the contracting parties may establish any agreements,
terms, and conditions they may deem advisable, provided they are not contrary to law, morals
or public policy. (Art. 1255, Civil Code.) chanrobles virtual law library
For all of the foregoing reasons, we are fully persuaded, under the facts and the law, that the
provisions of section 13, of Act No. 3071 of the Philippine Legislature, are unconstitutional
and void, in that they violate and are contrary to the provisions of the first paragraph of
section 3 of the Act of Congress of the United States of August 29, 1916. (Vol. 12, Public
Laws, p. 238.) chanrobles virtual law library
Therefore, the sentence of the lower court is hereby revoked, the complaint is hereby
dismissed, and the defendant is hereby discharged from the custody of the law, with costs de
oficio. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
West Coast Hotel Co. v. Parrish
Syllabus
1. Deprivation of liberty to contract is forbidden by the Constitution if without due process of
law, but restraint or regulation of this liberty, if reasonable in relation to its subject and if
adopted for the protection of the community against evils menacing the health, safety, morals
and welfare of the people, is due process. P. 300 U. S. 391.
2. In dealing with the relation of employer and employed, the legislature has necessarily a
wide field of discretion in order that there may be suitable protection of health and safety, and
that peace and good order may be promoted through regulations designed to insure
wholesome conditions of work and freedom from oppression. P. 300 U. S. 393.
3. The State has a special interest in protecting women against employment contracts which
through poor working conditions, long hours or scant wages may leave them inadequately
supported and undermine their health; because:
(1) The health of women is peculiarly related to the vigor of the race;
(2) Women are especially liable to be overreached and exploited by unscrupulous employers;
and
(3) This exploitation and denial of a living wage is not only detrimental to the health and
wellbeing of the women affected, but casts a direct burden for their support upon the
community. Pp. 300 U. S. 394, 300 U. S. 398, et seq.
4. Judicial notice is taken of the unparalleled demands for relief which arose during the recent
period of depression and still continue to an alarming extent despite the degree of economic
recovery which has been achieved. P. 300 U. S. 399.
5. A state law for the setting of minimum wages for women is not an arbitrary discrimination
because it does not extend to men. P. 300 U. S. 400.
6. A statute of the State of Washington (Laws, 1913, c. 174; Remington's Rev.Stats., 1932, §
7623 et seq.) providing for the establishment of minimum wages for women, held
valid. Adkins v. Children's Hospital, 261 U. S. 525, is overruled; Morehead v. New York ex rel.
Tipaldo,298 U. S. 587, distinguished. P. 300 U. S. 400.
185 Wash. 581; 55 P.2d 1083, affirmed.
This was an appeal from a judgment for money directed by the Supreme Court of
Washington, reversing the trial court, in an action by a chambermaid against a hotel company
to recover the difference between the amount of wages paid or tendered to her as per
contract and a larger amount computed on the minimum wage fixed by a state board or
commission.
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
This case presents the question of the constitutional validity of the minimum wage law of the
State of Washington.
The Act, entitled "Minimum Wages for Women," authorizes the fixing of minimum wages for
women and minors. Laws of 1913 (Washington) chap. 174; Remington's Rev.Stat. (1932), §
7623 et seq. It provides:
"SECTION 1. The welfare of the State of Washington demands that women and minors be
protected from conditions of labor which have a pernicious effect on their health and morals.
The State of Washington, therefore, exercising herein its police and sovereign power
declares that inadequate wages and unsanitary conditions of labor exert such pernicious
effect."
"SEC. 2. It shall be unlawful to employ women or minors in any industry or occupation within
the State of Washington under conditions of labor detrimental to their health or morals, and it
shall be unlawful to employ women workers in any industry within the State of Washington at
wages which are not adequate for their maintenance."
"SEC. 3. There is hereby created a commission to be known as the 'Industrial Welfare
Commission' for the State of Washington, to establish such standards of wages and
conditions of labor for women and minors employed within the State of Washington as shall
be held hereunder to be reasonable and not detrimental to health and morals, and which shall
be sufficient for the decent maintenance of women."
Further provisions required the Commission to ascertain the wages and conditions of labor of
women and minors within the State. Public hearings were to be held. If, after investigation,
the Commission found that, in any occupation, trade or industry, the wages paid to women
were "inadequate to supply them necessary cost of living and to maintain the workers in
health," the Commission was empowered to call a conference of representatives of
employers and employees together with disinterested persons representing the public. The
conference was to recommend to the Commission, on its request, an estimate of a minimum
wage adequate for the purpose above stated, and, on the approval of such a
recommendation, it became the duty of the Commission to issue an obligatory order fixing
minimum wages. Any such order might be reopened, and the question reconsidered with the
aid of the former conference or a new one. Special licenses were authorized for the
employment of women who were "physically defective or crippled by age or otherwise," and
also for apprentices, at less than the prescribed minimum wage.
By a later Act, the Industrial Welfare Commission was abolished, and its duties were
assigned to the Industrial Welfare Committee, consisting of the Director of Labor and
Industries, the Supervisor of Industrial Insurance, the Supervisor of Industrial Relations, the
Industrial Statistician, and the Supervisor of Women in Industry. Laws of 1921 (Washington)
c. 7; Remington's Rev.Stat. (1932), §§ 10840, 10893.
The appellant conducts a hotel. The appellee, Elsie Parrish, was employed as a
chambermaid and (with her husband) brought this suit to recover the difference between the
wages paid her and the minimum wage fixed pursuant to the state law. The minimum wage
was $14.50 per week of 48 hours. The appellant challenged the act as repugnant to the due
process clause of the Fourteenth Amendment of the Constitution of the United States. The
Supreme Court of the State, reversing the trial court, sustained the statute and directed
judgment for the plaintiffs. Parrish v. West Coast Hotel Co., 185 Wash. 581, 55 P.2d 1083.
The case is here on appeal.
The appellant relies upon the decision of this Court in Adkins v. Children's Hospital, 261 U. S.
525, which held invalid the District of Columbia Minimum Wage Act, which was attacked
under the due process clause of the Fifth Amendment. On the argument at bar, counsel for
the appellees attempted to distinguish the Adkins case upon the ground that the appellee was
employed in a hotel, and that the business of an innkeeper was affected with a public interest.
That effort at distinction is obviously futile, as it appears that, in one of the cases ruled by
the Adkins opinion, the employee was a woman employed as an elevator operator in a
hotel. Adkins v. Lyons, 261 U. S. 525, at p. 261 U. S. 542.
The recent case of Morehead v. New York ex rel. Tipaldo, 298 U. S. 587, came here on
certiorari to the New York court, which had held the New York minimum wage act for women
to be invalid. A minority of this Court thought that the New York statute was distinguishable in
a material feature from that involved in the Adkins case, and, that for that and other reasons,
the New York statute should be sustained. But the Court of Appeals of New York had said
that it found no material difference between the two statutes, and this Court held that the
"meaning of the statute" as fixed by the decision of the state court "must be accepted here as
if the meaning had been specifically expressed in the enactment." Id., p. 298 U. S. 609. That
view led the affirmance by this Court of the judgment in the Morehead case, as the Court
considered that the only question before it was whether the Adkins case was distinguishable,
and that reconsideration of that decision had not been sought. Upon that point, the Court
said:
"The petition for the writ sought review upon the ground that this case [Morehead] is
distinguishable from that one [Adkins]. No application has been made for reconsideration of
the constitutional question there decided. The validity of the principles upon which that
decision rests is not challenged. This court confines itself to the ground upon which the writ
was asked or granted. . . . Here, the review granted was no broader than that sought by the
petitioner. . . . He is not entitled, and does not ask, to be heard upon the question whether
the Adkins case should be overruled. He maintains that it may be distinguished on the ground
that the statutes are vitally dissimilar."
Id. pp. 298 U. S. 604, 298 U. S. 605.
We think that the question which was not deemed to be open in the Morehead case is open
and is necessarily presented here. The Supreme Court of Washington has upheld the
minimum wage statute of that State. It has decided that the statute is a reasonable exercise
of the police power of the State. In reaching that conclusion, the state court has invoked
principles long established by this Court in the application of the Fourteenth Amendment. The
state court has refused to regard the decision in the Adkins case as determinative, and has
pointed to our decisions both before and since that case as justifying its position. We are of
the opinion that this ruling of the state court demands on our part a reexamination of
the Adkins case. The importance of the question, in which many States having similar laws
are concerned, the close division by which the decision in the Adkins case was reached, and
the economic conditions which have supervened, and in the light of which the
reasonableness of the exercise of the protective power of the State must be considered,
make it not only appropriate, but we think imperative, that, in deciding the present case, the
subject should receive fresh consideration.
The history of the litigation of this question may be briefly stated. The minimum wage statute
of Washington was enacted over twenty-three years ago. Prior to the decision in the instant
case, it had twice been held valid by the Supreme Court of the State. Larsen v. Rice, 100
Wash. 642, 171 Pac. 1037; Spokane Hotel Co. v. Younger, 113 Wash. 359, 194 Pac. 595.
The Washington statute is essentially the same as that enacted in Oregon in the same year.
Laws of 1913 (Oregon) chap. 62. The validity of the latter act was sustained by the Supreme
Court of Oregon in Stettler v. O'Hara, 69 Ore. 519, 139 Pac. 743, and Simpson v. O'Hara, 70
Ore. 261, 141 Pac. 158. These cases, after reargument, were affirmed here by an equally
divided court, in 1917. 243 U.S. 629. The law of Oregon thus continued in effect. The District
of Columbia Minimum Wage Law (40 Stat. 960) was enacted in 1918. The statute was
sustained by the Supreme Court of the District in the Adkins case. Upon appeal, the Court of
Appeals of the District first affirmed that ruling, but, on rehearing, reversed it, and the case
came before this Court in 1923. The judgment of the Court of Appeals holding the Act invalid
was affirmed, but with Chief Justice Taft, Mr. Justice Holmes and Mr. Justice Sanford
dissenting, and Mr. Justice Brandeis taking no part. The dissenting opinions took the ground
that the decision was at variance with the principles which this Court had frequently
announced and applied. In 1925 and 1927, the similar minimum wage statutes of Arizona and
Arkansas were held invalid upon the authority of the Adkins case. The Justices who had
dissented in that case bowed to the ruling, and Mr. Justice Brandeis dissented. Murphy v.
Sardell, 269 U.S. 530; Donham v. West-Nelson Co., 273 U.S. 657. The question did not
come before us again until the last term in the Morehead case, as already noted. In that case,
briefs supporting the New York statute were submitted by the States of Ohio, Connecticut,
Illinois, Massachusetts, New Hampshire, New Jersey and Rhode Island. 298 U.S. p. 604,
note. Throughout this entire period, the Washington statute now under consideration has
been in force.
The principle which must control our decision is not in doubt. The constitutional provision
invoked is the due process clause of the Fourteenth Amendment, governing the States, as
the due process clause invoked in the Adkins case governed Congress. In each case, the
violation alleged by those attacking minimum wage regulation for women is deprivation of
freedom of contract. What is this freedom? The Constitution does not speak of freedom of
contract. It speaks of liberty and prohibits the deprivation of liberty without due process of law.
In prohibiting that deprivation, the Constitution does not recognize an absolute and
uncontrollable liberty. Liberty in each of its phases has its history and connotation. But the
liberty safeguarded is liberty in a social organization which requires the protection of law
against the evils which menace the health, safety, morals and welfare of the people. Liberty
under the Constitution is thus necessarily subject to the restraints of due process, and
regulation which is reasonable in relation to its subject and is adopted in the interests of the
community is due process.
This essential limitation of liberty in general governs freedom of contract in particular. More
than twenty-five years ago, we set forth the applicable principle in these words, after referring
to the cases where the liberty guaranteed by the Fourteenth Amendment had been broadly
described: [Footnote 1]
"But it was recognized in the cases cited, as in many others, that freedom of contract is a
qualified, and not an absolute, right. There is no absolute freedom to do as one wills or to
contract as one chooses. The guaranty of liberty does not withdraw from legislative
supervision that wide department of activity which consists of the making of contracts, or
deny to government the power to provide restrictive safeguards. Liberty implies the absence
of arbitrary restraint, not immunity from reasonable regulations and prohibitions imposed in
the interests of the community."
Chicago, B. & Q. R. Co. v. McGuire, 219 U. S. 549, 219 U. S. 567.
This power under the Constitution to restrict freedom of contract has had many illustrations.
[Footnote 2] That it may be exercised in the public interest with respect to contracts between
employer and employee is undeniable. Thus, statutes have been sustained limiting
employment in underground mines and smelters to eight hours a day (Holden v. Hardy, 169
U. S. 366); in requiring redemption in cash of store orders or other evidences of indebtedness
issued in the payment of wages (Knoxville Iron Co. v. Harbison, 183 U. S. 13); in forbidding
the payment of seamen's wages in advance (Patterson v. Bark Eudora, 190 U. S. 169); in
making it unlawful to contract to pay miners employed at quantity rates upon the basis of
screened coal instead of the weight of the coal as originally produced in the mine (McLean v.
Arkansas, 211 U. S. 539); in prohibiting contracts limiting liability for injuries to employees
(Chicago, B. & Q. R. Co. v. McGuire, supra); in limiting hours of work of employees in
manufacturing establishments (Bunting v. Oregon, 243 U. S. 426), and in maintaining
workmen's compensation laws (New York Central R. Co. v. White, 243 U. S. 188; Mountain
Timber Co. v. Washington, 243 U. S. 219). In dealing with the relation of employer and
employed, the legislature has necessarily a wide field of discretion in order that there may be
suitable protection of health and safety, and that peace and good order may be promoted
through regulations designed to insure wholesome conditions of work and freedom from
oppression. Chicago, B. & Q. R. Co. v. McGuire, supra, p. 219 U. S. 570.
The point that has been strongly stressed that adult employees should be deemed competent
to make their own contracts was decisively met nearly forty years ago in Holden v. Hardy,
supra, where we pointed out the inequality in the footing of the parties. We said (Id. 169 U. S.
397):
"The legislature has also recognized the fact, which the experience of legislators in many
States has corroborated, that the proprietors of these establishments and their operatives do
not stand upon an equality, and that their interests are, to a certain extent, conflicting. The
former naturally desire to obtain as much labor as possible from their employes, while the
latter are often induced by the fear of discharge to conform to regulations which their
judgment, fairly exercised, would pronounce to be detrimental to their health or strength. In
other words, the proprietors lay down the rules and the laborers are practically constrained to
obey them. In such cases, self-interest is often an unsafe guide, and the legislature may
properly interpose its authority."
And we added that the fact
"that both parties are of full age and competent to contract does not necessarily deprive the
State of the power to interfere where the parties do not stand upon an equality, or where the
public health demands that one party to the contract shall be protected against himself."
"The State still retains an interest in his welfare, however reckless he may be. The whole is
no greater than the sum of all the parts, and when the individual health, safety and welfare
are sacrificed or neglected, the State must suffer."
It is manifest that this established principle is peculiarly applicable in relation to the
employment of women, in whose protection the State has a special interest. That phase of
the subject received elaborate consideration in Muller v. Oregon (1908), 208 U. S. 412, where
the constitutional authority of the State to limit the working hours of women was sustained.
We emphasized the consideration that "woman's physical structure and the performance of
maternal functions place her at a disadvantage in the struggle for subsistence," and that her
physical wellbeing "becomes an object of public interest and care in order to preserve the
strength and vigor of the race." We emphasized the need of protecting women against
oppression despite her possession of contractual rights. We said that,
"though limitations upon personal and contractual rights may be removed by legislation, there
is that in her disposition and habits of life which will operate against a full assertion of those
rights. She will still be where some legislation to protect her seems necessary to secure a real
equality of right."
Hence, she was
"properly placed in a class by herself, and legislation designed for her protection may be
sustained even when like legislation is not necessary for men and could not be sustained."
We concluded that the limitations which the statute there in question "placed upon her
contractual powers, upon her right to agree with her employer as to the time she shall labor,"
were "not imposed solely for her benefit, but also largely for the benefit of all." Again,
in Quong Wing v. Kirkendall, 223 U. S. 59, 223 U. S. 63, in referring to a differentiation with
respect to the employment of women, we said that the Fourteenth Amendment did not
interfere with state power by creating a "fictitious equality." We referred to recognized
classifications on the basis of sex with regard to hours of work and in other matters, and we
observed that the particular points at which that difference shall be enforced by legislation
were largely in the power of the State. In later rulings, this Court sustained the regulation of
hours of work of women employees in Riley v. Massachusetts, 232 U. S. 671(factories), Miller
v. Wilson, 236 U. S. 373 (hotels), and Bosley v. McLaughlin, 236 U. S. 385(hospitals).
This array of precedents and the principles they applied were thought by the dissenting
Justices in the Adkins case to demand that the minimum wage statute be sustained. The
validity of the distinction made by the Court between a minimum wage and a maximum of
hours in limiting liberty of contract was especially challenged. 261 U.S. p. 261 U. S. 564.
That challenge persists, and is without any satisfactory answer. As Chief Justice Taft
observed:
"In absolute freedom of contract, the one term is as important as the other, for both enter
equally into the consideration given and received, a restriction as to the one is not greater, in
essence, than the other, and is of the same kind. One is the multiplier, and the other the
multiplicand."
And Mr. Justice Holmes, while recognizing that "the distinctions of the law are distinctions of
degree," could
"perceive no difference in the kind or degree of interference with liberty, the only matter with
which we have any concern, between the one case and the other. The bargain is equally
affected whichever half you regulate."
Id., p. 261 U. S. 569.
One of the points which was pressed by the Court in supporting its ruling in the Adkinscase
was that the standard set up by the District of Columbia Act did not take appropriate account
of the value of the services rendered. In the Morehead case, the minority thought that the
New York statute had met that point in its definition of a "fair wage," and that it accordingly
presented a distinguishable feature which the Court could recognize within the limits which
the Morehead petition for certiorari was deemed to present. The Court, however, did not take
that view, and the New York Act was held to be essentially the same as that for the District of
Columbia. The statute now before us is like the latter, but we are unable to conclude that, in
its minimum wage requirement, the State has passed beyond the boundary of its broad
protective power.
The minimum wage to be paid under the Washington statute is fixed after full consideration
by representatives of employers, employees and the public. It may be assumed that the
minimum wage is fixed in consideration of the services that are performed in the particular
occupations under normal conditions. Provision is made for special licenses at less wages in
the case of women who are incapable of full service. The statement of Mr. Justice Holmes in
the Adkins case is pertinent:
"This statute does not compel anybody to pay anything. It simply forbids employment at rates
below those fixed as the minimum requirement of health and right living. It is safe to assume
that women will not be employed at even the lowest wages allowed unless they earn them, or
unless the employer's business can sustain the burden. In short the law, in its character and
operation, is like hundreds of so-called police laws that have been upheld."
261 U.S. p. 261 U. S. 570. And Chief Justice Taft forcibly pointed out the consideration which
is basic in a statute of this character:
"Legislatures which adopt a requirement of maximum hours or minimum wages may be
presumed to believe that, when sweating employers are prevented from paying unduly low
wages by positive law, they will continue their business, abating that part of their profits which
were wrung from the necessities of their employees, and will concede the better terms
required by the law, and that, while in individual cases hardship may result, the restriction will
enure to the benefit of the general class of employees in whose interest the law is passed,
and so to that of the community at large."
Id., p. 261 U. S. 563.
We think that the views thus expressed are sound, and that the decision in the Adkins case
was a departure from the true application of the principles governing the regulation by the
State of the relation of employer and employed. Those principles have been reenforced by
our subsequent decisions. Thus, in Radice v. New York, 264 U. S. 292, we sustained the
New York statute which restricted the employment of women in restaurants at night.
In O'Gorman & Young v. Hartford Fire Insurance Co., 282 U. S. 251, which upheld an act
regulating the commissions of insurance agents, we pointed to the presumption of the
constitutionality of a statute dealing with a subject within the scope of the police power and to
the absence of any factual foundation of record for deciding that the limits of power had been
transcended. In Nebbia v. New York, 291 U. S. 502, dealing with the New York statute
providing for minimum prices for milk, the general subject of the regulation of the use of
private property and of the making of private contracts received an exhaustive examination,
and we again declared that, if such laws
"have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor
discriminatory, the requirements of due process are satisfied;"
that
"with the wisdom of the policy adopted, with the adequacy or practicability of the law enacted
to forward it, the courts are both incompetent and unauthorized to deal;"
that
"times without number, we have said that the legislature is primarily the judge of the necessity
of such an enactment, that every possible presumption is in favor of its validity, and that,
though the court may hold views inconsistent with the wisdom of the law, it may not be
annulled unless palpably in excess of legislative power."
Id. pp. 291 U. S. 537, 291 U. S. 538.
With full recognition of the earnestness and vigor which characterize the prevailing opinion in
the Adkins case, we find it impossible to reconcile that ruling with these well considered
declarations. What can be closer to the public interest than the health of women and their
protection from unscrupulous and overreaching employers? And if the protection of women is
a legitimate end of the exercise of state power, how can it be said that the requirement of the
payment of a minimum wage fairly fixed in order to meet the very necessities of existence is
not an admissible means to that end? The legislature of the State was clearly entitled to
consider the situation of women in employment, the fact that they are in the class receiving
the least pay, that their bargaining power is relatively weak, and that they are the ready
victims of those who would take advantage of their necessitous circumstances. The
legislature was entitled to adopt measures to reduce the evils of the "sweating system," the
exploiting of workers at wages so low as to be insufficient to meet the bare cost of living, thus
making their very helplessness the occasion of a most injurious competition. The legislature
had the right to consider that its minimum wage requirements would be an important aid in
carrying out its policy of protection. The adoption of similar requirements by many States
evidences a deep-seated conviction both as to the presence of the evil and as to the means
adapted to check it. Legislative response to that conviction cannot be regarded as arbitrary or
capricious, and that is all we have to decide. Even if the wisdom of the policy be regarded as
debatable and its effects uncertain, still the legislature is entitled to its judgment.
There is an additional and compelling consideration which recent economic experience has
brought into a strong light. The exploitation of a class of workers who are in an unequal
position with respect to bargaining power, and are thus relatively defenceless against the
denial of a living wage, is not only detrimental to their health and wellbeing, but casts a direct
burden for their support upon the community. What these workers lose in wages, the
taxpayers are called upon to pay. The bare cost of living must be met. We may take judicial
notice of the unparalleled demands for relief which arose during the recent period of
depression and still continue to an alarming extent despite the degree of economic recovery
which has been achieved. It is unnecessary to cite official statistics to establish what is of
common knowledge through the length and breadth of the land. While, in the instant case, no
factual brief has been presented, there is no reason to doubt that the State of Washington
has encountered the same social problem that is present elsewhere. The community is not
bound to provide what is, in effect, a subsidy for unconscionable employers. The community
may direct its lawmaking power to correct the abuse which springs from their selfish disregard
of the public interest. The argument that the legislation in question constitutes an arbitrary
discrimination, because it does not extend to men, is unavailing. This Court has frequently
held that the legislative authority, acting within its proper field, is not bound to extend its
regulation to all cases which it might possibly reach. The legislature "is free to recognize
degrees of harm and it may confine its restrictions to those classes of cases where the need
is deemed to be clearest." If
"the law presumably hits the evil where it is most felt, it is not to be overthrown because there
are other instances to which it might have been applied."
There is no "doctrinaire requirement" that the legislation should be couched in all embracing
terms. Carroll v. Greenwich Insurance Co., 199 U. S. 401, 199 U. S. 411; Patsone v.
Pennsylvania, 232 U. S. 138, 232 U. S. 144; Keokee Coke Co. v. Taylor, 234 U. S. 224, 234
U. S. 227; Sproles v. Binford, 286 U. S. 374, 286 U. S. 396; Semler v. Oregon Board, 294 U.
S. 608, 294 U. S. 610, 294 U. S. 611. This familiar principle has repeatedly been applied to
legislation which singles out women, and particular classes of women, in the exercise of the
State's protective power. Miller v. Wilson, supra, p. 236 U. S. 384; Bosley v. McLaughlin,
supra, pp. 236 U. S. 394, 236 U. S. 395; Radice v. New York, supra, pp. 264 U. S. 295-298.
Their relative need in the presence of the evil, no less than the existence of the evil itself, is a
matter for the legislative judgment.
Our conclusion is that the case of Adkins v. Children's Hospital, supra, should be, and it is,
overruled. The judgment of the Supreme Court of the State of Washington is
Affirmed.
G.R. No. 81958 June 30, 1988
PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner,
vs.
HON. FRANKLIN M. DRILON as Secretary of Labor and Employment, and TOMAS D.
ACHACOSO, as Administrator of the Philippine Overseas Employment
Administration, respondents.
SARMIENTO, J.:
The petitioner, Philippine Association of Service Exporters, Inc. (PASEI, for short), a firm
"engaged principally in the recruitment of Filipino workers, male and female, for overseas
placement," 1 challenges the Constitutional validity of Department Order No. 1, Series of
1988, of the Department of Labor and Employment, in the character of "GUIDELINES
GOVERNING THE TEMPORARY SUSPENSION OF DEPLOYMENT OF FILIPINO
DOMESTIC AND HOUSEHOLD WORKERS," in this petition for certiorari and prohibition.
Specifically, the measure is assailed for "discrimination against males or females;" 2 that it
"does not apply to all Filipino workers but only to domestic helpers and females with similar
skills;" 3 and that it is violative of the right to travel. It is held likewise to be an invalid exercise
of the lawmaking power, police power being legislative, and not executive, in character.
In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the Constitution,
providing for worker participation "in policy and decision-making processes affecting their
rights and benefits as may be provided by law." 4 Department Order No. 1, it is contended,
was passed in the absence of prior consultations. It is claimed, finally, to be in violation of the
Charter's non-impairment clause, in addition to the "great and irreparable injury" that PASEI
members face should the Order be further enforced.
On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of Labor and
Administrator of the Philippine Overseas Employment Administration, filed a Comment
informing the Court that on March 8, 1988, the respondent Labor Secretary lifted the
deployment ban in the states of Iraq, Jordan, Qatar, Canada, Hongkong, United States, Italy,
Norway, Austria, and Switzerland. * In submitting the validity of the challenged "guidelines,"
the Solicitor General invokes the police power of the Philippine State.
It is admitted that Department Order No. 1 is in the nature of a police power measure. The
only question is whether or not it is valid under the Constitution.
The concept of police power is well-established in this jurisdiction. It has been defined as the
"state authority to enact legislation that may interfere with personal liberty or property in order
to promote the general welfare." 5 As defined, it consists of (1) an imposition of restraint upon
liberty or property, (2) in order to foster the common good. It is not capable of an exact
definition but has been, purposely, veiled in general terms to underscore its all-
comprehensive embrace.
"Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future
where it could be done, provides enough room for an efficient and flexible response to
conditions and circumstances thus assuring the greatest benefits." 6
It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the
Charter. Along with the taxing power and eminent domain, it is inborn in the very fact of
statehood and sovereignty. It is a fundamental attribute of government that has enabled it to
perform the most vital functions of governance. Marshall, to whom the expression has been
credited, 7 refers to it succinctly as the plenary power of the State "to govern its citizens." 8
"The police power of the State ... is a power coextensive with self- protection, and it is not
inaptly termed the "law of overwhelming necessity." It may be said to be that inherent and
plenary power in the State which enables it to prohibit all things hurtful to the comfort, safety,
and welfare of society." 9
It constitutes an implied limitation on the Bill of Rights. According to Fernando, it is "rooted in
the conception that men in organizing the state and imposing upon its government limitations
to safeguard constitutional rights did not intend thereby to enable an individual citizen or a
group of citizens to obstruct unreasonably the enactment of such salutary measures
calculated to ensure communal peace, safety, good order, and welfare." 10 Significantly, the
Bill of Rights itself does not purport to be an absolute guaranty of individual rights and
liberties "Even liberty itself, the greatest of all rights, is not unrestricted license to act
according to one's will." 11 It is subject to the far more overriding demands and requirements
of the greater number.
Notwithstanding its extensive sweep, police power is not without its own limitations. For all its
awesome consequences, it may not be exercised arbitrarily or unreasonably. Otherwise, and
in that event, it defeats the purpose for which it is exercised, that is, to advance the public
good. Thus, when the power is used to further private interests at the expense of the
citizenry, there is a clear misuse of the power. 12
In the light of the foregoing, the petition must be dismissed.
As a general rule, official acts enjoy a presumed vahdity. 13 In the absence of clear and
convincing evidence to the contrary, the presumption logically stands.
The petitioner has shown no satisfactory reason why the contested measure should be
nullified. There is no question that Department Order No. 1 applies only to "female contract
workers," 14 but it does not thereby make an undue discrimination between the sexes. It is
well-settled that "equality before the law" under the Constitution 15does not import a perfect
Identity of rights among all men and women. It admits of classifications, provided that (1)
such classifications rest on substantial distinctions; (2) they are germane to the purposes of
the law; (3) they are not confined to existing conditions; and (4) they apply equally to all
members of the same class. 16
The Court is satisfied that the classification made-the preference for female workers — rests
on substantial distinctions.
As a matter of judicial notice, the Court is well aware of the unhappy plight that has befallen
our female labor force abroad, especially domestic servants, amid exploitative working
conditions marked by, in not a few cases, physical and personal abuse. The sordid tales of
maltreatment suffered by migrant Filipina workers, even rape and various forms of torture,
confirmed by testimonies of returning workers, are compelling motives for urgent Government
action. As precisely the caretaker of Constitutional rights, the Court is called upon to protect
victims of exploitation. In fulfilling that duty, the Court sustains the Government's efforts.
The same, however, cannot be said of our male workers. In the first place, there is no
evidence that, except perhaps for isolated instances, our men abroad have been afflicted with
an Identical predicament. The petitioner has proffered no argument that the Government
should act similarly with respect to male workers. The Court, of course, is not impressing
some male chauvinistic notion that men are superior to women. What the Court is saying is
that it was largely a matter of evidence (that women domestic workers are being ill-treated
abroad in massive instances) and not upon some fanciful or arbitrary yardstick that the
Government acted in this case. It is evidence capable indeed of unquestionable
demonstration and evidence this Court accepts. The Court cannot, however, say the same
thing as far as men are concerned. There is simply no evidence to justify such an inference.
Suffice it to state, then, that insofar as classifications are concerned, this Court is content that
distinctions are borne by the evidence. Discrimination in this case is justified.
As we have furthermore indicated, executive determinations are generally final on the Court.
Under a republican regime, it is the executive branch that enforces policy. For their part, the
courts decide, in the proper cases, whether that policy, or the manner by which it is
implemented, agrees with the Constitution or the laws, but it is not for them to question its
wisdom. As a co-equal body, the judiciary has great respect for determinations of the Chief
Executive or his subalterns, especially when the legislature itself has specifically given them
enough room on how the law should be effectively enforced. In the case at bar, there is no
gainsaying the fact, and the Court will deal with this at greater length shortly, that Department
Order No. 1 implements the rule-making powers granted by the Labor Code. But what should
be noted is the fact that in spite of such a fiction of finality, the Court is on its own persuaded
that prevailing conditions indeed call for a deployment ban.
There is likewise no doubt that such a classification is germane to the purpose behind the
measure. Unquestionably, it is the avowed objective of Department Order No. 1 to "enhance
the protection for Filipino female overseas workers" 17 this Court has no quarrel that in the
midst of the terrible mistreatment Filipina workers have suffered abroad, a ban on deployment
will be for their own good and welfare.
The Order does not narrowly apply to existing conditions. Rather, it is intended to apply
indefinitely so long as those conditions exist. This is clear from the Order itself ("Pending
review of the administrative and legal measures, in the Philippines and in the host countries .
. ."18), meaning to say that should the authorities arrive at a means impressed with a greater
degree of permanency, the ban shall be lifted. As a stop-gap measure, it is possessed of a
necessary malleability, depending on the circumstances of each case. Accordingly, it
provides:
 9. LIFTING OF SUSPENSION. — The Secretary of Labor and Employment
(DOLE) may, upon recommendation of the Philippine Overseas Employment
Administration (POEA), lift the suspension in countries where there are:
1. Bilateral agreements or understanding with the Philippines, and/or,
2. Existing mechanisms providing for sufficient safeguards to ensure the
welfare and protection of Filipino workers. 19
The Court finds, finally, the impugned guidelines to be applicable to all female domestic
overseas workers. That it does not apply to "all Filipina workers" 20 is not an argument for
unconstitutionality. Had the ban been given universal applicability, then it would have been
unreasonable and arbitrary. For obvious reasons, not all of them are similarly circumstanced.
What the Constitution prohibits is the singling out of a select person or group of persons
within an existing class, to the prejudice of such a person or group or resulting in an unfair
advantage to another person or group of persons. To apply the ban, say exclusively to
workers deployed by A, but not to those recruited by B, would obviously clash with the equal
protection clause of the Charter. It would be a classic case of what Chase refers to as a law
that "takes property from A and gives it to B." 21 It would be an unlawful invasion of property
rights and freedom of contract and needless to state, an invalid act. 22 (Fernando says:
"Where the classification is based on such distinctions that make a real difference as infancy,
sex, and stage of civilization of minority groups, the better rule, it would seem, is to recognize
its validity only if the young, the women, and the cultural minorities are singled out for
favorable treatment. There would be an element of unreasonableness if on the contrary their
status that calls for the law ministering to their needs is made the basis of discriminatory
legislation against them. If such be the case, it would be difficult to refute the assertion of
denial of equal protection." 23 In the case at bar, the assailed Order clearly accords protection
to certain women workers, and not the contrary.)
It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas
deployment. From scattered provisions of the Order, it is evident that such a total ban has hot
been contemplated. We quote:
5. AUTHORIZED DEPLOYMENT-The deployment of domestic helpers and
workers of similar skills defined herein to the following [sic] are authorized
under these guidelines and are exempted from the suspension.
5.1 Hirings by immediate members of the family of Heads of
State and Government;
5.2 Hirings by Minister, Deputy Minister and the other senior
government officials; and
5.3 Hirings by senior officials of the diplomatic corps and
duly accredited international organizations.
5.4 Hirings by employers in countries with whom the
Philippines have [sic] bilateral labor agreements or
understanding.
xxx xxx xxx
7. VACATIONING DOMESTIC HELPERS AND WORKERS OF SIMILAR
SKILLS--Vacationing domestic helpers and/or workers of similar skills shall
be allowed to process with the POEA and leave for worksite only if they are
returning to the same employer to finish an existing or partially served
employment contract. Those workers returning to worksite to serve a new
employer shall be covered by the suspension and the provision of these
guidelines.
xxx xxx xxx
9. LIFTING OF SUSPENSION-The Secretary of Labor and Employment
(DOLE) may, upon recommendation of the Philippine Overseas Employment
Administration (POEA), lift the suspension in countries where there are:
1. Bilateral agreements or understanding with the
Philippines, and/or,
2. Existing mechanisms providing for sufficient safeguards to
ensure the welfare and protection of Filipino workers. 24
xxx xxx xxx
The consequence the deployment ban has on the right to travel does not impair the right. The
right to travel is subject, among other things, to the requirements of "public safety," "as may
be provided by law." 25 Department Order No. 1 is a valid implementation of the Labor Code,
in particular, its basic policy to "afford protection to labor," 26 pursuant to the respondent
Department of Labor's rule-making authority vested in it by the Labor Code. 27 The petitioner
assumes that it is unreasonable simply because of its impact on the right to travel, but as we
have stated, the right itself is not absolute. The disputed Order is a valid qualification thereto.
Neither is there merit in the contention that Department Order No. 1 constitutes an invalid
exercise of legislative power. It is true that police power is the domain of the legislature, but it
does not mean that such an authority may not be lawfully delegated. As we have mentioned,
the Labor Code itself vests the Department of Labor and Employment with rulemaking
powers in the enforcement whereof. 28
The petitioners's reliance on the Constitutional guaranty of worker participation "in policy and
decision-making processes affecting their rights and benefits" 29 is not well-taken. The right
granted by this provision, again, must submit to the demands and necessities of the State's
power of regulation.
The Constitution declares that:
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. 30
"Protection to labor" does not signify the promotion of employment alone. What concerns the
Constitution more paramountly is that such an employment be above all, decent, just, and
humane. It is bad enough that the country has to send its sons and daughters to strange
lands because it cannot satisfy their employment needs at home. Under these circumstances,
the Government is duty-bound to insure that our toiling expatriates have adequate protection,
personally and economically, while away from home. In this case, the Government has
evidence, an evidence the petitioner cannot seriously dispute, of the lack or inadequacy of
such protection, and as part of its duty, it has precisely ordered an indefinite ban on
deployment.
The Court finds furthermore that the Government has not indiscriminately made use of its
authority. It is not contested that it has in fact removed the prohibition with respect to certain
countries as manifested by the Solicitor General.
The non-impairment clause of the Constitution, invoked by the petitioner, must yield to the
loftier purposes targetted by the Government. 31 Freedom of contract and enterprise, like all
other freedoms, is not free from restrictions, more so in this jurisdiction, where laissez
faire has never been fully accepted as a controlling economic way of life.
This Court understands the grave implications the questioned Order has on the business of
recruitment. The concern of the Government, however, is not necessarily to maintain profits
of business firms. In the ordinary sequence of events, it is profits that suffer as a result of
Government regulation. The interest of the State is to provide a decent living to its citizens.
The Government has convinced the Court in this case that this is its intent. We do not find the
impugned Order to be tainted with a grave abuse of discretion to warrant the extraordinary
relief prayed for.
WHEREFORE, the petition is DISMISSED. No costs.
SO ORDERED.
G.R. No. 90501 August 5, 1991
ARIS (PHIL.) INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER FELIPE GARDUQUE
III, LEODEGARIO DE GUZMAN, LILIA PEREZ, ROBERTO BESTAMONTE, AIDA OPENA,
REYNALDO TORIADO, APOLINARIO GAGAHINA, RUFINO DE CASTRO, FLORDELIZA
RAYOS DEL SOL, STEVE SANCHO, ESTER CAIRO, MARIETA MAGALAD, and MARY B.
NADALA, respondents.
DAVIDE, JR., J.:
Petitioner assails the constitutionality of the amendment introduced by Section 12 of Republic
Act No. 6715 to Article 223 of the Labor Code of the Philippines (PD No. 442, as amended)
allowing execution pending appeal of the reinstatement aspect of a decision of a labor arbiter
reinstating a dismissed or separated employee and of Section 2 of the NLRC Interim Rules
on Appeals under R.A. No. 6715 implementing the same. It also questions the validity of the
Transitory Provision (Section 17) of the said Interim Rules.
The challenged portion of Section 12 of Republic Act No. 6715, which took effect on 21
March 1989, reads as follows:
SEC 12. Article 223 of the same code is amended to read as follows:
ART. 223. Appeal.
xxx xxx xxx
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated
employee, in so far as the reinstatement aspect is concerned, shall immediately be
executory, even pending appeal. The employee shall either be admitted back to work
under the same terms and conditions prevailing prior to his dismissal or separation
or, at the option of the employer, merely reinstated in the payroll. The posting of a
bond by the employer shall not stay the execution for reinstatement provided therein.
This is a new paragraph ingrafted into the Article.
Sections 2 and 17 of the "NLRC Interim Rules On Appeals Under R.A. No. 6715, Amending
the Labor Code", which the National Labor Relations Commission (NLRC) promulgated on 8
August 1989, provide as follows:
Section 2. Order of Reinstatement and Effect of Bond. — In so far as the
reinstatement aspect is concerned, the decision of the Labor Arbiter reinstating a
dismissed or separated employee shall immediately be executory even pending
appeal. The employee shall either be admitted back to work under the same terms
and conditions prevailing prior to his dismissal or separation, or, at the option of the
employer, merely be reinstated in the payroll.
 The posting of a bond by the employer shall not stay the execution for reinstatement.
xxx xxx xxx
Section 17. Transitory provision. — Appeals filed on or after March 21, 1989, but
prior to the effectivity of these Interim Rules must conform to the requirements as
herein set forth or as may be directed by the Commission.
The antecedent facts and proceedings which gave rise to this petition are not disputed:
On 11 April 1988, private respondents, who were employees of petitioner, aggrieved by
management's failure to attend to their complaints concerning their working surroundings
which had become detrimental and hazardous, requested for a grievance conference. As
none was arranged, and believing that their appeal would be fruitless, they grouped together
after the end of their work that day with other employees and marched directly to the
management's office to protest its long silence and inaction on their complaints.
On 12 April 1988, the management issued a memorandum to each of the private
respondents, who were identified by the petitioner's supervisors as the most active
participants in the rally requiring them to explain why they should not be terminated from the
service for their conduct. Despite their explanation, private respondents were dismissed for
violation of company rules and regulations, more specifically of the provisions on security and
public order and on inciting or participating in illegal strikes or concerted actions.
Private respondents lost no time in filing a complaint for illegal dismissal against petitioner
and Mr. Gavino Bayan with the regional office of the NLRC at the National Capital Region,
Manila, which was docketed therein as NLRC-NCR-00-0401630-88.
After due trial, Labor Arbiter Felipe Garduque III handed down on 22 June 1989 a decision'
the dispositive portion of which reads:
ACCORDINGLY, respondent Aris (Phils.), Inc. is hereby ordered to reinstate within
ten (10) days from receipt hereof, herein complainants Leodegario de Guzman,
Rufino de Castro, Lilia M. Perez, Marieta Magalad, Flordeliza Rayos del Sol,
Reynaldo Toriado, Roberto Besmonte, Apolinario Gagahina, Aidam (sic) Opena,
Steve C. Sancho Ester Cairo, and Mary B. Nadala to their former respective positions
or any substantial equivalent positions if already filled up, without loss of seniority
right and privileges but with limited backwages of six (6) months except complainant
Leodegario de Guzman.
All other claims and prayers are hereby denied for lack of merit.
SO ORDERED.
On 19 July 1989, complainants (herein private respondents) filed a Motion For Issuance of a
Writ of Execution2pursuant to the above-quoted Section 12 of R.A. No. 6715.
On 21 July 1989, petitioner filed its Appeal.3
On 26 July 1989, the complainants, except Flor Rayos del Sol, filed a Partial Appeal. 4
On 10 August 1989, complainant Flor Rayos del Sol filed a Partial Appeal.5
On 29 August 1989, petitioner filed an Opposition6 to the motion for execution alleging that
Section 12 of R.A. No. 6715 on execution pending appeal cannot be applied retroactively to
cases pending at the time of its effectivity because it does not expressly provide that it shall
be given retroactive effect7 and to give retroactive effect to Section 12 thereof to pending
cases would not only result in the imposition of an additional obligation on petitioner but
would also dilute its right to appeal since it would be burdened with the consequences of
reinstatement without the benefit of a final judgment. In their Reply8 filed on 1 September
1989, complainants argued that R.A. No. 6715 is not sought to be given retroactive effect in
this case since the decision to be executed pursuant to it was rendered after the effectivity of
the Act. The said law took effect on 21 March 1989, while the decision was rendered on 22
June 1989.
Petitioner submitted a Rejoinder to the Reply on 5 September 1989.9
On 5 October 1989, the Labor Arbiter issued an Order granting the motion for execution and
the issuance of a partial writ of execution10 as far as reinstatement of herein complainants is
concerned in consonance with the provision of Section 2 of the rules particularly the last
sentence thereof.
In this Order, the Labor Arbiter also made reference to Section 17 of the NLRC Interim Rules
in this wise:
Since Section 17 of the said rules made mention of appeals filed on or after March
21, 1989, but prior to the effectivity of these interim rules which must conform with the
requirements as therein set forth (Section 9) or as may be directed by the
Commission, it obviously treats of decisions of Labor Arbiters before March 21,1989.
With more reason these interim rules be made to apply to the instant case since the
decision hereof (sic) was rendered thereafter.11
Unable to accept the above Order, petitioner filed the instant petition on 26 October
198912 raising the issues adverted to in the introductory portion of this decision under the
following assignment of errors:
A. THE LABOR ARBITER A QUO AND THE NLRC, IN ORDERING THE
REINSTATEMENT OF THE PRIVATE RESPONDENTS PENDING APPEAL AND IN
 PROVIDING FOR SECTION 2 OF THE INTERIM RULES, RESPECTIVELY, ACTED
WITHOUT AND IN EXCESS OF JURISDICTION SINCE THE BASIS FOR SAID
ORDER AND INTERIM RULE, i.e., SECTION 12 OF R.A. 6715 IS VIOLATIVE OF
THE CONSTITUTIONAL GUARANTY OF DUE PROCESS IT BEING OPPRESSIVE
AND UNREASONABLE.
B. GRANTING ARGUENDO THAT THE PROVISION IN(SIC) REINSTATEMENT
PENDING APPEAL IS VALID, NONETHELESS, THE LABOR ARBITER A QUO
AND THE NLRC STILL ACTED IN EXCESS AND WITHOUT JURISDICTION IN
RETROACTIVELY APPLYING SAID PROVISION TO PENDING LABOR CASES.
In Our resolution of 7 March 1989, We required the respondents to comment on the petition.
Respondent NLRC, through the Office of the Solicitor General, filed its Comment on 20
November 1989.13 Meeting squarely the issues raised by petitioner, it submits that the
provision concerning the mandatory and automatic reinstatement of an employee whose
dismissal is found unjustified by the labor arbiter is a valid exercise of the police power of the
state and the contested provision "is then a police legislation."
As regards the retroactive application thereof, it maintains that being merely procedural in
nature, it can apply to cases pending at the time of its effectivity on the theory that no one can
claim a vested right in a rule of procedure. Moreover, such a law is compatible with the
constitutional provision on protection to labor.
On 11 December 1989, private respondents filed a Manifestation14 informing the Court that
they are adopting the Comment filed by the Solicitor General and stressing that petitioner
failed to comply with the requisites for a valid petition for certiorari under Rule 65 of the Rules
of Court.
On 20 December 1989, petitioner filed a Rejoinder15 to the Comment of the Solicitor General.
In the resolution of 11 January 1990,16 We considered the Comments as respondents'
Answers, gave due course to the petition, and directed that the case be calendared for
deliberation.
In urging Us to declare as unconstitutional that portion of Section 223 of the Labor Code
introduced by Section 12 of R.A. No. 6715, as well as the implementing provision covered by
Section 2 of the NLRC Interim Rules, allowing immediate execution, even pending appeal, of
the reinstatement aspect of a decision of a labor arbiter reinstating a dismissed or separated
employee, petitioner submits that said portion violates the due process clause of the
Constitution in that it is oppressive and unreasonable. It argues that a reinstatement pending
appeal negates the right of the employer to self-protection for it has been ruled that an
employer cannot be compelled to continue in employment an employee guilty of acts inimical
to the interest of the employer; the right of an employer to dismiss is consistent with the legal
truism that the law, in protecting the rights of the laborer, authorizes neither the oppression
nor the destruction of the employer. For, social justice should be implemented not through
mistaken sympathy for or misplaced antipathy against any group, but even-handedly and
fairly.17
To clinch its case, petitioner tries to demonstrate the oppressiveness of reinstatement
pending appeal by portraying the following consequences: (a) the employer would be
compelled to hire additional employees or adjust the duties of other employees simply to
have someone watch over the reinstated employee to prevent the commission of further acts
prejudicial to the employer, (b) reinstatement of an undeserving, if not undesirable, employee
may demoralize the rank and file, and (c) it may encourage and embolden not only the
reinstated employees but also other employees to commit similar, if not graver infractions.
These rationalizations and portrayals are misplaced and are purely conjectural which,
unfortunately, proceed from a misunderstanding of the nature and scope of the relief of
execution pending appeal.
Execution pending appeal is interlinked with the right to appeal. One cannot be divorced from
the other. The latter may be availed of by the losing party or a party who is not satisfied with a
judgment, while the former may be applied for by the prevailing party during the pendency of
the appeal. The right to appeal, however, is not a constitutional, natural or inherent right. It is
a statutory privilege of statutory origin18 and, therefore, available only if granted or provided
by statute. The law may then validly provide limitations or qualifications thereto or relief to the
prevailing party in the event an appeal is interposed by the losing party. Execution pending
appeal is one such relief long recognized in this jurisdiction. The Revised Rules of Court
allows execution pending appeal and the grant thereof is left to the discretion of the court
upon good reasons to be stated in a special order.19
Before its amendment by Section 12 of R.A. No. 6715, Article 223 of the Labor Code already
allowed execution of decisions of the NLRC pending their appeal to the Secretary of Labor
and Employment.
In authorizing execution pending appeal of the reinstatement aspect of a decision of the
Labor Arbiter reinstating a dismissed or separated employee, the law itself has laid down a
compassionate policy which, once more, vivifies and enhances the provisions of the 1987
Constitution on labor and the working-man.
These provisions are the quintessence of the aspirations of the workingman for recognition of
his role in the social and economic life of the nation, for the protection of his rights, and the
promotion of his welfare. Thus, in the Article on Social Justice and Human Rights of the
Constitution,20 which principally directs Congress to give highest priority to the enactment of
measures that protect and enhance the right of all people to human dignity, reduce social,
economic, and political inequalities, and remove cultural inequities by equitably diffusing
wealth and political power for the common good, the State is mandated to afford full
protection to labor, local and overseas, organized and unorganized, and promote full
employment and equality of employment opportunities for all; to 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, security of tenure, human
conditions of work, and a living wage, to participate in policy and decision-making processes
affecting their rights and benefits as may be provided by law; and to promote the principle of
shared responsibility between workers and employers and the preferential use of voluntary
modes in settling disputes. Incidentally, a study of the Constitutions of various nations readily
reveals that it is only our Constitution which devotes a separate article on Social Justice and
Human Rights. Thus, by no less than its fundamental law, the Philippines has laid down the
strong foundations of a truly just and humane society. This Article addresses itself to
specified areas of concern labor, agrarian and natural resources reform, urban land reform
and housing, health, working women, and people's organizations and reaches out to the
underprivileged sector of society, for which reason the President of the Constitutional
Commission of 1986, former Associate Justice of this Court Cecilia Muñoz-Palma, aptly
describes this Article as the "heart of the new Charter." 21
These duties and responsibilities of the State are imposed not so much to express sympathy
for the workingman as to forcefully and meaningfully underscore labor as a primary social and
economic force, which the Constitution also expressly affirms With equal intensity.22 Labor is
an indispensable partner for the nation's progress and stability.
If in ordinary civil actions execution of judgment pending appeal is authorized for reasons the
determination of which is merely left to the discretion of the judge, We find no plausible
reason to withhold it in cases of decisions reinstating dismissed or separated employees. In
such cases, the poor employees had been deprived of their only source of livelihood, their
only means of support for their family their very lifeblood. To Us, this special circumstance is
far better than any other which a judge, in his sound discretion, may determine. In short, with
respect to decisions reinstating employees, the law itself has determined a sufficiently
overwhelming reason for its execution pending appeal.
The validity of the questioned law is not only supported and sustained by the foregoing
considerations. As contended by the Solicitor General, it is a valid exercise of the police
power of the State. Certainly, if the right of an employer to freely discharge his employees is
subject to regulation by the State, basically in the exercise of its permanent police power on
the theory that the preservation of the lives of the citizens is a basic duty of the State, that is
more vital than the preservation of corporate profits.23 Then, by and pursuant to the same
power, the State may authorize an immediate implementation, pending appeal, of a decision
reinstating a dismissed or separated employee since that saving act is designed to stop,
although temporarily since the appeal may be decided in favor of the appellant, a continuing
threat or danger to the survival or even the life of the dismissed or separated employee and
its family.
The charge then that the challenged law as well as the implementing rule are unconstitutional
is absolutely baseless.1âwphi1 Laws are presumed constitutional.24 To justify nullification of a
law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and
argumentative implication; a law shall not be declared invalid unless the conflict with the
constitution is clear beyond reasonable doubt. 25 In Parades, et al. vs. Executive
Secretary26 We stated:
2. For one thing, it is in accordance with the settled doctrine that between two
possible constructions, one avoiding a finding of unconstitutionality and the other
yielding such a result, the former is to be preferred. That which will save, not that
which will destroy, commends itself for acceptance. After all, the basic presumption
all these years is one of validity. The onerous task of proving otherwise is on the
party seeking to nullify a statute. It must be proved by clear and convincing evidence
that there is an infringement of a constitutional provision, save in those cases where
the challenged act is void on its face. Absent such a showing, there can be no finding
of unconstitutionality. A doubt, even if well-founded, does not suffice. Justice
Malcolm's aphorism is apropos: To doubt is to sustain.27
The reason for this:
... can be traced to the doctrine of separation of powers which enjoins on each
department a proper respect for the acts of the other departments. ... The theory is
that, as the joint act of the legislative and executive authorities, a law is supposed to
have been carefully studied and determined to be constitution before it was finally
enacted. Hence, as long as there is some other basis that can be used by the courts
for its decision, the constitutionality of the challenged law will not be touched upon
and the case will be decided on other available grounds.28
The issue concerning Section 17 of the NLRC Interim Rules does not deserve a measure of
attention. The reference to it in the Order of the Labor Arbiter of 5 October 1989 was
unnecessary since the procedure of the appeal proper is not involved in this case. Moreover,
the questioned interim rules of the NLRC, promulgated on 8 August 1989, can validly be
given retroactive effect. They are procedural or remedial in character, promulgated pursuant
to the authority vested upon it under Article 218(a) of the Labor Code of the Philippines, as
amended. Settled is the rule that procedural laws may be given retroactive effect.29 There are
no vested rights in rules of procedure.30 A remedial statute may be made applicable to cases
pending at the time of its enactment.31
WHEREFORE, the petition is hereby DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
G.R. No. L-24396 July 29, 1968
SANTIAGO P. ALALAYAN, ET AL., suing in his behalf and for the benefit of all other
persons having common or general interest with him in accordance with Sec. 12, Rule
3, Rules of Court, petitioners-appellants,
vs.
NATIONAL POWER CORPORATION and ADMINISTRATOR OF ECONOMIC
COORDINATION, respondents-appellees.
FERNANDO, J.:
This declaratory relief proceeding was started in the lower court by petitioners, Alalayan and
Philippine Power and Development Company, both franchise holders of electric plants in
Laguna, to test the validity of a section of an amendatory act,1 empowering respondent
National Power Corporation "in any contract for the supply of electric power to a franchise
holder," receiving at least 50% of its electric power and energy from it to require as a
condition that such franchise holder "shall not realize a net profit of more than twelve percent
annually of its investments plus two-month operating expenses." Respondent, under such
provision, could likewise "renew all existing contracts with franchise holders for the supply of
electric power and energy," so that the provisions of the Act could be given effect. 2 This
statutory provision was assailed on the ground that, being a rider, it is violative of the
constitutional provision requiring that a bill, which may be enacted into law, cannot embrace
more than one subject, which shall be expressed in its title,3 as well as the due process
guarantee, the liberty to contract of petitioners being infringed upon. The lower court
sustained its validity. We sustain the lower court in this appeal.
In the petition for declaratory relief, after the usual allegations as to parties, it was stated that
respondent National Power Corporation "has for some years now been, and still is, by virtue
of similar, valid and existing contracts entered into by it with one hundred and thirty seven
(137) natural persons and corporations distributed all over the country, supplying, distributing,
servicing and selling electric power and energy at fixed rites schedules to the latter who have
for some years now been and still are, legally engaged in resupplying, redistributing,
reservicing and reselling the said electric power and energy to individual customers within the
coverage of their respective franchises."4 Petitioners are included among the said 197 natural
persons and entities.5 Then, reference was made to the particular contracts petitioners
entered into with respondent, the contracts to continue indefinitely unless and until either
party would give to the other two years previous notice in writing of its intention to terminate
the same.6After which, it was noted that on June 18, 1960, an act authorizing the increase of
the capital stock of the National Power Corporation to P100 million took effect. 7 A year later,
on June 17, 1961, it was alleged that the challenged legislation became a law, purportedly to
increase further the authorized capital stock, but including the alleged rider referred to above,
which, in the opinion of petitioners, transgressed the constitutional provision on the subject
matter and title of bills as well as the due process clause.8 Mention was then made of the
National Power Corporation approving a rate increase of at least 17.5%, the effectivity of
which, was at first deferred to November 1, 1962, then subsequently to January 15, 1963,
with the threat that in case petitioners would fail to sign the revised contract providing for the
increased rate, respondent National Power Corporation would then cease "to supply,
distribute and service electric power and energy to them."9
That would be, in the opinion of petitioners, violative of their rights, proceeding from
legislation suffering from constitutional infirmities.10 A declaration of unconstitutionality was
therefore sought by them. It was prayed: "(1) To give due course to this petition; (2) To issue
a writ of preliminary injunction, upon the posting of the requisite bond, enjoining respondent
NPC from carrying or prosecuting its threat to enforce the provisions of the rider or Section 3
of Republic Act No. 3043 ... in the manner stated in paragraph 18 of this petition until this
Honorable Court shall have finally decided or disposed, by final judgment, of the issues
raised in this petition; (3) After due hearing, to declare the rider or Section 3 of Republic Act
No. 3043 null and void for being illegal and unconstitutional, and to issue a permanent
injunction requiring respondent NPC to refrain from enforcing or implementing the provisions
of the same law."11
Soon after, petitioner Philippine Power and Development Company moved that insofar as it
was concerned, the case be dismissed, which motion was granted by the lower court on
January 25, 1963.12 The sole petitioner is therefore Santiago P. Alalayan, suing in his behalf
and for the benefit of all other persons having common or general interest with him.
Respondent National Power Corporation filed an opposition on February 15, 1963, opposing
the issuance of a writ for preliminary injunction.13 On March 21, 1963, the lower court,
considering that there was "no sufficient ground for the issuance of the writ for preliminary
injunction," denied the same.14
There was in the answer, dated March 29, 1963, an admission of the main facts alleged, with
a denial of the legal conclusion which petitioner would deduce therefrom, respondent National
Power Corporation upholding the validity of the challenged provision. Then, came a partial
stipulation of facts submitted on October 1, 1964, consisting of a resolution of the Philippine
Electric Plant Owners Association to take the necessary steps to stop respondent National
Power Corporation from enforcing its announced increase, samples of contracts between
electric plant operators on the one hand and respondent National Power Corporation on the
other, the contract with petitioner Alalayan, dated May 26, 1956, showing that he did
purchase and take power and energy as follows: "Sixty (60) kilowatts and of not less than
140,000 kilowatt-hours in any contract year at the rate of P120.00 per kilowatt per year"
payable in twelve equal monthly installments, "plus an energy charge of P0.013 per kilowatt
hour, payable on the basis of monthly delivery"; a letter of June 22, 1962 of respondent
National Power Corporation to petitioner approving his 17.5% rate increase of power so that
beginning July 1, 1962, the demand charge would be P10.00 per kilowatt per month and the
energy charge would be P0.02 per kilowatt hour; a letter of August 15, 1962, wherein
respondent National Power Corporation notified petitioner that it deferred the effectivity of the
new rates, but it will be enforced on November 1, 1962; a letter of June 25, 1963 enforcing
respondent National Power Corporation deferring once again the effectivity of the new rates
until January 1, 1964; as well as the congressional transcripts on House Bill No. 5377 and
Senate Bill No. 613, now Republic Act No. 3043.15
In an order of November 5, 1964, the lower court gave the parties a period of twenty days
within which to submit simultaneously their respective memoranda. After the submission
thereof, the lower court, in a decision of January 30, 1965, sustained the validity and
constitutionality of the challenged provision. Hence, this appeal.
As was set forth earlier, this appeal cannot prosper. We share the view of the lower court that
the provision in question cannot be impugned either on the ground of its being violative of the
constitutional requirement that a bill cannot embrace more than one subject to be expressed
in its title or by virtue of its alleged failure to satisfy the due process criterion.
1. We consider first the objection that the statute in question is violative of the constitutional
provision that no bill "which may be enacted into law shall embrace more than one subject
which shall be expressed in [its] title ... "16This provision is similar to those found in many
American State Constitutions. It is aimed against the evils of the so-called omnibus bills and
log-rolling legislation as well as surreptitious or unconsidered enactments. 17 Where the
subject of a bill is limited to a particular matter, the lawmakers along with the people should
be informed of the subject of proposed legislative measures. This constitutional provision thus
precludes the insertion of riders in legislation, a rider being a provision not germane to the
subject matter of the bill. Petitioner Alalayan asserts that the provision objected to is such a
rider.
To lend approval to such a plea is to construe the above constitutional provision as to cripple
or impede proper legislation. To impart to it a meaning which is reasonable and not unduly
technical, it must be deemed sufficient that the title be comprehensive enough reasonably to
include the general object which the statute seeks to effect without expressing each and
every end and means necessary for its accomplishment. Thus, mere details need not be set
forth. The legislature is not required to make the title of the act a complete index of its
contents. The provision merely calls for all parts of an act relating to its subject finding
expression in its title.18 More specifically, if the law amends a section or part of a statute, it
suffices if reference be made to the legislation to be amended, there being no need to state
the precise nature of the amendment.19
It was in 1938, in Government v. Hongkong & Shanghai Bank,20 where, for the first time after
the inauguration of the Commonwealth, this Court passed upon a provision of that character.
We held there that the Reorganization Law,21providing for the mode in which the total annual
expenses of the Bureau of Banking could be reimbursed through assessment levied upon all
banking institutions subject to inspection by the Bank Commissioner was not violative of such
a requirement in the Jones Law, the previous organic act. Justice Laurel, however, vigorously
dissented, his view being that while the main subject of the act was reorganization, the
provision assailed did not deal with reorganization but with taxation. This case of Government
v. Hongkong & Shanghai Bank was decided by a bare majority of four justices against three.
Thereafter, it would appear that the constitutional requirement is to be given the liberal test as
indicated in the majority opinion penned by Justice Abad Santos, and not the strict test as
desired by the minority headed by Justice Laurel.
Such a trend is made manifest in the cases beginning with Sumulong v. Commission on
Elections,22 up to and including Felwa v. Salas,23 a 1966 decision, the opinion coming from
Chief Justice Concepcion. There is nothing in Lidasan v. Commission on Elections,24 where a
statute25 was annulled on this ground, to indicate the contrary. As aptly expressed by Justice
Sanchez: "Of course, the Constitution does not require Congress to employ in the title of an
enactment, language of such precision as to mirror, fully index or catalogue all the contents
and the minute details therein. It suffices if the title should serve the purpose of the
constitutional demand that it inform the legislators, the persons interested in the subject of the
bill, and the public, of the nature, scope and consequences of the proposed law and its
operation. And this, to lead them to inquire into the body of the bill, study and discuss the
same, take appropriate action thereon, and, thus, prevent surprise or fraud upon the
legislators."
We thus hold that there is no violation of the constitutional provision which requires that any
bill enacted into law shall embrace only one subject to be expressed in the title thereof.
2. Nor is petitioner anymore successful in his plea for the nullification of the challenged
provision on the ground of his being deprived of the liberty to contract without due process of
law.
It is to be admitted of course that property rights find shelter in specific constitutional
provisions, one of which is the due process clause. It is equally certain that our fundamental
law framed at a time of "surging unrest and dissatisfaction",26 when there was the fear
expressed in many quarters that a constitutional democracy, in view of its commitment to the
claims of property, would not be able to cope effectively with the problems of poverty and
misery that unfortunately afflict so many of our people, is not susceptible to the indictment
that the government therein established is impotent to take the necessary remedial
measures. The framers saw to that. The welfare state concept is not alien to the philosophy
of our Constitution.27 It is implicit in quite a few of its provisions. It suffices to mention two.
There is the clause on the promotion of social justice to ensure the well-being and economic
security of all the people,28 as well as the pledge of protection to labor with the specific
authority to regulate the relations between landowners and tenants and between labor and
capital.29 This particularized reference to the rights of working men whether in industry and
agriculture certainly cannot preclude attention to and concern for the rights of consumers,
who are the objects of solicitude in the legislation now complained of. The police power as an
attribute to promote the common weal would be diluted considerably of its reach and
effectiveness if on the mere plea that the liberty to contract would be restricted, the statute
complained of may be characterized as a denial of due process. The right to property cannot
be pressed to such an unreasonable extreme.
It is understandable though why business enterprises, not unnaturally evincing lack of
enthusiasm for police power legislation that affect them adversely and restrict their profits
could predicate alleged violation of their rights on the due process clause, which as
interpreted by them is a bar to regulatory measures. Invariably, the response from this Court,
from the time the Constitution was enacted, has been far from sympathetic. Thus, during the
Commonwealth, we sustained legislation providing for collective bargaining, 30 security of
tenure,31 minimum wages,32 compulsory arbitration,33 and tenancy regulation.34 Neither did
the objections as to the validity of measures regulating the issuance of securities 35 and public
services36 prevail.
For it is to be remembered that the liberty relied upon is not freedom of the mind, which
occupies a preferred position, nor freedom of the person, but the liberty to contract,
associated with business activities, which, as has been so repeatedly announced, may be
subjected, in the interest of the general welfare under the police power, to restrictions varied
in character and wide ranging in scope as long as due process is observed. In Calalang v.
Williams,37 this Court found no objection to an enactment limiting the use of and traffic in the
national roads and streets as against the assertion that the exercise of such an authority
amounted to an unlawful interference with legitimate business and abridgment of personal
liberty. The opinion by Justice Laurel explains why such an argument was far from
persuasive. Thus: "In enacting said law, therefore, the National Assembly was prompted by
considerations of public convenience and welfare. It was inspired by a desire to relieve
congestion of traffic, which is, to say the least, a menace to public safety. Public welfare,
then, lies at the bottom of the enactment of said law, and the state in order to promote the
general welfare may interfere with personal liberty, with property, and with business and
occupations. Persons and property may be subjected to all kinds of restraints and burdens, in
order to secure the general comfort, health, and prosperity of the state ... "38 The above
doctrine, valid then and equally valid now, constituted more than sufficient justification for
statutes curtailing the liberty enjoyed by business enterprises, whether conducted by natural
or juridical persons, to satisfy the needs of public welfare.
So it continues to be under the Republic. This Court has invariably given the seal of approval
to statutes intended to improve the lot of tenants,39 who thereafter were given the option to
transform their relationship with landowners to one of lease, which grant of authority was
sustained in 1964.40 Retail trade was nationalized, the measure receiving judicial approval as
against due process objection,41 a decision foreshadowed earlier with the favorable action
taken on legislation granting preference to Filipino citizens in the lease of public market
stalls.42 It is easily understandable why the regulation of practice of medicine; 43 limitation of
the hours of labor;44 imposition of price control;45requirement of separation pay for one
month46 as well as a social security scheme47 cannot be impugned as unconstitutional. While
not exhaustive, the above decisions manifest in no certain terms the inherent difficulty of
assailing regulatory legislation based on alleged denial of due process.
It would thus appear that unless this Court is prepared to overturn a doctrine so firmly
adhered to in a number of cases notable for the unanimity of their response to an objection
similar to the one here raised, petitioner Alalayan cannot prevail. Certainly, this Court is not
prepared to take that step. For in the face of a constitutional provision that allows deprivation
of liberty, including liberty of contract, as long as due process is observed, the alleged nullity
of a legislative act of this character can only be shown if in fact there is such a denial. The
relevant question then is, what does due process require?
The holding of this Court in Ermita-Malate Hotel and Motel Operators Asso. v. City
Mayor,48 sheds some light. Thus: "There is no controlling and precise definition of due
process. It furnishes though a standard to which governmental action should conform in order
that deprivation of life, liberty or property, in each appropriate case, be valid. What then is the
standard of due process which must exist both as a procedural and as substantive requisite
to free the challenged ordinance, or any governmental action for that matter, from the
imputation of legal infirmity sufficient to spell its doom? It is responsiveness to the supremacy
of reason, obedience to the dictates of justice. Negatively put, arbitrariness is ruled out and
unfairness avoided. To satisfy the due process requirement, official action, to paraphrase
Cardozo, must not outrun the bounds of reason and result in sheer oppression. Due process
is thus hostile to any official action marred by lack of reasonableness. Correctly has it been
identified as freedom from arbitrariness. It is the embodiment of the sporting idea of fair play.
It exacts fealty "to those strivings for justice" and judges the act of officialdom of whatever
branch "in the light of reason drawn from considerations of fairness that reflect [democratic]
traditions of legal and political thought." It is not a narrow or "technical conception with fixed
content unrelated to time, place and circumstances," decisions based on such a clause
requiring a "close and perceptive inquiry into fundamental principles of our society."
Questions of due process are not to be treated narrowly or pedantically in slavery to form or
phrases." .
The due process objection is sought to be bolstered by an allegation that such power
conferred in the challenged legislation to limit the net profits to "12% annually of [petitioner's]
investments plus two-month operating expenses" has a confiscatory aspect. This argument
has the ring of futility. Precisely, in Manila Electric Co. v. Public Service Commission,49 this
Court in an opinion by the present Chief Justice upheld such a figure as against the
contention that it was rather too generous to the public utility. To speak of it as confiscatory
then is to employ the language by hyperbole. Moreover, in the absence any evidence to
demonstrate the alleged confiscatory effect of the provision in question, there would be no
basis for its nullification, in view of the well-known presumption of validity that every statute
has in its favor.50
In the light of the above, there is thus clearly no occasion for yielding assent to the claim of
petitioner that the legislation assailed contravenes the due process clause. 1äwphï1.ñët
3. While not explicitly avowed by petitioner, there is the intimation that to apply the challenged
legislation to contracts then in existence would be an infringement of the constitutional
prohibition against any law impairing the obligation of contracts.51 No such fear need be
entertained. A citation from a 1940 decision of this Court, in Pangasinan Transportation Co. v.
Public Service Commission,52 is particularly relevant. In the language of Justice Laurel,
speaking for the Court: "Upon the other hand, statutes enacted for the regulation of public
utilities, being a proper exercise by the state of its police power, are applicable not only to
those public utilities coming into existence after its passage, but likewise to those already,
existence established and in operation."53 Such a doctrine was followed in the case of a
tenancy legislation, the Congress undoubtedly having in mind and not having failed to take
notice "of the existence of contracts" which stipulated a division of the crops on a 50-50 basis
and therefore must have intended to regulate the same. There was thus no impairment of an
obligation of contract, such an enactment under the police power being remedial in nature,
the non-applicability of which to existing conditions would be self-defeating in character.54
In Abe v. Foster Wheeler Corp.,55 Justice Barrera, speaking for the Court, took note of the
contention "that as the contracts of employment were entered into at a time when there was
no law granting the workers said right, the application as to them of the subsequent
enactment restoring the same right constitutes an impairment of their contractual obligations."
Then he, made clear why the Court was of a contrary view as, "the constitutional guaranty of
non-impairment ... is limited by the exercise of the police power of the State, in the interest of
public health, safe, morals and general welfare." Thus was reaffirmed what previously had
been announced as the rule. Such a doctrine was reiterated early this year in Philippine
American Life Insurance Co. v. Auditor General,56 where this Court found no objection to the
applicability of the Margin Law,57 even if it be assumed that a reinsurance treaty was already
in existence and had imposed the corresponding obligation on the parties prior to its
enactment.
This is not to say that in each and every case the invocation of the protection of the non-
impairment clause would be unavailing once the legislation complained of is shown to be an
exercise of the police power. Otherwise, that would render nugatory the constitutional
guarantee of non-impairment, and for that matter both the equal protection and due process
clauses which equally serve to protect property rights. Here, as in other cases where
governmental authority may trench upon property rights, the process of balancing, adjustment
or harmonization is called for.
Rutter v. Esteban58 lends support to such an approach. In that leading case, the continued
operation and enforcement of the Moratorium Act59 which allowed an eight-year period of
grace for the payment of pre-war obligations on the part of debtors who suffered as a
consequence of World War II was, in a 1953 decision, held "unreasonable and oppressive,
and should not be prolonged a minute longer" for being violative of the constitutional
provision prohibiting the impairment of the obligation of the contracts "and, therefore, ...
should be declared null and void and without effect."60 As of the date of its enactment in
1948, the police power could be relied upon to sustain its validity, in view of the serious
economic condition faced by the country upon liberation and the state of penury that then
afflicted a greater portion of the Filipino people. By 1953 however, the Moratorium Act could
be rightfully considered as an infringement of the non-impairment clause, as the economy
had in the meanwhile considerably changed for the better.
There is no clearer instance then of the process of harmonization and balancing which is
incumbent upon the judiciary to undertake whenever a regulatory measure under the police
power is assailed as violative of constitucess or equal protection, all of which are intended to
safeguard property rights. Three leading decisions of the United States Supreme Court,
Home Building & Loan Astional guarantees, whether of non-impairment, due prosociation v.
Blaisdell,61 Nebbia v. New York,62 and Norman v. Baltimore and Ohio Railroad Co.,63 speak
similarly.
Even if, therefore, reliance be had on the non-impairment clause by petitioner and the
process of adjustment or harmonization be undertaken to ascertain whether the applicability
of the statutory provision assailed to existing contracts would run counter to such a
guarantee, still the same conclusion emerges. There is a failure to make out a case for its
invalidity.
WHEREFORE, there being no showing that Section 3 of Republic Act No. 3043 is
unconstitutional, the decision of the lower court, dismissing the petition, is affirmed. With
costs against petitioner Alalayan.
[G.R. No. 47800. December 2, 1940.]
MAXIMO CALALANG, Petitioner, v. A. D. WILLIAMS, ET AL., Respondents.
Maximo Calalang in his own behalf.
SYLLABUS
1. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF COMMONWEALTH ACT No. 648;
DELEGATION OF LEGISLATIVE POWER; AUTHORITY OF DIRECTOR OF PUBLIC
WORKS AND SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS TO
PROMULGATE RULES AND REGULATIONS. — The provisions of section 1 of
Commonwealth Act No. 648 do not confer legislative power upon the Director of Public Works
and the Secretary of Public Works and Communications. The authority therein conferred
upon them and under which they promulgated the rules and regulations now complained of is
not to determine what public policy demands but merely to carry out the legislative policy laid
down by the National Assembly in said Act, to wit, "to promote safe transit upon, and avoid
obstructions on, roads and streets designated as national roads by acts of the National
Assembly or by executive orders of the President of the Philippines" and to close them
temporarily to any or all classes of traffic "whenever the condition of the road or the traffic
thereon makes such action necessary or advisable in the public convenience and interest."
The delegated power, if at all, therefore, is not the determination of what the law shall be, but
merely the ascertainment of the facts and circumstances upon which the application of said
law is to be predicated. To promulgate rules and regulations on the use of national roads and
to determine when and how long a national road should be closed to traffic, in view of the
condition of the road or the traffic thereon and the requirements of public convenience and
interest, is an administrative function which cannot be directly discharged by the National
Assembly. It must depend on the discretion of some other government official to whom is
confided the duty of determining whether the proper occasion exists for executing the law.
But it cannot be said that the exercise of such discretion is the making of the law.
2. ID.; ID.; POLICE POWER; PERSONAL LIBERTY; GOVERNMENTAL AUTHORITY. —
Commonwealth Act No. 548 was passed by the National Assembly in the exercise of the
paramount police power of the state. Said Act, by virtue of which the rules and regulations
complained of were promulgated, aims to promote safe transit upon and avoid obstructions
on national roads, in the interest and convenience of the public. In enacting said law,
therefore, the National Assembly was prompted by considerations of public convenience and
welfare. It was inspired by a desire to relieve congestion of traffic, which is, to say the least, a
menace to public safety. Public welfare, then, lies at the bottom of the enactment of said law,
and the state in order to promote the general welfare may interfere with personal liberty, with
property, and with business and occupations. Persons and property may be subjected to all
kinds of restraints and burdens, in order to secure the general comfort, health, and prosperity
of the state (U.S. v. Gomer Jesus, 31 Phil., 218). To this fundamental aim of our Government
the rights of the individual are subordinated. Liberty is a blessing without which life is a
misery, but liberty should not be made to prevail over authority because then society will fall
into anarchy. Neither should authority be made to prevail over liberty because then the
individual will fall into slavery. The citizen should achieve the required balance of liberty and
authority in his mind through education and, personal discipline, so that there may be
established the resultant equilibrium, which means peace and order and happiness for all.
The moment greater authority is conferred upon the government, logically so much is
withdrawn from the residuum of liberty which resides in the people. The paradox lies in the
fact that the apparent curtailment of liberty is precisely the very means of insuring its
preservation.
3. ID.; ID.; SOCIAL JUSTICE. — Social justice is "neither communism, nor despotism, nor
atomism, nor anarchy," but the humanization of laws and the equalization of social and
economic forces by the State so that justice in its rational and objectively secular conception
may at least be approximated. Social justice means the promotion of the welfare of all the
people, the adoption by the Government of measures calculated to insure economic stability
of all the competent elements of society, through the maintenance of a proper economic and
social equilibrium in the interrelations of the members of the community, constitutionally,
through the adoption of measures legally justifiable, or extra-constitutionally, through the
exercise of powers underlying the existence of all governments on the time-honored principle
of salus populi est suprema lex. Social justice, therefore, must be founded on the recognition
of the necessity of interdependence among divers and diverse units of a society and of the
protection that should be equally and evenly extended to all groups as a combined force in
our social and economic life, consistent with the fundamental and paramount objective of the
state of promoting the health, comfort, and quiet of all persons, and of bringing about "the
greatest good to the greatest number."
DECISION
LAUREL, J.:
Maximo Calalang, in his capacity as a private citizen and as a taxpayer of Manila, brought
before this court this petition for a writ of prohibition against the respondents, A. D. Williams,
as Chairman of the National Traffic Commission; Vicente Fragante, as Director of Public
Works; Sergio Bayan, as Acting Secretary of Public Works and Communications; Eulogio
Rodriguez, as Mayor of the City of Manila; and Juan Dominguez, as Acting Chief of Police of
Manila.
It is alleged in the petition that the National Traffic Commission, in its resolution of July 17,
1940, resolved to recommend to the Director of Public Works and to the Secretary of Public
Works and Communications that animal-drawn vehicles be prohibited from passing along
Rosario Street extending from Plaza Calderon de la Barca to Dasmariñas Street, from 7:30
a.m. to 12:30 p.m. and from 1:30 p.m. to 5:30 p.m.; and along Rizal Avenue extending from
the railroad crossing at Antipolo Street to Echague Street, from 7 a.m. to 11 p.m., from a
period of one year from the date of the opening of the Colgante Bridge to traffic; that the
Chairman of the National Traffic Commission, on July 18, 1940 recommended to the Director
of Public Works the adoption of the measure proposed in the resolution aforementioned, in
pursuance of the provisions of Commonwealth Act No. 548 which authorizes said Director of
Public Works, with the approval of the Secretary of Public Works and Communications, to
promulgate rules and regulations to regulate and control the use of and traffic on national
roads; that on August 2, 1940, the Director of Public Works, in his first indorsement to the
Secretary of Public Works and Communications, recommended to the latter the approval of
the recommendation made by the Chairman of the National Traffic Commission as aforesaid,
with the modification that the closing of Rizal Avenue to traffic to animal-drawn vehicles be
limited to the portion thereof extending from the railroad crossing at Antipolo Street to
Azcarraga Street; that on August 10, 1940, the Secretary of Public Works and
Communications, in his second indorsement addressed to the Director of Public Works,
approved the recommendation of the latter that Rosario Street and Rizal Avenue be closed to
traffic of animal-drawn vehicles, between the points and during the hours as above indicated,
for a period of one year from the date of the opening of the Colgante Bridge to traffic; that the
Mayor of Manila and the Acting Chief of Police of Manila have enforced and caused to be
enforced the rules and regulations thus adopted; that as a consequence of such enforcement,
all animal-drawn vehicles are not allowed to pass and pick up passengers in the places
above-mentioned to the detriment not only of their owners but of the riding public as well.
It is contended by the petitioner that Commonwealth Act No. 548 by which the Director of
Public Works, with the approval of the Secretary of Public Works and Communications, is
authorized to promulgate rules and regulations for the regulation and control of the use of and
traffic on national roads and streets is unconstitutional because it constitutes an undue
delegation of legislative power. This contention is untenable. As was observed by this court in
Rubi v. Provincial Board of Mindoro (39 Phil, 660, 700), "The rule has nowhere been better
stated than in the early Ohio case decided by Judge Ranney, and since followed in a
multitude of cases, namely: ’The true distinction therefore is between the delegation of power
to make the law, which necessarily involves a discretion as to what it shall be, and conferring
an authority or discretion as to its execution, to be exercised under and in pursuance of the
law. The first cannot be done; to the latter no valid objection can be made.’ (Cincinnati, W. &
Z. R. Co. v. Comm’rs. Clinton County, 1 Ohio St., 88.) Discretion, as held by Chief Justice
Marshall in Wayman v. Southard (10 Wheat., 1) may be committed by the Legislature to an
executive department or official. The Legislature may make decisions of executive
departments or subordinate officials thereof, to whom it has committed the execution of
certain acts, final on questions of fact. (U.S. v. Kinkead, 248 Fed., 141.) The growing
tendency in the decisions is to give prominence to the ’necessity’ of the case."cralaw
virtua1aw library
Section 1 of Commonwealth Act No. 548 reads as follows:jgc:chanrobles.com.ph
"SECTION 1. To promote safe transit upon, and avoid obstructions on, roads and streets
designated as national roads by acts of the National Assembly or by executive orders of the
President of the Philippines, the Director of Public Works, with the approval of the Secretary
of Public Works and Communications, shall promulgate the necessary rules and regulations
to regulate and control the use of and traffic on such roads and streets. Such rules and
regulations, with the approval of the President, may contain provisions controlling or
regulating the construction of buildings or other structures within a reasonable distance from
along the national roads. Such roads may be temporarily closed to any or all classes of traffic
by the Director of Public Works and his duly authorized representatives whenever the
condition of the road or the traffic thereon makes such action necessary or advisable in the
public convenience and interest, or for a specified period, with the approval of the Secretary
of Public Works and Communications."cralaw virtua1aw library
The above provisions of law do not confer legislative power upon the Director of Public Works
and the Secretary of Public Works and Communications. The authority therein conferred
upon them and under which they promulgated the rules and regulations now complained of is
not to determine what public policy demands but merely to carry out the legislative policy laid
down by the National Assembly in said Act, to wit, "to promote safe transit upon and avoid
obstructions on, roads and streets designated as national roads by acts of the National
Assembly or by executive orders of the President of the Philippines" and to close them
temporarily to any or all classes of traffic "whenever the condition of the road or the traffic
makes such action necessary or advisable in the public convenience and interest." The
delegated power, if at all, therefore, is not the determination of what the law shall be, but
merely the ascertainment of the facts and circumstances upon which the application of said
law is to be predicated. To promulgate rules and regulations on the use of national roads and
to determine when and how long a national road should be closed to traffic, in view of the
condition of the road or the traffic thereon and the requirements of public convenience and
interest, is an administrative function which cannot be directly discharged by the National
Assembly. It must depend on the discretion of some other government official to whom is
confided the duty of determining whether the proper occasion exists for executing the law.
But it cannot be said that the exercise of such discretion is the making of the law. As was said
in Locke’s Appeal (72 Pa. 491): "To assert that a law is less than a law, because it is made to
depend on a future event or act, is to rob the Legislature of the power to act wisely for the
public welfare whenever a law is passed relating to a state of affairs not yet developed, or to
things future and impossible to fully know." The proper distinction the court said was this:
"The Legislature cannot delegate its power to make the law; but it can make a law to delegate
a power to determine some fact or state of things upon which the law makes, or intends to
make, its own action depend. To deny this would be to stop the wheels of government. There
are many things upon which wise and useful legislation must depend which cannot be known
to the law-making power, and, must, therefore, be a subject of inquiry and determination
outside of the halls of legislation." (Field v. Clark, 143 U. S. 649, 694; 36 L. Ed. 294.)
In the case of People v. Rosenthal and Osmeña, G.R. Nos. 46076 and 46077, promulgated
June 12, 1939, and in Pangasinan Transportation v. The Public Service Commission, G.R.
No. 47065, promulgated June 26, 1940, this Court had occasion to observe that the principle
of separation of powers has been made to adapt itself to the complexities of modern
governments, giving rise to the adoption, within certain limits, of the principle of "subordinate
legislation," not only in the United States and England but in practically all modern
governments. Accordingly, with the growing complexity of modern life, the multiplication of the
subjects of governmental regulations, and the increased difficulty of administering the laws,
the rigidity of the theory of separation of governmental powers has, to a large extent, been
relaxed by permitting the delegation of greater powers by the legislative and vesting a larger
amount of discretion in administrative and executive officials, not only in the execution of the
laws, but also in the promulgation of certain rules and regulations calculated to promote
public interest.
The petitioner further contends that the rules and regulations promulgated by the respondents
pursuant to the provisions of Commonwealth Act No. 548 constitute an unlawful interference
with legitimate business or trade and abridge the right to personal liberty and freedom of
locomotion. Commonwealth Act No. 548 was passed by the National Assembly in the
exercise of the paramount police power of the state.
Said Act, by virtue of which the rules and regulations complained of were promulgated, aims
to promote safe transit upon and avoid obstructions on national roads, in the interest and
convenience of the public. In enacting said law, therefore, the National Assembly was
prompted by considerations of public convenience and welfare. It was inspired by a desire to
relieve congestion of traffic. which is, to say the least, a menace to public safety. Public
welfare, then, lies at the bottom of the enactment of said law, and the state in order to
promote the general welfare may interfere with personal liberty, with property, and with
business and occupations. Persons and property may be subjected to all kinds of restraints
and burdens, in order to secure the general comfort, health, and prosperity of the state (U.S.
v. Gomez Jesus, 31 Phil., 218). To this fundamental aim of our Government the rights of the
individual are subordinated. Liberty is a blessing without which life is a misery, but liberty
should not be made to prevail over authority because then society will fall into anarchy.
Neither should authority be made to prevail over liberty because then the individual will fall
into slavery. The citizen should achieve the required balance of liberty and authority in his
mind through education and personal discipline, so that there may be established the
resultant equilibrium, which means peace and order and happiness for all. The moment
greater authority is conferred upon the government, logically so much is withdrawn from the
residuum of liberty which resides in the people. The paradox lies in the fact that the apparent
curtailment of liberty is precisely the very means of insuring its preservation.
The scope of police power keeps expanding as civilization advances. As was said in the case
of Dobbins v. Los Angeles (195 U.S. 223, 238; 49 L. ed. 169), "the right to exercise the police
power is a continuing one, and a business lawful today may in the future, because of the
changed situation, the growth of population or other causes, become a menace to the public
health and welfare, and be required to yield to the public good." And in People v. Pomar (46
Phil., 440), it was observed that "advancing civilization is bringing within the police power of
the state today things which were not thought of as being within such power yesterday. The
development of civilization, the rapidly increasing population, the growth of public opinion,
with an increasing desire on the part of the masses and of the government to look after and
care for the interests of the individuals of the state, have brought within the police power
many questions for regulation which formerly were not so considered."cralaw virtua1aw
library

The petitioner finally avers that the rules and regulations complained of infringe upon the
constitutional precept regarding the promotion of social justice to insure the well-being and
economic security of all the people. The promotion of social justice, however, is to be
achieved not through a mistaken sympathy towards any given group. Social justice is "neither
communism, nor despotism, nor atomism, nor anarchy," but the humanization of laws and the
equalization of social and economic forces by the State so that justice in its rational and
objectively secular conception may at least be approximated. Social justice means the
promotion of the welfare of all the people, the adoption by the Government of measures
calculated to insure economic stability of all the competent elements of society, through the
maintenance of a proper economic and social equilibrium in the interrelations of the members
of the community, constitutionally, through the adoption of measures legally justifiable, or
extra-constitutionally, through the exercise of powers underlying the existence of all
governments on the time-honored principle of salus populi est suprema lex.
Social justice, therefore, must be founded on the recognition of the necessity of
interdependence among divers and diverse units of a society and of the protection that
should be equally and evenly extended to all groups as a combined force in our social and
economic life, consistent with the fundamental and paramount objective of the state of
promoting the health, comfort, and quiet of all persons, and of bringing about "the greatest
good to the greatest number."cralaw virtua1aw library
In view of the foregoing, the writ of prohibition prayed for is hereby denied, with costs against
the petitioner. So ordered.
G.R. No. 148208 December 15, 2004
CENTRAL BANK (now Bangko Sentral ng Pilipinas) EMPLOYEES ASSOCIATION,
INC., petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS and the EXECUTIVE SECRETARY, respondents.
DECISION
PUNO, J.:
Can a provision of law, initially valid, become subsequently unconstitutional, on the ground
that its continuedoperation would violate the equal protection of the law? We hold that with
the passage of the subsequent laws amending the charter of seven (7) other governmental
financial institutions (GFIs), the continued operation of the last proviso of Section 15(c),
Article II of Republic Act (R.A.) No. 7653, constitutes invidious discrimination on the 2,994
rank-and-file employees of the Bangko Sentral ng Pilipinas (BSP).
I.
The Case
First the facts.
On July 3, 1993, R.A. No. 7653 (the New Central Bank Act) took effect. It abolished the old
Central Bank of the Philippines, and created a new BSP.
On June 8, 2001, almost eight years after the effectivity of R.A. No. 7653, petitioner Central
Bank (now BSP) Employees Association, Inc., filed a petition for prohibition against BSP and
the Executive Secretary of the Office of the President, to restrain respondents from further
implementing the last proviso in Section 15(c), Article II of R.A. No. 7653, on the ground that
it is unconstitutional.
Article II, Section 15(c) of R.A. No. 7653 provides:
Section 15. Exercise of Authority - In the exercise of its authority, the Monetary Board shall:
xxx xxx xxx
(c) establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion, or dismissal of all personnel. Such
system shall aim to establish professionalism and excellence at all levels of
the Bangko Sentral in accordance with sound principles of management.
A compensation structure, based on job evaluation studies and wage surveys and
subject to the Board's approval, shall be instituted as an integral component of
the Bangko Sentral's human resource development program: Provided, That the
Monetary Board shall make its own system conform as closely as possible with the
principles provided for under Republic Act No. 6758 [Salary Standardization
Act]. Provided, however, That compensation and wage structure of employees
whose positions fall under salary grade 19 and below shall be in accordance
with the rates prescribed under Republic Act No. 6758. [emphasis supplied]
The thrust of petitioner's challenge is that the above proviso makes
an unconstitutional cut between two classes of employees in the BSP, viz: (1) the
BSP officers or those exempted from the coverage of the Salary Standardization Law (SSL)
(exempt class); and (2) the rank-and-file (Salary Grade [SG] 19 and below), or those not
exempted from the coverage of the SSL (non-exempt class). It is contended that this
classification is "a classic case of class legislation," allegedly not based on substantial
distinctions which make real differences, but solely on the SG of the BSP personnel's
position. Petitioner also claims that it is not germane to the purposes of Section 15(c), Article
II of R.A. No. 7653, the most important of which is to establish professionalism and
excellence at all levels in the BSP.1 Petitioner offers the following sub-set of arguments:
 a. the legislative history of R.A. No. 7653 shows that the questioned proviso does not
appear in the original and amended versions of House Bill No. 7037, nor in the
original version of Senate Bill No. 1235; 2
b. subjecting the compensation of the BSP rank-and-file employees to the rate
prescribed by the SSL actually defeats the purpose of the law3 of establishing
professionalism and excellence at all levels in the BSP; 4 (emphasis supplied)
c. the assailed proviso was the product of amendments introduced during the
deliberation of Senate Bill No. 1235, without showing its relevance to the objectives
of the law, and even admitted by one senator as discriminatory against low-salaried
employees of the BSP;5
d. GSIS, LBP, DBP and SSS personnel are all exempted from the coverage of the
SSL; thus within the class of rank-and-file personnel of government financial
institutions (GFIs), the BSP rank-and-file are also discriminated upon;6 and
e. the assailed proviso has caused the demoralization among the BSP rank-and-file
and resulted in the gross disparity between their compensation and that of the BSP
officers'.7
In sum, petitioner posits that the classification is not reasonable but arbitrary and capricious,
and violates the equal protection clause of the Constitution.8 Petitioner also stresses: (a) that
R.A. No. 7653 has a separability clause, which will allow the declaration of the
unconstitutionality of the proviso in question without affecting the other provisions; and (b) the
urgency and propriety of the petition, as some 2,994 BSP rank-and-file employees have
been prejudiced since 1994 when the proviso was implemented. Petitioner concludes that:
(1) since the inequitable proviso has no force and effect of law, respondents' implementation
of such amounts to lack of jurisdiction; and (2) it has no appeal nor any other plain, speedy
and adequate remedy in the ordinary course except through this petition for prohibition, which
this Court should take cognizance of, considering the transcendental importance of the legal
issue involved.9
Respondent BSP, in its comment,10 contends that the provision does not violate the equal
protection clause and can stand the constitutional test, provided it is construed in harmony
with other provisions of the same law, such as "fiscal and administrative autonomy of BSP,"
and the mandate of the Monetary Board to "establish professionalism and excellence at all
levels in accordance with sound principles of management."
The Solicitor General, on behalf of respondent Executive Secretary, also defends the
validity of the provision. Quite simplistically, he argues that the classification is based on
actual and real differentiation, even as it adheres to the enunciated policy of R.A. No. 7653 to
establish professionalism and excellence within the BSP subject to prevailing laws and
policies of the national government.11
II.
Issue
Thus, the sole - albeit significant - issue to be resolved in this case is whether the last
paragraph of Section 15(c), Article II of R.A. No. 7653, runs afoul of the constitutional
mandate that "No person shall be. . . denied the equal protection of the laws." 12
III.
Ruling
A. UNDER THE PRESENT STANDARDS OF EQUAL PROTECTION,
SECTION 15(c), ARTICLE II OF R.A. NO. 7653 IS VALID.
Jurisprudential standards for equal protection challenges indubitably show that the
classification created by the questioned proviso, on its face and in its operation, bears no
constitutional infirmities.
It is settled in constitutional law that the "equal protection" clause does not prevent the
Legislature from establishing classes of individuals or objects upon which different rules shall
operate - so long as the classification is not unreasonable. As held in Victoriano v. Elizalde
Rope Workers' Union,13 and reiterated in a long line of cases:14
The guaranty of equal protection of the laws is not a guaranty of equality in the
application of the laws upon all citizens of the state. It is not, therefore, a requirement,
in order to avoid the constitutional prohibition against inequality, that every man,
woman and child should be affected alike by a statute. Equality of operation of
statutes does not mean indiscriminate operation on persons merely as such, but on
persons according to the circumstances surrounding them. It guarantees equality, not
identity of rights. The Constitution does not require that things which are different in
fact be treated in law as though they were the same. The equal protection clause
does not forbid discrimination as to things that are different. It does not prohibit
legislation which is limited either in the object to which it is directed or by the territory
within which it is to operate.
The equal protection of the laws clause of the Constitution allows classification.
Classification in law, as in the other departments of knowledge or practice, is the
grouping of things in speculation or practice because they agree with one another in
certain particulars. A law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the mere fact of
inequality in no manner determines the matter of constitutionality. All that is required
of a valid classification is that it be reasonable, which means that the classification
should be based on substantial distinctions which make for real differences, that it
must be germane to the purpose of the law; that it must not be limited to existing
 conditions only; and that it must apply equally to each member of the class. This
Court has held that the standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of enacting laws
over matters within its jurisdiction, the state is recognized as enjoying a wide range of
discretion. It is not necessary that the classification be based on scientific or marked
differences of things or in their relation. Neither is it necessary that the classification
be made with mathematical nicety. Hence, legislative classification may in many
cases properly rest on narrow distinctions, for the equal protection guaranty does not
preclude the legislature from recognizing degrees of evil or harm, and legislation is
addressed to evils as they may appear. (citations omitted)
Congress is allowed a wide leeway in providing for a valid classification. 15 The equal
protection clause is not infringed by legislation which applies only to those persons falling
within a specified class.16 If the groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated differently from another.17 The
classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class.18
In the case at bar, it is clear in the legislative deliberations that the exemption of officers (SG
20 and above) from the SSL was intended to address the BSP's lack of competitiveness in
terms of attracting competent officers and executives. It was not intended to discriminate
against the rank-and-file. If the end-result did in fact lead to a disparity of treatment between
the officers and the rank-and-file in terms of salaries and benefits, the discrimination or
distinction has a rational basis and is not palpably, purely, and entirely arbitrary in the
legislative sense. 19
That the provision was a product of amendments introduced during the deliberation of the
Senate Bill does not detract from its validity. As early as 1947 and reiterated in subsequent
cases,20 this Court has subscribed to the conclusiveness of an enrolled bill to refuse
invalidating a provision of law, on the ground that the bill from which it originated contained no
such provision and was merely inserted by the bicameral conference committee of both
Houses.
Moreover, it is a fundamental and familiar teaching that all reasonable doubts should be
resolved in favor of the constitutionality of a statute.21 An act of the legislature, approved by
the executive, is presumed to be within constitutional limitations.22 To justify the nullification of
a law, there must be a clear and unequivocal breach of the Constitution, not a doubtful and
equivocal breach.23
B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -
EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEES
OF GFIs FROM THE SSL - RENDERS THE CONTINUED
APPLICATION OF THE CHALLENGED PROVISION
A VIOLATION OF THE EQUAL PROTECTION CLAUSE.
While R.A. No. 7653 started as a valid measure well within the legislature's power, we hold
that the enactment of subsequent laws exempting all rank-and-file employees of other
GFIs leeched all validity out of the challenged proviso.
1. The concept of relative constitutionality.
The constitutionality of a statute cannot, in every instance, be determined by a mere
comparison of its provisions with applicable provisions of the Constitution, since the statute
may be constitutionally valid as applied to one set of facts and invalid in its application to
another.24
A statute valid at one time may become void at another time because of altered
circumstances.25 Thus, if a statute in its practical operation becomes arbitrary or
confiscatory, its validity, even though affirmed by a former adjudication, is open to inquiry and
investigation in the light of changed conditions.26
Demonstrative of this doctrine is Vernon Park Realty v. City of Mount Vernon,27 where the
Court of Appeals of New York declared as unreasonable and arbitrary a zoning ordinance
which placed the plaintiff's property in a residential district, although it was located in the
center of a business area. Later amendments to the ordinance then prohibited the use of the
property except for parking and storage of automobiles, and service station within a parking
area. The Court found the ordinance to constitute an invasion of property rights which was
contrary to constitutional due process. It ruled:
While the common council has the unquestioned right to enact zoning laws
respecting the use of property in accordance with a well-considered and
comprehensive plan designed to promote public health, safety and general welfare,
such power is subject to the constitutional limitation that it may not be exerted
arbitrarily or unreasonably and this is so whenever the zoning ordinance precludes
the use of the property for any purpose for which it is reasonably adapted. By the
same token, an ordinance valid when adopted will nevertheless be stricken
down as invalid when, at a later time, its operation under changed conditions
proves confiscatory such, for instance, as when the greater part of its value is
destroyed, for which the courts will afford relief in an appropriate case. 28 (citations
omitted, emphasis supplied)
In the Philippine setting, this Court declared the continued enforcement of a valid law as
unconstitutional as a consequence of significant changes in circumstances. Rutter v.
Esteban29 upheld the constitutionality of the moratorium law - its enactment and operation
being a valid exercise by the State of its police power30 - but also ruled that the continued
enforcement of the otherwise valid law would be unreasonable and oppressive. It noted
the subsequent changes in the country's business, industry and agriculture. Thus, the law
was set aside because its continued operation would be grossly discriminatory and lead to
the oppression of the creditors. The landmark ruling states:31
The question now to be determined is, is the period of eight (8) years which
Republic Act No. 342 grants to debtors of a monetary obligation contracted before
the last global war and who is a war sufferer with a claim duly approved by the
Philippine War Damage Commission reasonable under the present circumstances?
It should be noted that Republic Act No. 342 only extends relief to debtors of prewar
obligations who suffered from the ravages of the last war and who filed a claim for
their losses with the Philippine War Damage Commission. It is therein provided that
said obligation shall not be due and demandable for a period of eight (8) years from
and after settlement of the claim filed by the debtor with said Commission. The
purpose of the law is to afford to prewar debtors an opportunity to rehabilitate
themselves by giving them a reasonable time within which to pay their prewar debts
so as to prevent them from being victimized by their creditors. While it is admitted in
said law that since liberation conditions have gradually returned to normal, this is not
so with regard to those who have suffered the ravages of war and so it was therein
declared as a policy that as to them the debt moratorium should be continued in force
(Section 1).
But we should not lose sight of the fact that these obligations had been pending since
1945 as a result of the issuance of Executive Orders Nos. 25 and 32 and at present
their enforcement is still inhibited because of the enactment of Republic Act No. 342
and would continue to be unenforceable during the eight-year period granted to
prewar debtors to afford them an opportunity to rehabilitate themselves, which in
plain language means that the creditors would have to observe a vigil of at least
twelve (12) years before they could effect a liquidation of their investment dating as
far back as 1941. his period seems to us unreasonable, if not oppressive. While the
purpose of Congress is plausible, and should be commended, the relief accorded
works injustice to creditors who are practically left at the mercy of the debtors. Their
hope to effect collection becomes extremely remote, more so if the credits are
unsecured. And the injustice is more patent when, under the law, the debtor is not
even required to pay interest during the operation of the relief, unlike similar statutes
in the United States.
xxx xxx xxx
In the face of the foregoing observations, and consistent with what we believe to be
as the only course dictated by justice, fairness and righteousness, we feel that the
only way open to us under the present circumstances is to declare that the
continued operation and enforcement of Republic Act No. 342 at the present
time is unreasonable and oppressive, and should not be prolonged a minute
longer, and, therefore, the same should be declared null and void and without
effect. (emphasis supplied, citations omitted)
2. Applicability of the equal protection clause.
In the realm of equal protection, the U.S. case of Atlantic Coast Line R. Co. v. Ivey32 is
illuminating. The Supreme Court of Florida ruled against the continued application of statutes
authorizing the recovery of double damages plus attorney's fees against railroad companies,
for animals killed on unfenced railroad right of way without proof of negligence. Competitive
motor carriers, though creating greater hazards, were not subjected to similar liability
because they were not yet in existence when the statutes were enacted. The Court ruled
that the statutes became invalid as denying "equal protection of the law," in view of changed
conditions since their enactment.
In another U.S. case, Louisville & N.R. Co. v. Faulkner,33 the Court of Appeals of Kentucky
declared unconstitutional a provision of a statute which imposed a duty upon a railroad
company of proving that it was free from negligence in the killing or injury of cattle by its
engine or cars. This, notwithstanding that the constitutionality of the statute, enacted in
1893, had been previously sustained. Ruled the Court:
The constitutionality of such legislation was sustained because it applied to all similar
corporations and had for its object the safety of persons on a train and the protection
of property…. Of course, there were no automobiles in those days.
The subsequent inauguration and development of transportation by motor vehicles
on the public highways by common carriers of freight and passengers created even
greater risks to the safety of occupants of the vehicles and of danger of injury and
death of domestic animals. Yet, under the law the operators of that mode of
competitive transportation are not subject to the same extraordinary legal
responsibility for killing such animals on the public roads as are railroad companies
for killing them on their private rights of way.
The Supreme Court, speaking through Justice Brandeis in Nashville, C. & St. L. Ry.
Co. v. Walters, 294 U.S. 405, 55 S.Ct. 486, 488, 79 L.Ed. 949, stated, "A statute
valid when enacted may become invalid by change in the conditions to which it
is applied. The police power is subject to the constitutional limitation that it may not
be exerted arbitrarily or unreasonably." A number of prior opinions of that court are
cited in support of the statement. The State of Florida for many years had a statute,
F.S.A. § 356.01 et seq. imposing extraordinary and special duties upon railroad
companies, among which was that a railroad company was liable for double
damages and an attorney's fee for killing livestock by a train without the owner having
to prove any act of negligence on the part of the carrier in the operation of its train. In
Atlantic Coast Line Railroad Co. v. Ivey, it was held that the changed conditions
brought about by motor vehicle transportation rendered the statute unconstitutional
since if a common carrier by motor vehicle had killed the same animal, the owner
would have been required to prove negligence in the operation of its equipment. Said
the court, "This certainly is not equal protection of the law."34 (emphasis supplied)
Echoes of these rulings resonate in our case law, viz:
 [C]ourts are not confined to the language of the statute under challenge in
determining whether that statute has any discriminatory effect. A statute
nondiscriminatory on its face may be grossly discriminatory in its
operation. Though the law itself be fair on its face and impartial in appearance, yet, if
it is applied and administered by public authority with an evil eye and unequal hand,
so as practically to make unjust and illegal discriminations between persons in similar
circumstances, material to their rights, the denial of equal justice is still within the
prohibition of the Constitution.35 (emphasis supplied, citations omitted)
[W]e see no difference between a law which denies equal protection and a law
which permits of such denial. A law may appear to be fair on its face and impartial
in appearance, yet, if it permits of unjust and illegal discrimination, it is within the
constitutional prohibition….. In other words, statutes may be adjudged
unconstitutional because of their effect in operation…. If a law has the effect of
denying the equal protection of the law it is unconstitutional. ….36 (emphasis supplied,
citations omitted
3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291 + 8523 + 8763
+ 9302 = consequential unconstitutionality of challenged proviso.
According to petitioner, the last proviso of Section 15(c), Article II of R.A. No. 7653 is also
violative of the equal protection clause because after it was enacted, the charters of the
GSIS, LBP, DBP and SSS were also amended, but the personnel of the latter GFIs were all
exempted from the coverage of the SSL.37 Thus, within the class of rank-and-file personnel of
GFIs, the BSP rank-and-file are also discriminated upon.
Indeed, we take judicial notice that after the new BSP charter was enacted in 1993, Congress
also undertook the amendment of the charters of the GSIS, LBP, DBP and SSS, and three
other GFIs, from 1995 to 2004, viz:
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance Corporation,
(SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC);38 and
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation (PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters of the seven other
GFIs share this common proviso: a blanket exemption of all their employees from the
coverage of the SSL, expressly or impliedly, as illustrated below:
1. LBP (R.A. No. 7907)
Section 10. Section 90 of [R.A. No. 3844] is hereby amended to read as follows:
Section 90. Personnel. -
xxx xxx xxx
All positions in the Bank shall be governed by a compensation, position classification
system and qualification standards approved by the Bank's Board of Directors based
on a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by the Board no more than once
every two (2) years without prejudice to yearly merit reviews or increases based on
productivity and profitability. The Bank shall therefore be exempt from existing
laws, rules and regulations on compensation, position classification and
qualification standards. It shall however endeavor to make its system conform as
closely as possible with the principles under Republic Act No. 6758. (emphasis
supplied)
xxx xxx xxx
2. SSS (R.A. No. 8282)
Section 1. [Amending R.A. No. 1161, Section 3(c)]:
xxx xxx xxx
(c)The Commission, upon the recommendation of the SSS President, shall appoint
an actuary and such other personnel as may [be] deemed necessary; fix their
reasonable compensation, allowances and other benefits; prescribe their duties and
establish such methods and procedures as may be necessary to insure the efficient,
honest and economical administration of the provisions and purposes of this
Act: Provided, however, That the personnel of the SSS below the rank of Vice
President shall be appointed by the SSS President: Provided, further, That the
personnel appointed by the SSS President, except those below the rank of assistant
manager, shall be subject to the confirmation by the Commission; Provided further,
That the personnel of the SSS shall be selected only from civil service eligibles and
be subject to civil service rules and regulations: Provided, finally, That the SSS shall
 be exempt from the provisions of Republic Act No. 6758 and Republic Act No. 5. DBP (R.A. No. 8523)
7430. (emphasis supplied)
Section 6. [Amending E.O. No. 81, Section 13]:
3. SBGFC (R.A. No. 8289)
Section 13. Other Officers and Employees. - The Board of Directors shall provide for
Section 8. [Amending R.A. No. 6977, Section 11]: an organization and staff of officers and employees of the Bank and upon
recommendation of the President of the Bank, fix their remunerations and other
xxx xxx xxx emoluments. All positions in the Bank shall be governed by the compensation,
position classification system and qualification standards approved by the Board of
Directors based on a comprehensive job analysis of actual duties and
The Small Business Guarantee and Finance Corporation shall:
responsibilities. The compensation plan shall be comparable with the prevailing
compensation plans in the private sector and shall be subject to periodic review by
xxx xxx xxx the Board of Directors once every two (2) years, without prejudice to yearly merit or
increases based on the Bank's productivity and profitability. The Bank shall,
(e) notwithstanding the provisions of Republic Act No. 6758, and therefore, be exempt from existing laws, rules, and regulations on
Compensation Circular No. 10, series of 1989 issued by the Department of Budget compensation, position classification and qualification standards. The Bank
and Management, the Board of Directors of SBGFC shall have the authority to shall however, endeavor to make its system conform as closely as possible
extend to the employees and personnel thereof the allowance and fringe with the principles under Compensation and Position Classification Act of 1989
benefits similar to those extended to and currently enjoyed by the employees (Republic Act No. 6758, as amended). (emphasis supplied)
and personnel of other government financial institutions. (emphases supplied)
6. HGC (R.A. No. 8763)
4. GSIS (R.A. No. 8291)
Section 9. Powers, Functions and Duties of the Board of Directors. - The Board shall have the
Section 1. [Amending Section 43(d)]. following powers, functions and duties:

xxx xxx xxx xxx xxx xxx

Sec. 43. Powers and Functions of the Board of Trustees. - The Board of Trustees (e) To create offices or positions necessary for the efficient management, operation
shall have the following powers and functions: and administration of the Corporation: Provided, That all positions in the Home
Guaranty Corporation (HGC) shall be governed by a compensation and position
xxx xxx xxx classification system and qualifications standards approved by the Corporation's
Board of Directors based on a comprehensive job analysis and audit of actual duties
(d) upon the recommendation of the President and General Manager, to approve the and responsibilities: Provided, further, That the compensation plan shall be
GSIS' organizational and administrative structures and staffing pattern, and to comparable with the prevailing compensation plans in the private sector and
establish, fix, review, revise and adjust the appropriate compensation package for the which shall be exempt from Republic Act No. 6758, otherwise known as the
officers and employees of the GSIS with reasonable allowances, incentives, Salary Standardization Law, and from other laws, rules and regulations on
bonuses, privileges and other benefits as may be necessary or proper for the salaries and compensations; and to establish a Provident Fund and determine the
effective management, operation and administration of the GSIS, which shall be Corporation's and the employee's contributions to the Fund; (emphasis supplied)
exempt from Republic Act No. 6758, otherwise known as the Salary
Standardization Law and Republic Act No. 7430, otherwise known as the xxx xxx xxx
Attrition Law. (emphasis supplied)
7. PDIC (R.A. No. 9302)
xxx xxx xxx
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further amended to
read:
 xxx xxx xxx
3.
xxx xxx xxx
A compensation structure, based on job evaluation studies and wage surveys and
subject to the Board's approval, shall be instituted as an integral component of the
Corporation's human resource development program: Provided, That all positions in
the Corporation shall be governed by a compensation, position classification system
and qualification standards approved by the Board based on a comprehensive job
analysis and audit of actual duties and responsibilities. The compensation plan
shall be comparable with the prevailing compensation plans of other
government financial institutions and shall be subject to review by the Board no
more than once every two (2) years without prejudice to yearly merit reviews or
increases based on productivity and profitability. The Corporation shall therefore
be exempt from existing laws, rules and regulations on compensation, position
classification and qualification standards. It shall however endeavor to make its
system conform as closely as possible with the principles under Republic Act No.
6758, as amended. (emphases supplied)
Thus, eleven years after the amendment of the BSP charter, the rank-and-file of seven
other GFIs were granted the exemption that was specifically denied to the rank-and-file
of the BSP. And as if to add insult to petitioner's injury, even the Securities and Exchange
Commission (SEC) was granted the same blanket exemption from the SSL in 2000! 39
The prior view on the constitutionality of R.A. No. 7653 was confined to an evaluation of its
classification between the rank-and-file and the officers of the BSP, found reasonable
because there were substantial distinctions that made real differences between the two
classes.
The above-mentioned subsequent enactments, however, constitute significant
changes in circumstancethat considerably alter the reasonability of the continued
operation of the last proviso of Section 15(c), Article II of Republic Act No. 7653,
thereby exposing the proviso to more serious scrutiny. This time, the scrutiny relates to
the constitutionality of the classification - albeit made indirectly as a consequence of the
passage of eight other laws - between the rank-and-file of the BSP and the seven other
GFIs. The classification must not only be reasonable, but must also apply equally to all
members of the class. The proviso may be fair on its face and impartial in appearance but it
cannot be grossly discriminatory in its operation, so as practically to make unjust
distinctions between persons who are without differences.40
Stated differently, the second level of inquiry deals with the following questions: Given that
Congress chose to exempt other GFIs (aside the BSP) from the coverage of the SSL, can the
exclusion of the rank-and-file employees of the BSP stand constitutional scrutiny in the light
of the fact that Congress did not exclude the rank-and-file employees of the other GFIs? Is
Congress' power to classify so unbridled as to sanction unequal and discriminatory treatment,
simply because the inequity manifested itself, not instantly through a single overt act, but
gradually and progressively, through seven separate acts of Congress? Is the right to equal
protection of the law bounded in time and space that: (a) the right can only be invoked
against a classification made directly and deliberately, as opposed to a discrimination that
arises indirectly, or as a consequence of several other acts; and (b) is the legal analysis
confined to determining the validity within the parameters of the statute or ordinance (where
the inclusion or exclusion is articulated), thereby proscribing any evaluation vis-à-vis the
grouping, or the lack thereof, among several similar enactments made over a period of time?
In this second level of scrutiny, the inequality of treatment cannot be justified on the mere
assertion that each exemption (granted to the seven other GFIs) rests "on a policy
determination by the legislature." All legislative enactments necessarily rest on a policy
determination - even those that have been declared to contravene the Constitution. Verily, if
this could serve as a magic wand to sustain the validity of a statute, then no due process and
equal protection challenges would ever prosper. There is nothing inherently sacrosanct in a
policy determination made by Congress or by the Executive; it cannot run riot and overrun the
ramparts of protection of the Constitution.
In fine, the "policy determination" argument may support the inequality of treatment between
the rank-and-file and the officers of the BSP, but it cannot justify the inequality of treatment
between BSP rank-and-file and other GFIs' who are similarly situated. It fails to appreciate
that what is at issue in the second level of scrutiny is not the declared policy of each
law per se, but the oppressive results of Congress' inconsistent and unequal
policytowards the BSP rank-and-file and those of the seven other GFIs. At bottom, the
second challenge to the constitutionality of Section 15(c), Article II of Republic Act No.
7653 is premised precisely on the irrational discriminatory policy adopted by Congress
in its treatment of persons similarly situated. In the field of equal protection, the guarantee
that "no person shall be … denied the equal protection of the laws" includes the prohibition
against enacting laws that allow invidious discrimination, directly or indirectly. If a law has
the effect of denying the equal protection of the law, or permits such denial, it is
unconstitutional.41
It is against this standard that the disparate treatment of the BSP rank-and-file from the other
GFIs cannot stand judicial scrutiny. For as regards the exemption from the coverage of the
SSL, there exist no substantial distinctions so as to differentiate, the BSP rank-and-file from
the other rank-and-file of the seven GFIs. On the contrary, our legal history shows that
GFIs have long been recognized as comprising one distinct class, separate from other
governmental entities.
Before the SSL, Presidential Decree (P.D.) No. 985 (1976) declared it as a State policy (1)
to provide equal pay for substantially equal work, and (2) to base differences in pay upon
substantive differences in duties and responsibilities, and qualification requirements of the
positions. P.D. No. 985 was passed to address disparities in pay among similar or
comparable positions which had given rise to dissension among government employees. But
even then, GFIs and government-owned and/or controlled corporations (GOCCs) were
already identified as a distinct class among government employees. Thus, Section 2
also provided, "[t]hat notwithstanding a standardized salary system established for all
employees, additional financial incentives may be established by government corporation and
financial institutions for their employees to be supported fully from their corporate funds and
for such technical positions as may be approved by the President in critical government
agencies."42
The same favored treatment is made for the GFIs and the GOCCs under the SSL. Section
3(b) provides that one of the principles governing the Compensation and Position
Classification System of the Government is that: "[b]asic compensation for all personnel in
the government and government-owned or controlled corporations and financial institutions
shall generally be comparable with those in the private sector doing comparable work, and
must be in accordance with prevailing laws on minimum wages."
Thus, the BSP and all other GFIs and GOCCs were under the unified Compensation and
Position Classification System of the SSL,43 but rates of pay under the SSL were determined
on the basis of, among others, prevailing rates in the private sector for comparable work.
Notably, the Compensation and Position Classification System was to be governed by the
following principles: (a) just and equitable wages, with the ratio of compensation between pay
distinctions maintained at equitable levels;44 and (b) basic compensation generally
comparable with the private sector, in accordance with prevailing laws on minimum
wages.45 Also, the Department of Budget and Management was directed to use, as guide for
preparing the Index of Occupational Services, the Benchmark Position Schedule, and the
following factors:46
(1) the education and experience required to perform the duties and responsibilities
of the positions;
(2) the nature and complexity of the work to be performed;
(3) the kind of supervision received;
(4) mental and/or physical strain required in the completion of the work;
(5) nature and extent of internal and external relationships;
(6) kind of supervision exercised;
(7) decision-making responsibility;
(8) responsibility for accuracy of records and reports;
(9) accountability for funds, properties and equipment; and
(10) hardship, hazard and personal risk involved in the job.
The Benchmark Position Schedule enumerates the position titles that fall within Salary
Grades 1 to 20.
Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were similarly situated in all
aspects pertaining to compensation and position classification, in consonance with Section 5,
Article IX-B of the 1997 Constitution.47
Then came the enactment of the amended charter of the BSP, implicitly exempting the
Monetary Board from the SSL by giving it express authority to determine and institute its own
compensation and wage structure. However, employees whose positions fall under SG 19
and below were specifically limited to the rates prescribed under the SSL.
Subsequent amendments to the charters of other GFIs followed. Significantly, each
government financial institution (GFI) was not only expressly authorized to determine and
institute its own compensation and wage structure, but also explicitly exempted - without
distinction as to salary grade or position - all employees of the GFI from the SSL.
It has been proffered that legislative deliberations justify the grant or withdrawal of exemption
from the SSL, based on the perceived need "to fulfill the mandate of the institution concerned
considering, among others, that: (1) the GOCC or GFI is essentially proprietary in character;
(2) the GOCC or GFI is in direct competition with their [sic] counterparts in the private sector,
not only in terms of the provisions of goods or services, but also in terms of hiring and
retaining competent personnel; and (3) the GOCC or GFI are or were [sic] experiencing
difficulties filling up plantilla positions with competent personnel and/or retaining these
personnel. The need for the scope of exemption necessarily varies with the particular
circumstances of each institution, and the corresponding variance in the benefits received by
the employees is merely incidental."
The fragility of this argument is manifest. First, the BSP is the central monetary
authority,48 and the banker of the government and all its political subdivisions.49 It has
the sole power and authority to issue currency;50 provide policy directions in the areas of
money, banking, and credit; and supervise banks and regulate finance companies and non-
bank financial institutions performing quasi-banking functions, including the exempted
GFIs.51 Hence, the argument that the rank-and-file employees of the seven GFIs were
exempted because of the importance of their institution's mandate cannot stand any more
than an empty sack can stand.
Second, it is certainly misleading to say that "the need for the scope of exemption necessarily
varies with the particular circumstances of each institution." Nowhere in the deliberations is
there a cogent basis for the exclusion of the BSP rank-and-file from the exemption which was
granted to the rank-and-file of the other GFIs and the SEC. As point in fact, the BSP and the
seven GFIs are similarly situated in so far as Congress deemed it necessary for these
institutions to be exempted from the SSL. True, the SSL-exemption of the BSP and the seven
GFIs was granted in the amended charters of each GFI, enacted separately and over a
period of time. But it bears emphasis that, while each GFI has a mandate different and
distinct from that of another, the deliberations show that the raison d'être of the SSL-
exemption was inextricably linked to and for the most part based on factors common to the
eight GFIs, i.e., (1) the pivotal role they play in the economy; (2) the necessity of hiring and
retaining qualified and effective personnel to carry out the GFI's mandate; and (3) the
recognition that the compensation package of these GFIs is not competitive, and fall
substantially below industry standards. Considering further that (a) the BSP was the first GFI
granted SSL exemption; and (b) the subsequent exemptions of other GFIs did not distinguish
between the officers and the rank-and-file; it is patent that the classification made between
the BSP rank-and-file and those of the other seven GFIs was inadvertent, and NOT
intended, i.e., it was not based on any substantial distinction vis-à-vis the particular
circumstances of each GFI. Moreover, the exemption granted to two GFIs makes express
reference to allowance and fringe benefits similar to those extended to and currently enjoyed
by the employees and personnel of other GFIs,52 underscoring that GFIs are a particular class
within the realm of government entities.
It is precisely this unpremeditated discrepancy in treatment of the rank-and-file of the BSP -
made manifest and glaring with each and every consequential grant of blanket exemption
from the SSL to the other GFIs - that cannot be rationalized or justified. Even more so, when
the SEC - which is not a GFI - was given leave to have a compensation plan that "shall be
comparable with the prevailing compensation plan in the [BSP] and other [GFIs]," 53 then
granted a blanket exemption from the SSL, and its rank-and-file endowed a more preferred
treatment than the rank-and-file of the BSP.
The violation to the equal protection clause becomes even more pronounced when we are
faced with this undeniable truth: that if Congress had enacted a law for the sole purpose of
exempting the eight GFIs from the coverage of the SSL, the exclusion of the BSP rank-and-
file employees would have been devoid of any substantial or material basis. It bears no
moment, therefore, that the unlawful discrimination was not a direct result arising from one
law. "Nemo potest facere per alium quod non potest facere per directum." No one is allowed
to do indirectly what he is prohibited to do directly.
It has also been proffered that "similarities alone are not sufficient to support the conclusion
that rank-and-file employees of the BSP may be lumped together with similar employees of
the other GOCCs for purposes of compensation, position classification and qualification
standards. The fact that certain persons have some attributes in common does not
automatically make them members of the same class with respect to a legislative
classification." Cited is the ruling in Johnson v. Robinson:54 "this finding of similarity ignores
that a common characteristic shared by beneficiaries and nonbeneficiaries alike, is not
sufficient to invalidate a statute when other characteristics peculiar to only one group
rationally explain the statute's different treatment of the two groups."
The reference to Johnson is inapropos. In Johnson, the US Court sustained the validity of the
classification as there were quantitative and qualitative distinctions, expressly
recognized by Congress, which formed a rational basis for the classification limiting
educational benefits to military service veterans as a means of helping them readjust to
civilian life. The Court listed the peculiar characteristics as follows:
First, the disruption caused by military service is quantitatively greater than that
caused by alternative civilian service. A conscientious objector performing alternative
service is obligated to work for two years. Service in the Armed Forces, on the other
hand, involves a six-year commitment…
xxx xxx xxx
Second, the disruptions suffered by military veterans and alternative service
performers are qualitatively different. Military veterans suffer a far greater loss of
personal freedom during their service careers. Uprooted from civilian life, the military
veteran becomes part of the military establishment, subject to its discipline and
potentially hazardous duty. Congress was acutely aware of the peculiar disabilities
caused by military service, in consequence of which military servicemen have a
special need for readjustment benefits…55 (citations omitted)
In the case at bar, it is precisely the fact that as regards the exemption from the SSL, there
are no characteristics peculiar only to the seven GFIs or their rank-and-file so as to
justify the exemption which BSP rank-and-file employees were denied (not to mention
the anomaly of the SEC getting one). The distinction made by the law is not only
superficial,56 but also arbitrary. It is not based on substantial distinctions that make real
differences between the BSP rank-and-file and the seven other GFIs.
Moreover, the issue in this case is not - as the dissenting opinion of Mme. Justice Carpio-
Morales would put it - whether "being an employee of a GOCC or GFI is reasonable and
sufficient basis for exemption" from R.A. No. 6758. It is Congress itself that distinguished
the GFIs from other government agencies, not once but eight times, through the
enactment of R.A. Nos. 7653, 7907, 8282, 8289, 8291, 8523, 8763, and 9302. These laws
may have created a "preferred sub-class within government employees," but the present
challenge is not directed at the wisdom of these laws. Rather, it is a legal conundrum
involving the exercise of legislative power, the validity of which must be measured not only by
looking at the specific exercise in and by itself (R.A. No. 7653), but also as to the legal
effects brought about by seven separate exercises - albeit indirectly and without intent.
Thus, even if petitioner had not alleged "a comparable change in the factual milieu as regards
the compensation, position classification and qualification standards of the employees of the
BSP (whether of the executive level or of the rank-and-file) since the enactment of the new
Central Bank Act" is of no moment. In GSIS v. Montesclaros,57 this Court resolved the issue
of constitutionality notwithstanding that claimant had manifested that she was no longer
interested in pursuing the case, and even when the constitutionality of the said provision was
not squarely raised as an issue, because the issue involved not only the claimant but also
others similarly situated and whose claims GSIS would also deny based on the
challenged proviso. The Court held that social justice and public interest demanded the
resolution of the constitutionality of the proviso. And so it is with the challenged proviso in the
case at bar.
It bears stressing that the exemption from the SSL is a "privilege" fully within the legislative
prerogative to give or deny. However, its subsequent grant to the rank-and-file of the seven
other GFIs and continued denial to the BSP rank-and-file employees breached the latter's
right to equal protection. In other words, while the granting of a privilege per se is a matter of
policy exclusively within the domain and prerogative of Congress, the validity or legality of the
exercise of this prerogative is subject to judicial review. 58 So when the distinction made is
superficial, and not based on substantial distinctions that make real differences between
those included and excluded, it becomes a matter of arbitrariness that this Court has the duty
and the power to correct.59 As held in the United Kingdom case of Hooper v. Secretary of
State for Work and Pensions,60 once the State has chosen to confer benefits,
"discrimination" contrary to law may occur where favorable treatment already afforded to one
group is refused to another, even though the State is under no obligation to provide that
favorable treatment. 61
The disparity of treatment between BSP rank-and-file and the rank-and-file of the other seven
GFIs definitely bears the unmistakable badge of invidious discrimination - no one can, with
candor and fairness, deny the discriminatory character of the subsequent blanket and total
exemption of the seven other GFIs from the SSL when such was withheld from the
BSP. Alikes are being treated as unalikes without any rational basis.
Again, it must be emphasized that the equal protection clause does not demand absolute
equality but it requires that all persons shall be treated alike, under like circumstances
and conditions both as to privileges conferred and liabilities enforced. Favoritism and
undue preference cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances which, if not identical, are analogous. If
law be looked upon in terms of burden or charges, those that fall within a class should be
treated in the same fashion; whatever restrictions cast on some in the group is equally
binding on the rest.62
In light of the lack of real and substantial distinctions that would justify the unequal treatment
between the rank-and-file of BSP from the seven other GFIs, it is clear that the enactment of
the seven subsequent charters has rendered the continued application of the
challenged proviso anathema to the equal protection of the law, and the same should be
declared as an outlaw.
IV.
Equal Protection Under International Lens
In our jurisdiction, the standard and analysis of equal protection challenges in the main
have followed the "rational basis" test, coupled with a deferential attitude to legislative
classifications63 and a reluctance to invalidate a law unless there is a showing of a clear and
unequivocal breach of the Constitution. 64
A. Equal Protection in the United States
In contrast, jurisprudence in the U.S. has gone beyond the static "rational basis"
test. Professor Gunther highlights the development in equal protection jurisprudential
analysis, to wit: 65
Traditionally, equal protection supported only minimal judicial intervention in most
contexts. Ordinarily, the command of equal protection was only that government must
not impose differences in treatment "except upon some reasonable differentiation
fairly related to the object of regulation." The old variety of equal protection
scrutiny focused solely on the means used by the legislature: it insisted merely that
the classification in the statute reasonably relates to the legislative
purpose. Unlike substantive due process, equal protection scrutiny was not typically
concerned with identifying "fundamental values" and restraining legislative ends. And
usually the rational classification requirement was readily satisfied: the courts did
not demand a tight fit between classification and purpose; perfect congruence
between means and ends was not required.
xxx xxx xxx
[From marginal intervention to major cutting edge: The Warren Court's "new
equal protection" and the two-tier approach.]
From its traditional modest role, equal protection burgeoned into a major
intervention tool during the Warren era, especially in the 1960s. The Warren Court
did not abandon the deferential ingredients of the old equal protection: in most areas
of economic and social legislation, the demands imposed by equal protection
remained as minimal as ever…But the Court launched an equal protection revolution
by finding large new areas for strict rather than deferential scrutiny. A sharply
differentiated two-tier approach evolved by the late 1960s: in addition to the
deferential "old" equal protection, a "new" equal protection, connoting strict scrutiny,
arose…. The intensive review associated with the new equal protection imposed two
demands - a demand not only as to means but also one as to ends. Legislation
qualifying for strict scrutiny required a far closer fit between classification and
statutory purpose than the rough and ready flexibility traditionally tolerated by the old
equal protection: means had to be shown "necessary" to achieve statutory ends,
not merely "reasonably related" ones. Moreover, equal protection became a
source of ends scrutiny as well: legislation in the areas of the new equal protection
had to be justified by "compelling" state interests, not merely the wide spectrum of
"legitimate" state ends.
The Warren Court identified the areas appropriate for strict scrutiny by searching
for two characteristics: the presence of a "suspect" classification; or an impact on
"fundamental" rights or interests. In the category of "suspect classifications," the
Warren Court's major contribution was to intensify the strict scrutiny in the
traditionally interventionist area of racial classifications. But other cases also
suggested that there might be more other suspect categories as well: illegitimacy and
wealth for example. But it was the 'fundamental interests" ingredient of the new equal
protection that proved particularly dynamic, open-ended, and amorphous….. [Other
fundamental interests included voting, criminal appeals, and the right of interstate
travel ….]
xxx xxx xxx
The Burger Court and Equal Protection.
The Burger Court was reluctant to expand the scope of the new equal protection,
although its best established ingredient retains vitality. There was also mounting
discontent with the rigid two-tier formulations of the Warren Court's equal protection
doctrine. It was prepared to use the clause as an interventionist tool without resorting
to the strict language of the new equal protection…. [Among the fundamental
interests identified during this time were voting and access to the ballot, while
"suspect" classifications included sex, alienage and illegitimacy.]
xxx xxx xxx
Even while the two-tier scheme has often been adhered to in form, there has also
been an increasingly noticeable resistance to the sharp difference between
deferential "old" and interventionist "new" equal protection. A number of justices
sought formulations that would blur the sharp distinctions of the two-tiered approach
or that would narrow the gap between strict scrutiny and deferential review. The most
elaborate attack came from Justice Marshall, whose frequently stated position was
developed most elaborately in his dissent in the Rodriguez case: 66
The Court apparently seeks to establish [that] equal protection cases fall into one of
two neat categories which dictate the appropriate standard of review - strict scrutiny
or mere rationality. But this (sic) Court's [decisions] defy such easy categorization.
A principled reading of what this Court has done reveals that it has applied a
spectrum of standards in reviewing discrimination allegedly violative of the equal
protection clause. This spectrum clearly comprehends variations in the degree of
care with which Court will scrutinize particular classification, depending, I believe, on
the constitutional and societal importance of the interests adversely affected and the
recognized invidiousness of the basis upon which the particular classification is
drawn.
Justice Marshall's "sliding scale" approach describes many of the modern
decisions, although it is a formulation that the majority refused to embrace. But the
Burger Court's results indicate at least two significant changes in equal
protection law: First, invocation of the "old" equal protection formula no longer
signals, as it did with the Warren Court, an extreme deference to legislative
classifications and a virtually automatic validation of challenged statutes. Instead,
several cases, even while voicing the minimal "rationality" "hands-off" standards of
the old equal protection, proceed to find the statute unconstitutional. Second, in
some areas the modern Court has put forth standards for equal protection review
that, while clearly more intensive than the deference of the "old" equal protection, are
less demanding than the strictness of the "new" equal protection. Sex discrimination
is the best established example of an "intermediate" level of review. Thus, in one
case, the Court said that "classifications by gender must
serve important governmental objectives and must be substantially related to
achievement of those objectives." That standard is "intermediate" with respect to both
ends and means: where ends must be "compelling" to survive strict scrutiny and
merely "legitimate" under the "old" mode, "important" objectives are required here;
and where means must be "necessary" under the "new" equal protection, and merely
"rationally related" under the "old" equal protection, they must be "substantially
related" to survive the "intermediate" level of review. (emphasis supplied, citations
omitted)
B. Equal Protection in Europe
The United Kingdom and other members of the European Community have also gone
forward in discriminatory legislation and jurisprudence. Within the United Kingdom domestic
law, the most extensive list of protected grounds can be found in Article 14 of the European
Convention on Human Rights (ECHR). It prohibits discrimination on grounds such as "sex,
race, colour, language, religion, political or other opinion, national or social origin, association
with a national minority, property, birth or other status." This list is illustrative and not
exhaustive. Discrimination on the basis of race, sex and religion is regarded as
grounds that require strict scrutiny. A further indication that certain forms of discrimination
are regarded as particularly suspect under the Covenant can be gleaned from Article 4,
which, while allowing states to derogate from certain Covenant articles in times of national
emergency, prohibits derogation by measures that discriminate solely on the grounds of
"race, colour, language, religion or social origin."67
Moreover, the European Court of Human Rights has developed a test of justification which
varies with the ground of discrimination. In the Belgian Linguistics case68 the European
Court set the standard of justification at a low level: discrimination would contravene the
Convention only if it had no legitimate aim, or there was no reasonable relationship of
proportionality between the means employed and the aim sought to be realised.69 But over
the years, the European Court has developed a hierarchy of grounds covered by
Article 14 of the ECHR, a much higher level of justification being required in respect of
those regarded as "suspect" (sex, race, nationality, illegitimacy, or sexual
orientation) than of others. Thus, in Abdulaziz, 70 the European Court declared that:
 . . . [t]he advancement of the equality of the sexes is today a major goal in the
member States of the Council of Europe. This means that very weighty reasons
would have to be advanced before a difference of treatment on the ground of sex
could be regarded as compatible with the Convention.
And in Gaygusuz v. Austria,71 the European Court held that "very weighty reasons would
have to be put forward before the Court could regard a difference of treatment based
exclusively on the ground of nationality as compatible with the Convention."72 The European
Court will then permit States a very much narrower margin of appreciation in relation to
discrimination on grounds of sex, race, etc., in the application of the Convention rights than it
will in relation to distinctions drawn by states between, for example, large and small land-
owners. 73
C. Equality under International Law
The principle of equality has long been recognized under international law. Article 1 of the
Universal Declaration of Human Rights proclaims that all human beings are born free
and equal in dignity and rights. Non-discrimination, together with equality before the law
and equal protection of the law without any discrimination, constitutes basic principles in the
protection of human rights. 74
Most, if not all, international human rights instruments include some prohibition on
discrimination and/or provisions about equality.75 The general international provisions
pertinent to discrimination and/or equality are the International Covenant on Civil and Political
Rights (ICCPR);76 the International Covenant on Economic, Social and Cultural Rights
(ICESCR); the International Convention on the Elimination of all Forms of Racial
Discrimination (CERD);77 the Convention on the Elimination of all Forms of Discrimination
against Women (CEDAW); and the Convention on the Rights of the Child (CRC).
In the broader international context, equality is also enshrined in regional
instruments such as the American Convention on Human Rights;78 the African Charter on
Human and People's Rights;79 the European Convention on Human Rights;80 the European
Social Charter of 1961 and revised Social Charter of 1996; and the European Union Charter
of Rights (of particular importance to European states). Even the Council of the League of
Arab States has adopted the Arab Charter on Human Rights in 1994, although it has yet to be
ratified by the Member States of the League.81
The equality provisions in these instruments do not merely function as traditional "first
generation" rights, commonly viewed as concerned only with constraining rather than
requiring State action. Article 26 of the ICCPR requires "guarantee[s]" of "equal and
effective protection against discrimination" while Articles 1 and 14 of the American and
European Conventions oblige States Parties "to ensure ... the full and free exercise of [the
rights guaranteed] ... without any discrimination" and to "secure without discrimination" the
enjoyment of the rights guaranteed.82 These provisions impose a measure of positive
obligation on States Parties to take steps to eradicate discrimination.
In the employment field, basic detailed minimum standards ensuring equality and prevention
of discrimination, are laid down in the ICESCR83 and in a very large number of Conventions
administered by the International Labour Organisation, a United Nations body. 84 Additionally,
many of the other international and regional human rights instruments have specific
provisions relating to employment.85
The United Nations Human Rights Committee has also gone beyond the earlier
tendency to view the prohibition against discrimination (Article 26) as confined to the ICCPR
rights.86 In Broeks87 and Zwaan-de Vries,88 the issue before the Committee was whether
discriminatory provisions in the Dutch Unemployment Benefits Act (WWV) fell within the
scope of Article 26. The Dutch government submitted that discrimination in social security
benefit provision was not within the scope of Article 26, as the right was contained in the
ICESCR and not the ICCPR. They accepted that Article 26 could go beyond the rights
contained in the Covenant to other civil and political rights, such as discrimination in the field
of taxation, but contended that Article 26 did not extend to the social, economic, and cultural
rights contained in ICESCR. The Committee rejected this argument. In its view, Article 26
applied to rights beyond the Covenant including the rights in other international treaties such
as the right to social security found in ICESCR:
Although Article 26 requires that legislation should prohibit discrimination, it does not
of itself contain any obligation with respect to the matters that may be provided for by
legislation. Thus it does not, for example, require any state to enact legislation to
provide for social security. However, when such legislation is adopted in the exercise
of a State's sovereign power, then such legislation must comply with Article 26 of the
Covenant.89
Breaches of the right to equal protection occur directly or indirectly. A classification may be
struck down if it has the purpose or effect of violating the right to equal protection.
International law recognizes that discrimination may occur indirectly, as the Human Rights
Committee90 took into account the definitions of discrimination adopted by CERD and
CEDAW in declaring that:
. . . "discrimination" as used in the [ICCPR] should be understood to imply any
distinction, exclusion, restriction or preference which is based on any ground such
as race, colour, sex, language, religion, political or other opinion, national or social
origin, property, birth or other status, and which has the purpose or effect of
nullifying or impairing the recognition, enjoyment or exercise by all persons, on
an equal footing, of all rights and freedoms. 91 (emphasis supplied)
Thus, the two-tier analysis made in the case at bar of the challenged provision, and its
conclusion of unconstitutionality by subsequent operation, are in cadence and in
consonance with the progressive trend of other jurisdictions and in international
law. There should be no hesitation in using the equal protection clause as a major cutting
edge to eliminate every conceivable irrational discrimination in our society. Indeed, the social
justice imperatives in the Constitution, coupled with the special status and protection afforded
to labor, compel this approach.92
Apropos the special protection afforded to labor under our Constitution and international law,
we held in International School Alliance of Educators v. Quisumbing: 93
That public policy abhors inequality and discrimination is beyond contention. Our
Constitution and laws reflect the policy against these evils. The Constitution in the
Article on Social Justice and Human Rights exhorts Congress to "give highest priority
to the enactment of measures that protect and enhance the right of all people to
human dignity, reduce social, economic, and political inequalities." The very broad
Article 19 of the Civil Code requires every person, "in the exercise of his rights and in
the performance of his duties, [to] act with justice, give everyone his due, and
observe honesty and good faith."
International law, which springs from general principles of law, likewise proscribes
discrimination. General principles of law include principles of equity, i.e., the general
principles of fairness and justice, based on the test of what is reasonable. The
Universal Declaration of Human Rights, the International Covenant on Economic,
Social, and Cultural Rights, the International Convention on the Elimination of All
Forms of Racial Discrimination, the Convention against Discrimination in Education,
the Convention (No. 111) Concerning Discrimination in Respect of Employment and
Occupation - all embody the general principle against discrimination, the very
antithesis of fairness and justice. The Philippines, through its Constitution, has
incorporated this principle as part of its national laws.
In the workplace, where the relations between capital and labor are often skewed in
favor of capital, inequality and discrimination by the employer are all the more
reprehensible.
The Constitution specifically provides that labor is entitled to "humane conditions of
work." These conditions are not restricted to the physical workplace - the factory, the
office or the field - but include as well the manner by which employers treat their
employees.
The Constitution also directs the State to promote "equality of employment
opportunities for all." Similarly, the Labor Code provides that the State shall "ensure
equal work opportunities regardless of sex, race or creed." It would be an affront to
both the spirit and letter of these provisions if the State, in spite of its primordial
obligation to promote and ensure equal employment opportunities, closes its eyes to
unequal and discriminatory terms and conditions of employment.
xxx xxx xxx
Notably, the International Covenant on Economic, Social, and Cultural Rights, in
Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right of everyone to the
enjoyment of just and [favorable] conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
i. Fair wages and equal remuneration for work of equal value without
distinction of any kind, in particular women being guaranteed
conditions of work not inferior to those enjoyed by men, with equal
pay for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this jurisdiction the long
honored legal truism of "equal pay for equal work." Persons who work with
substantially equal qualifications, skill, effort and responsibility, under similar
conditions, should be paid similar salaries. (citations omitted)
Congress retains its wide discretion in providing for a valid classification, and its policies
should be accorded recognition and respect by the courts of justice except when they run
afoul of the Constitution.94 The deference stops where the classification violates a
fundamental right, or prejudices persons accorded special protection by the
Constitution. When these violations arise, this Court must discharge its primary role as the
vanguard of constitutional guaranties, and require a stricter and more exacting adherence
to constitutional limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special protection by the Constitution
requires a stricter judicial scrutiny finds no support in American or English jurisprudence.
Nevertheless, these foreign decisions and authorities are not per se controlling in this
jurisdiction. At best, they are persuasive and have been used to support many of our
decisions.95 We should not place undue and fawning reliance upon them and regard them as
indispensable mental crutches without which we cannot come to our own decisions through
the employment of our own endowments. We live in a different ambience and must decide
our own problems in the light of our own interests and needs, and of our qualities and even
idiosyncrasies as a people, and always with our own concept of law and justice. 96 Our laws
must be construed in accordance with the intention of our own lawmakers and such intent
may be deduced from the language of each law and the context of other local legislation
related thereto. More importantly, they must be construed to serve our own public interest
which is the be-all and the end-all of all our laws. And it need not be stressed that our public
interest is distinct and different from others.97
In the 2003 case of Francisco v. House of Representatives, this Court has stated that:
"[A]merican jurisprudence and authorities, much less the American Constitution, are of
dubious application for these are no longer controlling within our jurisdiction and have only
limited persuasive merit insofar as Philippine constitutional law is concerned....[I]n resolving
constitutional disputes, [this Court] should not be beguiled by foreign jurisprudence some of
which are hardly applicable because they have been dictated by different constitutional
settings and needs."98 Indeed, although the Philippine Constitution can trace its origins to that
of the United States, their paths of development have long since diverged. 99
Further, the quest for a better and more "equal" world calls for the use of equal protection as
a tool of effective judicial intervention.
Equality is one ideal which cries out for bold attention and action in the Constitution.
The Preamble proclaims "equality" as an ideal precisely in protest against crushing
inequities in Philippine society. The command to promote social justice in Article II,
Section 10, in "all phases of national development," further explicitated in Article XIII,
are clear commands to the State to take affirmative action in the direction of greater
equality.… [T]here is thus in the Philippine Constitution no lack of doctrinal support
for a more vigorous state effort towards achieving a reasonable measure of
equality.100
Our present Constitution has gone further in guaranteeing vital social and economic rights to
marginalized groups of society, including labor.101 Under the policy of social justice, the law
bends over backward to accommodate the interests of the working class on the humane
justification that those with less privilege in life should have more in law. 102 And the obligation
to afford protection to labor is incumbent not only on the legislative and executive branches
but also on the judiciary to translate this pledge into a living reality. 103 Social justice calls for
the humanization of laws and the equalization of social and economic forces by the State so
that justice in its rational and objectively secular conception may at least be approximated. 104
V.
A Final Word
Finally, concerns have been raised as to the propriety of a ruling voiding the challenged
provision. It has been proffered that the remedy of petitioner is not with this Court, but with
Congress, which alone has the power to erase any inequity perpetrated by R.A. No. 7653.
Indeed, a bill proposing the exemption of the BSP rank-and-file from the SSL has supposedly
been filed.
Under most circumstances, the Court will exercise judicial restraint in deciding questions of
constitutionality, recognizing the broad discretion given to Congress in exercising its
legislative power. Judicial scrutiny would be based on the "rational basis" test, and the
legislative discretion would be given deferential treatment. 105
But if the challenge to the statute is premised on the denial of a fundamental right, or
the perpetuation of prejudice against persons favored by the Constitution with special
protection, judicial scrutiny ought to be more strict. A weak and watered down view
would call for the abdication of this Court's solemn duty to strike down any law repugnant to
the Constitution and the rights it enshrines. This is true whether the actor committing the
unconstitutional act is a private person or the government itself or one of its instrumentalities.
Oppressive acts will be struck down regardless of the character or nature of the actor. 106
Accordingly, when the grant of power is qualified, conditional or subject to limitations,
the issue on whether or not the prescribed qualifications or conditions have been
met, or the limitations respected, is justiciable or non-political, the crux of the problem
being one of legality or validity of the contested act, not its wisdom. Otherwise, said
qualifications, conditions or limitations - particularly those prescribed or imposed by
the Constitution - would be set at naught. What is more, the judicial inquiry into such
issue and the settlement thereof are the main functions of courts of justice under the
Presidential form of government adopted in our 1935 Constitution, and the system of
checks and balances, one of its basic predicates. As a consequence, We have
neither the authority nor the discretion to decline passing upon said issue, but
are under the ineluctable obligation - made particularly more exacting and
peremptory by our oath, as members of the highest Court of the land, to
support and defend the Constitution - to settle it. This explains why, in Miller v.
Johnson, it was held that courts have a "duty, rather than a power", to determine
whether another branch of the government has "kept within constitutional limits." Not
satisfied with this postulate, the court went farther and stressed that, if the
Constitution provides how it may be amended - as it is in our 1935 Constitution -
"then, unless the manner is followed, the judiciary as the interpreter of that
constitution, will declare the amendment invalid." In fact, this very Court - speaking
through Justice Laurel, an outstanding authority on Philippine Constitutional Law, as
well as one of the highly respected and foremost leaders of the Convention that
drafted the 1935 Constitution - declared, as early as July 15, 1936, that "(i)n times of
social disquietude or political excitement, the great landmarks of the Constitution are
apt to be forgotten or marred, if not entirely obliterated. In cases of conflict, the
judicial department is the only constitutional organ which can be called upon to
determine the proper allocation of powers between the several departments" of the
government.107 (citations omitted; emphasis supplied)
In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-
employee status. It is akin to a distinction based on economic class and status, with the
higher grades as recipients of a benefit specifically withheld from the lower grades. Officers of
the BSP now receive higher compensation packages that are competitive with the industry,
while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The
implications are quite disturbing: BSP rank-and-file employees are paid the strictly
regimented rates of the SSL while employees higher in rank - possessing higher and better
education and opportunities for career advancement - are given higher compensation
packages to entice them to stay. Considering that majority, if not all, the rank-and-file
employees consist of people whose status and rank in life are less and limited,
especially in terms of job marketability, it is they - and not the officers - who have the
real economic and financial need for the adjustment This is in accord with the policy of
the Constitution "to free the people from poverty, provide adequate social services, extend to
them a decent standard of living, and improve the quality of life for all."108 Any act of
Congress that runs counter to this constitutional desideratum deserves strict scrutiny
by this Court before it can pass muster.
To be sure, the BSP rank-and-file employees merit greater concern from this
Court. They represent the more impotent rank-and-file government employees who, unlike
employees in the private sector, have no specific right to organize as a collective bargaining
unit and negotiate for better terms and conditions of employment, nor the power to hold a
strike to protest unfair labor practices. Not only are they impotent as a labor unit, but their
efficacy to lobby in Congress is almost nil as R.A. No. 7653 effectively isolated them from the
other GFI rank-and-file in compensation. These BSP rank-and-file employees represent
the politically powerless and they should not be compelled to seek a political solution
to their unequal and iniquitous treatment. Indeed, they have waited for many years for the
legislature to act. They cannot be asked to wait some more for discrimination cannot be given
any waiting time. Unless the equal protection clause of the Constitution is a mere platitude, it
is the Court's duty to save them from reasonless discrimination.
IN VIEW WHEREOF, we hold that the continued operation and implementation of the
last proviso of Section 15(c), Article II of Republic Act No. 7653 is unconstitutional.
[G.R. NO. 158693 : November 17, 2004]
JENNY M. AGABON and VIRGILIO C. AGABON, Petitioners, v. NATIONAL LABOR
RELATIONS COMMISSION (NLRC), RIVIERA HOME IMPROVEMENTS, INC. and
VICENTE ANGELES, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review seeks to reverse the decision1 of the Court of Appeals dated January
23, 2003, in CA-G.R. SP No. 63017, modifying the decision of National Labor Relations
Commission (NLRC) in NLRC-NCR Case No. 023442-00.
Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling
and installing ornamental and construction materials. It employed petitioners Virgilio Agabon
and Jenny Agabon as gypsum board and cornice installers on January 2, 1992 2 until
February 23, 1999 when they were dismissed for abandonment of work.
Petitioners then filed a complaint for illegal dismissal and payment of money claims 3
and on
December 28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal
and ordered private respondent to pay the monetary claims. The dispositive portion of the
decision states:
WHEREFORE, premises considered, We find the termination of the complainants illegal.
Accordingly, respondent is hereby ordered to pay them their backwages up to November 29,
1999 in the sum of:
1. Jenny M. Agabon - P56, 231.93
2. Virgilio C. Agabon - 56, 231.93
and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year
of service from date of hiring up to November 29, 1999.
Respondent is further ordered to pay the complainants their holiday pay and service incentive
leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and
rest days and Virgilio Agabon's 13th month pay differential amounting to TWO THOUSAND
ONE HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED
TWENTY ONE THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93)
Pesos for Jenny Agabon, and ONE HUNDRED TWENTY THREE THOUSAND EIGHT
HUNDRED TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per
attached computation of Julieta C. Nicolas, OIC, Research and Computation Unit, NCR.
SO ORDERED.4
On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had
abandoned their work, and were not entitled to backwages and separation pay. The other
money claims awarded by the Labor Arbiter were also denied for lack of evidence.5
Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with
the Court of Appeals.
The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because
they had abandoned their employment but ordered the payment of money claims. The
dispositive portion of the decision reads:
WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only
insofar as it dismissed petitioner's money claims. Private respondents are ordered to pay
petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their
service incentive leave pay for said years, and to pay the balance of petitioner Virgilio
Agabon's 13th month pay for 1998 in the amount of P2,150.00.
SO ORDERED.6
Hence, this Petition for Review on the sole issue of whether petitioners were illegally
dismissed.7
Petitioners assert that they were dismissed because the private respondent refused to give
them assignments unless they agreed to work on a "pakyaw" basis when they reported for
duty on February 23, 1999. They did not agree on this arrangement because it would mean
losing benefits as Social Security System (SSS) members. Petitioners also claim that private
respondent did not comply with the twin requirements of notice and hearing. 8
Private respondent, on the other hand, maintained that petitioners were not dismissed but
had abandoned their work.9 In fact, private respondent sent two letters to the last known
addresses of the petitioners advising them to report for work. Private respondent's manager
even talked to petitioner Virgilio Agabon by telephone sometime in June 1999 to tell him
about the new assignment at Pacific Plaza Towers involving 40,000 square meters of cornice
installation work. However, petitioners did not report for work because they had
subcontracted to perform installation work for another company. Petitioners also demanded
for an increase in their wage to P280.00 per day. When this was not granted, petitioners
stopped reporting for work and filed the illegal dismissal case.10
It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not
only respect but even finality if the findings are supported by substantial evidence. This is
especially so when such findings were affirmed by the Court of Appeals. 11 However, if the
factual findings of the NLRC and the Labor Arbiter are conflicting, as in this case, the
reviewing court may delve into the records and examine for itself the questioned findings. 12
Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners'
dismissal was for a just cause. They had abandoned their employment and were already
working for another employer.
To dismiss an employee, the law requires not only the existence of a just and valid cause but
also enjoins the employer to give the employee the opportunity to be heard and to defend
himself.13 Article 282 of the Labor Code enumerates the just causes for termination by the
employer: (a) serious misconduct or willful disobedience by the employee of the lawful orders
of his employer or the latter's representative in connection with the employee's work; (b)
gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the
employee of the trust reposed in him by his employer or his duly authorized representative;
(d) commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representative; and (e) other
causes analogous to the foregoing.
Abandonment is the deliberate and unjustified refusal of an employee to resume his
employment.14 It is a form of neglect of duty, hence, a just cause for termination of
employment by the employer.15 For a valid finding of abandonment, these two factors should
be present: (1) the failure to report for work or absence without valid or justifiable reason; and
(2) a clear intention to sever employer-employee relationship, with the second as the more
determinative factor which is manifested by overt acts from which it may be deduced that the
employees has no more intention to work. The intent to discontinue the employment must be
shown by clear proof that it was deliberate and unjustified.16
In February 1999, petitioners were frequently absent having subcontracted for an installation
work for another company. Subcontracting for another company clearly showed the intention
to sever the employer-employee relationship with private respondent. This was not the first
time they did this. In January 1996, they did not report for work because they were working
for another company. Private respondent at that time warned petitioners that they would be
dismissed if this happened again. Petitioners disregarded the warning and exhibited a clear
intention to sever their employer-employee relationship. The record of an employee is a
relevant consideration in determining the penalty that should be meted out to him. 17
In Sandoval Shipyard v. Clave,18 we held that an employee who deliberately absented from
work without leave or permission from his employer, for the purpose of looking for a job
elsewhere, is considered to have abandoned his job. We should apply that rule with more
reason here where petitioners were absent because they were already working in another
company.
The law imposes many obligations on the employer such as providing just compensation to
workers, observance of the procedural requirements of notice and hearing in the termination
of employment. On the other hand, the law also recognizes the right of the employer to
expect from its workers not only good performance, adequate work and diligence, but also
good conduct19 and loyalty. The employer may not be compelled to continue to employ such
persons whose continuance in the service will patently be inimical to his interests.20
After establishing that the terminations were for a just and valid cause, we now determine if
the procedures for dismissal were observed.
The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of
the Omnibus Rules Implementing the Labor Code:
Standards of due process: requirements of notice. - In all cases of termination of
employment, the following standards of due process shall be substantially observed:
I. For termination of employment based on just causes as defined in Article 282 of the Code:
(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;
(b) A hearing or conference during which the employee concerned, with the assistance of
counsel if the employee so desires, is given opportunity to respond to the charge, present his
evidence or rebut the evidence presented against him; andcralawlibrary
(c) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his
termination.
In case of termination, the foregoing notices shall be served on the employee's last known
address.
Dismissals based on just causes contemplate acts or omissions attributable to the employee
while dismissals based on authorized causes involve grounds under the Labor Code which
allow the employer to terminate employees. A termination for an authorized cause requires
payment of separation pay. When the termination of employment is declared illegal,
reinstatement and full backwages are mandated under Article 279. If reinstatement is no
longer possible where the dismissal was unjust, separation pay may be granted.
Procedurally, (1) if the dismissal is based on a just cause under Article 282, the employer
must give the employee two written notices and a hearing or opportunity to be heard if
requested by the employee before terminating the employment: a notice specifying the
grounds for which dismissal is sought a hearing or an opportunity to be heard and after
hearing or opportunity to be heard, a notice of the decision to dismiss; and (2) if the dismissal
is based on authorized causes under Articles 283 and 284, the employer must give the
employee and the Department of Labor and Employment written notices 30 days prior to the
effectivity of his separation.
From the foregoing rules four possible situations may be derived: (1) the dismissal is for a just
cause under Article 282 of the Labor Code, for an authorized cause under Article 283, or for
health reasons under Article 284, and due process was observed; (2) the dismissal is without
just or authorized cause but due process was observed; (3) the dismissal is without just or
authorized cause and there was no due process; and (4) the dismissal is for just or
authorized cause but due process was not observed.
In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any
liability.
In the second and third situations where the dismissals are illegal, Article 279 mandates that
the employee is entitled to reinstatement without loss of seniority rights and other privileges
and full backwages, inclusive of allowances, and other benefits or their monetary equivalent
computed from the time the compensation was not paid up to the time of actual
reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot
be cured, it should not invalidate the dismissal. However, the employer should be held liable
for non-compliance with the procedural requirements of due process.
The present case squarely falls under the fourth situation. The dismissal should be upheld
because it was established that the petitioners abandoned their jobs to work for another
company. Private respondent, however, did not follow the notice requirements and instead
argued that sending notices to the last known addresses would have been useless because
they did not reside there anymore. Unfortunately for the private respondent, this is not a valid
excuse because the law mandates the twin notice requirements to the employee's last known
address.21 Thus, it should be held liable for non-compliance with the procedural requirements
of due process.
A review and re-examination of the relevant legal principles is appropriate and timely to clarify
the various rulings on employment termination in the light of Serrano v. National Labor
Relations Commission.22
Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not
given any notice. In the 1989 case of Wenphil Corp. v. National Labor Relations
Commission,23 we reversed this long-standing rule and held that the dismissed employee,
although not given any notice and hearing, was not entitled to reinstatement and backwages
because the dismissal was for grave misconduct and insubordination, a just ground for
termination under Article 282. The employee had a violent temper and caused trouble during
office hours, defying superiors who tried to pacify him. We concluded that reinstating the
employee and awarding backwages "may encourage him to do even worse and will render a
mockery of the rules of discipline that employees are required to observe."24 We further held
that:
Under the circumstances, the dismissal of the private respondent for just cause should be
maintained. He has no right to return to his former employment.
However, the petitioner must nevertheless be held to account for failure to extend to private
respondent his right to an investigation before causing his dismissal. The rule is explicit as
above discussed. The dismissal of an employee must be for just or authorized cause and
after due process. Petitioner committed an infraction of the second requirement. Thus, it must
be imposed a sanction for its failure to give a formal notice and conduct an investigation as
required by law before dismissing petitioner from employment. Considering the
circumstances of this case petitioner must indemnify the private respondent the amount of
P1,000.00. The measure of this award depends on the facts of each case and the gravity of
the omission committed by the employer.25
The rule thus evolved: where the employer had a valid reason to dismiss an employee but did
not follow the due process requirement, the dismissal may be upheld but the employer will be
penalized to pay an indemnity to the employee. This became known as the Wenphilor
Belated Due Process Rule.
On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We
held that the violation by the employer of the notice requirement in termination for just or
authorized causes was not a denial of due process that will nullify the termination. However,
the dismissal is ineffectual and the employer must pay full backwages from the time of
termination until it is judicially declared that the dismissal was for a just or authorized cause.
The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant
number of cases involving dismissals without requisite notices. We concluded that the
imposition of penalty by way of damages for violation of the notice requirement was not
serving as a deterrent. Hence, we now required payment of full backwages from the time of
dismissal until the time the Court finds the dismissal was for a just or authorized cause.
Serrano was confronting the practice of employers to "dismiss now and pay later" by
imposing full backwages.
We believe, however, that the ruling in Serrano did not consider the full meaning of Article
279 of the Labor Code which states:
ART. 279. Security of Tenure. - In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
This means that the termination is illegal only if it is not for any of the justified or authorized
causes provided by law. Payment of backwages and other benefits, including reinstatement,
is justified only if the employee was unjustly dismissed.
The fact that the Serrano ruling can cause unfairness and injustice which elicited strong
dissent has prompted us to revisit the doctrine.
To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a
system of rights based on moral principles so deeply imbedded in the traditions and feelings
of our people as to be deemed fundamental to a civilized society as conceived by our entire
history. Due process is that which comports with the deepest notions of what is fair and right
and just.26 It is a constitutional restraint on the legislative as well as on the executive and
judicial powers of the government provided by the Bill of Rights.
Due process under the Labor Code, like Constitutional due process, has two aspects:
substantive, i.e., the valid and authorized causes of employment termination under the Labor
Code; and procedural, i.e., the manner of dismissal. Procedural due process requirements for
dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as
the Labor Code of the Philippines in Book VI, Rule I, Sec. 2, as amended by Department
Order Nos. 9 and 10.27 Breaches of these due processrequirements violate the Labor Code.
Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.
Constitutional due process protects the individual from the government and assures him of
his rights in criminal, civil or administrative proceedings; while statutory due process found in
the Labor Code and Implementing Rules protects employees from being unjustly terminated
without just cause after notice and hearing.
In Sebuguero v. National Labor Relations Commission,28 the dismissal was for a just and
valid cause but the employee was not accorded due process. The dismissal was upheld by
the Court but the employer was sanctioned. The sanction should be in the nature of
indemnification or penalty, and depends on the facts of each case and the gravity of the
omission committed by the employer.
In Nath v. National Labor Relations Commission,29 it was ruled that even if the employee was
not given due process, the failure did not operate to eradicate the just causes for dismissal.
The dismissal being for just cause, albeit without due process, did not entitle the employee to
reinstatement, backwages, damages and attorney's fees.
Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National
Labor Relations Commission,30 which opinion he reiterated in Serrano, stated:
C. Where there is just cause for dismissal but due process has not been properly observed
by an employer, it would not be right to order either the reinstatement of the dismissed
employee or the payment of backwages to him. In failing, however, to comply with the
procedure prescribed by law in terminating the services of the employee, the employer must
be deemed to have opted or, in any case, should be made liable, for the payment of
separation pay. It might be pointed out that the notice to be given and the hearing to be
conducted generally constitute the two-part due process requirement of law to be accorded to
the employee by the employer. Nevertheless, peculiar circumstances might obtain in certain
situations where to undertake the above steps would be no more than a useless formality and
where, accordingly, it would not be imprudent to apply the res ipsa loquitur rule and award, in
lieu of separation pay, nominal damages to the employee. x x x.31
After carefully analyzing the consequences of the divergent doctrines in the law on
employment termination, we believe that in cases involving dismissals for cause but without
observance of the twin requirements of notice and hearing, the better rule is to abandon the
Serrano doctrine and to follow Wenphil by holding that the dismissal was for just cause but
imposing sanctions on the employer. Such sanctions, however, must be stiffer than that
imposed in Wenphil. By doing so, this Court would be able to achieve a fair result by
dispensing justice not just to employees, but to employers as well.
The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but
not complying with statutory due process may have far-reaching consequences.
This would encourage frivolous suits, where even the most notorious violators of company
policy are rewarded by invoking due process. This also creates absurd situations where there
is a just or authorized cause for dismissal but a procedural infirmity invalidates the
termination. Let us take for example a case where the employee is caught stealing or
threatens the lives of his co-employees or has become a criminal, who has fled and cannot
be found, or where serious business losses demand that operations be ceased in less than a
month. Invalidating the dismissal would not serve public interest. It could also discourage
investments that can generate employment in the local economy.
The constitutional policy to provide full protection to labor is not meant to be a sword to
oppress employers. The commitment of this Court to the cause of labor does not prevent us
from sustaining the employer when it is in the right, as in this case.32Certainly, an employer
should not be compelled to pay employees for work not actually performed and in fact
abandoned.
The employer should not be compelled to continue employing a person who is admittedly
guilty of misfeasance or malfeasance and whose continued employment is patently inimical to
the employer. The law protecting the rights of the laborer authorizes neither oppression nor
self-destruction of the employer.33
It must be stressed that in the present case, the petitioners committed a grave offense, i.e.,
abandonment, which, if the requirements of due process were complied with, would
undoubtedly result in a valid dismissal.
An employee who is clearly guilty of conduct violative of Article 282 should not be protected
by the Social Justice Clause of the Constitution. Social justice, as the term suggests, should
be used only to correct an injustice. As the eminent Justice Jose P. Laurel observed, social
justice must be founded on the recognition of the necessity of interdependence among
diverse units of a society and of the protection that should be equally and evenly extended to
all groups as a combined force in our social and economic life, consistent with the
fundamental and paramount objective of the state of promoting the health, comfort, and quiet
of all persons, and of bringing about "the greatest good to the greatest number." 34
This is not to say that the Court was wrong when it ruled the way it did
in Wenphil, Serrano and related cases. Social justice is not based on rigid formulas set in
stone. It has to allow for changing times and circumstances.
Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labor-
management relations and dispense justice with an even hand in every case:
We have repeatedly stressed that social justice - or any justice for that matter - is for the
deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that,
in case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the
Constitution fittingly extends its sympathy and compassion. But never is it justified to give
preference to the poor simply because they are poor, or reject the rich simply because they
are rich, for justice must always be served for the poor and the rich alike, according to the
mandate of the law.35
Justice in every case should only be for the deserving party. It should not be presumed that
every case of illegal dismissal would automatically be decided in favor of labor, as
management has rights that should be fully respected and enforced by this Court. As
interdependent and indispensable partners in nation-building, labor and management need
each other to foster productivity and economic growth; hence, the need to weigh and balance
the rights and welfare of both the employee and employer.
Where the dismissal is for a just cause, as in the instant case, the lack of statutory due
process should not nullify the dismissal, or render it illegal, or ineffectual. However, the
employer should indemnify the employee for the violation of his statutory rights, as ruled
in Reta v. National Labor Relations Commission.36 The indemnity to be imposed should be
stiffer to discourage the abhorrent practice of "dismiss now, pay later," which we sought to
deter in the Serrano ruling. The sanction should be in the nature of indemnification or penalty
and should depend on the facts of each case, taking into special consideration the gravity of
the due process violation of the employer.
Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him. 37
As enunciated by this Court in Viernes v. National Labor Relations Commissions,38 an
employer is liable to pay indemnity in the form of nominal damages to an employee who has
been dismissed if, in effecting such dismissal, the employer fails to comply with the
requirements of due process. The Court, after considering the circumstances therein, fixed
the indemnity at P2,590.50, which was equivalent to the employee's one month salary. This
indemnity is intended not to penalize the employer but to vindicate or recognize the
employee's right to statutory due process which was violated by the employer. 39
The violation of the petitioners' right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances.40Considering the prevailing circumstances in the case at bar, we deem it
proper to fix it at P30,000.00. We believe this form of damages would serve to deter
employers from future violations of the statutory due process rights of employees. At the very
least, it provides a vindication or recognition of this fundamental right granted to the latter
under the Labor Code and its Implementing Rules.
Private respondent claims that the Court of Appeals erred in holding that it failed to pay
petitioners' holiday pay, service incentive leave pay and 13th month pay.
We are not persuaded.
We affirm the ruling of the appellate court on petitioners' money claims. Private respondent is
liable for petitioners' holiday pay, service incentive leave pay and 13th month pay without
deductions.
As a general rule, one who pleads payment has the burden of proving it. Even where the
employee must allege non-payment, the general rule is that the burden rests on the employer
to prove payment, rather than on the employee to prove non-payment. The reason for the
rule is that the pertinent personnel files, payrolls, records, remittances and other similar
documents - which will show that overtime, differentials, service incentive leave and other
claims of workers have been paid - are not in the possession of the worker but in the custody
and absolute control of the employer.41
In the case at bar, if private respondent indeed paid petitioners' holiday pay and service
incentive leave pay, it could have easily presented documentary proofs of such monetary
benefits to disprove the claims of the petitioners. But it did not, except with respect to the 13th
month pay wherein it presented cash vouchers showing payments of the benefit in the years
disputed.42Allegations by private respondent that it does not operate during holidays and that
it allows its employees 10 days leave with pay, other than being self-serving, do not constitute
proof of payment. Consequently, it failed to discharge the onus probandi thereby making it
liable for such claims to the petitioners.
Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabon's
13th month pay, we find the same to be unauthorized. The evident intention of Presidential
Decree No. 851 is to grant an additional income in the form of the 13th month pay to
employees not already receiving the same43 so as "to further protect the level of real wages
from the ravages of world-wide inflation."44 Clearly, as additional income, the 13th month pay
is included in the definition of wage under Article 97(f) of the Labor Code, to wit:
(f) "Wage" paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money whether fixed or ascertained on a
time, task, piece, or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten contract of employment
for work done or to be done, or for services rendered or to be rendered and includes the fair
and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the employee' "
from which an employer is prohibited under Article 113 45 of the same Code from making any
deductions without the employee's knowledge and consent. In the instant case, private
respondent failed to show that the deduction of the SSS loan and the value of the shoes from
petitioner Virgilio Agabon's 13th month pay was authorized by the latter. The lack of authority
to deduct is further bolstered by the fact that petitioner Virgilio Agabon included the same as
one of his money claims against private respondent.
The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter
ordering the private respondent to pay each of the petitioners holiday pay for four regular
holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the
same period in the amount of P3,255.00 and the balance of Virgilio Agabon's thirteenth
month pay for 1998 in the amount of P2,150.00.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of
Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners' Jenny
and Virgilio Agabon abandoned their work, and ordering private respondent to pay each of
the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of
P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and
the balance of Virgilio Agabon's thirteenth month pay for 1998 in the amount of P2,150.00
is AFFIRMED with the MODIFICATION that private respondent Riviera Home Improvements,
Inc. is further ORDERED to pay each of the petitioners the amount of P30,000.00 as nominal
damages for non-compliance with statutory due process.
No costs.
SO ORDERED.
[G.R. No. 82511. March 3, 1992.]
GLOBE-MACKAY CABLE AND RADIO CORPORATION, Petitioner, v. NATIONAL
LABOR RELATIONS COMISSION and IMELDA SALAZAR, Respondents.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYMENT; PREVENTIVE
SUSPENSION, REMEDIAL RECOURSE OF EMPLOYER PENDING INVESTIGATION OF
ALLEGED MISCONDUCT OF EMPLOYEE. — The investigative findings of Mr. Maramara,
which pointed to Delfin Saldivar’s acts in conflict with his position as technical operations
manager, necessitated immediate and decisive action on any employee closely associated
with Saldivar. The suspension of Salazar was further impelled by the discovery of the missing
Fedders airconditioning unit inside the apartment private respondent shared with Saldivar.
Under such circumstances, preventive suspension was the proper remedial recourse
available to the company pending Salazar’s investigation. By itself, preventive suspension
does not signify that the company has adjudged the employee guilty of the charges she was
asked to answer and explain. Such disciplinary measure is resorted to for the protection of
the company’s property pending investigation of any alleged malfeasance or misfeasance
committed by the employee.
2. ID.; ID.; ID.; EMPLOYEE ILLEGALLY DISMISSED ENTITLED TO REINSTATEMENT AND
SEPARATION. — To go back to the instant case, there being no evidence to show an
authorized, much less a legal, cause for the dismissal of private respondent, she had every
right, not only to be entitled to reinstatement, but as well, to full backwages.
3. ID.; ID.; ID.; ID.; PURPOSES. — The intendment of the law in prescribing the twin
remedies of reinstatement and payment of backwages is, in the former, to restore the
dismissed employee to her status before she lost her job, for the dictionary meaning of the
word "reinstate" is "to restore to a state, condition, position, etc. from which one had been
removed" and in the latter, to give her back the income lost during the period of
unemployment. Both remedies, looking to the past, would perforce make her "whole."cralaw
virtua1aw library
4. ID.; ID.; ID.; ILLEGAL DISMISSAL; REINSTATEMENT; GROUNDS FOR DENIAL. — Over
time, the following reasons have been advanced by the Court for denying reinstatement
under the facts of the case and the law applicable thereto; that reinstatement can no longer
be effected in view of the long passage of time (22 years of litigation) or because of the
realities of the situation; or that it would be "inimical to the employer’s interest;" or that
reinstatement may no longer be feasible; or, that it will not serve the best interests of the
parties involved; or that the company would be prejudiced by the workers’ continued
employment; or that it will not serve any prudent purpose as when supervening facts have
transpired which make execution on that score unjust or inequitable or, to an increasing
extent, due to the resultant atmosphere of "antipathy and antagonism" or "strained relations"
or "irretrievable estrangement" between the employer and the employee.
5. ID.; ID.; ID.; BACKWAGES AND SEPARATION PAY AWARDED WHERE
REINSTATEMENT CAN NOT BE EFFECTED. — In lieu of reinstatement, the Court has
variously ordered the payment of backwages and separation pay or solely separation pay.
6. STATUTORY CONSTRUCTION AND INTERPRETATION; WHERE THE STATUTE IS
CLEAR AND FREE FROM AMBIGUITY, IT MUST BE GIVEN ITS LITERAL MEANING. —
The wording of the Labor Code is clear and unambiguous: "An employee who is ‘unjustly
dismissed from work shall be entitled to reinstatement . . . and to his full backwages . . ."
Under the principles of statutory construction, if a statute is clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation.
This plain-meaning rule or verba legis derived from the maxim index animi sermo est (speech
is the index of intention) rests on the valid presumption that the words employed by the
legislature in a statute correctly express its intent or will and preclude the court from
construing it differently. The legislature is presumed to know the meaning of the words, to
have used words advisedly, and to have expressed its intent by the use of such words as are
found in the statute. Verba legis non est recedendum, or from the words of a statute there
should be no departure. Neither does the provision admit of any qualification.
7. LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYMENT;
REINSTATEMENT; NOT APPROPRIATE IN THE PRESENCE OF STRAINED RELATIONS
BETWEEN EMPLOYER AND EMPLOYEE; QUALIFICATION. — If in the wisdom of the
Court, there may be a ground or grounds for non-application of Article 279 of the Labor Code,
this should be by way of exception, such as when the reinstatement may be inadmissible due
to ensuing strained relations between the employer and the employee. In such cases, it
should be proved that the employee concerned occupies a position where he enjoys the trust
and confidence of his employer; and that it is likely that if reinstated, an atmosphere of
antipathy and antagonism may be generated as to adversely affect the efficiency and
productivity of the employee concerned.
8. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — The principle of "strained relations" cannot be
applied indiscriminately. Otherwise, reinstatement can never be possible simply because
some hostility is invariably engendered between the parties as a result of litigation. That is
human nature. Besides, no strained relations should arise from a valid and legal act of
asserting one’s right; otherwise an employee who shall assert his right could be easily
separated from the service, by merely paying his separation pay on the pretext that his
relationship with his employer had already become strained. Here, it has not been proved that
the position of private respondent as systems analyst is one that may be characterized as a
position of trust and confidence such that if reinstated, it may well lead to strained relations
between employer and employee. Hence, this does not constitute an exception to the general
rule mandating reinstatement for an employee who has been unlawfully dismissed. In the
instant case, petitioner has predicated its dismissal of Salazar on loss of confidence. As we
have held countless times, while loss of confidence or breach of trust is a valid ground for
termination, it must rest on some basis which must be convincingly established. An employee
may not be dismissed on mere presumptions and suppositions.
9. ID.; ID.; ID.; WITHOUT LEGAL GROUND, ILLEGAL; EMPLOYEE ENTITLED TO
REINSTATEMENT AND BACKWAGES. — It is also worth emphasizing that the Maramara
report came out after Saldivar had already resigned from GMCR on May 31, 1984. Since
Saldivar did not have the opportunity to refute management’s findings, the report remained
obviously one-sided. Since the main evidence obtained by petitioner dealt principally on the
alleged culpability of Saldivar, without his having bad a chance to voice his side in view of his
prior resignation, stringent examination should have been carried out to ascertain whether or
not there existed independent legal grounds to hold Salazar answerable as well and, thereby,
justify her dismissal. Finding none, from the records, we find her to have been unlawfully
dismissed. Petitioner GMRC is ordered to REINSTATE private respondent Imelda Salazar
and to pay her backwages equivalent to her salary for a period of two (2) years only.
DECISION
ROMERO, J.:
For private respondent Imelda L. Salazar, it would seem that her close association with Delfin
Saldivar would mean the loss of her job. In May 1982, private respondent was employed by
Globe-Mackay Cable and Radio Corporation (GMCR) as general systems analyst. Also
employed by petitioner as manager for technical operations’ support was Delfin Saldivar with
whom private respondent was allegedly very close.
Sometime in 1984, petitioner GMCR, prompted by reports that company equipment and
spare parts worth thousands of dollars under the custody of Saldivar were missing, caused
the investigation of the latter’s activities. The report dated September 25, 1984 prepared by
the company’s internal auditor, Mr. Agustin Maramara, indicated that Saldivar had entered
into a partnership styled Concave Commercial and Industrial Company with Richard A.
Yambao, owner and manager of Elecon Engineering Services (Elecon), a supplier of
petitioner often recommended by Saldivar. The report also disclosed that Saldivar had taken
petitioner’s missing Fedders airconditioning unit for his own personal use without
authorization and also connived with Yambao to defraud petitioner of its property. The
airconditioner was recovered only after petitioner GMCR filed an action for replevin against
Saldivar. 1
It likewise appeared in the course of Maramara’s investigation that Imelda Salazar violated
company regulations by involving herself in transactions conflicting with the company’s
interests. Evidence showed that she signed as a witness to the articles of partnership
between Yambao and Saldivar. It also appeared that she had full knowledge of the loss and
whereabouts of the Fedders airconditioner but failed to inform her employer.
Consequently, in a letter dated October 8, 1984, petitioner company placed private
respondent Salazar under preventive suspension for one (1) month, effective October 9,
1984, thus giving her thirty (30) days within which to explain her side. But instead of
submitting an explanation, three (3) days later or on October 12, 1984, private respondent
filed a complaint against petitioner for illegal suspension, which she subsequently amended
to include illegal dismissal, vacation and sick leave benefits, 13th month pay and damages,
after petitioner notified her in writing that effective November 8,1984, she was considered
dismissed "in view of (her) inability to refute and disprove these findings." 2
After due hearing, the Labor Arbiter in a decision dated July 16, 1985, ordered petitioner
company to reinstate private respondent to her former or equivalent position and to pay her
full backwages and other benefits she would have received were it not for the illegal
dismissal. Petitioner was also ordered to pay private respondent moral damages of
P50,000.00. 3
On appeal, public respondent National Labor Relations Commission in the questioned
resolution dated December 29, 1987 affirmed the aforesaid decision with respect to the
reinstatement of private respondent but limited the backwages to a period of two (2) years
and deleted the award for moral damages. 4
Hence, this petition assailing the Labor Tribunal for having committed grave abuse of
discretion in holding that the suspension and subsequent dismissal of private respondent
were illegal and in ordering her reinstatement with two (2) years’
backwages.chanroblesvirtualawlibrary
On the matter of preventive suspension, we find for petitioner GMCR.
The investigative findings of Mr. Maramara, which pointed to Delfin Saldivar’s acts in conflict
with his position as technical operations manager, necessitated immediate and decisive
action on any employee closely associated with Saldivar. The suspension of Salazar was
further impelled by the discovery of the missing Fedders airconditioning unit inside the
apartment private respondent shared with Saldivar. Under such circumstances, preventive
suspension was the proper remedial recourse available to the company pending Salazar’s
investigation. By itself, preventive suspension does not signify that the company has
adjudged the employee guilty of the charges she was asked to answer and explain. Such
disciplinary measure is resorted to for the protection of the company’s property pending
investigation of any alleged malfeasance or misfeasance committed by the employee. 5
Thus, it is not correct to conclude that petitioner GMCR had violated Salazar’s right to due
process when she was promptly suspended. If at all, the fault lay with private respondent
when she ignored petitioner’s memorandum of October 8, 1984 "giving her ample opportunity
to present (her) side to the Management." Instead, she went directly to the Labor Department
and filed her complaint for illegal suspension without giving her employer a chance to
evaluate her side of the controversy.
But while we agree with the propriety of Salazar’s preventive suspension, we hold that her
eventual separation from employment was not for cause.
What is the remedy in law to rectify an unlawful dismissal so as to "make whole" the victim
who has not merely lost her job which, under settled jurisprudence, is a property right of
which a person is not to be deprived without due process, but also the compensation that
should have accrued to her during the period when she was unemployed?chanrobles.com.ph
: virtual law library
Art. 279 of the Labor Code, as amended, provides:jgc:chanrobles.com.ph
"Security of Tenure. — In cases of regular employment, the employer shall not terminate the
services of an employee except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and other privileges and to his full backwages, inclusive of allowances, and
to his other benefits or their monetary equivalent computed from the time his compensation
was withheld from him up to the time of his actual reinstatement" 6 (Emphasis supplied).
Corollary thereto are the following provisions of the Implementing Rules and Regulations of
the Labor Code:jgc:chanrobles.com.ph
"Sec. 2. Security of Tenure. — In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause as provided in the Labor Code
or when authorized by existing laws.
Sec. 3. Reinstatement. — An employee who is unjustly dismissed from work shall be entitled
to reinstatement without loss of seniority rights and to backwages." ‘ 7 (Emphasis supplied)
Before proceeding any further, it must be recalled that the present Constitution has gone
further than the 1973 Charter in guaranteeing vital social and economic rights to marginalized
groups of society, including labor. Given the pro-poor orientation of several articulate
Commissioners of the Constitutional Commission of 1986, it was not surprising that a whole
new Article emerged on Social Justice and Human Rights designed, among other things, to
"protect and enhance the right of all the people to human dignity, reduce social, economic
and political inequalities, and remove cultural inequities by equitably diffusing wealth and
political power for the common good." 8
Proof of the priority accorded to labor is that it leads the other areas of concern in the Article
on Social Justice, viz., Labor ranks ahead of such topics as Agrarian and Natural Resources
Reform, Urban Land Reform and Housing, Health, Women, Role and Rights of People’s
Organizations and Human
Rights. 9
The opening paragraphs on Labor state:jgc:chanrobles.com.ph
"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." 10 (Emphasis mine)
Compare this with the sole provision on Labor in the 1973 Constitution under the Article on
Declaration of principles and State Policies that provides:jgc:chanrobles.com.ph
"Sec. 9. The State shall afford protection to labor, promote full employment and equality in
employment, ensure equal work opportunities regardless of sex, race, or creed, and regulate
the relations between workers and employers. The State shall ensure the rights of workers to
self-organization, collective bargaining, security of tenure, and just and humane conditions of
work. The State may provide for compulsory arbitration." 11
To be sure, both Charters recognize "security of tenure" as one of the rights of labor which
the State is mandated to protect. But there is no gainsaying the fact that the intent of the
framers of the present Constitution was to give primacy to the rights of labor and afford the
sector "full protection," at least greater protection than heretofore accorded them, regardless
of the geographical location of the workers and whether they are organized or not.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
It was then CONCOM Commissioner, now Justice Hilario G. Davide, Jr., who substantially
contributed to the present formulation of the protection to labor provision and proposed that
the same be incorporated in the Article on Social Justice and not just in the Article on
Declaration of Principles and State Policies "in the light of the special importance that we are
giving now to social justice and the necessity of emphasizing the scope and role of social
justice in national development." 12
If we have taken pains to delve into the background of the labor provisions in our Constitution
and the Labor Code, it is but to stress that the right of an employee not to be dismissed from
his job except for a just or authorized cause provided by law has assumed greater importance
under the 1987 Constitution with the singular prominence labor enjoys under the article on
Social Justice. And this transcendent policy has been translated into law in the Labor Code.
Under its terms, where a case of unlawful or unauthorized dismissal has been proved by the
aggrieved employee, or on the other hand, the employer whose duty it is to prove the
lawfulness or justness of his act of dismissal has failed to do so, then the remedies provided
in Article 279 should find application. Consonant with this liberalized stance vis-a-vis labor,
the legislature even went further by enacting Republic Act No. 6715 which took effect on
March 2, 1989 that amended said Article to remove any possible ambiguity that jurisprudence
may have generated which watered down the constitutional intent to grant to labor "full
protection." 13
To go back to the instant case, there being no evidence to show an authorized, much less a
legal, cause for the dismissal of private respondent, she had every right, not only to be
entitled to reinstatement, but as well, to full backwages. 14
The intendment of the law in prescribing the twin remedies of reinstatement and payment of
backwages is, in the former, to restore the dismissed employee to her status before she lost
her job, for the dictionary meaning of the word "reinstate" is "to restore to a state, condition,
position, etc. from which one had been removed" 15 and in the latter, to give her back the
income lost during the period of unemployment. Both remedies, looking to the past, would
perforce make her "whole."cralaw virtua1aw library
Sadly, the avowed intent of the law has at times been thwarted when reinstatement has not
been forthcoming and the hapless dismissed employee finds himself on the outside looking
in.chanrobles law library
Over time, the following reasons have been advanced by the Court for denying reinstatement
under the facts of the case and the law applicable thereto; that reinstatement can no longer
be effected in view of the long passage of time (22 years of litigation) or because of the
realities of the situation; 16 or that it would be "inimical to the employer’s interest;" 17 or that
reinstatement may no longer be feasible; 18 or, that it will not serve the best interests of the
parties involved; 19 or that the company would be prejudiced by the workers’ continued
employment; 20 or that it will not serve any prudent purpose as when supervening facts have
transpired which make execution on that score unjust or inequitable 21 or, to an increasing
extent, due to the resultant atmosphere of "antipathy and antagonism" or "strained relations"
or "irretrievable estrangement" between the employer and the employee. 22 In lieu of
reinstatement, the Court has variously ordered the payment of backwages and separation
pay 23 or solely separation pay. 24
In the case at bar, the law is on the side of private Respondent. In the first place, the wording
of the Labor Code is clear and unambiguous: "An employee who is ‘unjustly dismissed from
work shall be entitled to reinstatement . . . and to his full backwages . . ." 25 Under the
principles of statutory construction, if a statute is clear, plain and free from ambiguity, it must
be given its literal meaning and applied without attempted interpretation. This plain-meaning
rule or verba legis derived from the maxim index animi sermo est (speech is the index of
intention) rests on the valid presumption that the words employed by the legislature in a
statute correctly express its intent or will and preclude the court from construing it differently.
26 The legislature is presumed to know the meaning of the words, to have used words
advisedly, and to have expressed its intent by the use of such words as are found in the
statute. 27 Verba legis non est recedendum, or from the words of a statute there should be
no departure. Neither does the provision admit of any qualification. If in the wisdom of the
Court, there may be a ground or grounds for non- application of the above-cited provision,
this should be by way of exception, such as when the reinstatement may be inadmissible due
to ensuing strained relations between the employer and the employee.
In such cases, it should be proved that the employee concerned occupies a position where
he enjoys the trust and confidence of his employer; and that it is likely that if reinstated, an
atmosphere of antipathy and antagonism may be generated as to adversely affect the
efficiency and productivity of the employee concerned.
A few examples will suffice to illustrate the Court’s application of the above principle: where
the employee is a Vice-President for Marketing and as such, enjoys the full trust and
confidence of top management; 28 or is the Officer-In-Charge of the extension office of the
bank where he works; 29 or is an organizer of a union who was in a position to sabotage the
union’s efforts to organize the workers in commercial and industrial establishments; 30 or is a
warehouseman of a non-profit organization whose primary purpose is to facilitate and
maximize voluntary gifts by foreign individuals and organizations to the Philippines; 31 or is a
manager of its Energy Equipment Sales. 32
Obviously, the principle of "strained relations" cannot be applied indiscriminately. Otherwise,
reinstatement can never be possible simply because some hostility is invariably engendered
between the parties as a result of litigation. That is human nature. 33
Besides, no strained relations should arise from a valid and legal act of asserting one’s right;
otherwise an employee who shall assert his right could be easily separated from the service,
by merely paying his separation pay on the pretext that his relationship with his employer had
already become strained. 34
Here, it has not been proved that the position of private respondent as systems analyst is one
that may be characterized as a position of trust and confidence such that if reinstated, it may
well lead to strained relations between employer and employee. Hence, this does not
constitute an exception to the general rule mandating reinstatement for an employee who has
been unlawfully dismissed.chanroblesvirtualawlibrary
On the other hand, has she betrayed any confidence reposed in her by engaging in
transactions that may have created conflict of interest situations? Petitioner GMCR points out
that as a matter of company policy, it prohibits its employees from involving themselves with
any company that has business dealings with GMCR. Consequently, when private
respondent Salazar signed as a witness to the partnership papers of Concave (a supplier of
Ultra which in turn is also a supplier of GMCR), she was deemed to have placed herself in an
untenable position as far as petitioner was concerned.
However, on close scrutiny, we agree with public respondent that such a circumstance did
not create a conflict of interests situation. As a system analyst, Salazar was very far removed
from operations involving the procurement of supplies. Salazar’s duties revolved around the
development of systems and analysis of designs on a continuing basis. In other words,
Salazar did not occupy a position of trust relative to the approval and purchase of supplies
and company assets.
In the instant case, petitioner has predicated its dismissal of Salazar on loss of confidence.
As we have held countless times, while loss of confidence or breach of trust is a valid ground
for termination, it must rest on some basis which must be convincingly established. 35 An
employee may not be dismissed on mere presumptions and suppositions. Petitioner’s
allegation that since Salazar and Saldivar lived together in the same apartment, it "presumed
reasonably that complainant’s sympathy would be with Saldivar" and its averment that
Saldivar’s investigation although unverified, was probably true, do not pass this Court’s test.
36 While we should not condone the acts of disloyalty of an employee, neither should we
dismiss him on the basis of suspicion derived from speculative inferences.
To rely on the Maramara report as a basis for Salazar’s dismissal would be most iniquitous
because the bulk of the findings centered principally on her friend’s alleged thievery and
anomalous transactions as technical operations’ support manager. Said report merely
insinuated that in view of Salazar’s special relationship with Saldivar, Salazar might have had
direct knowledge of Saldivar’s questionable activities. Direct evidence implicating private
respondent is wanting from the records.
It is also worth emphasizing that the Maramara report came out after Saldivar had already
resigned from GMCR on May 31, 1984. Since Saldivar did not have the opportunity to refute
management’s findings, the report remained obviously one-sided. Since the main evidence
obtained by petitioner dealt principally on the alleged culpability of Saldivar, without his
having bad a chance to voice his side in view of his prior resignation, stringent examination
should have been carried out to ascertain whether or not there existed independent legal
grounds to hold Salazar answerable as well and, thereby, justify her dismissal. Finding none,
from the records, we find her to have been unlawfully dismissed.chanroblesvirtualawlibrary
WHEREFORE, the assailed resolution of public respondent National Labor Relations
Commission dated December 29, 1987 is hereby AFFIRMED. Petitioner GMCR is ordered to
REINSTATE private respondent Imelda Salazar and to pay her backwages equivalent to her
salary for a period of two (2) years only.This decision is immediately executory.
SO ORDERED.
G.R. No. 157202 March 28, 2007
PHILIPPINE LONG DISTANCE and TELEPHONE COMPANY, INC., Petitioner,
vs.
AMPARO BALBASTRO and NATIONAL LABOR RELATIONS
COMMISSION, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Philippine Long Distance and
Telephone Company, Inc. (petitioner) seeking to annul the Decision1 dated July 31, 2002 and
the Resolution2 dated February 7, 2003 of the Court of Appeals (CA) in CA-G.R. SP No.
51060.
Amparo Balbastro (private respondent) was employed by petitioner in 1978 as its telephone
operator until her questioned dismissal from employment on October 5, 1989. She was
dismissed by petitioner for her absences without authorized leave due to unconfirmed sick
leave on June 28 to July 14, 1989, which constituted her third offense 3 punishable by
dismissal under petitioner’s rules and regulations.4
On October 28, 1991, private respondent filed a Complaint5 with the Labor Arbiter against
petitioner and its President, Antonio Cojuangco, for illegal dismissal, non-payment of salary
wage, premium pay for rest day, 13th month pay, and damages. In her position paper, she
alleged that she was dismissed on the ground of unconfirmed sick leave despite her
presentation of medical certificates from her attending physicians which were not considered
by petitioner’s medical doctors; and that she has four minor children and it was not her
intention to habitually absent herself without reason considering that her loss of job which
was based only on opinions of petitioner’s doctors had caused her great deprivation and
moral suffering. She prayed for reinstatement, backwages, and damages.
Petitioner filed its position paper with Motion to Dismiss6 alleging that private respondent’s
habitual and unjustified absences was a just and valid cause for her termination under its
rules and regulations; and that her record of unauthorized absences for 1989 showed the
following:
First unauthorized absences, from March 19 to 29, 1989. Private respondent absented
herself from work for nine days excluding rest days on March 23 to 24, 1989 without notice to
petitioner. She gave marital problem as the reason for her absence. She was penalized with
18 days suspension for violating petitioner’s rules and regulations regarding absences.
Second unauthorized absences, from June 11 to 13, 1989. Private respondent called in sick
from Tanauan, Batangas on June 5 that she was suffering from gastroenteritis. She absented
herself from June 5 to 13, 1989. On June 14, 1989, she presented herself to petitioner’s
doctor, Dr. Melissa Musngi and submitted a medical certificate where it was stated that she
was under treatment from June 5 to 8, 1989 of gastroenteritis. Dr. Musngi confirmed private
respondent’s sick leave from June 5 to 10, 1989 but did not confirm her absences from June
11 to 13, 1989 because her medical certificate covered only the period from June 5 to 8,
1989. Furthermore, petitioner reasons out that if she really had such illness, certain normal
logical medical procedures should have been taken, such as stool examinations and
hospitalization; and she bore no post-illness manifestations of gastroenteritis. Private
respondent’s unconfirmed leave of absence was considered by petitioner unauthorized due to
her patent abuse of sick leave privileges and treated it as her second offense and was
penalized with 15 days suspension.
Third unauthorized absences, from June 28 to July 14, 1989. On June 25, 1989, private
respondent made a sick call that she had sore eyes and absented herself from June 25 to
July 14, 1989. On July 3, 1989, she was outvisited at her given address in Makati but was not
found home. On July 15, 1989, she reported for work and presented herself to the clinic for
confirmation. She had her medical certificate issued by her attending physician showing that
she had been under his professional treatment from June 25 to July 12, 1989 for systemic
viral infection. Petitioner’s doctor, Dr. Benito Dungo, confirmed her sick leave from June 25 to
27, 1989 but did not confirm as to the rest of the dates when she was absent from work.
When asked to explain, private respondent said that she had a viral infection during the said
period; and that she was in Tanauan, Batangas during the said dates so she was not found in
Makati when outvisited. Petitioner’s doctor did not confirm her leave of absence from June 28
to July 14, 1989 on the ground that such illness did not warrant a very long time of rest;
certain laboratory examinations should have been conducted by her attending physician; and
there was patent abuse of her sick leave privileges.
While private respondent’s third leave of absence was being deliberated upon, she absented
herself from August 6 to 12, 1989. She called in sick on August 6, 1989 informing her
supervisor that she had a fever. The medical certificate issued by her attending physician
showed that she was under treatment from August 7 to 10, 1989 for influenza. Petitioner’s
doctor, Dr. Eduardo Co, confirmed private respondent’s leave of absence from August 6 to 8,
1989 but did not confirm the rest because her absences from August 9 to 12, 1989 were not
covered by a medical certificate; her illness did not warrant prolonged absence; and it was
medically impossible for her to contract the same illness which she contracted the previous
month since it is a medical fact that there is no such thing as an immediately recurrent viral
infection.
In view of her repeated absences without authorized leave for the third time, petitioner
terminated private respondent’s service effective October 5, 1989.
The Labor Arbiter conducted a hearing where private respondent testified on her behalf, while
petitioner presented the three medical doctors who did not confirm portions of private
respondent’s leave of absence, and its Employee Relations and Service Department
Manager.
On May 30, 1994, the Labor Arbiter issued its Decision,7 the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
ordering the respondent Philippine Long Distance [and] Telephone Co. to reinstate the
complainant to her former position as telephone operator with all the rights, privileges and
benefits appertaining thereto, including seniority, plus backwages equivalent to one (1) year
salary in the sum of ₱78,000.00 (₱6,500.00/mo. x 12 mos.).
SO ORDRED.8
The Labor Arbiter held that private respondent’s first incident of absence from March 19 to
29, 1989 were unauthorized but not as to the other succeeding absences. It found that private
respondent, on her first day of absence, called in sick and when she reported for work, she
went to petitioner’s clinic for check-up and submitted her medical certificates, thus she
complied with the standard requirements on matters of sick leave; that petitioner’s doctors did
not confirm some portions of private respondent’s leave of absence based merely on their
medical opinions; that such justification was not warranted under Department Order No.
ADM-79-02 wherein absences due to illness were considered unauthorized and without pay
when the attending doctor’s signature is forged, there is alteration as to the date and contents
of the medical certificate, the certificate is false as to the facts alleged therein, the doctor
issuing the medical certificate is not qualified to attend to the illness, there are falsities and
misrepresentations, and when there is patent abuse of sick leave privileges; and that these
circumstances were not proven in this case.
The Labor Arbiter gave more credence to the doctor who actually attended to private
respondent rather than to the medical opinion of petitioner’s doctors. It concluded that
petitioner’s doctors should have coordinated with private respondent’s attending physicians to
settle any doubts as to the medical certificates.
Petitioner filed its appeal with the National Labor Relations Commission (NLRC). 9 On January
19, 1996, the NLRC issued a
Resolution10 affirming the decision of the Labor Arbiter.
The NLRC found that company practice allows leave of absence due to sickness if supported
by a medical certificate issued by the attending physician; that a difference in opinion by the
Medical Director from that of the attending physician should not prejudice private respondent
since the Medical Director can consider absences unauthorized only in cases of forgery and
patent abuse of sick leave privileges which were not proven in this case; that if the Medical
Director entertained doubts as to the medical certificate, he should have asked the attending
physician to submit himself for cross-examination and then present an independent physician
for an expert opinion on the matter.
Petitioner’s Motion for Reconsideration was denied in a Resolution11 dated March 14, 1996.
Undaunted, petitioner filed with us a Petition for Certiorari with prayer for the issuance of a
Temporary Restraining Order (TRO). A TRO was issued to enjoin the enforcement of the
NLRC Resolution until further orders.12
In a Resolution dated December 7, 1998,13 we referred the petition to
the CA in accordance with the St. Martin Funeral Home v. National Labor Relations
Commission14 ruling.
On July 31, 2002, the CA issued its assailed Decision which dismissed the petition and
affirmed the NLRC Decision. The CA held that as long as the medical certificate presented
did not fall under any of the infirmities set forth in petitioner’s rules and regulations, the
unconfirmed leave should be treated merely as absence without leave and was not subject to
disciplinary action; that petitioner may not rely on the previous absences of respondents in
1978 and 1982 to show abuse of sick leave privileges because petitioner had acknowledged
that respondent had already been penalized with suspension, and those absences were
committed beyond the three-year period mentioned in their rules and regulations; that in its
desire to clothe private respondent’s dismissal with a semblance of legality, petitioner points
to private respondent’s fourth unauthorized leave of absence committed in August 1989 while
the third unauthorized leave of absence was being deliberated upon; and that the notice of
dismissal referred only to her third unauthorized leave, thus she could not be faulted for an
infraction for which she was not charged.
Petitioner’s Motion for Reconsideration was denied in a Resolution dated February 7, 2003.
Hence, petitioner filed the instant Petition for Review on Certiorari alleging the following
grounds:
I
WITH ALL DUE RESPECT, THE HONORABLE COURT FAILED TO CONSIDER THAT THE
PETITION HEREIN DOES NOT MERELY INQUIRE UPON THE RELATIVE WEIGHT OF
THE EVIDENCE PRESENTED BY THE PARTIES, BUT IS ANCHORED ON MANIFESTLY
ERRONEOUS CONCLUSIONS ON THE PART OF THE NLRC ARISING FROM GROSS
MISAPPREHENSION OF THE FACTS OBTAINING IN THE CASE. AMONG OTHERS, IT
WAS GRAVE ERROR TO CONCLUDE THAT THERE WAS NO PATENT ABUSE OF THE
SICK LEAVE PRIVILEGE ON THE PART OF THE PRIVATE RESPONDENT BECAUSE
THE MEDICAL CERTIFICATES SHE PRESENTED WERE NOT FALSE, FORGED, OR
ALTERED TOTALLY DISREGARDING THE FACT THAT "ABUSE OF SICK LEAVE
PRIVILEGE" IS A CAUSE SEPARATELY ENUMERATED UNDER THE RULES AS A
GROUND FOR DISCIPLINARY ACTION.
II
WITH ALL DUE RESPECT, THE HONORABLE COURT FAILED TO CONSIDER THAT THE
CONCLUSIONS OF THE NLRC ARE BEREFT OF ANY LEGAL OR FACTUAL BASES AS
THERE WERE LEGALLY NO MEDICAL CERTIFICATES TO SPEAK OF, AND THE
EXISTENCE THEREOF ARE PURE AND SIMPLE HEARSAY, HENCE COULD NOT BE
VALIDLY RELIED UPON OR INVOKED BY THE PRIVATE RESPONDENT TO SUPPORT
HER DEFENSE EVEN SUPPOSING TECHNICAL RULES ON EVIDENCE COULD BE
RELAXED IN LABOR PROCEEDINGS. 15
Petitioner argues that the NLRC’s conclusions that private respondent had not committed a
patent abuse of sick leave privileges and that her dismissal was illegal are utterly without any
factual or legal basis; that the NLRC’s conclusion that the dismissal was illegal was merely
based: (1) on the evidence of private respondent; (2) on medical certificates which are clearly
hearsay and of no probative value whatsoever; and (3) on medical certificates which, even
supposing could be considered, simply failed to cover the period of the leave requested and
set forth implausible diagnoses.
Petitioner claims that the CA as well as the NLRC failed to resolve the issue of whether or not
the medical certificate should be given any credence at all; that it had presented four
witnesses which included their three medical doctors who were subjected to cross-
examinations, and yet credence was given to private respondent’s hearsay evidence
consisting merely of a medical certificate by the latter’s attending physician who was not even
presented to testify; that since the content of the medical certificate had been rebutted and
refuted by petitioner’s witnesses, the burden of evidence is shifted to private respondent to
show that the medical certificate she submitted was competent, proper, and sound which she
failed to do.
Petitioner further claims that the CA erred in not finding that private respondent committed a
patent abuse of sick leave privileges which does not arise solely from forgery or alteration of
the medical certificate, but on the fact that an employee had frequently and incorrigibly
absented herself and then applied for sick leave with absolute impunity armed with medical
certificates which not only failed to cover the entire length of the leave but also with
implausible diagnoses; that excluding private respondent’s unauthorized absences in 1989,
she had accumulated 93 days of sick leave from January to July 1989 and 115 days of sick
leave in 1988, thus, how can the conclusion be drawn that there was no patent abuse of sick
leave privileges; and that her unauthorized absence for which she was terminated all
occurred in 1989, thus, the CA erred in saying that petitioner may not rely on the previous
absences of respondent in 1978 and 1982 to justify private respondent’s dismissal.
We find the petition meritorious. Private respondent was validly dismissed by petitioner. It
must be borne in mind that the basic principle in termination cases is that the burden of proof
rests upon the employer to show that the dismissal is for just and valid cause and failure to do
so would necessarily mean that the dismissal was not justified and, therefore, was
illegal.16 For dismissal to be valid, the evidence must be substantial and not arbitrary and
must be founded on clearly established facts.17 We find that petitioner had discharged this
burden.
Under petitioner’s Department Order No. ADM-79-02, for the absence due to an alleged
illness to be considered unauthorized, without pay, and subject to disciplinary action, it must
be shown that the medical certificate is forged, altered as to the date and contents, false as to
the facts stated therein, issued by a doctor not qualified to attend to the patient’s illness, and
there is patent abuse of sick leave privileges. The penalty for three offenses of unauthorized
absences committed within the three-year period is dismissal.
Private respondent’s unconfirmed absences from June 28 to July 14, 1989 is the crucial
period in this particular case.
The Labor Arbiter and the NLRC found that private respondent was illegally dismissed by
petitioner. Such finding was affirmed by the CA. They all concluded that the medical
certificate which private respondent presented did not fall under the circumstances
enumerated in Department Order No. ADM-79-02, and there was no patent abuse of sick
leave privileges, thus, there was no basis for petitioner’s doctors not to confirm her sick leave
and consider the same unauthorized.
The jurisdiction of this Court in a petition for review on certiorari is limited to reviewing only
errors of law, not of fact, unless the factual findings being assailed are not supported by
evidence on record or the impugned judgment is based on a misapprehension of facts. 18 We
find that those exceptions are present in the instant case.
We find that petitioner had sufficiently established that private respondent committed a patent
abuse of her sick leave privileges which is one of the grounds listed in Department Order No.
ADM-79-02 for disciplinary action.
Private respondent was absent on June 25, 1989 and the reason given was sore eyes. She
was then absent from June 25 to July 14, 1989. When she reported for work on July 15,
1989, she went to petitioner’s doctor, Dr. Benito Dungo, for confirmation of her leave of
absence and presented a medical certificate19 from her attending physician, Dr. Manuel C.
Damian of Tanauan Batangas, who certified that she had been under his professional care
from June 25 to July 12, 1989 for systemic viral disease.
Dr. Dungo confirmed private respondent’s leave of absence from June 25 to 27, 1989 only
and did not confirm her leave from June 28 to July 14, 1989 for the following reasons: (a)
systemic viral disease indicated in the medical certificate does not warrant such a very long
time of rest and recuperation; (b) if she really had an infection, the logical recourse is for the
attending physician to conduct a chest x-ray and blood examination to determine the cause of
the prolonged fever, but such was not made; (c) if she was really ill for such a long time, she
would have already been confined in a hospital for treatment as petitioner has standing
agreements with various hospitals to provide immediate medical assistance free of charge;
(d) she displayed no residue of symptoms of flu, thus casting doubt on the veracity of her
claim; (e) she called in sick on June 25, 1989 that she was suffering from sore eyes but her
medical certificate made no mention of such condition; and (f) her medical records reveal a
pattern of abuse of sick leave privileges.20
Private respondent’s reason for her absence on June 25, 1989 was sore eyes, however the
medical certificate that she presented for her prolonged absence from June 25 to July 14,
1989 was systemic viral disease and as correctly observed by Dr. Dungo, sore eyes was
never mentioned therein.
Moreover, in the medical progress note21 of Dr. Damian dated October 10, 1989 attached to
private respondent’s position paper submitted before the Labor Arbiter, it was shown that
private respondent was seen by Dr. Damian on June 25, 1989 at 9:00 a.m. and her
temperature was 40 degrees and she was complaining of severe headache and body pain. It
would appear that there was a discrepancy between the reason given when she called in sick
on June 25, 1989 and her complaints when she consulted Dr. Damian on the same day. In
fact, when private respondent was asked on cross-examination why sore eyes was never
mentioned in her medical certificate, all that she could say was "the diagnosis was systemic
viral disease, sama-sama na lahat".22
The medical certificate issued by Dr. Damian showed that private respondent was under his
professional care from June 25 to July 12, 1989. However, the medical progress note dated
October 10, 1989 of the same doctor showed that private respondent consulted him only on
June 25, 27, and 29, 1989. It was never mentioned that Dr. Damian had seen private
respondent after June 29, 1989. Thus, there was even a discrepancy between the medical
certificate dated July 13, 1989 and the medical progress note as to the time frame that private
respondent was seen by Dr. Damian. The medical certificate did not cover private
respondent’s absences from July 13 to 14, 1989 and she only reported for work on July 15,
1989.
It bears stressing that from the time private respondent called in sick on June 25, 1989 due to
sore eyes, she never called up petitioner again until she reported for work on July 15, 1989.
She never went to petitioner’s doctors for them to verify her sickness.
Private respondent had committed the first two offenses of unauthorized absences in the
same year. First, she did not report for work from March 19 to 29, 1989 without notice to
petitioner, thus her absence was treated as unauthorized and considered her first offense for
which she was penalized with suspension. Second, she again did not report for work from
June 5 to 13, 1989 and when she reported for work and presented her medical certificate, it
covered the period from June 5 to 8, 1989 only but she did not report for work until June 14,
1989. Petitioner’s doctor did not confirm her absences from June 11 to 13, 1989, thus, the
same was considered unauthorized and her second offense for which she was penalized
again with suspension. These two unauthorized absences together with her third
unauthorized absences committed from June 28 to July 14, 1989 are sufficient bases for
petitioner’s finding that private respondent patently abused her sick leave privileges.
Previous infractions may be used as justification for an employee’s dismissal from work in
connection with a subsequent similar offense.23 Moreover, it is in petitioner’s rules and
regulations that the same offense committed within the three-year period merits the penalty of
dismissal. The CA’s finding that petitioner may not rely on the previous absences of private
respondent in 1978 and 1982 to show abuse of sick leave privileges has no basis since
private respondent was dismissed for committing her three unauthorized absences all in
1989.
It had also been established by Dr. Dungo’s testimony that private respondent’s medical
record showed that she did not go to the clinic for consultation as she would only present a
medical certificate and get a clearance for her sick leave;24 that the same medical record
showed her absences in 1989 as follows: (1) From April 27 to May 4 due to urinary tract
infection and she submitted a medical certificate;25 (2) From May 5 to 14 due to back
pain;26 (3) From May 20 to 21 due to migraine;27 (4) June 5 to 13 due to gastroenteritis
(penalized as her second offense); (5) June 15 to 24 due to conjunctivitis and submitted a
medical certificate;28 and (6) June 25 to July 14, 1989 due to systemic viral disease with
medical certificate (her third offense penalized with dismissal). Private respondent had
incurred a total absence of 85 days from January to October 1989;29 and 115 days in
1988.30 It had also been established that petitioner’s doctors confirmed most of her sick leave
out of compassion31 and that her medical records showed that there were several warnings
given her regarding her unconfirmed sick leave. 32
As petitioner stated in its pleadings, it is a telecommunication service company which
provides the country with various telecommunication services and facilities. Its operations are
a vital part to many transactions all over the country and abroad, and private respondent was
one of its telephone operators who used to connect all these calls. Thus, her patent abuse of
her sick leave privileges is detrimental to petitioner’s business.
While it is true that compassion and human consideration should guide the disposition of
cases involving termination of employment since it affects one's source or means of
livelihood, it should not be overlooked that the benefits accorded to labor do not include
compelling an employer to retain the services of an employee who has been shown to be a
gross liability to the employer. The law in protecting the rights of the employees authorizes
neither oppression nor self-destruction of the employer.33 It should be made clear that when
the law tilts the scale of justice in favor of labor, it is but a recognition of the inherent
economic inequality between labor and management. The intent is to balance the scale of
justice; to put the two parties on relatively equal positions. There may be cases where the
circumstances warrant favoring labor over the interests of management but never should the
scale be so tilted if the result is an injustice to the employer. Justitia nemini neganda
est (Justice is to be denied to none).34
WHEREFORE, the instant petition is GRANTED. The Decision dated July 31, 2002 and the
Resolution dated February 7, 2003 of the Court of Appeals in CA-G.R. SP No. 51060 are
hereby REVERSED and SET ASIDE. The complaint of Amparo Balbastro is DISMISSED.
No costs.
SO ORDERED.
[G.R. NO. 143384 : February 4, 2005]
DR. ERNESTO I. MAQUILING, Petitioner, v. PHILIPPINE TUBERCULOSIS SOCIETY,
INC., Respondent.
DECISION
TINGA, J.:
Before this Court is a Petition for Review on Certiorari of the Decision1 of the Court of
Appeals dated 28 March 2000 and its Resolution dated 22 May 2000, which reversed the
decision of the National Labor Relations Commission (NLRC) dated 15 December 19972 and
that of the Labor Arbiter dated 16 September 1993,3 which both found the dismissal from
service of Dr. Ernesto I. Maquiling (Dr. Maquiling) illegal.
The factual antecedents are as follows:
On 16 April 1968, petitioner Dr. Maquiling was employed by respondent Philippine
Tuberculosis Society, Inc. (PTS). On 8 June 1991, Dr. Maquiling, then earning a monthly
salary of thirteen thousand nine hundred pesos (P13,900.00) was dismissed from service as
Deputy Executive Director after serving PTS for twenty-three (23) years. Dr. Maquiling filed a
complaint against PTS for reinstatement or, in the alternative, for payment of full backwages
and separation pay in accordance with Article 279 of the Labor Code, as well as moral
damages in the amount of five hundred thousand pesos (P500,000.00) and exemplary
damages in the amount of one hundred thousand pesos (P100,000.00).4
The complaint was assigned to Labor Arbiter Salimathar V. Nambi. After PTS failed to appear
despite having requested for several postponements, Dr. Maquiling was allowed to present
his evidence ex parte consisting of his testimony on direct examination and documentary
proof. On 31 August 1992, Dr. Maquiling moved for submission of the case for resolution,
which motion was granted.5
The records disclose that Dr. Maquiling received a memo dated 2 April 1991 from the PTS
OIC-Executive Director Andres B. Soriano (Soriano) directing him to submit within five (5)
days from notice a written explanation on the following matters:
1. The delayed GSIS remittances;
2. The reported deficit of P7.3 million appearing in our financial statement for 1990;
3. The expenses you approved and incurred in connection with the Dale Carnegie and Silva
Mind Control Seminar;
4. The P3.7 million miscellaneous expenses appearing in our financial statement;
andcralawlibrary
5. Your reasons for renewing our service contract with Ultra.6
Dr. Maquiling submitted his explanatory letter dated 11 April 1991 inviting attention to PTS
Finance Manager's Report. On 15 April 1991, Dr. Maquiling had a thirty (30) minute
conversation with Soriano at the latter's instance. No further related proceedings were
undertaken before Dr. Maquiling received a letter-notice dated 8 June 1991 informing him
that the PTS Executive Committee approved Soriano's findings and recommendations calling
for his dismissal effective immediately, without any retirement benefits. 7
Despite Soriano's instruction for him not to report for work, Dr. Maquiling manifested, through
a letter to the OIC-Executive Director, his intention to continue performing his duties as
Deputy Executive Director. Dr. Maquiling continued to report for work at the PTS daily. In the
meantime, he elevated his case to the PTS Board of Directors through a memorandum dated
28 June 1991 which sought to point out the illegality of his dismissal from office and prayed
for a resolution upholding his position.8
On 17 July 1991, Dr. Maquiling, protesting non-payment of his salary for the period of 15 July
1991, wrote the OIC Finance Department and formally demanded the release of his earned
wages. PTS reacted through Soriano by informing Dr. Maquiling that there are no wages
forthcoming inasmuch as the latter's service had been terminated for cause since 7 June
1991.9
In an effort to exhaust the remedies within PTS, Dr. Maquiling wrote the President of PTS a
letter dated 5 August 1991 saying, among others: my counsels agree with me that if your
Board does not act on my 28 June 1991 Memorandum within fifteen (15) days from receipt of
this letter, such omission will mean a confirmation of Soriano's notice of my alleged
termination from the service a dismissal which is referable to the proper outside forum."10
Receiving no response from the PTS, Dr. Maquiling stopped reporting for work at the PTS in
the last week of September 1991. Then, on 10 October 1991, Dr. Maquiling filed his
complaint with the Labor Arbiter.
After considering the evidence adduced by the parties, the Labor Arbiter rendered a decision
ordering PTS to immediately reinstate Dr. Maquiling to the position of Deputy Executive
Director or its equivalent in rank and pay, without loss of seniority rights inclusive of all
benefits attached to said position at the time of his dismissal, and to pay Dr. Maquiling
backwages computed from the time of his dismissal on 7 June 1991 until his actual
reinstatement but not to exceed three (3) years at the rate of thirteen thousand nine hundred
pesos (P13,900.00) per month or three hundred seventy-eight thousand seven hundred
seventy-five pesos (P378,775.00).11 He likewise ordered PTS to pay Dr. Maquiling five
hundred thousand pesos (P500,000.00) as moral damages and one hundred thousand pesos
(P100,000.00) as exemplary damages and to pay attorney's fees equivalent to ten (10%)
percent of the total amount due the complainant.
Upon appeal by PTS to the NLRC, the Commission upheld the decision of the labor arbiter
and dismissed the appeal.12 However, PTS appealed the decision to the Court of Appeals
which reversed the decisions of the NLRC and Labor Arbiter by ordering the dismissal of the
complaint and declaring that his dismissal from employment as legal and valid. It, however,
ordered PTS to pay Dr. Maquiling the amount of ten thousand pesos (P10,000.00) as
damages or indemnity for violation of his right to procedural due process and separation pay
in the amount of one hundred fifty-nine thousand eight hundred fifty pesos (P159,850.00) in
the interest of social justice.13 Hence, this Petition for Review on Certiorari .
Dr. Maquiling argues that the appellate court should have applied the case of Serrano v.
NLRC14 which was decided on 27 January 2000 since the assailed decision of the appellate
court was promulgated subsequently on 28 March 2000. He avers that PTS must pay him full
backwages from the time his employment was terminated on 7 June 1991 up to the time the
decision becomes final.15 In addition to backwages, he also prays that he be awarded
separation pay for every year of service, at the rate of one month pay for every year of
service,16 as well as thirteenth month pay, sick leave and vacation leave and all monetary
benefits including moral damages and attorney's fees.17 Further, Dr. Maquiling points out that
the appellate court gravely abused its discretion by changing the rules on pleadings before
the administrative body since it considered the position paper of PTS though
unverified.18 PTS should have considered the twenty-three (23) years of service of
petitioner19 and should not have ruled that the dismissal from service of Dr. Maquiling was for
just cause.20 He further contends that the appellate court did not show any degree of clarity of
causal connection between Dr. Maquiling's acts and the supposed damage to PTS. 21
Moreover, Dr. Maquiling raised in his petition that the appellate court, which agreed with the
findings of the labor arbiter and the NLRC that the twin requirements of notice and hearing
are wanting, erred in adopting an abandoned doctrine by merely imposing a fine of ten
thousand pesos (P10,000.00) against PTS and in disregarding the present doctrine on
termination of employment and monetary benefits accorded by law to Dr. Maquiling, and in
concluding with grave abuse of discretion that the dismissal of Dr. Maquiling, who had served
PTS for twenty-three (23) years, was for just cause.22
In its Comment23 dated 9 October 2000, PTS contends that the dismissal of Dr. Maquiling
was based on a just cause, supported as it was by the evidence, law and jurisprudence. The
termination of Dr. Maquiling's employment was allegedly due to loss of trust and
confidence.24 It avers that for gross mismanagement, for acts inimical to the interest of PTS,
and also for reason that PTS has lost its trust and confidence in him, PTS terminated his
services without any retirement benefit.25
PTS, however, alleges that it complied with the two-notice rule required for termination of
employment. According to PTS, the first notice was sent by Soriano to Dr. Maquiling by
means of confidential memorandum 26 dated 2 April 1991 requiring him to explain in writing,
within five days from notice, the matters stated therein. Dr. Maquiling honored the first notice
by submitting on 11 April 1991 a written reply to Soriano. The second notice which allegedly
informed Dr. Maquiling of the decision to terminate his employment, stating reasons therefor,
was sent to him by Soriano on 8 June 1991.27
A review of the factual milieu of the instant labor controversy and the jurisprudence on the
subject leads us to modify the assailed decision of the appellate court.
We agree with the appellate court that Dr. Maquiling was dismissed from employment for just
cause consisting of loss of trust and confidence. The records reveal that he was Deputy
Executive Director of PTS, a responsible position, at the time of his dismissal. The following
defines the extent of the power and responsibility attached to the position he occupied:
1. Directs, supervises, coordinates, and controls the general administrative, finance and
regional operations of PTS.
2. Formulates and executes plans and policies for operations activities under his charge.
3. Signs corresponden[ce] and other documents relative to operational activities under his
charge, within specified limits.
4. Authorizes the hiring, promotion, transfer and termination of all PTS personnel below the
supervisory level in accordance with the policies prescribed by the Board of Directors.
5. Reports regularly to the Executive Director on the individual operations and activities of
departments and branches under his charge.
6. Executes and administers directives issued by the Executive Director.
7. Assists the Executive Director in the preparation of the [annual] budget and operational
plan of the Society.
8. Prepares and submits reports required by the Board of Directors, government entities and
other interested parties.
9. Performs related functions as may be assigned by the Executive Director. 28
PTS imputes the delayed GSIS remittances to Dr. Maquiling's failure to follow his duties as
prescribed by law. The records disclose that Dr. Maquiling was aware of the problem but he
failed to give priority thereto. This non-remittance was partially brought about by a Guideline
on the Releasing of Checks he issued, which placed the GSIS account as a last
priority.29 The security of workers' compensation was undermined by his act which patently
transgressed the constitutional injunction that workers should be afforded full protection in
their employment. Subsumed in said mandate is the protection of the right to workmen's
compensation to which a lowly worker may be entitled. To rule otherwise would frustrate the
policy that the State shall promote and develop a tax-exempt employees' compensation
program whereby employees and their dependents, in the event of work-connected disability
or death, may promptly secure adequate income benefit, and medical or related benefits. 30
On the other hand, we are inclined to attribute the P7.3 million deficit in PTS' 1990 financial
statements to Dr. Maquiling's failure to consider the realities of the financial condition of the
institution. Dr. Maquiling even aggravated such omission by insisting on the salary increase of
both managerial and non-managerial personnel despite the financial conundrum that puzzles
the future fiscal stability of PTS. The records show that he made representations during the
Board meeting that sufficient funds existed to meet the salary upgrading despite the presence
of financial strains.31 Such a course of action falls short of his responsibility to safeguard the
financial stability of the institution he leads. Said responsibility cannot be outweighed by any
magnanimous motive for the institutional existence will be rendered illusory if the very
foundation of its financial stability will be ignored. We are solicitous of the primordial goal
sought to be achieved by Dr. Maquiling but the wisdom of the timing is questionable.
The renewal of the Ultra Clean contract with the PTS for janitorial services also evinces a bad
managerial move on the part of Dr. Maquiling. By reason of the contract, PTS was dragged
into a labor controversy for illegal dismissal which eventually made it liable for backwages
and differentials to employees of Ultra Clean.32 Worse is the renewal of the said contract
despite the unsatisfactory performance of Ultra Clean without the approval of the Board or the
Executive Committee or any subsequent request for its ratification. The unnecessary
expending of funds in the administration and operation of PTS is evidently an act of
mismanagement which could bring PTS to severe financial distress. These acts if committed
by a responsible officer wither the trust and confidence lodged in him by his superior and may
serve as a valid and sufficient basis to impose disciplinary sanctions to an erring employee
which may even result to dismissal from employment if the gravity of the offense warrants as
in the instant case.
Recent decisions of this Court distinguish the treatment of managerial from that of rank-and-
file personnel insofar as the application of the doctrine of loss of trust and confidence is
concerned. Thus, with respect to rank-and-file personnel, loss of trust and confidence as
ground for valid dismissal requires proof of involvement in the alleged events in question and
that mere uncorroborated assertions and accusations by the employer will not suffice. 33 But
as regards a managerial employee, mere existence of a basis for believing that such
employee has breached the trust of his employer would suffice for his dismissal. 34
After careful perusal of the factual backdrop of the case, we rule that Dr. Maquiling was
indeed validly dismissed for just cause. However, PTS was remiss in its duty to observe
procedural due process in effecting the dismissal of Dr. Maquiling.
Under this second requirement, two notices must be sent to the employee who is the subject
of an investigation for acts which may warrant his eventual dismissal from employment. The
notices required before an employee may be validly dismissed are: (a) a written notice
served on the employee specifying the grounds for termination and giving the
employee reasonable opportunity to explain his/her side; (b) a hearing or conference
wherein the employee, with the assistance of counsel if so desired, is given opportunity to
respond to the charge, present his evidence or rebut evidence presented against him/her;
and (c) written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify
termination.35 The twin requirements of notice and hearing constitute elements of due
process in cases of employee's dismissal; the requirement of notice is intended to inform
the employee concerned of the employer's intent to dismiss and the reason for the
proposed dismissal; upon the other hand the requirement of hearing affords the employee
an opportunity to answer his employer's charges against him and accordingly to defend
himself therefrom before dismissal is effected.36
Clearly, the first notice must inform outright the employee that an investigation will be
conducted on the charges particularized therein which, if proven, will result to his dismissal.
Such notice must not only contain a plain statement of the charges of malfeasance or
misfeasance but must categorically state the effect on his employment if the charges are
proven to be true.
This notice will afford the employee an opportunity to avail all defenses and exhaust all
remedies to refute the allegations hurled against him for what is at stake is his very life and
limb his employment. Otherwise, the employee may just disregard the notice as a warning
without any disastrous consequence to be anticipated. Absent such statement, the first notice
falls short of the requirement of due process. One's work is everything, thus, it is not too
exacting to impose this strict requirement on the part of the employer before the dismissal
process be validly effected. This is in consonance with the rule that all doubts in the
implementation and interpretation of the provisions of the Labor Code, including its
implementing rules and regulations, shall be resolved in favor of labor.37
It is worthy to note that the Labor Arbiter, the NLRC and the Court of Appeals all agree in
concluding that procedural due process in the instant case was not observed. As revealed by
the evidence on record, a confidential memorandum FN dated 2 April 1991 was sent to Dr.
Maquiling by Soriano requiring him to explain in writing the matters contained therein. The
text of the memorandum reads as follows:
02 April 1991
CONFIDENTIAL MEMORANDUM FOR: DR. ERNESTO I. MAQUILING
Pursuant to the directive of the Board of Directors issued in its meeting on March 25, 1991,
you are hereby instructed to report and explain in writing to this office, within five (5) days
from notice hereof, on the following matters:
1. The delayed GSIS remittances;
2. The reported deficit of P7.3 million appearing in our financial statement for 1990;
3. The expenses you approved and incurred in connection with the Dale Carnegie and Silva
Mind Control Seminar;
4. The P3.7 million miscellaneous expenses appearing in our financial statement;
andcralawlibrary
5. Your reasons for renewing our service contract with Ultra.
For immediate compliance.
(SGD.) ATTY. ANDRES B. SORIANO
OIC-Executive Director
On 11 April 1991, Dr. Maquiling submitted his written reply. The second notice which informs
Dr. Maquiling of the decision to terminate his employment was sent to him on 8 June 1991. It
must be noted that the first notice dated 2 April 1991 is a mere instruction to explain the
matters enumerated therein. It did not apprise Dr. Maquiling of any investigation to be
conducted or being conducted that will warrant his dismissal from service if found guilty of
charges specified therein. Thus, such notice fell short of the requirement of law that an
employee must be afforded the benefit of the two-notice rule in dismissal cases that will allow
the employee to substantiate the charges specified in the notice with full knowledge at the
outset that the investigation to be conducted may result in his dismissal or suspension from
employment.
Dr. Maquiling invokes our ruling in Serrano as basis for appropriate relief. The Serrano ruling
awarded full backwages and separation pay to the employee who was dismissed for just
cause but without the observance of the procedural due process requirement. However,
in Agabon v. NLRC,38 this Court modified the Serranoruling and awarded nominal damages in
the amount of thirty thousand pesos (P30,000.00) including holiday pay, service incentive
leave and thirteenth month pay to the petitioners in the said case. This case clarified the
criticisms and answered the questions created by the Serrano ruling.
The Agabon doctrine enunciates the rule that if the dismissal is for just cause but statutory
due process was not observed, the dismissal should be upheld. While the procedural infirmity
cannot be cured, it should not invalidate the dismissal. However, the employer should be held
liable for non-compliance with the procedural requirements of due process.39
Where the dismissal is for just cause, as in the instant case, the lack of statutory due process
should not nullify the dismissal, or render it illegal, or ineffectual. However, the employer
should indemnify the employee for the violation of his statutory rights. The indemnity to be
imposed should be stiffer to discourage the abhorrent practice of "dismiss now, pay later,"
which we sought to deter in the Serrano ruling. The sanction should be in the nature of
indemnification or penalty and should depend on the facts of each case, taking into special
consideration the gravity of the due process violation of the employer. 40
The violation of the petitioners' right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances.41 Considering the prevailing circumstances in the case at bar, we deem it
proper to fix it at thirty thousand pesos (P30,000.00). We believe this form of damages would
serve to deter employers from future violations of the statutory due process rights of
employees. At the very least, it provides a vindication or recognition of this right granted to
employees under the Labor Code and its Implementing Rules.42
It may be also argued that actual or compensatory damages may be recovered in
employment termination cases. Actual or compensatory damages are not available as a
matter of right to an employee dismissed for just cause but denied statutory due process. The
award must be based on clear factual and legal bases and correspond to such pecuniary loss
suffered by the employee as duly proven. Evidently, there is less degree of discretion to
award actual or compensatory damages.
In the instant case, the records fail to show that Dr. Maquiling suffered pecuniary loss by
reason of his dismissal from service. It must be noted that he was dismissed for just cause
but the procedural aspect of dismissal was not complied with. Such non-compliance did not
automatically result to any pecuniary loss. Any such loss must be proved by Dr. Maquiling to
be entitled to an award for actual damages. Besides, the two-notice rule was not at all
disregarded although it was observed defectively by PTS. Thus, actual damages may not be
awarded.
Neither will an award for moral damages nor exemplary damages prosper. The instant
controversy fails to show that the dismissal of the employee was attended by bad faith, fraud,
or was done in a manner contrary to morals, good customs or public policy, or that the
employer committed an act oppressive to labor to warrant an award for moral damages.
Exemplary damages may avail if the dismissal was effected in a wanton, oppressive or
malevolent manner to warrant an award for exemplary damages. Hence, Dr. Maquiling shall
only be entitled to an award for nominal damages.
On the other hand, Dr. Maquiling argues that PTS should have considered his twenty-three
(23) years of service in the institution before he was dismissed from service. Such
ratiocination is not quite convincing. The jurisprudential law43 is not bereft of cases which
disregarded length of service of an employee for breach of trust and confidence. Although
length of service may be considered in reaching a decision in employment termination cases,
the same alone is not controlling for other considerations must be taken into account such as
the nature of the position he was holding, performance of an employee, quality of work,
character and work attitude. Worth stressing is the fact that Dr. Maquiling is holding a
managerial position being a Deputy Executive Director. Hence, trust and confidence is an
essential factor in determining his eligibility to continue holding his position. The crucial nature
of his position in PTS is exacting as to such qualification which cannot be outweighed by any
length of service he earned.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated 28 March
2000 is hereby MODIFIED pursuant to the Agabon ruling as the latest jurisprudential rule on
the matter. For the dismissal from employment of Dr. Maquiling with a just cause but without
observing procedural due process, PTS is ORDERED to pay Dr. Maquiling nominal damages
in the amount of thirty thousand pesos (P30,000.00). No costs.
SO ORDERED.
G.R. No. L-5621 March 25, 1953
 PHILIPPINE MOVIE PICTURES WORKERS' ASSOCIATION, Petitioner, vs. PREMIERE
PRODUCTIONS, INC., Respondent.
BAUTISTA ANGELO, J.:
This is a petition for review of two orders of the Court of Industrial Relations, one dated
November 8, 1951, and the other November 24, 1951, which give authority to respondent to
lay-off forty-four (44) of its employees in accordance with its urgent petition on condition that,
in the event work is available in the future where their ability may be required, the same
workers should be reemployed and that, if after the termination of the case, the court would
find that at the time of their lay off work was available, the respondent shall pay to them the
back wages to which they are entitled. These two holders were upheld by the court en
banc in a resolution dated March 10, 1952, which is also involved in the present petition for
review.chanroblesvirtualawlibrary chanrobles virtual law library
On October 2, 1951, respondent filed with the Court of Industrial Relations an urgent petition
seeking authority to lay-off 44 men working in three of its departments, the first batch to be
laid off thirty (30) days after the filing of the petition and the rest 45 days thereafter, in order
that in the intervening period it may finish the filming of its pending picture. The ground for the
lay-off is the financial losses which respondent was allegedly suffering during the current
year.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioner opposed the request alleging that the claim of financial losses has no basis in fact it
being only an act of retaliation on the part of respondent for the strike staged by the workers
days before in an attempt to harass and intimidate them and weaken and destroy the union to
which they belong.chanroblesvirtualawlibrary chanrobles virtual law library
On November 5, 1951, date when the urgent petition was set for hearing, at the request of
counsel for respondent, Hon. Arsenio C. Roldan, presiding judge of the Court of Industrial
Relations, held an ocular inspection of the studios and filming premises of respondent in the
course of which he interrogated about fifteen laborers who were then present in the place. On
the strength of the evidence adduced during the ocular inspection Judge Roldan issued an
order on November 8, 1951, allowing respondent to lay-off the workers mentioned in its
petition with respect to Unit No. 2 and those assigned to the Ground Maintenance
Department subject to the condition that, in the event that work is available in the future, they
should be re-employed. With respect to the workers assigned to Unit No. 1, the hearing was
postponed.chanroblesvirtualawlibrary chanrobles virtual law library
A subsequent hearing was held in connection with the workers assigned to Unit. 1 and on the
strength of the evidence submitted by respondent, Judge Roldan again found the petition
justifiable and authorized their lay-off in an order dated November 24, 1951, under the same
condition as those contained in his previous order.chanroblesvirtualawlibrary chanrobles
virtual law library
Petitioner moved for the reconsideration of both orders dated November 8 and November 24,
1951, which motion the court en banc denied in a resolution issued on March 10, 1952.
Hence this petition for review.chanroblesvirtualawlibrary chanrobles virtual law library
The only issue submitted to this court for reconsideration is: May the Court of Industrial
Relations authorize the lay off of workers on the basis of an ocular inspection without
receiving full evidence to determine the cause or motive of such lay-off?chanrobles virtual law
library
It appears that when the case was called for hearing to look in the merits of the urgent
petition of respondent seeking to lay-off 44 men who were working in three of its departments
on the ground of lack of work and because its business was suffering financial losses during
the current year the court, which was then represented by its presiding Judge, decided to
make an ocular inspection of the studios and filming premises of respondent following a
request made to that effect by its counsel, and in the course of said inspection Judge Roldan
proceeded to interrogate the workers he found in the place in the presence of the counsel of
both parties. The testimony of those interrogated was taken down and the counsel of both
parties were allowed to cross-examine them. Judge Roldan also proceeded to examine some
of the records of respondent company among them the time cards of some workers which
showed that while the workers reported for work, when their presence was checked they
were found to be no longer in the premises. And on the strength of the findings made by
judge Roldan in this ocular inspection he reached the conclusion that the petition for lay-off
was justified because there was no more work for the laborers to do in connection with the
different jobs given to them. It is now contended that such a procedure is unfair to the labor
union in that it deprived the workers affected of the opportunity to disprove what apparently
was represented to the court during the ocular inspection which at best may only be the result
of prearrangement devised by the company to justify its claim of lack of work and that what
the court should have done was to make a full-dress investigation if not a formal hearing
giving both parties all the time and opportunity to present their evidence before deciding such
an important matter which affects the position and the only means of livelihood of the workers
affected by the petition. In other words, the petitioning labor union workers were deprived of
their employment without due process of law.chanroblesvirtualawlibrary chanrobles virtual
law library
The claim of petitioner that the laborers were not given an opportunity to present their
evidence to disprove the claim of lack of work is disputed by counsel for respondent company
who claims that the labor union had its day in court because its counsel was present in the
investigation or ocular inspection and even presented some witnesses to protect its interest.
The record before the court on this matter is not clear and for such reason it has no way of
determining the truth of both claims. The stenographic notes taken during the ocular
inspection have not been elevated for the reason undoubtedly that this is a petition for review
and the only issue before the court is one of law. In the face of this confusing situations on an
issue which is determinative of the controversy, the only guide that the court finds is the order
of the court of origin which happily contains a reference to the evidence that it has considered
and which has served as basis for its conclusion resulting in lay-off of the workers in whose
behalf the present petition was brought before this court. We refer to the order of November
8, 1951, subject of the petition for review, wherein Judge Roldan makes express mention of
the evidence can only refer to testimony given by the workers interrogated by him and to
whatever documents he found or examined in the course of such inspection. It is true, as
counsel for respondent avers, that hearing were conducted by the court a quo on October 8,
and 15, 1951, and on November 5, 6, 15, and 21, 1951, but it is likewise true that those
hearings do not necessarily refer to the petition under consideration but to other matters and
incidents which were then before the court for determination such as the petition of the labor
union containing fourteen (14) demands and the petition of the same union to declare
respondent in contempt for having violated certain directives of the court. At any rate, this
matter does not appear clear and we are inclined to resolve the doubt in favor of labor
considering the spirit of our Constitution.chanroblesvirtualawlibrary chanrobles virtual law
library
The right to labor is a constitutional as well as statutory right. Every man has a natural right to
the fruits of his own industry. A man who has been employed to undertake certain labor and
has put into it his time and effort is entitled to be protected. The right of a person to his labor
is deemed to be property within the meaning of constitutional guarantees. That is his means
of livelihood. He cannot be deprived of his labor or work without due process of law (11 Am.
Jur., 333, pp. 1151-1153; 11 Am. Jur., section 344. pp. 1168-
1171).chanroblesvirtualawlibrary chanrobles virtual law library
Although the Court of Industrial Relations, in the determination of any question or
controversy, may adopt its own rules of procedure and may act according to justice and
equity without regard to technicalities, and for that matter is not bound by any technical rules
of evidence (section 20, Commonwealth Act No. 103), this broad grant of power should not
be interpreted to mean that it can ignore or disregard the fundamental requirements of due
process in the trials and investigation of cases brought before it for determination. As aptly
pointed out by this court, there are certain cardinal primary rights which the Court of Industrial
Relations must respect in the trial of every labor case. One of them is the right to a hearing
which includes the right of the party interested to present his own case and submit evidence
in support thereof (Manila Trading and Supply Co. vs. Philippine Labor Union, 71 Phil., 124,
129). An ocular inspection of the establishment or premise involved is proper if the court finds
it necessary, but such is authorized only to help the court in clearing a doubt, reaching a
conclusion, or finding the truth. But it is not the main trial nor should it exclude the
presentation of other evidence which the parties may deem necessary to establish their case.
It is merely an auxiliary remedy the law affords the parties or the court to reach an
enlightened determination of the case.chanroblesvirtualawlibrary chanrobles virtual law library
Considering the merits of the controversy before us, we are of the opinion that the required
due process has not been followed. The court a quo merely acted on the strength of the
ocular inspection it conducted in the premises of the respondent company. The petition for
lay-off was predicated on the lack of work and of the further fact that the company was
incurring financial losses. These allegations cannot be established by a mere inspection of
the place of labor specially when such inspection was conducted at the request of the
interested party. As counsel for petitioner says, such inspection could at best witness "the
superficial fact of cessation of work but it could not be determinative of the larger and more
fundamental issue of lack of work due to lack of funds". This fundamental issue cannot be
determined without looking into the financial situation of the respondent company. In fact, this
matter is now being looked into by the court a quo in connection with the fourteen demands of
the labor union, but before finishing its inquiry it decided to grant the lay-off pending final
determination of the main case. This action is in our opinion premature and has worked
injustice to the laborers.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the orders subject of the present petition for review are hereby set aside, and
it is ordered that the cause be remanded to the court of origin for further proceedings giving to
petitioner an opportunity to present its evidence in support of its opposition to the urgent
petition for lay-off of respondent company. No pronouncement as to
costs.chanroblesvirtualawlibrary chanrobles virtual law library
G.R. No. 75093 February 23, 1990
DELIA R. SIBAL, petitioner,
vs.
NOTRE DAME OF GREATER MANILA, NATIONAL LABOR RELATIONS
COMMISSION, respondents.
PARAS, J.:
In this petition for certiorari, petitioner Delia R. Sibal prays for the reversal of the decision
dated April 11, 1986 of public respondent National Labor Relations Commission which
affirmed the decision of the Labor Arbiter dated October 8, 1982 awarding to petitioner
separation pay but denied her claim (1) for compensation for teaching Health subject to 19
sections; (2) for moral damages; and (3) negating the existence of unfair labor practice. The
within petition further seeks the reinstatement of petitioner to her former position as school
nurse in respondent school without loss of seniority rights with fun backwages from the date
of her illegal dismissal up to the time of actual reinstatement; and finally, seeks the
desistance of private respondent Notre Dame of Greater Manila from further committing
unfair labor practice.
The prefatory facts and proceedings as aptly summed up by the Solicitor General and which
stand undisputed are:
Petitioner Delia R. Sibal was employed as school nurse by private
respondent Notre Dame of Greater Manila starting January 1973. Prior to
school year 1976-1977, she was compensated on a 12-month basis,
although she worked only during the ten-month period of classes. She was
not required to report for work for the entire Christmas and summer
vacations. However, on March 10, 1976, respondent's director, Fr. Enrique
Gonzales, requested her to shorten her summer vacation, from two weeks
after the last day of classes to two weeks before the first day of classes of
the next school year. Petitioner acceded to the request (Rec. p. 246).
Sometime in April 1980, Fr. Gonzales required petitioner to report during that
summer to help in the library. In a letter dated April 11, 1980, petitioner
contested the order, stating that it will necessitate a change in the terms and
conditions of her employment and that library work is alien to her profession
as nurse (Rec. p. 45). Fr. Gonzales relented.
In November 1980, Fr. Gonzales was replaced by Fr. Pablo Garcia, an
American, as new director. Fr. Garcia required petitioner to report for work
during the summer before the beginning of school year 1981-1982. Petitioner
informed him that her contract does not require her to report for work during
the summer vacation. Fr. Garcia promised to verify her allegation. However,
he failed to inform petitioner of his findings. Thus, in order that her failure to
report for work may not be misinterpreted, petitioner filed leaves of absence
extending from April 1, 1981 to June 14, 1981 (Rec. pp. 223-225). Petitioner
failed to receive her vacation pay.
During school year 1981-1982, petitioner was assigned to teach health
subjects to 900 students spread out in nineteen (19) sections of the entire
high school department. This situation came about because the two (2)
teachers of the health subjects had left the school. Petitioner, however, was
not given compensation for teaching, notwithstanding the fact that other
teachers were duly compensated for extra work done. During that school
year petitioner tried to arrange for a meeting with Fr. Garcia regarding her
vacation pay, but to no avail because Fr. Garcia was always busy. In October
1981, Fr. Garcia suffered a heart attack which necessitated his
hospitalization. In December 1981, petitioner received her 13th month pay
which was computed on the basis of a 10-month period only.
On April 5, 1982, Fr. Garcia again required petitioner to work during that
summer to update all the clinical records of the students (Rec. p. 242). In a
letter dated April 7, 1982, petitioner objected to the order by reiterating that
her contract does not require her to report for work during summer. In
addition, she reminded Fr. Garcia that she had not received any
compensation for teaching health subjects the past school year (Rec. p. 6).
On the same day, Fr. Garcia replied in a letter to the effect that it was
imperative for her to report for work during the summer because it is the best
time to update the clinical records when no students could disturb her. Also,
petitioner was not entitled to extra compensation for teaching because
teaching was allegedly part of her regular working program as a school nurse
(Rec. p. 221).
On April 14, 1982, petitioner, apart from reiterating her objection to the order,
called the attention of Fr. Garcia to the school's failure to pay her salary for
the summer of 1981 and of the deficiency in her 13th month pay for that year
(Rec. p. 8). The following day, Fr. Garcia adamantly refused to consider
petitioner's demands and threatened to take drastic measures against her if
she remains obstinate in her refusal to follow his order to report for work that
summer (Rec. p. 243). This letter was followed the next day by a
memorandum to the same effect (Rec. p. 244). In a letter dated April 19,
1982, petitioner, for the fourth time, informed Fr. Garcia that her contract
does not require her to report for work during summer, and she does not
intend to do so that summer of 1982 (Rec. p. 241).
Failing to receive the compensation demanded, May 10, 1982, petitioner filed
a complaint for non-payment of the following; (1) vacation pay for four (4)
summer months; (2) compensation for teaching health subjects; and (3)
deficiency in the 13th month pay for 1981 (Annexes A, B, petition). Summons
was served on respondent school on the opening day of classes on June 14,
1982 (Rec. p. 19). That very day when petitioner reported for work,
respondent school served petitioner her letter of termination effective
immediately and it also submitted a copy of the termination paper to the
Ministry of Labor and Employment (MOLE) (Rec. pp. 218- 219). The
following day, petitioner filed an amended complaint, adding two more
charges: illegal dismissal and unfair labor practice (Annex C, D, petition). For
the next four to five weeks, more than 20 teachers and personnel, backed up
by the Faculty Association of respondent school, pressed for the ouster of Fr.
Garcia with the Ministry of Education, Culture, and Sports (MECS) by virtue
of PD 176 and the following charges: oppressive behavior, arrogance,
contempt for Filipinos in general and Filipino teachers in particular;
unfairness in dealing with personnel; dictatorial conduct; and use of abusive
language (See Annexes A to F of Annex F, petition). Fr. Garcia was
eventually replaced on September 8, 1983.
In the meantime, respondent school filed its position paper on June 29, 1982,
while petitioner filed hers on July 1, 1982 (Rec. pp. 22, 210). In the hearing of
July 13, 1982, petitioner directed clarificatory questions to Miss Cristina
Sison, corporate secretary of respondent school (Rec. pp. 57-141). On July
27, 1982, respondent filed its memorandum, while petitioner filed hers on
August 2, 1982 (Rec. pp. 142, 162).
On October 8, 1982, the Labor Arbiter rendered a decision. Petitioner filed a
memorandum of partial appeal on November 11, 1982 (Annex F, petition).
Respondent filed opposition to the appeal on January 5, 1983. On January
18, 1983, petitioner filed reply to the opposition. In an urgent ex parte
manifestation dated September 20, 1983, petitioner informed the NLRC that
Fr. Pablo Garcia had been replaced by Fr. Jose Arong, a Filipino, as new
director effective September 8, 1983 (Annex G, petition). On April 11, 1986,
public respondent NLRC rendered the questioned decision which affirmed
the decision of the Labor Arbiter. (Rollo, pp. 131-136).
Petitioner thus resorted to this petition which she filed on July 15, 1986.
Petitioner and both the Solicitor General and public respondent NLRC have narrowed down
the issues for resolution to the following:
1. Whether or not the award of separation pay instead of reinstatement is the
proper remedy under the circumstances;
2. Whether or not petitioner is entitled to compensation for teaching health
subjects; and
3. Whether or not unfair labor practice existed which would entitle petitioner
to moral damages.
For the affirmative resolution of the aforestated issues, petitioner alleges the following:
1. Respondent NLRC failed to give full respect to the constitutional mandate
on security of tenure when the majority decision affirmed the decision of the
Labor Arbiter separating and, in effect, dismissing petitioner on the basis of
her perception that petitioner and the director could no longer work
harmoniously. The award of separation pay would defeat and render
nugatory the Constitutional guaranty of security of tenure.
2. Petitioner is entitled to compensation relative to her teaching job which is
distinct and separate from her duties as school nurse.
3. Petitioner was, from the very start, subjected to harassment and fabricated
charges. She had suffered and continues to suffer from the time of her
dismissal on June 14, 1982 up to the present. She must be entitled to an
award of moral damages.
Public respondent NLRC, however, submits the following:
1. The relationship between petitioner and respondent school had come to
the point that reinstatement of petitioner would cause undue burden on both
parties. It would affect petitioner's performance of her duties as school nurse
and private respondent's business.
2. Teaching health subjects is allied to petitioner's job as school nurse,
particularly so when the same is done within the official eight (8) working
hour schedule.
3. Petitioner failed to prove her membership in a union. There was no union
among the employees of the school in which case the instances where unfair
labor practice may be committed, with the exception of one instance, and
predicated on the existence of a union, would not apply. Private respondent
has not been found guilty of unfair labor practice and it, therefore, follows that
she is not entitled to moral damages.
This Court finds merit in the petition.
The Labor Arbiter herself had found that the termination of petitioner was not supported by
any just cause or reason. Yet, she erroneously ordered separation pay instead of
reinstatement with backwages based on the alleged reason that petitioner's working relations
with the former director, Father Garcia, had become so strained and deteriorated that it
became impossible for them to work harmoniously again. And the NLRC affirmed such
finding which is untrue and merely speculative.
It should be noted that the alleged conflict between the petitioner and the director was strictly
official in nature, the cause of which was the violation of the terms of employment by the
latter. Petitioner's assertion of her right to unpaid salaries and bonus differential was not
motivated by any personal consideration. Rather, she simply claimed benefits which, under
the law, she was entitled to and legally due her. In her act of asserting these money claims,
petitioner observed utmost tact, courtesy and civility so as not to unduly offend the
sensibilities of the director by waiting for his frill recovery from his illness before sending her
formal letter of demand; and only after the school refused to satisfy her money claims did she
file the formal complaint with the proper NLRC branch. Ironically, however, the director gave
her a downright shabby treatment by terminating her services without prior notice and without
first filing a case against her wherein she could have defended herself . The school did not
even give credit to her more than nine (9) years of continuous service. Petitioner's termination
was a blatant disregard of due process and Constitutional guarantee of protection to labor.
Thus, in the case of Callanta v. Carnation Philippines, Inc. (145 SCRA 268), this Court held
that one's employment, profession, trade or calling is a "property right", and the wrongful
interference therewith is an actionable wrong. The right is considered to be property within
the protection of a constitutional guaranty of due process of law.
Significantly, about a month after petitioner's termination on June 14, 1982, more than twenty
teachers and personnel of respondent school, backed by the Faculty Association, petitioned
for the ouster of Director Fr. Garcia for serious charges under P.D. 176. Consequently, Fr.
Garcia was replaced on September 8, 1983. Clearly, therefore, when the assailed NLRC
decision was rendered on April 11, 1986, the alleged "strained relations" or "irritant factors"
which the Labor Arbiter capitalized on had been totally eliminated. Respondent NLRC
obviously failed to consider this and thus perpetuated the error committed by the Labor
Arbiter in her prior decision. The eventual replacement of Fr. Garcia all the more confirmed
the discriminatory and oppressive treatment which he gave petitioner.
The dissenting NLRC Commissioner aptly observed thus:
Moreover, it should be emphasized, that no strained relations should arise
from a valid and legal act of asserting ones right, such as in the instant case,
 for otherwise, an employee who shall assert his/ her right could be easily
separated from the service by merely paying his/her separation pay on the
pretext that his/her relationship with his/her employer had already become
strained.
To Our mind, strained relations in order that it may justify the award of
separation pay in lieu of reinstatement with backwages, should be such, that
they are so compelling and so serious in character, that the continued
employment of an employee is so obnoxious to the person or business of the
employer, and that the continuation of such employment has become
inconsistent with peace and tranquility which is an Ideal atmosphere in every
workplace. (pp. 98-99, Rollo)
The respondent NLRC erred is sustaining the Labor Arbiter's ruling that petitioner is not
entitled to compensation for teaching health subjects allegedly because petitioner taught
during her regular working hours; the subject Health is allied to her profession as nurse; and
she and respondent school had no clear understanding regarding extra compensation.
The Solicitor General who normally and expectedly speaks for the NLRC has ably refuted the
position taken by the latter. The Court thus finds valid and decisive the following submission
of the Solicitor General:
It is submitted, however, that petitioner is entitled to compensation for
teaching health subjects. Although the subject taught is Health and allied to
her profession, and is taught during regular working hours, petitioner's
teaching the subject in the classroom and her administering to the health
needs of students in the clinic involve two different and distinct jobs. They
cannot be equated with each other for they refer to different functions.
Teaching requires preparation of lesson plans, examinations and grades,
while clinical work entails preparation of clinical records and treating illnesses
of students in school. There can be no doubt that teaching health subjects is
extra work for petitioner, and therefore necessitates extra compensation.
After all it has been the practice of the school to pay extra compensation to
teachers who were given extra load even during regular working hours
(Annex G of Annex F, Petition). The fact that respondent school failed to
produce the records of those teachers prove that they were paid for extra
work. Hence, petitioner should likewise be paid compensation. (pp. 138-139,
Rollo)
It must be noted that petitioner has established that in several precedents, non-teaching
personnel of respondent school who were made to handle teaching jobs were actually paid
actual compensation. Besides, justice and equity demand that since the principle of equal
work has long been observed in this jurisdiction, then it should follow that an extra pay for
extra work should also be applied.
Significantly, this Court has enunciated in the care of University of Pangasinan Faculty Union
v. University of Pangasinan (127 SCRA 691) that semestral breaks may be considered as
"hours worked" under the Rules implementing the Labor Code and that regular professors
and teachers are entitled to ECOLA during the semestral breaks, their "absence" from work
not being of their own will.
The records show that when summons with attached complaint of petitioner for money claims
was served on respondent school on June 14, 1982, said respondent, on the very day, gave
petitioner her walking papers. Respondent did not waste any time in dismissing her in brazen
violation of these provisions of the Labor Code, as amended:
Art. 118 of the Labor Code provides:
Retaliatory measures. — It shall be unlawful for an employer to refuse to pay
or reduce the wages and benefits, discharges or in any manner discriminate
against any employee who has filed any complaint or instituted any
proceeding under this Title or has testified or is about to testify in such
proceedings.(Emphasis supplied)
Thus, too, Art. 249 (f) provides:
Art. 249. Unfair tabor practice of employers. — It shall be unlawful for an
employer to commit any of the following unfair labor practice.
xxx xxx xxx
xxx xxx xxx
(f) to dismiss, discharge, or otherwise prejudice or discriminate against an
employee for having given or being about to give testimony under this Code,
xxx xxx xxx
For the aforestated violations, respondent becomes liable under Arts. 289 and 290 of the
same Code.
This Court has, time and again, condemned illegal termination of services of employees.
In Remerco Garments Manufacturing v. Minister of Labor and Employment (135 SCRA 167),
it declared that while it is true that it is the sole prerogative of the management to dismiss or
lay-off an employee, the exercise of such a prerogative, however, must be made without
abuse of discretion, for what is at stake is not only private respondent's position (petitioner in
this case) but also his means of livelihood.
In arguing for petitioner's entitlement to moral damages, the Solicitor General has aptly
summed up her plight. The Solicitor General has submitted this valid justification for the
award of moral damages under Art. 1701 of the Labor Code:
Petitioner had been the subject of discrimination for over a year before she
was ultimately dismissed. When she justifiably refused to obey the order to
report for work for two summers, she was not given her vacation pay for both
occasions. Unlike her, the doctor and dentist who worked in the same clinic,
were not required to report during summer and were given their respective
vacation pay. Again, petitioner, unlike the teachers who accepted extra load,
was not given extra compensation when she taught health subjects to 900
students for one year. By withholding such compensation, respondent school
stood to gain at the expense of petitioner, the amount of the salary which it
could have paid to two (2) health teachers. Petitioner's 13th month pay was
likewise underpaid because the basis for computation was only ten months,
and not one year as in the case of other regular office personnel. Finally,
petitioner's travails culminated in her unceremonious termination without due
process at the beginning of the school year on June 14, 1982, by the service
of her termination paper antedated June 11, 1982. Termination without due
process is specifically prohibited by Rule XIV Section 1 under Section 8 of
the Rules Implementing BP Blg. 130:
Security of tenure and due process. — No worker shall be
dismissed except for a just or authorized cause provided by
law and after due process.
The series of discriminatory and oppressive acts of respondent school
against petitioner invariably makes respondent liable for moral damages
under Art. 1701, which prohibits acts of capital or labor against each other,
and Art. 21 on human relations in relation to Art. 2219 No. 10 and Art. 2220,
all of the Civil Code (Philippine Refining Co., Inc. v. Garcia, 18 SCRA 107).
(Rollo, pp. 140-141)
WHEREFORE, the appealed decision of respondent NLRC is hereby SET ASIDE. Private
respondent is hereby ordered to REINSTATE petitioner to her former position without loss of
seniority rights and with backwages for three (3) years from the time of her illegal dismissal;
to pay her the regular extra compensation relative to her teaching health subjects; and to pay
her moral damages, the amount of which shall be determined by respondent NLRC. Let this
case be remanded to the NLRC for the proper implementation of this decision.
SO ORDERED.
G.R. No. 77859 May 25, 1988
CENTURY TEXTILE MILLS, INC. and ALFREDO T. ESCAÑO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER FELIPE P. PATI,
and EDUARDO CALANGI, respondents.
FELICIANO, J.:
Since 13 December 1974, private respondent Eduardo Calangi had been employed at the
factory of petitioner Century Textile Mills, Inc. where he worked initially as an apprentice and
later on as a machine operator in the Finishing Department. Effective 10 June 1983, however,
petitioner Corporation, acting through its company officers, 1 placed him under preventive
suspension and, on 27 July 1983, completely terminated his services with the company.
Private respondent Calangi was accused of having masterminded a criminal plot against
Melchor Meliton and Antonio Santos, two of his supervisors at his place of work.
The events that led to private respondent's dismissal are as follows:
According to Rodolfo Marin (a factory co-worker of private respondent Calangi), at around
12:15 a.m. on 4 June 1983 and within company premises, he chanced upon "Gatchie"
Torrena (a machine operator at petitioner's factory) and noticed the latter mixing some
substance with the drinking water contained in a pitcher from which Meliton and Santos
regularly drank. Before anyone could take a drink from the pitcher, Marin reported what he
had observed to Meliton who, in turn, informed Santos of the same. Soon after, Meliton and
Santos took possession of the pitcher of water and filed a formal report of the incident with
company management. 2 The contents of the pitcher were subsequently brought to and
analyzed by chemists at the Philippine Constabulary Crime Laboratory at Camp Crame,
Quezon City who found the presence of a toxic chemical (formaldehyde) therein. 3
In the police investigation that followed, Torrena confessed that private respondent Calangi
personally instructed him, and he agreed, to place formaldehyde in the pitcher of water.
Torrena also admitted that he and private respondent were then motivated by a desire to
avenge themselves upon Meliton and Santos, both of whom had instigated their (i.e.,
Torrena's and private respondent's) suspension from work several times in the past. 4 These
circumstances moved petitioner Corporation preventively to suspend Torrena and private
respondent Calangi, and eventually to dismiss them from its employ. Additionally, criminal
charges for attempted murder were filed against these two employees with the Office of the
Provincial Fiscal of Rizal.
On 11 October 1983, private respondent Calangi filed a Complaint 5 for illegal dismissal
(docketed as Case No. NLRC-NCR-10-4518-83) with the Arbitration Branch, National Capital
Region, of the then Ministry of Labor and Employment. Among other things, private
respondent alleged in his complaint that "[p]rior to his preventive suspension neither the
company nor any of its officers furnished him [with] a copy of their charges, if any, nor
afforded him the opportunity to answer the same and defend himself." Hence, private
respondent claimed entitlement to the following:
 WHEREFORE, with all the foregoing considerations, let the appealed
A. Moral P50,000.00 decision dated 27 August 1984 be, as it is hereby REVERSED. Accordingly,
damages complainant's dismissal is hereby declared to be illegal, and consequently,
respondents [petitioners] are hereby ordered to reinstate Eduardo Calangi to
Actual his former or equivalent position without loss of seniority and other benefits,
damages with full backwages from 27 July 1983 until he is actually reinstated.

a) Wages for 3 P6,520.80 SO ORDERED.

years
Petitioner Corporations' Motion for Reconsideration was denied on 4 April 1986. Sometime in
b) ECOLA for 3, 841.60 November of 1986, the Labor Arbiter issued a writ of execution directing petitioners to pay
3 years private respondent Calangi the amount of P54,747.74 representing the latter's backwages,
13th month pay, living allowance, and vacation and sick leave — i.e., actual damages.
c) 13th month
pay for The present Petition for certiorari with Preliminary Injunction or Restraining Order was filed
with this Court on 3 April 1987. The Court issued a Temporary Restraining Orders 8 on 8 April
3 years 903.60 1987 and, on 24 August 1987, issued a Resolution 9 giving due course to the Petition and
directing the parties to submit their respective memoranda.
d) Vacation
and Sick The Petition at bar raises the following issues for consideration: (1) whether or not private
respondent Calangi was illegally dismissed from his job as machine operator; and (2)
Leave of 15 627.00 11,893.00 assuming he was illegally dismissed, whether or not petitioner Corporation can be ordered
days each legally (a) to reinstate private respondent Calangi to his former position in the company, with
full backwages and without loss of seniority rights and other benefits, considering that such
relief had not been sought by private respondent in his complaint, and (b) to pay private
Exemplary 25,000.00
respondent an amount for actual damages in excess of what had been claimed by the latter
damages
in his Complaint.
Attorney's 17,398.60
We sustain the ruling of public respondent Commission that private respondent Calangi had
fees
been dismissed without just cause from his employment by petitioner Corporation.
TOTAL P104,291.60
Public respondent Commission found that private respondent Calangi was effectively denied
his right to due process in that, prior to his preventive suspension and the termination of his
A prayer for "such other reliefs and remedies consequent upon the premises" was likewise services, he had not been given the opportunity either to affirm or refute the charges
set out in the complaint. proferred against him by petitioner Corporation. Petitioners allege however that private
respondent Calangi had been previously informed of and given the chance to answer the
company's accusations against him, but that he had "kept silent" all the while. The following
In a Decision 6 dated 16 August 1984, the Labor Arbiter dismissed private respondent's
Memorandum issued by petitioner's Personnel Manager on 10 June 1983 (Calangi's first day
Complaint. The Labor Arbiter found that not only was the evidence against private respondent
of preventive suspension) was cited in this connection:
Calangi "so overwhelming" and "sufficient enough" to justify his dismissal, but that private
respondent had himself failed inexplicably to deny or controvert the charges against him.
MEMO: TO ALL CONCERNED
An appeal was brought by private respondent Calangi before the public respondent National
Labor Relations Commission, which agency, on 3 December 1985, rendered a Decision, 7 the SUBJ.: Under Preventive Suspension Employees. Please be advised that the
dispositive portion of which reads: following employees are under preventive suspension (indefinite) namely:
 1. Eduardo Calangi--effective June 10, 1983
2. Gatchie Torrena--effective June 10, 1983
GROUND
Policy Instruction No. 10 of the New Labor Code of the Philippines, Revised
Edition 1982.
NOTE: Decision about the indebtedness suspension of
concerned employees was reached after the meeting
between the union and the management.
Be guided accordingly.
MANAGEMENT
(SGD.) Jovencio G. Tolentino
Personnel Manager
Petitioners contend that the above Memorandum "clearly shows that prior investigation and
consultation with the union was made," and "will therefore negate the theory of respondents
that respondent Calangi was not afforded the chance to present his side for the memo itself
speaks otherwise."
The procedure that an employer wishing to terminate the services of an employee must
follow, is spelled out in the Labor Code:
ART. 278. Miscellaneous provisions. —
xxx xxx xxx
However, the employer shall fumish the worker whose employment is sought
to be terminated a written notice containing a statement of the causes for
termination and shall afford the latter ample opportunity to be heard and to
defend himself with the assistance of his representative if he so desires in
accordance with company rules and regulations promulgated pursuant to
guidelines set by the [Department] of Labor and Employment. Any decision
taken by the employer shall be without prejudice to the right of the worker to
contest the validity and legality of his dismissing by filing a complaint with the
regional branch of the National Labor Relations Commission. The burden of
proving that the termination was for a valid or authorized cause shall rest on
the employer. The [Department] may suspend the effects of the termination
pending resolution of the case in the event of a prima facie finding by the
Ministry that the termination may cause a serious labor dispute or is in
implementation of a mass lay-off.
xxx xxx xxx
(Emphasis supplied)
Rule XIV, Book V of the Rules and Regulations Implementing the Labor Code reiterates the
above requirements:
xxx xxx xxx
Sec. 2. Notice of dismissal. — Any employer who seeks to dismiss a worker
shall furnish him a written notice stating the particular acts or omission
constituting the grounds for his dismissal. In case of abandomment of work,
the notice shall be served at the worker's last known address.
xxx xxx xxx
Sec. 5. Answer and hearing. — The worker may answer the allegations
stated against him in the notice of dismissal within a reasonable period from
receipt of such notice. The employer shall afford the worker ample
opportunity to be heard and to defend himself with the assistance of his
representative, if he so desires.
SEC. 6. Decision to dismiss. — The employer shall immediately notify a
worker in writing of a decision to dismiss him stating clearly the reasons
therefor.
xxx xxx xxx
(Emphasis supplied)
The twin requirements of notice and hearing constitute essential elements of due process in
cases of employee dismissal: the requirement of notice is intended to inform the employee
concerned of the employer's intent to dismiss and the reason for the proposed dismissal;
upon the other hand, the requirement of hearing affords the employee an opportunity to
answer his employer's charges against him and accordingly to defend himself therefrom
before dismissal is effected. Neither of these two requirements can be dispensed with without
running afoul of the due process requirement of the 1987 Constitution.
The record of this case is bereft of any indication that a hearing or other gathering was in fact
held where private respondent Calangi was given a reasonable opportunity to confront his
accuser(s) and to defend against the charges made by the latter. Petitioner Corporation's
"prior consultation" with the labor union with which private respondent Calangi was affiliated,
was legally insufficient. So far as the record shows, neither petitioner nor the labor union
actually advised Calangi of the matters at issue. The Memorandum of petitioner's Personnel
Manager certainly offered no helpful particulars. It is important to stress that the rights of an
employee whose services are sought to be terminated to be informed beforehand of his
proposed dismissal (or suspension) as well as of the reasons therefor, and to be afforded an
adequate opportunity to defend himself from the charges levelled against him, are rights
personal to the employee. Those rights were not satisfied by petitioner Corporation's
obtaining the consent of or consulting with the labor union; such consultation or consent
was not a substitute for actual observance of those rights of private respondent Calangi. The
employee can waive those rights, if he so chooses, but the union cannot waive them for him.
That the private respondent simply 'kept silent" all the while, is not adequate to show an
effective waiver of his rights. Notice and opportunity to be heard must be accorded by an
employer even though the employee does not affirmatively demand them.
Investigation of the alleged attempt to poison the drinking water of the two (2) supervisors of
the private respondent was conducted by the Cainta police authorities. These authorities
interrogated and took the sworn statements of Messrs. Marin, Torrena, Meliton and Santos
who, in one way or another, had been involved in such incident. Petitioners argue that the
decision to place private respondent Calangi under preventive suspension and subsequently
to terminate his services was arrived at only after the incident complained of, and Mr.
Calangi, had been investigated by the company. There is, once again, nothing in the record
to show that private respondent Calangi been interrogated by the Cainta police authorities or
by anyone else; indeed, it appears that practically everybody, save Calangi, was so
interrogated by the police. If petitioner Corporation did notify and investigate private
respondent and did hold a hearing, petitioners have succeeded in keeping such facts off the
record. It needs no documentation, but perhaps it should be stressed, that this Court can act
only on the basis of matters which have been submitted in evidence and made part of the
record.
Additionally, the Court notes that the application filed by petitioner Corporation with the
Ministry of Labor and Employment for clearance to suspend or terminate the services of Mr.
Calangi, cited as ground therefor "[Calangi's] frustrated plan to poison Mr. Antonio Santos
and Mr. Melchor Meliton last June 5, 1983." This ground, so far as can be gathered from the
allegations of petitioners in their pleadings and from the evidence of record, both in the public
respondent Commission and in this Court, is anchored mainly, if not wholly on Mr. Torrena's
sworn statement, given to the Cainta police authorities, that both he (Torrena) and private
respondent had conspired with each other to inflict physical harm upon the persons of
Messrs. Meliton and Santos. A finding of private respondent's participation in the alleged
criminal conspiracy cannot, however, be made to rest solely on the unilateral declaration of
Mr. Torrena himself a confirmed "co-conspirator." Such declaration must be corroborated by
other competent and convincing evidence. In. the absence of such other evidence, Mr.
Torrena's "confession" implicating Mr. Calangi must be received with considerable caution.
The very least that petitioner Corporation should have done was to confront private
respondent with Torrena's sworn statement; the record does not show that petitioner
Corporation did so. The burden of showing the existence of a just cause for terminating the
services of private respondent Calangi lay on the petitioners. Petitioners have not discharged
that burden.
It remains only to note that the criminal complaint for attempted murder against Mr. Calangi
was dismissed by the Provincial Fiscal of Rizal. 10
Coming now to the second issue raised by petitioners in their Pleadings, Article 280 of the
Labor Code, as amended states:
Art. 280. -Security of Tenure. — In case of regular employment, the employer
shall not terminate the services of an employee except for a just cause or
when authorized by this Title. An employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of seniority rights and to
his backwages computed from the time his compensation was withheld from
him up to the time of his reinstatement. (Emphasis supplied)
We have held in the past that both reinstatement, without loss of seniority rights, and
payment of backwages are the normal consequences of a finding that an employee has been
illegaly dismissed, and which remedies together make the dismissed employee whole. 11 A
finding of illegal dismissal having been correctly made in this case by public respondent
Commission, private respondent is, as a matter of right, entitled to receive both types of relief
made available in Article 280 of the Labor Code, as amended. It matters not that private
respondent Calangi had omitted in his complaint filed in Case No. NLRC-NCR-10-4518-83 a
claim for reinstatement without loss of seniority rights for he is entitled to such relief as the
facts alleged and proved warrant. 12
In view of the finding of illegal dismissal in this case, petitioner Corporation is liable to private
respondent Calangi for payment of the latter's backwages for three (3) years, without
qualification and deduction. Considering the circumstances of this case, however, the Court
beheves that reinstatement of private respondent to his former position—or to any other
equivalent position in the company — will not serve the best interests of the parties involved.
Petitioner Corporation should not be compelled to take back in its fold an employee who, at
least in the minds of his employers, poses a significant threat to the lives and safety of
company workers. Consequently, we hold that private respondent should be given his
separation pay in lieu of such reinstatement. The amount of separation pay shall be equal to
private respondent's one-half (1/2) month's salary for every year of service, to be computed
from 13 December 1974 (date of first employment) until 10 June 1986 (three years after date
of illegal dismissal). 13
WHEREFORE, the Petition for certiorari is DISMISSED. The Temporary Restraining Order
and the Resolutions issued on 8 April 1987 and 24 August 1987, respectively, by the Court in
this case are WITHDRAWN. The Decision of public rAshville respondent Commission in
Case No. NLRC-NCR-10-4518-83 is hereby AFFIRMED, subject the the modifications that
petitioners shall pay private respondent Calangi: (a) three (3) years backwages without
qualification or deduction, and (b) separation pay, computed as above indicated, in lieu of
reinstatement. No pronouncement as to costs.
SO ORDERED.
G.R. No. 170830 : August 11, 2010
PHIMCO INDUSTRIES, INC., Petitioner, v. PHIMCO INDUSTRIES LABOR ASSOCIATION
(PILA), and ERLINDA VAZQUEZ, ….
DECISION
BRION, J.:
Before us is the petition for review on certiorari1cra1aw filed by petitioner Phimco Industries,
Inc. (PHIMCO), seeking to reverse and set aside the decision,2cra1aw dated February 10,
2004, and the resolution,3cra1aw dated December 12, 2005, of the Court of Appeals (CA) in
CA-G.R. SP No. 70336. The assailed CA decision dismissed PHIMCO's petition
for certiorari that challenged the resolution, dated December 29, 1998, and the decision,
dated February 20, 2002, of the National Labor Relations Commission (NLRC); the assailed
CA resolution denied PHIMCO's subsequent motion for reconsideration.
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
PHIMCO is a corporation engaged in the production of matches, with principal address at
Phimco Compound, Felix Manalo St., Sta. Ana, Manila. Respondent Phimco Industries Labor
Association (PILA) is the duly authorized bargaining representative of PHIMCO's daily-paid
workers. The 47 individually named respondents are PILA officers and members.
When the last collective bargaining agreement was about to expire on December 31, 1994,
PHIMCO and PILA negotiated for its renewal. The negotiation resulted in a deadlock on
economic issues, mainly due to disagreements on salary increases and benefits.
On March 9, 1995, PILA filed with the National Conciliation and Mediation Board (NCMB) a
Notice of Strike on the ground of the bargaining deadlock. Seven (7) days later, or on March
16, 1995, the union conducted a strike vote; a majority of the union members voted for a
strike as its response to the bargaining impasse. On March 17, 1995, PILA filed the strike
vote results with the NCMB. Thirty-five (35) days later, or on April 21, 1995, PILA staged a
strike.
On May 3, 1995, PHIMCO filed with the NLRC a petition for preliminary injunction and
temporary restraining order (TRO), to enjoin the strikers from preventing - through force,
intimidation and coercion - the ingress and egress of non-striking employees into and from
the company premises. On May 15, 1995, the NLRC issued an ex-parte TRO, effective for a
period of twenty (20) days, or until June 5, 1995.
On June 23, 1995, PHIMCO sent a letter to thirty-six (36) union members, directing them to
explain within twenty-four (24) hours why they should not be dismissed for the illegal acts
they committed during the strike. Three days later, or on June 26, 1995, the thirty-six (36)
union members were informed of their dismissal.
On July 6, 1995, PILA filed a complaint for unfair labor practice and illegal dismissal (illegal
dismissal case) with the NLRC. The case was docketed as NLRC NCR Case No. 00-07-
04705-95, and raffled to Labor Arbiter (LA) Pablo C. Espiritu, Jr.
On July 7, 1995, then Acting Labor Secretary Jose S. Brillantes assumed jurisdiction over the
labor dispute, and ordered all the striking employees (except those who were handed
termination papers on June 26, 1995) to return to work within twenty-four (24) hours from
receipt of the order. The Secretary ordered PHIMCO to accept the striking employees, under
the same terms and conditions prevailing prior to the strike.4cra1aw On the same day, PILA
ended its strike.
On August 28, 1995, PHIMCO filed a Petition to Declare the Strike Illegal (illegal strike case)
with the NLRC, with a prayer for the dismissal of PILA officers and members who knowingly
participated in the illegal strike. PHIMCO claimed that the strikers prevented ingress to and
egress from the PHIMCO compound, thereby paralyzing PHIMCO's operations. The case
was docketed as NLRC NCR Case No. 00-08-06031-95, and raffled to LA Jovencio Ll.
Mayor.
On March 14, 1996, the respondents filed their Position Paper in the illegal strike case. They
countered that they complied with all the legal requirements for the staging of the strike, they
put up no barricade, and conducted their strike peacefully, in an orderly and lawful manner,
without incident.
LA Mayor decided the case on February 4, 1998,5cra1aw and found the strike illegal; the
respondents committed prohibited acts during the strike by blocking the ingress to and egress
from PHIMCO's premises and preventing the non-striking employees from reporting for work.
He observed that it was not enough that the picket of the strikers was a moving picket, since
the strikers should allow the free passage to the entrance and exit points of the company
premises. Thus, LA Mayor declared that the respondent employees, PILA officers and
members, have lost their employment status.
On March 5, 1998, PILA and its officers and members appealed LA Mayor's decision to the
NLRC.
THE NLRC RULING
The NLRC decided the appeal on December 29, 1998, and set aside LA Mayor's
decision.6cra1aw The NLRC did not give weight to PHIMCO's evidence, and relied instead on
the respondents' evidence showing that the union conducted a peaceful moving picket.
On January 28, 1999, PHIMCO filed a motion for reconsideration in the illegal strike
case.7cra1aw
In a parallel development, LA Espiritu decided the union's illegal dismissal case on March 2,
1999. He ruled the respondents' dismissal as illegal, and ordered their reinstatement with
payment of backwages. PHIMCO appealed LA Espiritu's decision to the NLRC.
Pending the resolution of PHIMCO's motion for reconsideration in the illegal strike case and
the appeal of the illegal dismissal case, PHIMCO moved for the consolidation of the two (2)
cases. The NLRC acted favorably on the motion and consolidated the two (2) cases in its
Order dated August 5, 1999.
On February 20, 2002, the NLRC rendered its Decision in the consolidated cases, ruling
totally in the union's favor.8cra1aw It dismissed the appeal of the illegal dismissal case, and
denied PHIMCO's motion for reconsideration in the illegal strike case. The NLRC found that
the picket conducted by the striking employees was not an illegal blockade and did not
obstruct the points of entry to and exit from the company's premises; the pictures submitted
by the respondents revealed that the picket was moving, not stationary. With respect to the
illegal dismissal charge, the NLRC observed that the striking employees were not given
ample opportunity to explain their side after receipt of the June 23, 1995 letter. Thus, the
NLRC affirmed the Decision of LA Espiritu with respect to the payment of backwages until the
promulgation of the decision, plus separation pay at one (1) month salary per year of service
in lieu of reinstatement, and 10% of the monetary award as attorney's fees. It ruled out
reinstatement because of the damages sustained by the company brought about by the
strike.
On March 14, 2002, PHIMCO filed a motion for reconsideration of the consolidated decision.
On April 26, 2002, without waiting for the result of its motion for reconsideration, PHIMCO
elevated its case to the CA through a petition for certiorari under Rule 65 of the Rules of
Court.9cra1aw
THE CA RULING
In a Decision10cra1aw promulgated on February 10, 2004, the CA dismissed PHIMCO's
petition for certiorari. The CA noted that the NLRC findings, that the picket was peaceful and
that PHIMCO's evidence failed to show that the picket constituted an illegal blockade or that it
obstructed the points of entry to and exit from the company premises, were supported by
substantial evidence.
PHIMCO came to us through the present petition after the CA denied11cra1aw PHIMCO's
motion for reconsideration.12cra1aw
THE PETITION
The petitioner argues that the strike was illegal because the respondents committed the
prohibited acts under Article 264(e) of the Labor Code, such as blocking the ingress and
egress of the company premises, threat, coercion, and intimidation, as established by the
evidence on record.
THE CASE FOR THE RESPONDENTS
The respondents, on the other hand, submit that the issues raised in this case are factual in
nature that we cannot generally touch in a petition for review, unless compelling reasons
exist; the company has not shown any such compelling reason as the picket was peaceful
and uneventful, and no human barricade blocked the company premises.
THE ISSUE
In Montoya v. Transmed Manila Corporation,13cra1aw we laid down the basic approach that
should be followed in the review of CA decisions in labor cases, thus:chan robles virtual law
library
In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with
the review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45
limits us to the review of questions of law raised against the assailed CA decision. In ruling for
legal correctness, we have to view the CA decision in the same context that the petition
for certiorari it ruled upon was presented to it; we have to examine the CA decision from the
prism of whether it correctly determined the presence or absence of grave abuse of discretion
in the NLRC decision before it, not on the basis of whether the NLRC decision on the merits
of the case was correct. In other words, we have to be keenly aware that the CA undertook a
Rule 65 review, not a review on appeal, of the NLRC decision challenged before it. This is the
approach that should be basic in a Rule 45 review of a CA ruling in a labor case. In question
form, the question to ask is: Did the CA correctly determine whether the NLRC committed
grave abuse of discretion in ruling on the case?
In this light, the core issue in the present case is whether the CA correctly ruled that the
NLRC did not act with grave abuse of discretion in ruling that the union's strike was legal.
OUR RULING
We find the petition partly meritorious.
Requisites of a valid strike
A strike is the most powerful weapon of workers in their struggle with management in the
course of setting their terms and conditions of employment. Because it is premised on the
concept of economic war between labor and management, it is a weapon that can either
breathe life to or destroy the union and its members, and one that must also necessarily
affect management and its members.14cra1aw
In light of these effects, the decision to declare a strike must be exercised responsibly and
must always rest on rational basis, free from emotionalism, and unswayed by the tempers
and tantrums of hot heads; it must focus on legitimate union interests. To be legitimate, a
strike should not be antithetical to public welfare, and must be pursued within legal bounds.
The right to strike as a means of attaining social justice is never meant to oppress or destroy
anyone, least of all, the employer.15cra1aw
Since strikes affect not only the relationship between labor and management but also the
general peace and progress of the community, the law has provided limitations on the right to
strike. Procedurally, for a strike to be valid, it must comply with Article 263 16cra1aw of the
Labor Code, which requires that: (a) a notice of strike be filed with the Department of Labor
and Employment (DOLE) 30 days before the intended date thereof, or 15 days in case of
unfair labor practice; (b) a strike vote be approved by a majority of the total union
membership in the bargaining unit concerned, obtained by secret ballot in a meeting called
for that purpose; and (c) a notice be given to the DOLE of the results of the voting at least
seven days before the intended strike.
These requirements are mandatory, and the union's failure to comply renders the strike
illegal.17cra1aw The 15 to 30-day cooling-off period is designed to afford the parties the
opportunity to amicably resolve the dispute with the assistance of the NCMB
conciliator/mediator, while the seven-day strike ban is intended to give the DOLE an
opportunity to verify whether the projected strike really carries the imprimatur of the majority
of the union members.18cra1aw
In the present case, the respondents fully satisfied the legal procedural requirements; a strike
notice was filed on March 9, 1995; a strike vote was reached on March 16, 1995; notification
of the strike vote was filed with the DOLE on March 17, 1995; and the actual strike was
launched only on April 25, 1995.
Strike may be illegal for commission of prohibited acts
Despite the validity of the purpose of a strike and compliance with the procedural
requirements, a strike may still be held illegal where the means employed are
illegal.19cra1aw The means become illegal when they come within the prohibitions under
Article 264(e) of the Labor Code which provides:chan robles virtual law library
No person engaged in picketing shall commit any act of violence, coercion or intimidation or
obstruct the free ingress to or egress from the employer's premises for lawful purposes, or
obstruct public thoroughfares.
Based on our examination of the evidence which the LA viewed differently from the
NLRC and the CA, we find the PILA strike illegal. We intervene and rule even on the
evidentiary and factual issues of this case as both the NLRC and the CA grossly misread the
evidence, leading them to inordinately incorrect conclusions, both factual and legal. While the
strike undisputably had not been marred by actual violence and patent intimidation, the
picketing that respondent PILA officers and members undertook as part of their strike
activities effectively blocked the free ingress to and egress from PHIMCO's premises, thus
preventing non-striking employees and company vehicles from entering the PHIMCO
compound. In this manner, the picketers violated Article 264(e) of the Labor Code.
The Evidence
We gather from the case record the following pieces of relevant evidence adduced in the
compulsory arbitration proceedings.20cra1aw
For the Company
1. Pictures taken during the strike, showing that the respondents prevented free ingress to
and egress from the company premises;21cra1aw
2. Affidavit of PHIMCO Human Resources Manager Francis Ferdinand Cinco, stating that he
was one of the employees prevented by the strikers from entering the PHIMCO
premises;22cra1aw
3. Affidavit of Cinco, identifying Erlinda Vazquez, Ricardo Sacristan, Leonida Catalan,
Maximo Pedro, Nathaniela R. Dimaculangan, Rodolfo Mojico, Romeo Caramanza, Reynaldo
Ganitano, Alberto Basconcillo, and Ramon Falcis as PILA officers;23cra1aw
4. Affidavit of Cinco identifying other members of PILA; 24cra1aw
5. Folder 1, containing pictures taken during the strike identifying and showing Leonida
Catalan, Renato Ramos, Arsenio Zamora, Reynaldo Ganitano, Amelia Zamora, Angelito
Dejan, Teresa Permocillo, and Francisco Dalisay as the persons preventing Cinco and his
group from entering the company premises;25cra1aw
6. Folder 2, with pictures taken on May 30, 1995, showing Cinco, together with non-striking
PHIMCO employees, reporting for work but being refused entry by strikers Teofilo Manalili,
Nathaniela Dimaculangan, Bernando Cuadra, Maximo Pedro, Nicanor Ilagan, Julian Tuguin,
Nemesio Mamonong, Abraham Caday, Ernesto Rio, Benjamin Juan, Sr., Ramon Macaalay,
Gerardo Feliciano, Alberto Basconcillo, Rodolfo Sanidad, Mariano Rosales, Roger Caber,
Angelito de Guzman, Angelito Balosa and Philip Garces who blocked the company
gate;26cra1aw
7. Folder 3, with pictures taken on May 30, 1995, showing the respondents denying free
ingress to and egress from the company premises;27cra1aw
8. Folder 4, with pictures taken during the strike, showing that non-striking employees failed
to enter the company premises as a result of the respondents' refusal to let them in; 28cra1aw
9. Affidavit of Joaquin Aguilar stating that the pictures presented by Cinco were taken during
the strike;29cra1aw
10. Pictures taken by Aguilar during the strike, showing non-striking employees being refused
entry by the respondents;30cra1aw
11. Joint affidavit of Orlando Marfil and Rodolfo Digo, identifying the pictures they took during
the strike, showing that the respondents blocked ingress to and egress from the company
premises;31cra1aw and,
12. Testimonies of PHIMCO employees Rodolfo Eva, Aguilar and Cinco, as well as those of
PILA officers Maximo Pedro and Leonida Catalan.
For the Respondents
1. Affidavit of Leonida Catalan, stating that the PILA strike complied with all the legal
requirements, and the strike/picket was conducted peacefully with no incident of any
illegality;32cra1aw
2. Affidavit of Maximo Pedro, stating that the strike/picket was conducted peacefully; the
picket was always moving with no acts of illegality having been committed during the
strike;33cra1aw
3. Certification of Police Station Commander Bienvenido de los Reyes that during the strike
there was no report of any untoward incident; 34cra1aw
4. Certification of Rev. Father Erick Adeviso of Dambanang Bayan Parish Church that the
strike was peaceful and without any untoward incident; 35cra1aw
5. Certification of Priest-In-Charge Angelito Fausto of the Philippine Independent Church in
Punta, Santa Ana, that the strike complied with all the requirements for a lawful strike, and
the strikers conducted themselves in a peaceful manner;36cra1aw
6. Clearance issued by Punong Barangay Mario O. dela Rosa and Barangay Secretary
Pascual Gesmundo, Jr. that the strike from April 21 to July 7, 1995 was conducted in an
orderly manner with no complaints filed;37cra1aw and,
7. Testimonies at the compulsory arbitration proceedings.
In its resolution of December 29, 1998,38cra1aw the NLRC declared that "the string of proofs"
the company presented was "overwhelmingly counterbalanced by the numerous pieces of
evidence adduced by respondents x x x all depicting a common story that respondents put up
a peaceful moving picket, and did not commit any illegal acts x x x specifically obstructing the
ingress to and egress from the company premises[.]"39cra1aw
We disagree with this finding as the purported "peaceful moving picket" upon which the
NLRC resolution was anchored was not an innocuous picket, contrary to what the NLRC said
it was; the picket, under the evidence presented, did effectively obstruct the entry and exit
points of the company premises on various occasions.
To strike is to withhold or to stop work by the concerted action of employees as a result of an
industrial or labor dispute.40cra1aw The work stoppage may be accompanied by picketing by
the striking employees outside of the company compound. While a strike focuses on
stoppage of work, picketing focuses on publicizing the labor dispute and its incidents to
inform the public of what is happening in the company struck against. A picket simply means
to march to and from the employer's premises, usually accompanied by the display of
placards and other signs making known the facts involved in a labor dispute. 41cra1aw It is a
strike activity separate and different from the actual stoppage of work.
grievances,43cra1aw these rights are by no means absolute. Protected picketing does not
extend to blocking ingress to and egress from the company premises.44cra1aw That the
picket was moving, was peaceful and was not attended by actual violence may not free it
from taints of illegality if the picket effectively blocked entry to and exit from the company
premises.
In this regard, PHIMCO employees Rodolfo Eva and Joaquin Aguilar, and the company's
Human Resources Manager Francis Ferdinand Cinco testified during the compulsory
arbitration hearings:chan robles virtual law library
ATTY. REYES: this incident on May 22, 1995, when a coaster or bus attempted to enter
PHIMCO compound, you mentioned that it was refused entry. Why was this (sic) it refused
entry?
WITNESS: Because at that time, there was a moving picket at the gate that is why the bus
was not able to enter.45cra1aw
xxx
Q: Despite this TRO, which was issued by the NLRC, were you allowed entry by the strikers?
A: We made several attempts to enter the compound, I remember on May 7, 1995, we tried to
enter the PHIMCO compound but we were not allowed entry.
Q: Aside from May 27, 1995, were there any other instances wherein you were not allowed
entry at PHIMCO compound?
A: On May 29, I recall I was riding with our Production Manager with the Pick-up. We tried to
enter but we were not allowed by the strikers.46cra1aw
xxx
ARBITER MAYOR: How did the strikers block the ingress of the company?
A: They hold around, joining hands, moving picket.47cra1aw
xxx
ARBITER MAYOR: Reform the question, and because of that moving picket conducted by
the strikers, no employees or vehicles can come in or go out of the premises?
A: None, sir.48cra1aw
These accounts were confirmed by the admissions of respondent PILA officers Maximo
Pedro and Leonida Catalan that the strikers prevented non-striking employees from entering
the company premises. According to these union officers:chan robles virtual law library
ATTY. CHUA: Mr. witness, do you recall an incident when a group of managers of PHIMCO,
with several of the monthly paid employees who tried to enter the PHIMCO compound during
the strike?
MR. PEDRO: Yes, sir.
ATTY. CHUA: Can you tell us if these (sic) group of managers headed by Francis Cinco
entered the compound of PHIMCO on that day, when they tried to enter?
MR. PEDRO: No, sir. They were not able to enter.49cra1aw
xxx
ATTY. CHUA: Despite having been escorted by police Delos Reyes, you still did not give
way, and instead proceeded with your moving picket?
MR. PEDRO: Yes, sir.
ATTY. CHUA: In short, these people were not able to enter the premises of PHIMCO, Yes or
No.
MR. PEDRO: Yes, sir. 50cra1aw
xxx
ATTY. CHUA: Madam witness, even if Major Delos Reyes instructed you to give way so as to
allow the employees and managers to enter the premises, you and your co-employees did
not give way?
MS. CATALAN: No sir.
ATTY. CHUA: the managers and the employees were not able to enter the premises?
MS. CATALAN: Yes, sir.51cra1aw
The NLRC resolution itself noted the above testimonial evidence, "all building up a scenario
that the moving picket put up by [the] respondents obstructed the ingress to and egress from
the company premises[,]"52cra1aw yet it ignored the clear import of the testimonies as to the
true nature of the picket. Contrary to the NLRC characterization that it was a "peaceful
moving picket," it stood, in fact, as an obstruction to the company's points of ingress and
egress.
Significantly, the testimonies adduced were validated by the photographs taken of the strike
area, capturing the strike in its various stages and showing how the strikers actually
conducted the picket. While the picket was moving, it was maintained so close to the
company gates that it virtually constituted an obstruction, especially when the strikers joined
hands, as described by Aguilar, or were moving in circles, hand-to-shoulder, as shown by the
photographs, that, for all intents and purposes, blocked the free ingress to and egress from
the company premises. In fact, on closer examination, it could be seen that the respondents
were conducting the picket right at the company gates. 53cra1aw
The obstructive nature of the picket was aggravated by the placement of benches, with
strikers standing on top, directly in front of the open wing of the company gates, clearly
obstructing the entry and exit points of the company compound.54cra1aw
With a virtual human blockade and real physical obstructions (benches and makeshift
structures both outside and inside the gates),55cra1aw it was pure conjecture on the part of
the NLRC to say that "[t]he non-strikers and their vehicles were x x x free to get in and out of
the company compound undisturbed by the picket line."56cra1aw Notably, aside from non-
strikers who wished to report for work, company vehicles likewise could not enter and get out
of the factory because of the picket and the physical obstructions the respondents installed.
The blockade went to the point of causing the build up of traffic in the immediate vicinity of the
strike area, as shown by photographs.57cra1aw This, by itself, renders the picket a prohibited
activity. Pickets may not aggressively interfere with the right of peaceful ingress to and egress
from the employer's shop or obstruct public thoroughfares; picketing is not peaceful where
the sidewalk or entrance to a place of business is obstructed by picketers parading around in
a circle or lying on the sidewalk.58cra1aw
What the records reveal belies the NLRC observation that "the evidence x x x tends to show
that what respondents actually did was walking or patrolling to and fro within the company
vicinity and by word of mouth, banner or placard, informing the public concerning the
dispute."59cra1aw
The "peaceful moving picket" that the NLRC noted, influenced apparently by the certifications
(Mayor delos Reyes, Fr. Adeviso, Fr. Fausto and Barangay Secretary Gesmundo presented
in evidence by the respondents, was "peaceful" only because of the absence of violence
during the strike, but the obstruction of the entry and exit points of the company premises
caused by the respondents' picket was by no means a "petty blocking act" or an "insignificant
obstructive act."60cra1aw
As we have stated, while the picket was moving, the movement was in circles, very close to
the gates, with the strikers in a hand-to-shoulder formation without a break in their ranks, thus
preventing non-striking workers and vehicles from coming in and getting out. Supported by
actual blocking benches and obstructions, what the union demonstrated was a very
persuasive and quietly intimidating strategy whose chief aim was to paralyze the operations
of the company, not solely by the work stoppage of the participating workers, but by excluding
the company officials and non-striking employees from access to and exit from the company
premises. No doubt, the strike caused the company operations considerable damage, as the
NLRC itself recognized when it ruled out the reinstatement of the dismissed strikers.61cra1aw
Intimidation
Article 264(e) of the Labor Code tells us that picketing carried on with violence, coercion or
intimidation is unlawful.62cra1aw According to American jurisprudence, what constitutes
unlawful intimidation depends on the totality of the circumstances. 63cra1aw Force threatened
is the equivalent of force exercised. There may be unlawful intimidation without direct threats
or overt acts of violence. Words or acts which are calculated and intended to cause an
ordinary person to fear an injury to his person, business or property are equivalent to
threats.64cra1aw
The manner in which the respondent union officers and members conducted the picket in the
present case had created such an intimidating atmosphere that non-striking employees and
even company vehicles did not dare cross the picket line, even with police intervention.
Those who dared cross the picket line were stopped. The compulsory arbitration hearings
bear this out.
Maximo Pedro, a PILA officer, testified, on July 30, 1997, that a group of PHIMCO managers
led by Cinco, together with several monthly-paid employees, tried to enter the company
premises on May 27, 1995 with police escort; even then, the picketers did not allow them to
enter.65cra1awLeonida Catalan, another union officer, testified that she and the other
picketers did not give way despite the instruction of Police Major de los Reyes to the
picketers to allow the group to enter the company premises.66cra1aw (To be sure, police
intervention and participation are, as a rule, prohibited acts in a strike, but we note this
intervention solely as indicators of how far the union and its members have gone to block
ingress to and egress from the company premises.)
Further, PHIMCO employee Rodolfo Eva testified that on May 22, 1995, a company coaster
or bus attempted to enter the PHIMCO compound but it was refused entry by the "moving
picket."67cra1awCinco, the company personnel manager, also testified that on May 27, 1995,
when the NLRC TRO was in force, he and other employees tried to enter the PHIMCO
compound, but they were not allowed entry; on May 29, 1995, Cinco was with the PHIMCO
production manager in a pick-up and they tried to enter the company compound but, again,
they were not allowed by the strikers.68cra1aw Another employee, Joaquin Aguilar, when
asked how the strikers blocked the ingress of the company, replied that the strikers "hold
around, joining hands, moving picket" and, because of the moving picket, no employee or
vehicle could come in and go out of the premises.69cra1aw
The evidence adduced in the present case cannot be ignored. On balance, it supports the
company's submission that the respondent PILA officers and members committed acts during
the strike prohibited under Article 264(e) of the Labor Code. The testimonies of non-striking
employees, who were prevented from gaining entry into the company premises, and
confirmed no less by two officers of the union, are on record.
The photographs of the strike scene, also on record, depict the true character of the picket;
while moving, it, in fact, constituted a human blockade, obstructing free ingress to and egress
from the company premises, reinforced by benches planted directly in front of the company
gates. The photographs do not lie - these photographs clearly show that the picketers were
going in circles, without any break in their ranks or closely bunched together, right in front of
the gates. Thus, company vehicles were unable to enter the company compound, and were
backed up several meters into the street leading to the company gates.
Despite all these clear pieces of evidence of illegal obstruction, the NLRC looked the other
way and chose not to see the unmistakable violations of the law on strikes by the union and
its respondent officers and members. Needless to say, while the law protects the rights of the
laborer, it authorizes neither the oppression nor the destruction of the employer. 70cra1aw For
grossly ignoring the evidence before it, the NLRC committed grave abuse of discretion; for
supporting these gross NLRC errors, the CA committed its own reversible error.
Liabilities of union officers and members
In the determination of the liabilities of the individual respondents, the applicable provision is
Article 264(a) of the Labor Code:chan robles virtual law library
Art. 264. Prohibited activities. - (a) x x x
chanrobles
xxx
Any union officer who knowingly participates in an illegal strike and any worker or union
officer who knowingly participates in the commission of illegal acts during a strike may be
declared to have lost his employment status: Provided, That mere participation of a worker in
a lawful strike shall not constitute sufficient ground for termination of his employment, even if
a replacement had been hired by the employer during such lawful strike.
We explained in Samahang Manggagawa sa Sulpicio Lines, Inc.-NAFLU v. Sulpicio Lines,
Inc.71cra1aw that the effects of illegal strikes, outlined in Article 264 of the Labor Code, make
a distinction between participating workers and union officers. The services of an ordinary
striking worker cannot be terminated for mere participation in an illegal strike; proof must be
adduced showing that he or she committed illegal acts during the strike. The services of a
participating union officer, on the other hand, may be terminated, not only when he actually
commits an illegal act during a strike, but also if he knowingly participates in an illegal
strike.72cra1aw
In all cases, the striker must be identified. But proof beyond reasonable doubt is not required;
substantial evidence, available under the attendant circumstances, suffices to justify the
imposition of the penalty of dismissal on participating workers and union officers as above
described.73cra1aw
In the present case, respondents Erlinda Vazquez, Ricardo Sacristan, Leonida Catalan,
Maximo Pedro, Nathaniela Dimaculangan, Rodolfo Mojico, Romeo Caramanza, Reynaldo
Ganitano, Alberto Basconcillo, and Ramon Falcis stand to be dismissed asparticipating
union officers, pursuant to Article 264(a), paragraph 3, of the Labor Code. This provision
imposes the penalty of dismissal on "any union officer who knowingly participates in an illegal
strike." The law grants the employer the option of declaring a union officer who participated in
an illegal strike as having lost his employment.74cra1aw
PHIMCO was able to individually identify the participating union members thru the
affidavits of PHIMCO employees Martimer Panis75cra1aw and Rodrigo A. Ortiz,76cra1aw and
Personnel Manager Francis Ferdinand Cinco,77cra1aw and the photographs78cra1aw of
Joaquin Aguilar. Identified were respondents Angelita Balosa, Danilo Banaag, Abraham
Caday, Alfonso Claudio, Francisco Dalisay, Angelito Dejan, Philip Garces, Nicanor Ilagan,
Florencio Libongcogon, Nemesio Mamonong, Teofilo Manalili, Alfredo Pearson, Mario Perea,
Renato Ramos, Mariano Rosales, Pablo Sarmiento, Rodolfo Tolentino, Felipe Villareal,
Arsenio Zamora, Danilo Baltazar, Roger Caber, Reynaldo Camarin, Bernardo Cuadra,
Angelito de Guzman, Gerardo Feliciano, Alex Ibañez, Benjamin Juan, Sr., Ramon Macaalay,
Gonzalo Manalili, Raul Miciano, Hilario Peña, Teresa Permocillo, Ernesto Rio, Rodolfo
Sanidad, Rafael Sta. Ana, Julian Tuguin and Amelia Zamora as the union members who
actively participated in the strike by blocking the ingress to and egress from the company
premises and preventing the passage of non-striking employees. For participating in illegally
blocking ingress to and egress from company premises, these union members stand to be
dismissed for their illegal acts in the conduct of the union's strike.
PHIMCO failed to observe due process
We find, however, that PHIMCO violated the requirements of due process of the Labor Code
when it dismissed the respondents.
Under Article 277(b)79cra1aw of the Labor Code, the employer must send the employee, who
is about to be terminated, a written notice stating the cause/s for termination and must give
the employee the opportunity to be heard and to defend himself.
We explained in Suico v. National Labor Relations Commission,80cra1aw that Article 277(b),
in relation to Article 264(a) and (e) of the Labor Code recognizes the right to due process of
all workers, without distinction as to the cause of their termination, even if the cause was their
supposed involvement in strike-related violence prohibited under Article 264(a) and (e) of the
Labor Code.
To meet the requirements of due process in the dismissal of an employee, an employer must
furnish him or her with two (2) written notices: (1) a written notice specifying the grounds for
termination and giving the employee a reasonable opportunity to explain his side and (2)
another written notice indicating that, upon due consideration of all circumstances, grounds
have been established to justify the employer's decision to dismiss the employee. 81cra1aw
In the present case, PHIMCO sent a letter, on June 23, 1995, to thirty-six (36) union
members, generally directing them to explain within twenty-four (24) hours why they should
not be dismissed for the illegal acts they committed during the strike; three days later, or on
June 26, 1995, the thirty-six (36) union members were informed of their dismissal from
employment.
We do not find this company procedure to be sufficient compliance with the due process
requirements that the law guards zealously. It does not appear from the evidence that the
union officers were specifically informed of the charges against them and given the chance to
explain and present their side. Without the specifications they had to respond to, they were
arbitrarily separated from work in total disregard of their rights to due process and security of
tenure.
As to the union members, only thirty-six (36) of the thirty-seven (37) union members included
in this case were notified of the charges against them thru the letters dated June 23, 1995,
but they were not given an ample opportunity to be heard and to defend themselves; the
notice of termination came on June 26, 1995, only three (3) days from the first notice - a
perfunctory and superficial attempt to comply with the notice requirement under the Labor
Code. The short interval of time between the first and second notice speaks for itself under
the circumstances of this case; mere token recognition of the due process requirements was
made, indicating the company's intent to dismiss the union members involved, without any
meaningful resort to the guarantees accorded them by law.
Under the circumstances, where evidence sufficient to justify the penalty of dismissal has
been adduced but the workers concerned were not accorded their essential due process
rights, our ruling in Agabon v. NLRC82cra1aw finds full application; the employer, despite the
just cause for dismissal, must pay the dismissed workers nominal damages as indemnity for
the violation of the workers' right to statutory due process. Prevailing jurisprudence sets the
amount of nominal damages at P30,000.00, which same amount we find sufficient and
appropriate in the present case.83cra1aw
WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the
decision dated February 10, 2004 and the resolution dated December 12, 2005 of the Court
of Appeals in CA-G.R. SP No. 70336, upholding the rulings of the National Labor Relations
Commission.
The Decision, dated February 4, 1998, of Labor Arbiter Jovencio Ll. Mayor should prevail and
is REINSTATED with the MODIFICATION that Erlinda Vazquez, Ricardo Sacristan, Leonida
Catalan, Maximo Pedro, Nathaniela Dimaculangan, Rodolfo Mojico, Romeo Caramanza,
Reynaldo Ganitano, Alberto Basconcillo, Ramon Falcis, Angelita Balosa, Danilo Banaag,
Abraham Caday, Alfonso Claudio, Francisco Dalisay, Angelito Dejan, Philip Garces, Nicanor
Ilagan, Florencio Libongcogon, Nemesio Mamonong, Teofilo Manalili, Alfredo Pearson, Mario
Perea, Renato Ramos, Mariano Rosales, Pablo Sarmiento, Rodolfo Tolentino, Felipe
Villareal, Arsenio Zamora, Danilo Baltazar, Roger Caber, Reynaldo Camarin, Bernardo
Cuadra, Angelito de Guzman, Gerardo Feliciano, Alex Ibañez, Benjamin Juan, Sr., Ramon
Macaalay, Gonzalo Manalili, Raul Miciano, Hilario Peña, Teresa Permocillo, Ernesto Rio,
Rodolfo Sanidad, Rafael Sta. Ana, Julian Tuguin, and Amelia Zamora are each awarded
nominal damages in the amount of P30,000.00. No pronouncement as to costs.
SO ORDERED.
[G.R. No. L-1377. May 12, 1948.]
LEYTE LAND TRANSPORTATION COMPANY, INC., Petitioners, v. LEYTE FARMERS’ &
LABORERS’ UNION, Respondents.
SYLLABUS
1. EMPLOYER AND EMPLOYEE; COURT OF INDUSTRIAL RELATIONS; SALARY OR
WAGE INCREASES; HIGH COST OF LIVING AS A FACTOR. — Under sections 20 and 5 of
Commonwealth Act No. 103, the Court of Industrial Relations has the power to take into
account the "high cost of living" as a factor for determining the reasonableness of any salary
or wage raise, even if the latter affects only a specific employer and not a given industry or
locality.
2. ID.; ID.; APPEAL; SUPREME COURT NOT AUTHORIZED TO MAKE FACTUAL
INQUIRY. — In an appeal from a decision of the Court of Industrial Relations, the Supreme
Court is not authorized to make any factual inquiry.
3. ID.; ID.; POWER TO FIX MINIMUM WAGES CONSTITUTIONAL. — The Court upheld the
constitutionality of the power of the Court of Industrial Relations to determine and fix minimum
wages for workers.
4. ID.; ID.; POWER TO GRANT VACATION AND SICK LEAVES WITH PAY. — The authority
of the Court of Industrial Relations to order the petitioner to grant its employees and laborers
vacation and sick leaves with pay is clearly included or implied from its general jurisdictions to
consider, investigate, decide and settle all questions, matters, controversies, or disputes
arising between, and/or affecting employers and employees or laborers, and regulate the
relations between them (Commonwealth Act No. 103, section 1, as amended by
Commonwealth Act No. 559), and to take cognizance of any industrial dispute causing or
likely to cause a strike or lockout, arising from differences as regards, among others, wages
or conditions of employment.
5. ID.; ID.; INTERFERENCE NOT DEPRIVATION OF FREEDOM OF CONTRACT. — In
answer to the contention of the petitioner that the doctrine laid down in the appealed decision
in effect "has deprived the company of its rights to enter into contract of employment as it and
the employee may agree," it is sufficient to quote the following pronouncements of the United
States Supreme Court: "The fact that both parties are of full age and competent to contract
does not necessarily deprive the State of the power to interfere where the parties do not
stand upon an equality, or where the public health demands that one party to the contract
shall be protected against himself. The State still retains an interest in his welfare, however
reckless he may be. The whole is no greater than the sum of all the parts, and where the
individual health, safety and welfare are sacrificed or neglected, the State must suffer."cralaw
virtua1aw library
6. ID.; ID.; POWER TO EXTEND WAGE INCREASE AND OTHER BENEFITS TO NON-
STRIKERS. — The Court of Industrial Relations has the power to extend wage increases and
other benefits to workers who were not parties to the case and who did not declare a strike
against the petitioner.
DECISION
PARAS, J.:
This is an appeal by certiorari from a decision of the Court of Industrial Relations in which the
petitioner (appellant), Leyte Land Transportation Company, Inc., was ordered, — among
other directives not here assailed, — (1) to grant its various employees, drivers, conductors,
and laborers increase in salaries and wages at average rates of five and ten pesos,
 representing an annual total of some P14,940; (2) to grant, under certain conditions, per
diems at P2 per day to its drivers, conductors, mechanics and other workers; (3) to grant,
under certain conditions, its employees and laborers 15 days vacation with pay and 15 days
sick leave with pay.
The petitioner contends that the Court of Industrial Relations made a mistake in conceding
salary or wage increases, after being "convinced that the basic salary of P100 for drivers and
P80 for conductors is just taking into consideration the financial condition of the corporation
just now," and merely because such increases will enable the workers "to meet the high cost
of living now in Tacloban in order to help them buy the necessities for a decent livelihood." It
is intimated in this connection that the total amount of the increases, "if added to the crippling
losses will throw the Company into bankruptcy."cralaw virtua1aw library
There can be no doubt about the propriety of the action of the Court of Industrial Relations in
taking into account the "high cost of living" as a factor for determining the reasonableness of
any salary or wage raise, since said court is impliedly empowered to do so under section 20
of Commonwealth Act No. 103 which provides that "in the hearing, investigation and
determination of any question or controversy and in exercising any duties and power under
this Act, the Court shall act according to justice and equity and substantial merits of the case,
without regard to technicalities or legal forms," not to mention section 5 which provides, in
connection with minimum wages for a given industry or in a given locality, that the court shall
fix the same at a rate that "would give the workingmen a just compensation for their labor and
an adequate income to meet the essential necessities of civilized life, and at the same time
allow the capital a fair return on its investment." It cannot be supposed that the Court of
Industrial Relations is powerless to adopt the latter criterion, simply because it is called upon
to fix a minimum wage to be paid by a specific employer, and not by all employers engaged in
the transportation business.
Whether or not the ruling of the Court of Industrial Relations will allow the petitioner a fair
return on its investments or result in its bankruptcy is a factual inquiry which we are not
authorized to make. (Commonwealth Act No. 103, section 15, as amended by
Commonwealth Act No. 559, section 2; Rule of Court 44; National Labor Union v. Philippine
Match Co., 40 Off. Gaz., 8th Supp., p. 134; Bardwell Brothers v. Philippine Labor Union, 39
Off. Gaz., p. 1032; Pasumil Workers’ Union v. Court of Industrial Relations, 40 Off. Gaz., 6th
Supp., p. 71; Kaisahan Ng Mga Manggagawa Sa Kahoy sa Pilipinas v. Gotamco Saw Mill, G.
R. No. L-1573, March 29, 1948.) Even so, it is not amiss to point out, by way of preserving
petitioner’s peace of mind, that the increases in question are, under the express terms of the
appealed decision, merely temporary, with the result that the petitioner may reopen the
question at any proper time.
This Court has already upheld the constitutionality of the power of the Court of Industrial
Relations to determine and fix minimum wages for workers (Antamok Goldfields Mining
Company v. Court of Industrial Relations, 40 Off. Gaz., 8th Supp., p. 173; International
Hardwood and Veneer Company v. Pañgil Federation of Labor, 40 Off. Gaz., 9th Supp., p.
118; Central Azucarrera de Tarlac v. Court of Industrial Relations, 40 Off. Gaz., 9th Supp., p.
146), thereby making it unnecessary for us to discuss at length the arguments of the
petitioner on the point. Indeed, the power in question was said to have been granted to the
Court of Industrial Relations in virtue of the constitutional mandates that "the promotion of
social justice to insure the well-being and economic security of all the people should be the
concern of the State" (Constitution, Article II, section 5); "the State shall afford protection to
labor, especially to working women and minors, and shall regulate the relations between
landowner and tenant, and between labor and capital in industry and in agriculture" (Id.,
Article XIV, section 6); "the State may provide for compulsory arbitration." (Id.)
The authority of the Court of Industrial Relations to order the petitioner to grant its employees
and laborers vacation and sick leaves with pay is clearly included or implied from its general
jurisdictions to consider, investigate, decide and settle all questions, matters, controversies,
or disputes arising between, and/or affecting employers and employees or laborers, and
regulate the relations between them (Commonwealth Act No. 103, section 1, as amended by
Commonwealth Act No. 559), and to take cognizance of any industrial dispute causing or
likely to cause a strike or lockout, arising from differences as regards, among others, wages
or conditions of employment. It is needless to remind all employers that the concession of
vacation and sick leaves in the long run redounds to their benefit, for as well remarked by
Professors Watkins and Dood in "Labor Problems" (1940), pages 330-331, quoted in the
memorandum of the respondent Court of Industrial Relations, "when there is an assurance of
holidays and vacations, workers take up their tasks with greater efficiency and tend to sustain
their productiveness for longer periods."cralaw virtua1aw library
In answer to the contention of the petitioner that the doctrine laid down in the appealed
decision in effect "has deprived the company of its rights to enter into contract of employment
as it and the employee may agree," it is sufficient to quote the following pronouncements of
the United States Supreme Court: "The fact that both parties are of full age and competent to
contract does not necessarily deprive the State of the power to interfere where the parties do
not stand upon an equality, or where the public health demands that one party to the contract
shall be protected against himself. The State still retains an interest in his welfare, however
reckless he may be. The whole is no greater than the sum of all the parts, and where the
individual health, safety and welfare are sacrificed or neglected, the State must suffer." (West
Coast Hotel Company v. Parrish, 300 U S., 379, 394; 81 Law ed., 703, 710, quoting Holden v.
Hardy, 169 U. S., 366; 42 Law. ed., 780. The former, by the way, expressly overrules the
case of Adkins v. Children’s Hospital, 261 U. S., 525; 67 Law. ed. 785, cited by the
petitioner.) With respect to the decision in People v. Pomar, 46 Phil., 440, also invoked in
petitioner’s behalf, we merely recall what Mr. Justice Laurel stated in his concurring opinion in
the case of Ang Tibay v. Court of Industrial Relations Et. Al., G. R. No. 46496, quoted in
Antamok Goldfields Mining Company v. Court of Industrial Relations, 40 Off. Gaz., 8th Supp.,
pages 173, 193: "In the midst of changes that have taken place, it may likewise be doubted if
the pronouncement made by this Court in the case of People v. Pomar (46 Phil., 440) — also
relied upon by the petitioner in its printed memorandum — still retains its virtuality as a living
principle. The policy of laissez faire has to some extent given way to the assumption by the
government of the right of intervention even in contractual relations affected with public
interest."cralaw virtua1aw library
Criticism is addressed to the extension of the increases and other benefits in question to
employees and laborers who were not made parties hereto and who did not join the seventy-
six drivers and conductors who had made corresponding demands upon and declared a
strike against the petitioner. Aside from the fact that the Court of Industrial Relations is
authorized to act according to justice and equity without regard to technicalities or legal forms
(Commonwealth Act No. 103, section 20), the criticism is answered in the decision of this
Court in Parsons Hardware Co., Inc. v. Court of Industrial Relations, G. R. No. 48215,
wherein it was held: "Even assuming that the eighteen laborers were not members of the
union at the time its petition for a general increase in salaries was submitted, we are of the
opinion and so hold that as they are laborers of the company, they are entitled to the
increase. . . . It has to be so, because to accord such increase only to members of the union
would constitute an unjust and unwarranted discrimination against non-members."cralaw
virtua1aw library
The petitioner alleges that the lower court erred in fixing a scale of salaries, wages and per
diems higher than that adopted by the National Government and its subdivisions. The
comparison is rather sad because, the Government, unlike the petitioner, is not established
for profit and mainly derives its income from the taxes paid by the people. Moreover, we can
take judicial notice of the fact that the Government, within the limits of its finances, has
already striven and is still striving to raise and standardize the salaries and wages of its
employees and laborers, especially those in the lower brackets.
The decision appealed from is, therefore, hereby affirmed, with costs against the petitioner.
So ordered.
G.R. No. L-25246 September 12, 1974
BENJAMIN VICTORIANO, Plaintiff-Appellee, vs. ELIZALDE ROPE WORKERS' UNION and
ELIZALDE ROPE FACTORY, INC., defendants, ELIZALDE ROPE WORKERS'
UNION, Defendant-Appellant..
ZALDIVAR, J.:
Appeal to this Court on purely questions of law from the decision of the Court of First Instance
of Manila in its Civil Case No. 58894.chanroblesvirtualawlibrarychanrobles virtual law library
The undisputed facts that spawned the instant case follow:chanrobles virtual law library
Benjamin Victoriano (hereinafter referred to as Appellee), a member of the religious sect
known as the "Iglesia ni Cristo", had been in the employ of the Elizalde Rope Factory, Inc.
(hereinafter referred to as Company) since 1958. As such employee, he was a member of the
Elizalde Rope Workers' Union (hereinafter referred to as Union) which had with the Company
a collective bargaining agreement containing a closed shop provision which reads as follows:
Membership in the Union shall be required as a condition of employment for all permanent
employees workers covered by this Agreement.
The collective bargaining agreement expired on March 3, 1964 but was renewed the following
day, March 4, 1964.chanroblesvirtualawlibrarychanrobles virtual law library
Under Section 4(a), paragraph 4, of Republic Act No. 875, prior to its amendment by Republic
Act No. 3350, the employer was not precluded "from making an agreement with a labor
organization to require as a condition of employment membership therein, if such labor
organization is the representative of the employees." On June 18, 1961, however, Republic
Act No. 3350 was enacted, introducing an amendment to - paragraph (4) subsection (a) of
section 4 of Republic Act No. 875, as follows: ... "but such agreement shall not cover
members of any religious sects which prohibit affiliation of their members in any such labor
organization".chanroblesvirtualawlibrarychanrobles virtual law library
Being a member of a religious sect that prohibits the affiliation of its members with any labor
organization, Appellee presented his resignation to appellant Union in 1962, and when no
action was taken thereon, he reiterated his resignation on September 3, 1974. Thereupon,
the Union wrote a formal letter to the Company asking the latter to separate Appellee from
the service in view of the fact that he was resigning from the Union as a member. The
management of the Company in turn notified Appellee and his counsel that unless the
Appellee could achieve a satisfactory arrangement with the Union, the Company would be
constrained to dismiss him from the service. This prompted Appellee to file an action for
injunction, docketed as Civil Case No. 58894 in the Court of First Instance of Manila to enjoin
the Company and the Union from dismissing Appellee. 1In its answer, the Union invoked the
"union security clause" of the collective bargaining agreement; assailed the constitutionality of
Republic Act No. 3350; and contended that the Court had no jurisdiction over the case,
pursuant to Republic Act No. 875, Sections 24 and 9 (d) and (e). 2Upon the facts agreed upon
by the parties during the pre-trial conference, the Court a quo rendered its decision on August
26, 1965, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is rendered enjoining the defendant Elizalde Rope
Factory, Inc. from dismissing the plaintiff from his present employment and sentencing the
defendant Elizalde Rope Workers' Union to pay the plaintiff P500 for attorney's fees and the
costs of this action. 3chanrobles virtual law library
From this decision, the Union appealed directly to this Court on purely questions of law,
assigning the following errors:
I. That the lower court erred when it did not rule that Republic Act No. 3350 is
unconstitutional.chanroblesvirtualawlibrarychanrobles virtual law library
II. That the lower court erred when it sentenced appellant herein to pay plaintiff the sum of
P500 as attorney's fees and the cost thereof.
In support of the alleged unconstitutionality of Republic Act No. 3350, the Union contented,
firstly, that the Act infringes on the fundamental right to form lawful associations; that "the
very phraseology of said Republic Act 3350, that membership in a labor organization is
banned to all those belonging to such religious sect prohibiting affiliation with any labor
organization" 4, "prohibits all the members of a given religious sect from joining any labor
union if such sect prohibits affiliations of their members thereto" 5; and, consequently,
deprives said members of their constitutional right to form or join lawful associations or
organizations guaranteed by the Bill of Rights, and thus becomes obnoxious to Article III,
Section 1 (6) of the 1935 Constitution. 6chanrobles virtual law library
Secondly, the Union contended that Republic Act No. 3350 is unconstitutional for impairing
the obligation of contracts in that, while the Union is obliged to comply with its collective
bargaining agreement containing a "closed shop provision," the Act relieves the employer
from its reciprocal obligation of cooperating in the maintenance of union membership as a
condition of employment; and that said Act, furthermore, impairs the Union's rights as it
deprives the union of dues from members who, under the Act, are relieved from the obligation
to continue as such members. 7chanrobles virtual law library
Thirdly, the Union contended that Republic Act No. 3350 discriminatorily favors those
religious sects which ban their members from joining labor unions, in violation of Article Ill,
Section 1 (7) of the 1935 Constitution; and while said Act unduly protects certain religious
sects, it leaves no rights or protection to labor organizations. 8chanrobles virtual law library
Fourthly, Republic Act No. 3350, asserted the Union, violates the constitutional provision that
"no religious test shall be required for the exercise of a civil right," in that the laborer's
exercise of his civil right to join associations for purposes not contrary to law has to be
determined under the Act by his affiliation with a religious sect; that conversely, if a worker
has to sever his religious connection with a sect that prohibits membership in a labor
organization in order to be able to join a labor organization, said Act would violate religious
freedom. 9chanrobles virtual law library
Fifthly, the Union contended that Republic Act No. 3350, violates the "equal protection of
laws" clause of the Constitution, it being a discriminately legislation, inasmuch as by
exempting from the operation of closed shop agreement the members of the "Iglesia ni
Cristo", it has granted said members undue advantages over their fellow workers, for while
the Act exempts them from union obligation and liability, it nevertheless entitles them at the
same time to the enjoyment of all concessions, benefits and other emoluments that the union
might secure from the employer. 10chanrobles virtual law library
Sixthly, the Union contended that Republic Act No. 3350 violates the constitutional provision
regarding the promotion of social justice. 11chanrobles virtual law library
Appellant Union, furthermore, asserted that a "closed shop provision" in a collective
bargaining agreement cannot be considered violative of religious freedom, as to call for the
amendment introduced by Republic Act No. 3350; 12and that unless Republic Act No. 3350 is
declared unconstitutional, trade unionism in this country would be wiped out as employers
would prefer to hire or employ members of the Iglesia ni Cristo in order to do away with labor
organizations. 13chanrobles virtual law library
Appellee, assailing appellant's arguments, contended that Republic Act No. 3350 does not
violate the right to form lawful associations, for the right to join associations includes the right
not to join or to resign from a labor organization, if one's conscience does not allow his
membership therein, and the Act has given substance to such right by prohibiting the
compulsion of workers to join labor organizations; 14that said Act does not impair the
obligation of contracts for said law formed part of, and was incorporated into, the terms of the
closed shop agreement; 15that the Act does not violate the establishment of religion clause or
separation of Church and State, for Congress, in enacting said law, merely accommodated
the religious needs of those workers whose religion prohibits its members from joining labor
unions, and balanced the collective rights of organized labor with the constitutional right of an
individual to freely exercise his chosen religion; that the constitutional right to the free
exercise of one's religion has primacy and preference over union security measures which
are merely contractual 16; that said Act does not violate the constitutional provision of equal
protection, for the classification of workers under the Act depending on their religious tenets is
based on substantial distinction, is germane to the purpose of the law, and applies to all the
members of a given class; 17that said Act, finally, does not violate the social justice policy of
the Constitution, for said Act was enacted precisely to equalize employment opportunities for
all citizens in the midst of the diversities of their religious beliefs." 18chanrobles virtual law
library
I. Before We proceed to the discussion of the first assigned error, it is necessary to premise
that there are some thoroughly established principles which must be followed in all cases
where questions of constitutionality as obtains in the instant case are involved. All
presumptions are indulged in favor of constitutionality; one who attacks a statute, alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt, that a law may work
hardship does not render it unconstitutional; that if any reasonable basis may be conceived
which supports the statute, it will be upheld, and the challenger must negate all possible
bases; that the courts are not concerned with the wisdom, justice, policy, or expediency of a
statute; and that a liberal interpretation of the constitution in favor of the constitutionality of
legislation should be adopted. 19chanrobles virtual law library
1. Appellant Union's contention that Republic Act No. 3350 prohibits and bans the members
of such religious sects that forbid affiliation of their members with labor unions from joining
labor unions appears nowhere in the wording of Republic Act No. 3350; neither can the same
be deduced by necessary implication therefrom. It is not surprising, therefore, that appellant,
having thus misread the Act, committed the error of contending that said Act is obnoxious to
the constitutional provision on freedom of association.chanroblesvirtualawlibrarychanrobles
virtual law library
Both the Constitution and Republic Act No. 875 recognize freedom of association. Section 1
(6) of Article III of the Constitution of 1935, as well as Section 7 of Article IV of the
Constitution of 1973, provide that the right to form associations or societies for purposes not
contrary to law shall not be abridged. Section 3 of Republic Act No. 875 provides that
employees shall have the right to self-organization and to form, join of assist labor
organizations of their own choosing for the purpose of collective bargaining and to engage in
concerted activities for the purpose of collective bargaining and other mutual aid or
protection. What the Constitution and the Industrial Peace Act recognize and guarantee is the
"right" to form or join associations. Notwithstanding the different theories propounded by the
different schools of jurisprudence regarding the nature and contents of a "right", it can be
safely said that whatever theory one subscribes to, a right comprehends at least two broad
notions, namely: first, liberty or freedom, i.e., the absence of legal restraint, whereby an
employee may act for himself without being prevented by law; and second, power, whereby
an employee may, as he pleases, join or refrain from Joining an association. It is, therefore,
the employee who should decide for himself whether he should join or not an association;
and should he choose to join, he himself makes up his mind as to which association he would
join; and even after he has joined, he still retains the liberty and the power to leave and
cancel his membership with said organization at any time. 20It is clear, therefore, that the right
to join a union includes the right to abstain from joining any union. 21Inasmuch as what both
the Constitution and the Industrial Peace Act have recognized, and guaranteed to the
employee, is the "right" to join associations of his choice, it would be absurd to say that the
law also imposes, in the same breath, upon the employee the duty to join associations. The
law does not enjoin an employee to sign up with any
association.chanroblesvirtualawlibrarychanrobles virtual law library
The right to refrain from joining labor organizations recognized by Section 3 of the Industrial
Peace Act is, however, limited. The legal protection granted to such right to refrain from
joining is withdrawn by operation of law, where a labor union and an employer have agreed
on a closed shop, by virtue of which the employer may employ only member of the collective
bargaining union, and the employees must continue to be members of the union for the
duration of the contract in order to keep their jobs. Thus Section 4 (a) (4) of the Industrial
Peace Act, before its amendment by Republic Act No. 3350, provides that although it would
be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of
employment or any term or condition of employment to encourage or discourage membership
in any labor organization" the employer is, however, not precluded "from making an
agreement with a labor organization to require as a condition of employment membership
therein, if such labor organization is the representative of the employees". By virtue,
therefore, of a closed shop agreement, before the enactment of Republic Act No. 3350, if any
person, regardless of his religious beliefs, wishes to be employed or to keep his employment,
he must become a member of the collective bargaining union. Hence, the right of said
employee not to join the labor union is curtailed and
withdrawn.chanroblesvirtualawlibrarychanrobles virtual law library
To that all-embracing coverage of the closed shop arrangement, Republic Act No. 3350
introduced an exception, when it added to Section 4 (a) (4) of the Industrial Peace Act the
following proviso: "but such agreement shall not cover members of any religious sects which
prohibit affiliation of their members in any such labor organization". Republic Act No. 3350
merely excludes ipso jure from the application and coverage of the closed shop agreement
the employees belonging to any religious sects which prohibit affiliation of their members with
any labor organization. What the exception provides, therefore, is that members of said
religious sects cannot be compelled or coerced to join labor unions even when said unions
have closed shop agreements with the employers; that in spite of any closed shop
agreement, members of said religious sects cannot be refused employment or dismissed
from their jobs on the sole ground that they are not members of the collective bargaining
union. It is clear, therefore, that the assailed Act, far from infringing the constitutional
provision on freedom of association, upholds and reinforces it. It does not prohibit the
members of said religious sects from affiliating with labor unions. It still leaves to said
members the liberty and the power to affiliate, or not to affiliate, with labor unions. If,
notwithstanding their religious beliefs, the members of said religious sects prefer to sign up
with the labor union, they can do so. If in deference and fealty to their religious faith, they
refuse to sign up, they can do so; the law does not coerce them to join; neither does the law
prohibit them from joining; and neither may the employer or labor union compel them to join.
Republic Act No. 3350, therefore, does not violate the constitutional provision on freedom of
association.chanroblesvirtualawlibrarychanrobles virtual law library
2. Appellant Union also contends that the Act is unconstitutional for impairing the obligation of
its contract, specifically, the "union security clause" embodied in its Collective Bargaining
Agreement with the Company, by virtue of which "membership in the union was required as a
condition for employment for all permanent employees workers". This agreement was already
in existence at the time Republic Act No. 3350 was enacted on June 18, 1961, and it cannot,
therefore, be deemed to have been incorporated into the agreement. But by reason of this
amendment, Appellee, as well as others similarly situated, could no longer be dismissed from
his job even if he should cease to be a member, or disaffiliate from the Union, and the
Company could continue employing him notwithstanding his disaffiliation from the Union. The
Act, therefore, introduced a change into the express terms of the union security clause; the
Company was partly absolved by law from the contractual obligation it had with the Union of
employing only Union members in permanent positions, It cannot be denied, therefore, that
there was indeed an impairment of said union security
clause.chanroblesvirtualawlibrarychanrobles virtual law library
According to Black, any statute which introduces a change into the express terms of the
contract, or its legal construction, or its validity, or its discharge, or the remedy for its
enforcement, impairs the contract. The extent of the change is not material. It is not a
question of degree or manner or cause, but of encroaching in any respect on its obligation or
dispensing with any part of its force. There is an impairment of the contract if either party is
absolved by law from its performance. 22Impairment has also been predicated on laws which,
without destroying contracts, derogate from substantial contractual rights. 23chanrobles virtual
law library
It should not be overlooked, however, that the prohibition to impair the obligation of contracts
is not absolute and unqualified. The prohibition is general, affording a broad outline and
requiring construction to fill in the details. The prohibition is not to be read with literal
exactness like a mathematical formula, for it prohibits unreasonable impairment only. 24In
spite of the constitutional prohibition, the State continues to possess authority to safeguard
the vital interests of its people. Legislation appropriate to safeguarding said interests may
modify or abrogate contracts already in effect. 25For not only are existing laws read into
contracts in order to fix the obligations as between the parties, but the reservation of essential
attributes of sovereign power is also read into contracts as a postulate of the legal order. All
contracts made with reference to any matter that is subject to regulation under the police
power must be understood as made in reference to the possible exercise of that
power. 26Otherwise, important and valuable reforms may be precluded by the simple device
of entering into contracts for the purpose of doing that which otherwise may be prohibited.
The policy of protecting contracts against impairment presupposes the maintenance of a
government by virtue of which contractual relations are worthwhile a government which
retains adequate authority to secure the peace and good order of society. The contract
clause of the Constitution must, therefore, be not only in harmony with, but also in
subordination to, in appropriate instances, the reserved power of the state to safeguard the
vital interests of the people. It follows that not all legislations, which have the effect of
impairing a contract, are obnoxious to the constitutional prohibition as to impairment, and a
statute passed in the legitimate exercise of police power, although it incidentally destroys
existing contract rights, must be upheld by the courts. This has special application to
contracts regulating relations between capital and labor which are not merely contractual, and
said labor contracts, for being impressed with public interest, must yield to the common
good. 27chanrobles virtual law library
In several occasions this Court declared that the prohibition against impairing the obligations
of contracts has no application to statutes relating to public subjects within the domain of the
general legislative powers of the state involving public welfare. 28Thus, this Court also held
that the Blue Sunday Law was not an infringement of the obligation of a contract that required
the employer to furnish work on Sundays to his employees, the law having been enacted to
secure the well-being and happiness of the laboring class, and being, furthermore, a
legitimate exercise of the police power. 29chanrobles virtual law library
In order to determine whether legislation unconstitutionally impairs contract obligations, no
unchanging yardstick, applicable at all times and under all circumstances, by which the
validity of each statute may be measured or determined, has been fashioned, but every case
must be determined upon its own circumstances. Legislation impairing the obligation of
contracts can be sustained when it is enacted for the promotion of the general good of the
people, and when the means adopted to secure that end are reasonable. Both the end
sought and the means adopted must be legitimate, i.e., within the scope of the reserved
power of the state construed in harmony with the constitutional limitation of that
power. 30chanrobles virtual law library
union, an institution developed to organize labor into a collective force and thus protect the
individual employee from the power of collective capital, is, paradoxically, both the champion
of employee rights, and a new source of their frustration. Moreover, when the Union interacts
with management, it produces yet a third aggregate of group strength from which the
individual also needs protection - the collective bargaining relationship. 31chanrobles virtual
law library
The aforementioned purpose of the amendatory law is clearly seen in the Explanatory Note to
House Bill No. 5859, which later became Republic Act No. 3350, as follows:
It would be unthinkable indeed to refuse employing a person who, on account of his religious
beliefs and convictions, cannot accept membership in a labor organization although he
possesses all the qualifications for the job. This is tantamount to punishing such person for
believing in a doctrine he has a right under the law to believe in. The law would not allow
discrimination to flourish to the detriment of those whose religion discards membership in any
labor organization. Likewise, the law would not commend the deprivation of their right to work
and pursue a modest means of livelihood, without in any manner violating their religious faith
and/or belief. 32chanrobles virtual law library
It cannot be denied, furthermore, that the means adopted by the Act to achieve that purpose -
exempting the members of said religious sects from coverage of union security agreements -
is reasonable.chanroblesvirtualawlibrarychanrobles virtual law library
It may not be amiss to point out here that the free exercise of religious profession or belief is
superior to contract rights. In case of conflict, the latter must, therefore, yield to the former.
The Supreme Court of the United States has also declared on several occasions that the
rights in the First Amendment, which include freedom of religion, enjoy a preferred position in
the constitutional system. 33Religious freedom, although not unlimited, is a fundamental
personal right and liberty, 34and has a preferred position in the hierarchy of values.
Contractual rights, therefore, must yield to freedom of religion. It is only where unavoidably
necessary to prevent an immediate and grave danger to the security and welfare of the
community that infringement of religious freedom may be justified, and only to the smallest
extent necessary to avoid the danger.chanroblesvirtualawlibrarychanrobles virtual law library

What then was the purpose sought to be achieved by Republic Act No. 3350? Its purpose 3. In further support of its contention that Republic Act No. 3350 is unconstitutional, appellant
was to insure freedom of belief and religion, and to promote the general welfare by preventing
Union averred that said Act discriminates in favor of members of said religious sects in
discrimination against those members of religious sects which prohibit their members from
violation of Section 1 (7) of Article Ill of the 1935 Constitution, and which is now Section 8 of
joining labor unions, confirming thereby their natural, statutory and constitutional right to work,
Article IV of the 1973 Constitution, which provides:
the fruits of which work are usually the only means whereby they can maintain their own life
and the life of their dependents. It cannot be gainsaid that said purpose is
legitimate.chanroblesvirtualawlibrarychanrobles virtual law library No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof, and the free exercise and enjoyment of religious profession and worship, without
discrimination and preference, shall forever be allowed. No religious test shall be required for
The questioned Act also provides protection to members of said religious sects against two
the exercise of civil or political rights.
aggregates of group strength from which the individual needs protection. The individual
employee, at various times in his working life, is confronted by two aggregates of power -
collective labor, directed by a union, and collective capital, directed by management. The
The constitutional provision into only prohibits legislation for the support of any religious
tenets or the modes of worship of any sect, thus forestalling compulsion by law of the
acceptance of any creed or the practice of any form of worship, 35but also assures the free
exercise of one's chosen form of religion within limits of utmost amplitude. It has been said
that the religion clauses of the Constitution are all designed to protect the broadest possible
liberty of conscience, to allow each man to believe as his conscience directs, to profess his
beliefs, and to live as he believes he ought to live, consistent with the liberty of others and
with the common good. 36Any legislation whose effect or purpose is to impede the
observance of one or all religions, or to discriminate invidiously between the religions, is
invalid, even though the burden may be characterized as being only indirect. 37But if the stage
regulates conduct by enacting, within its power, a general law which has for its purpose and
effect to advance the state's secular goals, the statute is valid despite its indirect burden on
religious observance, unless the state can accomplish its purpose without imposing such
burden. 38chanrobles virtual law library
In Aglipay v. Ruiz 39, this Court had occasion to state that the government should not be
precluded from pursuing valid objectives secular in character even if the incidental result
would be favorable to a religion or sect. It has likewise been held that the statute, in order to
withstand the strictures of constitutional prohibition, must have a secular legislative purpose
and a primary effect that neither advances nor inhibits religion. 40Assessed by these criteria,
Republic Act No. 3350 cannot be said to violate the constitutional inhibition of the "no-
establishment" (of religion) clause of the Constitution.chanroblesvirtualawlibrarychanrobles
virtual law library
The purpose of Republic Act No. 3350 is secular, worldly, and temporal, not spiritual or
religious or holy and eternal. It was intended to serve the secular purpose of advancing the
constitutional right to the free exercise of religion, by averting that certain persons be refused
work, or be dismissed from work, or be dispossessed of their right to work and of being
impeded to pursue a modest means of livelihood, by reason of union security agreements. To
help its citizens to find gainful employment whereby they can make a living to support
themselves and their families is a valid objective of the state. In fact, the state is enjoined, in
the 1935 Constitution, to afford protection to labor, and regulate the relations between labor
and capital and industry. 41More so now in the 1973 Constitution where it is mandated that
"the State shall afford protection to labor, promote full employment and equality in
employment, ensure equal work opportunities regardless of sex, race or creed and regulate
the relation between workers and employers. 42chanrobles virtual law library
The primary effects of the exemption from closed shop agreements in favor of members of
religious sects that prohibit their members from affiliating with a labor organization, is the
protection of said employees against the aggregate force of the collective bargaining
agreement, and relieving certain citizens of a burden on their religious beliefs; and by
eliminating to a certain extent economic insecurity due to unemployment, which is a serious
menace to the health, morals, and welfare of the people of the State, the Act also promotes
the well-being of society. It is our view that the exemption from the effects of closed shop
agreement does not directly advance, or diminish, the interests of any particular religion.
Although the exemption may benefit those who are members of religious sects that prohibit
their members from joining labor unions, the benefit upon the religious sects is merely
incidental and indirect. The "establishment clause" (of religion) does not ban regulation on
conduct whose reason or effect merely happens to coincide or harmonize with the tenets of
some or all religions. 43The free exercise clause of the Constitution has been interpreted to
require that religious exercise be preferentially aided. 44chanrobles virtual law library
We believe that in enacting Republic Act No. 3350, Congress acted consistently with the spirit
of the constitutional provision. It acted merely to relieve the exercise of religion, by certain
persons, of a burden that is imposed by union security agreements. It was Congress itself
that imposed that burden when it enacted the Industrial Peace Act (Republic Act 875), and,
certainly, Congress, if it so deems advisable, could take away the same burden. It is certain
that not every conscience can be accommodated by all the laws of the land; but when
general laws conflict with scrupples of conscience, exemptions ought to be granted unless
some "compelling state interest" intervenes. 45In the instant case, We see no such compelling
state interest to withhold exemption.chanroblesvirtualawlibrarychanrobles virtual law library
Appellant bewails that while Republic Act No. 3350 protects members of certain religious
sects, it leaves no right to, and is silent as to the protection of, labor organizations. The
purpose of Republic Act No. 3350 was not to grant rights to labor unions. The rights of labor
unions are amply provided for in Republic Act No. 875 and the new Labor Code. As to the
lamented silence of the Act regarding the rights and protection of labor unions, suffice it to
say, first, that the validity of a statute is determined by its provisions, not by its silence 46; and,
second, the fact that the law may work hardship does not render it
unconstitutional. 47chanrobles virtual law library
It would not be amiss to state, regarding this matter, that to compel persons to join and
remain members of a union to keep their jobs in violation of their religious scrupples, would
hurt, rather than help, labor unions, Congress has seen it fit to exempt religious objectors lest
their resistance spread to other workers, for religious objections have contagious
potentialities more than political and philosophic
objections.chanroblesvirtualawlibrarychanrobles virtual law library
Furthermore, let it be noted that coerced unity and loyalty even to the country, and a fortiori to
a labor - union assuming that such unity and loyalty can be attained through coercion - is not
a goal that is constitutionally obtainable at the expense of religious liberty. 48A desirable end
cannot be promoted by prohibited means.chanroblesvirtualawlibrarychanrobles virtual law
library
4. Appellants' fourth contention, that Republic Act No. 3350 violates the constitutional
prohibition against requiring a religious test for the exercise of a civil right or a political right, is
not well taken. The Act does not require as a qualification, or condition, for joining any lawful
association membership in any particular religion or in any religious sect; neither does the Act
require affiliation with a religious sect that prohibits its members from joining a labor union as
a condition or qualification for withdrawing from a labor union. Joining or withdrawing from a
labor union requires a positive act. Republic Act No. 3350 only exempts members with such
religious affiliation from the coverage of closed shop agreements. So, under this Act, a
religious objector is not required to do a positive act - to exercise the right to join or to resign
from the union. He is exempted ipso jure without need of any positive act on his part. A
conscientious religious objector need not perform a positive act or exercise the right of
resigning from the labor union - he is exempted from the coverage of any closed shop
agreement that a labor union may have entered into. How then can there be a religious test
required for the exercise of a right when no right need be exercised?chanrobles virtual law
library
We have said that it was within the police power of the State to enact Republic Act No. 3350,
and that its purpose was legal and in consonance with the Constitution. It is never an illegal
evasion of a constitutional provision or prohibition to accomplish a desired result, which is
lawful in itself, by discovering or following a legal way to do it. 49chanrobles virtual law library
5. Appellant avers as its fifth ground that Republic Act No. 3350 is a discriminatory legislation,
inasmuch as it grants to the members of certain religious sects undue advantages over other
workers, thus violating Section 1 of Article III of the 1935 Constitution which forbids the denial
to any person of the equal protection of the laws. 50chanrobles virtual law library
The guaranty of equal protection of the laws is not a guaranty of equality in the application of
the laws upon all citizens of the state. It is not, therefore, a requirement, in order to avoid the
constitutional prohibition against inequality, that every man, woman and child should be
affected alike by a statute. Equality of operation of statutes does not mean indiscriminate
operation on persons merely as such, but on persons according to the circumstances
surrounding them. It guarantees equality, not identity of rights. The Constitution does not
require that things which are different in fact be treated in law as though they were the same.
The equal protection clause does not forbid discrimination as to things that are different. 51It
does not prohibit legislation which is limited either in the object to which it is directed or by the
territory within which it is to operate.chanroblesvirtualawlibrarychanrobles virtual law library
The equal protection of the laws clause of the Constitution allows classification. Classification
in law, as in the other departments of knowledge or practice, is the grouping of things in
speculation or practice because they agree with one another in certain particulars. A law is
not invalid because of simple inequality. 52The very idea of classification is that of inequality,
so that it goes without saying that the mere fact of inequality in no manner determines the
matter of constitutionality. 53All that is required of a valid classification is that it be reasonable,
which means that the classification should be based on substantial distinctions which make
for real differences; that it must be germane to the purpose of the law; that it must not be
limited to existing conditions only; and that it must apply equally to each member of the
class. 54This Court has held that the standard is satisfied if the classification or distinction is
based on a reasonable foundation or rational basis and is not palpably arbitrary. 55chanrobles
virtual law library
In the exercise of its power to make classifications for the purpose of enacting laws over
matters within its jurisdiction, the state is recognized as enjoying a wide range of
discretion. 56It is not necessary that the classification be based on scientific or marked
differences of things or in their relation. 57Neither is it necessary that the classification be
made with mathematical nicety. 58Hence legislative classification may in many cases properly
rest on narrow distinctions, 59for the equal protection guaranty does not preclude the
legislature from recognizing degrees of evil or harm, and legislation is addressed to evils as
they may appear.chanroblesvirtualawlibrarychanrobles virtual law library
We believe that Republic Act No. 3350 satisfies the aforementioned requirements. The Act
classifies employees and workers, as to the effect and coverage of union shop security
agreements, into those who by reason of their religious beliefs and convictions cannot sign up
with a labor union, and those whose religion does not prohibit membership in labor unions.
Tile classification rests on real or substantial, not merely imaginary or whimsical, distinctions.
There is such real distinction in the beliefs, feelings and sentiments of employees. Employees
do not believe in the same religious faith and different religions differ in their dogmas and
cannons. Religious beliefs, manifestations and practices, though they are found in all places,
and in all times, take so many varied forms as to be almost beyond imagination. There are
many views that comprise the broad spectrum of religious beliefs among the people. There
are diverse manners in which beliefs, equally paramount in the lives of their possessors, may
be articulated. Today the country is far more heterogenous in religion than before, differences
in religion do exist, and these differences are important and should not be
ignored.chanroblesvirtualawlibrarychanrobles virtual law library
Even from the phychological point of view, the classification is based on real and important
differences. Religious beliefs are not mere beliefs, mere ideas existing only in the mind, for
they carry with them practical consequences and are the motives of certain rules. of human
conduct and the justification of certain acts. 60Religious sentiment makes a man view things
and events in their relation to his God. It gives to human life its distinctive character, its tone,
its happiness or unhappiness its enjoyment or irksomeness. Usually, a strong and passionate
desire is involved in a religious belief. To certain persons, no single factor of their experience
is more important to them than their religion, or their not having any religion. Because of
differences in religious belief and sentiments, a very poor person may consider himself better
than the rich, and the man who even lacks the necessities of life may be more cheerful than
the one who has all possible luxuries. Due to their religious beliefs people, like the martyrs,
became resigned to the inevitable and accepted cheerfully even the most painful and
excruciating pains. Because of differences in religious beliefs, the world has witnessed
turmoil, civil strife, persecution, hatred, bloodshed and war, generated to a large extent by
members of sects who were intolerant of other religious beliefs. The classification, introduced
by Republic Act No. 3350, therefore, rests on substantial
distinctions.chanroblesvirtualawlibrarychanrobles virtual law library
The classification introduced by said Act is also germane to its purpose. The purpose of the
law is precisely to avoid those who cannot, because of their religious belief, join labor unions,
from being deprived of their right to work and from being dismissed from their work because
of union shop security agreements.chanroblesvirtualawlibrarychanrobles virtual law library
Republic Act No. 3350, furthermore, is not limited in its application to conditions existing at
the time of its enactment. The law does not provide that it is to be effective for a certain
period of time only. It is intended to apply for all times as long as the conditions to which the
law is applicable exist. As long as there are closed shop agreements between an employer
and a labor union, and there are employees who are prohibited by their religion from affiliating
with labor unions, their exemption from the coverage of said agreements
continues.chanroblesvirtualawlibrarychanrobles virtual law library
Finally, the Act applies equally to all members of said religious sects; this is evident from its
provision. The fact that the law grants a privilege to members of said religious sects cannot
by itself render the Act unconstitutional, for as We have adverted to, the Act only restores to
them their freedom of association which closed shop agreements have taken away, and puts
them in the same plane as the other workers who are not prohibited by their religion from
joining labor unions. The circumstance, that the other employees, because they are
differently situated, are not granted the same privilege, does not render the law
unconstitutional, for every classification allowed by the Constitution by its nature involves
inequality.chanroblesvirtualawlibrarychanrobles virtual law library
The mere fact that the legislative classification may result in actual inequality is not violative
of the right to equal protection, for every classification of persons or things for regulation by
law produces inequality in some degree, but the law is not thereby rendered invalid. A
classification otherwise reasonable does not offend the constitution simply because in
practice it results in some inequality. 61Anent this matter, it has been said that whenever it is
apparent from the scope of the law that its object is for the benefit of the public and the
means by which the benefit is to be obtained are of public character, the law will be upheld
even though incidental advantage may occur to individuals beyond those enjoyed by the
general public. 62chanrobles virtual law library
6. Appellant's further contention that Republic Act No. 3350 violates the constitutional
provision on social justice is also baseless. Social justice is intended to promote the welfare
of all the people. 63Republic Act No. 3350 promotes that welfare insofar as it looks after the
welfare of those who, because of their religious belief, cannot join labor unions; the Act
prevents their being deprived of work and of the means of livelihood. In determining whether
any particular measure is for public advantage, it is not necessary that the entire state be
directly benefited - it is sufficient that a portion of the state be benefited
thereby.chanroblesvirtualawlibrarychanrobles virtual law library
Social justice also means the adoption by the Government of measures calculated to insure
economic stability of all component elements of society, through the maintenance of a proper
economic and social equilibrium in the inter-relations of the members of the
community. 64Republic Act No. 3350 insures economic stability to the members of a religious
sect, like the Iglesia ni Cristo, who are also component elements of society, for it insures
security in their employment, notwithstanding their failure to join a labor union having a closed
shop agreement with the employer. The Act also advances the proper economic and social
equilibrium between labor unions and employees who cannot join labor unions, for it exempts
the latter from the compelling necessity of joining labor unions that have closed shop
agreements and equalizes, in so far as opportunity to work is concerned, those whose
religion prohibits membership in labor unions with those whose religion does not prohibit said
membership. Social justice does not imply social equality, because social inequality will
always exist as long as social relations depend on personal or subjective proclivities. Social
justice does not require legal equality because legal equality, being a relative term, is
necessarily premised on differentiations based on personal or natural conditions. 65Social
justice guarantees equality of opportunity 66, and this is precisely what Republic Act No. 3350
proposes to accomplish - it gives laborers, irrespective of their religious scrupples, equal
opportunity for work.chanroblesvirtualawlibrarychanrobles virtual law library
7. As its last ground, appellant contends that the amendment introduced by Republic Act No.
3350 is not called for - in other words, the Act is not proper, necessary or desirable. Anent
this matter, it has been held that a statute which is not necessary is not, for that reason,
unconstitutional; that in determining the constitutional validity of legislation, the courts are
unconcerned with issues as to the necessity for the enactment of the legislation in
question. 67Courts do inquire into the wisdom of laws. 68Moreover, legislatures, being chosen
by the people, are presumed to understand and correctly appreciate the needs of the people,
and it may change the laws accordingly. 69The fear is entertained by appellant that unless the
Act is declared unconstitutional, employers will prefer employing members of religious sects
that prohibit their members from joining labor unions, and thus be a fatal blow to unionism.
We do not agree. The threat to unionism will depend on the number of employees who are
members of the religious sects that control the demands of the labor market. But there is
really no occasion now to go further and anticipate problems We cannot judge with the
material now before Us. At any rate, the validity of a statute is to be determined from its
general purpose and its efficacy to accomplish the end desired, not from its effects on a
particular case. 70The essential basis for the exercise of power, and not a mere incidental
result arising from its exertion, is the criterion by which the validity of a statute is to be
measured. 71chanrobles virtual law library
II. We now pass on the second assignment of error, in support of which the Union argued that
the decision of the trial court ordering the Union to pay P500 for attorney's fees directly
contravenes Section 24 of Republic Act No. 875, for the instant action involves an industrial
dispute wherein the Union was a party, and said Union merely acted in the exercise of its
rights under the union shop provision of its existing collective bargaining contract with the
Company; that said order also contravenes Article 2208 of the Civil Code; that, furthermore,
Appellee was never actually dismissed by the defendant Company and did not therefore
suffer any damage at all . 72chanrobles virtual law library
In refuting appellant Union's arguments, Appellee claimed that in the instant case there was
really no industrial dispute involved in the attempt to compel Appellee to maintain its
membership in the union under pain of dismissal, and that the Union, by its act, inflicted
intentional harm on Appellee; that since Appellee was compelled to institute an action to
protect his right to work, appellant could legally be ordered to pay attorney's fees under
Articles 1704 and 2208 of the Civil Code. 73chanrobles virtual law library
The second paragraph of Section 24 of Republic Act No. 875 which is relied upon by
appellant provides that:
No suit, action or other proceedings shall be maintainable in any court against a labor
organization or any officer or member thereof for any act done by or on behalf of such
organization in furtherance of an industrial dispute to which it is a party, on the ground only
that such act induces some other person to break a contract of employment or that it is in
restraint of trade or interferes with the trade, business or employment of some other person
or with the right of some other person to dispose of his capital or labor. (Emphasis supplied)
That there was a labor dispute in the instant case cannot be disputed for appellant sought the
discharge of respondent by virtue of the closed shop agreement and under Section 2 (j) of
Republic Act No. 875 a question involving tenure of employment is included in the term "labor
dispute". 74The discharge or the act of seeking it is the labor dispute itself. It being the labor
dispute itself, that very same act of the Union in asking the employer to dismiss Appellee
cannot be "an act done ... in furtherance of an industrial dispute". The mere fact that appellant
is a labor union does not necessarily mean that all its acts are in furtherance of an industrial
dispute. 75Appellant Union, therefore, cannot invoke in its favor Section 24 of Republic Act
No. 875. This case is not intertwined with any unfair labor practice case existing at the time
when Appellee filed his complaint before the lower
court.chanroblesvirtualawlibrarychanrobles virtual law library
Neither does Article 2208 of the Civil Code, invoked by the Union, serve as its shield. The
article provides that attorney's fees and expenses of litigation may be awarded "when the
defendant's act or omission has compelled the plaintiff ... to incur expenses to protect his
interest"; and "in any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered". In the instant case, it cannot be
gainsaid that appellant Union's act in demanding Appellee's dismissal caused Appellee to
incur expenses to prevent his being dismissed from his job. Costs according to Section 1,
Rule 142, of the Rules of Court, shall be allowed as a matter of course to the prevailing
party.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the instant appeal is dismissed, and the decision, dated August 26, 1965, of
the Court of First Instance of Manila, in its Civil Case No. 58894, appealed from is affirmed,
with costs against appellant Union. It is so ordered.
G.R. No. 171101 July 5, 2011
HACIENDA LUISITA, INCORPORATED, Petitioner,
LUISITA INDUSTRIAL PARK CORPORATION and RIZAL COMMERCIAL BANKING
CORPORATION,Petitioners-in-Intervention,
vs.
PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER
PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA
MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI,
and JULIO SUNIGA1 and his SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC.
and WINDSOR ANDAYA, Respondents.
DECISION
VELASCO, JR., J.:
"Land for the landless," a shibboleth the landed gentry doubtless has received with much
misgiving, if not resistance, even if only the number of agrarian suits filed serves to be the
norm. Through the years, this battle cry and root of discord continues to reflect the seemingly
ceaseless discourse on, and great disparity in, the distribution of land among the people,
"dramatizing the increasingly urgent demand of the dispossessed x x x for a plot of earth as
their place in the sun."2 As administrations and political alignments change, policies
advanced, and agrarian reform laws enacted, the latest being what is considered a
comprehensive piece, the face of land reform varies and is masked in myriads of ways. The
stated goal, however, remains the same: clear the way for the true freedom of the farmer. 3
Land reform, or the broader term "agrarian reform," has been a government policy even
before the Commonwealth era. In fact, at the onset of the American regime, initial steps
toward land reform were already taken to address social unrest.4 Then, under the 1935
Constitution, specific provisions on social justice and expropriation of landed estates for
distribution to tenants as a solution to land ownership and tenancy issues were incorporated.
In 1955, the Land Reform Act (Republic Act No. [RA] 1400) was passed, setting in motion the
expropriation of all tenanted estates.5
On August 8, 1963, the Agricultural Land Reform Code (RA 3844) was enacted,6 abolishing
share tenancy and converting all instances of share tenancy into leasehold tenancy. 7 RA
3844 created the Land Bank of the Philippines (LBP) to provide support in all phases of
agrarian reform.
As its major thrust, RA 3844 aimed to create a system of owner-cultivatorship in rice and
corn, supposedly to be accomplished by expropriating lands in excess of 75 hectares for their
eventual resale to tenants. The law, however, had this restricting feature: its operations were
confined mainly to areas in Central Luzon, and its implementation at any level of intensity
limited to the pilot project in Nueva Ecija.8
Subsequently, Congress passed the Code of Agrarian Reform (RA 6389) declaring the entire
country a land reform area, and providing for the automatic conversion of tenancy to
leasehold tenancy in all areas. From 75 hectares, the retention limit was cut down to seven
hectares.9
Barely a month after declaring martial law in September 1972, then President Ferdinand
Marcos issued Presidential Decree No. 27 (PD 27) for the "emancipation of the tiller from the
bondage of the soil."10 Based on this issuance, tenant-farmers, depending on the size of the
landholding worked on, can either purchase the land they tilled or shift from share to fixed-
rent leasehold tenancy.11 While touted as "revolutionary," the scope of the agrarian reform
program PD 27 enunciated covered only tenanted, privately-owned rice and corn lands.12
Then came the revolutionary government of then President Corazon C. Aquino and the
drafting and eventual ratification of the 1987 Constitution. Its provisions foreshadowed the
establishment of a legal framework for the formulation of an expansive approach to land
reform, affecting all agricultural lands and covering both tenant-farmers and regular
farmworkers.13
So it was that Proclamation No. 131, Series of 1987, was issued instituting a comprehensive
agrarian reform program (CARP) to cover all agricultural lands, regardless of tenurial
arrangement and commodity produced, as provided in the Constitution.
On July 22, 1987, Executive Order No. 229 (EO 229) was issued providing, as its
title14 indicates, the mechanisms for CARP implementation. It created the Presidential
Agrarian Reform Council (PARC) as the highest policy-making body that formulates all
policies, rules, and regulations necessary for the implementation of CARP.
On June 15, 1988, RA 6657 or the Comprehensive Agrarian Reform Law of 1988, also known
as CARL or the CARP Law, took effect, ushering in a new process of land classification,
acquisition, and distribution. As to be expected, RA 6657 met stiff opposition, its validity or
some of its provisions challenged at every possible turn. Association of Small Landowners in
the Philippines, Inc. v. Secretary of Agrarian Reform 15 stated the observation that the assault
was inevitable, the CARP being an untried and untested project, "an experiment [even], as all
life is an experiment," the Court said, borrowing from Justice Holmes.
The Case
In this Petition for Certiorari and Prohibition under Rule 65 with prayer for preliminary
injunctive relief, petitioner Hacienda Luisita, Inc. (HLI) assails and seeks to set aside PARC
Resolution No. 2005-32-0116 and Resolution No. 2006-34-0117 issued on December 22, 2005
and May 3, 2006, respectively, as well as the implementing Notice of Coverage dated
January 2, 2006 (Notice of Coverage).18
The Facts
At the core of the case is Hacienda Luisita de Tarlac (Hacienda Luisita), once a 6,443-
hectare mixed agricultural-industrial-residential expanse straddling several municipalities of
Tarlac and owned by Compañia General de Tabacos de Filipinas (Tabacalera). In 1957, the
Spanish owners of Tabacalera offered to sell Hacienda Luisita as well as their controlling
interest in the sugar mill within the hacienda, the Central Azucarera de Tarlac (CAT), as an
indivisible transaction. The Tarlac Development Corporation (Tadeco), then owned and/or
controlled by the Jose Cojuangco, Sr. Group, was willing to buy. As agreed upon, Tadeco
undertook to pay the purchase price for Hacienda Luisita in pesos, while that for the
controlling interest in CAT, in US dollars.19
To facilitate the adverted sale-and-purchase package, the Philippine government, through the
then Central Bank of the Philippines, assisted the buyer to obtain a dollar loan from a US
bank.20 Also, the Government Service Insurance System (GSIS) Board of Trustees extended
on November 27, 1957 a PhP 5.911 million loan in favor of Tadeco to pay the peso price
component of the sale. One of the conditions contained in the approving GSIS Resolution No.
3203, as later amended by Resolution No. 356, Series of 1958, reads as follows:
That the lots comprising the Hacienda Luisita shall be subdivided by the applicant-corporation
and sold at cost to the tenants, should there be any, and whenever conditions should exist
warranting such action under the provisions of the Land Tenure Act;21
As of March 31, 1958, Tadeco had fully paid the purchase price for the acquisition of
Hacienda Luisita and Tabacalera’s interest in CAT.22
The details of the events that happened next involving the hacienda and the political color
some of the parties embossed are of minimal significance to this narration and need no
belaboring. Suffice it to state that on May 7, 1980, the martial law administration filed a suit
before the Manila Regional Trial Court (RTC) against Tadeco, et al., for them to surrender
Hacienda Luisita to the then Ministry of Agrarian Reform (MAR, now the Department of
Agrarian Reform [DAR]) so that the land can be distributed to farmers at cost. Responding,
Tadeco or its owners alleged that Hacienda Luisita does not have tenants, besides which
sugar lands––of which the hacienda consisted––are not covered by existing agrarian reform
legislations. As perceived then, the government commenced the case against Tadeco as a
political message to the family of the late Benigno Aquino, Jr.23
Eventually, the Manila RTC rendered judgment ordering Tadeco to surrender Hacienda
Luisita to the MAR. Therefrom, Tadeco appealed to the Court of Appeals (CA).
On March 17, 1988, the Office of the Solicitor General (OSG) moved to withdraw the
government’s case against Tadeco, et al. By Resolution of May 18, 1988, the CA dismissed
the case the Marcos government initially instituted and won against Tadeco, et al. The
dismissal action was, however, made subject to the obtention by Tadeco of the PARC’s
approval of a stock distribution plan (SDP) that must initially be implemented after such
approval shall have been secured.24 The appellate court wrote:
The defendants-appellants x x x filed a motion on April 13, 1988 joining the x x x
governmental agencies concerned in moving for the dismissal of the case subject, however,
to the following conditions embodied in the letter dated April 8, 1988 (Annex 2) of the
Secretary of the [DAR] quoted, as follows:
 1. Should TADECO fail to obtain approval of the stock distribution plan for failure to
comply with all the requirements for corporate landowners set forth in the guidelines
issued by the [PARC]: or
2. If such stock distribution plan is approved by PARC, but TADECO fails to initially
implement it.
xxxx
WHEREFORE, the present case on appeal is hereby dismissed without prejudice, and should
be revived if any of the conditions as above set forth is not duly complied with by the
TADECO.25
Markedly, Section 10 of EO 22926allows corporate landowners, as an alternative to the actual
land transfer scheme of CARP, to give qualified beneficiaries the right to purchase shares of
stocks of the corporation under a stock ownership arrangement and/or land-to-share ratio.
Like EO 229, RA 6657, under the latter’s Sec. 31, also provides two (2) alternative modalities,
i.e., land or stock transfer, pursuant to either of which the corporate landowner can comply
with CARP, but subject to well-defined conditions and timeline requirements. Sec. 31 of RA
6657 provides:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership
over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries x x x.
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section shall
be deemed to have complied with the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights
and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act. (Emphasis added.)
Vis-à-vis the stock distribution aspect of the aforequoted Sec. 31, DAR issued Administrative
Order No. 10, Series of 1988 (DAO 10),27 entitled Guidelines and Procedures for Corporate
Landowners Desiring to Avail Themselves of the Stock Distribution Plan under Section 31 of
RA 6657.
From the start, the stock distribution scheme appeared to be Tadeco’s preferred option, for,
on August 23, 1988,28 it organized a spin-off corporation, HLI, as vehicle to facilitate stock
acquisition by the farmworkers. For this purpose, Tadeco assigned and conveyed to HLI the
agricultural land portion (4,915.75 hectares) and other farm-related properties of Hacienda
Luisita in exchange for HLI shares of stock.29
Pedro Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Jose Cojuangco, Jr., and Paz C.
Teopaco were the incorporators of HLI.30
To accommodate the assets transfer from Tadeco to HLI, the latter, with the Securities and
Exchange Commission’s (SEC’s) approval, increased its capital stock on May 10, 1989 from
PhP 1,500,000 divided into 1,500,000 shares with a par value of PhP 1/share to PhP
400,000,000 divided into 400,000,000 shares also with par value of PhP 1/share,
150,000,000 of which were to be issued only to qualified and registered beneficiaries of the
CARP, and the remaining 250,000,000 to any stockholder of the corporation.31
As appearing in its proposed SDP, the properties and assets of Tadeco contributed to the
capital stock of HLI, as appraised and approved by the SEC, have an aggregate value of PhP
590,554,220, or after deducting the total liabilities of the farm amounting to PhP 235,422,758,
a net value of PhP 355,531,462. This translated to 355,531,462 shares with a par value of
PhP 1/share.32
On May 9, 1989, some 93% of the then farmworker-beneficiaries (FWBs) complement of
Hacienda Luisita signified in a referendum their acceptance of the proposed HLI’s Stock
Distribution Option Plan. On May 11, 1989, the Stock Distribution Option Agreement (SDOA),
styled as a Memorandum of Agreement (MOA),33 was entered into by Tadeco, HLI, and the
5,848 qualified FWBs34 and attested to by then DAR Secretary Philip Juico. The SDOA
embodied the basis and mechanics of the SDP, which would eventually be submitted to the
PARC for approval. In the SDOA, the parties agreed to the following:
1. The percentage of the value of the agricultural land of Hacienda Luisita
(P196,630,000.00) in relation to the total assets (P590,554,220.00) transferred and
conveyed to the SECOND PARTY [HLI] is 33.296% that, under the law, is the
proportion of the outstanding capital stock of the SECOND PARTY, which is
P355,531,462.00 or 355,531,462 shares with a par value of P1.00 per share, that has
to be distributed to the THIRD PARTY [FWBs] under the stock distribution plan, the
said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
2. The qualified beneficiaries of the stock distribution plan shall be the farmworkers
who appear in the annual payroll, inclusive of the permanent and seasonal
employees, who are regularly or periodically employed by the SECOND PARTY.
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY
shall arrange with the FIRST PARTY [Tadeco] the acquisition and distribution to
the THIRD PARTY on the basis of number of days worked and at no cost to them of
one-thirtieth (1/30) of 118,391,976.85 shares of the capital stock of the SECOND
PARTY that are presently owned and held by the FIRST PARTY, until such time as
the entire block of 118,391,976.85 shares shall have been completely acquired and
distributed to the THIRD PARTY.
4.The SECOND PARTY shall guarantee to the qualified beneficiaries of the [SDP]
that every year they will receive on top of their regular compensation, an amount that
approximates the equivalent of three (3%) of the total gross sales from the production
of the agricultural land, whether it be in the form of cash dividends or incentive
bonuses or both.
5. Even if only a part or fraction of the shares earmarked for distribution will have
been acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST
PARTY shall execute at the beginning of each fiscal year an irrevocable proxy, valid
and effective for one (1) year, in favor of the farmworkers appearing as shareholders
of the SECOND PARTY at the start of said year which will empower the THIRD
PARTY or their representative to vote in stockholders’ and board of directors’
meetings of the SECOND PARTY convened during the year the entire 33.296% of
the outstanding capital stock of the SECOND PARTY earmarked for distribution and
thus be able to gain such number of seats in the board of directors of the SECOND
PARTY that the whole 33.296% of the shares subject to distribution will be entitled to.
6. In addition, the SECOND PARTY shall within a reasonable time subdivide and
allocate for free and without charge among the qualified family-beneficiaries residing
in the place where the agricultural land is situated, residential or homelots of not
more than 240 sq.m. each, with each family-beneficiary being assured of receiving
and owning a homelot in the barangay where it actually resides on the date of the
execution of this Agreement.
7. This Agreement is entered into by the parties in the spirit of the (C.A.R.P.) of the
government and with the supervision of the [DAR], with the end in view of improving
the lot of the qualified beneficiaries of the [SDP] and obtaining for them greater
benefits. (Emphasis added.)
As may be gleaned from the SDOA, included as part of the distribution plan are: (a)
production-sharing equivalent to three percent (3%) of gross sales from the production of the
agricultural land payable to the FWBs in cash dividends or incentive bonus; and (b)
distribution of free homelots of not more than 240 square meters each to family-beneficiaries.
The production-sharing, as the SDP indicated, is payable "irrespective of whether [HLI]
makes money or not," implying that the benefits do not partake the nature of dividends, as the
term is ordinarily understood under corporation law.
While a little bit hard to follow, given that, during the period material, the assigned value of the
agricultural land in the hacienda was PhP 196.63 million, while the total assets of HLI was
PhP 590.55 million with net assets of PhP 355.53 million, Tadeco/HLI would admit that the
ratio of the land-to-shares of stock corresponds to 33.3% of the outstanding capital stock of
the HLI equivalent to 118,391,976.85 shares of stock with a par value of PhP 1/share.
Subsequently, HLI submitted to DAR its SDP, designated as "Proposal for Stock Distribution
under C.A.R.P.,"35which was substantially based on the SDOA.
Notably, in a follow-up referendum the DAR conducted on October 14, 1989, 5,117 FWBs,
out of 5,315 who participated, opted to receive shares in HLI.36 One hundred thirty-two (132)
chose actual land distribution.37
After a review of the SDP, then DAR Secretary Miriam Defensor-Santiago (Sec. Defensor-
Santiago) addressed a letter dated November 6, 198938 to Pedro S. Cojuangco (Cojuangco),
then Tadeco president, proposing that the SDP be revised, along the following lines:
1. That over the implementation period of the [SDP], [Tadeco]/HLI shall ensure that
there will be no dilution in the shares of stocks of individual [FWBs];
2. That a safeguard shall be provided by [Tadeco]/HLI against the dilution of the
percentage shareholdings of the [FWBs], i.e., that the 33% shareholdings of the
[FWBs] will be maintained at any given time;
 3. That the mechanics for distributing the stocks be explicitly stated in the [MOA]
signed between the [Tadeco], HLI and its [FWBs] prior to the implementation of the
stock plan;
4. That the stock distribution plan provide for clear and definite terms for determining
the actual number of seats to be allocated for the [FWBs] in the HLI Board;
5. That HLI provide guidelines and a timetable for the distribution of homelots to
qualified [FWBs]; and
6. That the 3% cash dividends mentioned in the [SDP] be expressly provided for [in]
the MOA.
In a letter-reply of November 14, 1989 to Sec. Defensor-Santiago, Tadeco/HLI explained that
the proposed revisions of the SDP are already embodied in both the SDP and
MOA.39 Following that exchange, the PARC, under then Sec. Defensor-Santiago,
by Resolution No. 89-12-240 dated November 21, 1989, approved the SDP of Tadeco/HLI.41
At the time of the SDP approval, HLI had a pool of farmworkers, numbering 6,296, more or
less, composed of permanent, seasonal and casual master list/payroll and non-master list
members.
From 1989 to 2005, HLI claimed to have extended the following benefits to the FWBs:
(a) 3 billion pesos (P3,000,000,000) worth of salaries, wages and fringe benefits
(b) 59 million shares of stock distributed for free to the FWBs;
(c) 150 million pesos (P150,000,000) representing 3% of the gross produce;
(d) 37.5 million pesos (P37,500,000) representing 3% from the sale of 500 hectares
of converted agricultural land of Hacienda Luisita;
(e) 240-square meter homelots distributed for free;
(f) 2.4 million pesos (P2,400,000) representing 3% from the sale of 80 hectares at 80
million pesos (P80,000,000) for the SCTEX;
(g) Social service benefits, such as but not limited to free
hospitalization/medical/maternity services, old age/death benefits and no interest
bearing salary/educational loans and rice sugar accounts. 42
Two separate groups subsequently contested this claim of HLI.
On August 15, 1995, HLI applied for the conversion of 500 hectares of land of the hacienda
from agricultural to industrial use,43 pursuant to Sec. 65 of RA 6657, providing:
SEC. 65. Conversion of Lands.¾After the lapse of five (5) years from its award, when the
land ceases to be economically feasible and sound for agricultural purposes, or the locality
has become urbanized and the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR, upon application of the beneficiary or the
landowner, with due notice to the affected parties, and subject to existing laws, may authorize
the reclassification, or conversion of the land and its disposition: Provided, That the
beneficiary shall have fully paid its obligation.
The application, according to HLI, had the backing of 5,000 or so FWBs, including respondent
Rene Galang, and Jose Julio Suniga, as evidenced by the Manifesto of Support they signed
and which was submitted to the DAR.44After the usual processing, the DAR, thru then Sec.
Ernesto Garilao, approved the application on August 14, 1996, per DAR Conversion Order
No. 030601074-764-(95), Series of 1996,45 subject to payment of three percent (3%) of the
gross selling price to the FWBs and to HLI’s continued compliance with its undertakings
under the SDP, among other conditions.
On December 13, 1996, HLI, in exchange for subscription of 12,000,000 shares of stocks of
Centennary Holdings, Inc. (Centennary), ceded 300 hectares of the converted area to the
latter.46 Consequently, HLI’s Transfer Certificate of Title (TCT) No. 28791047 was canceled
and TCT No. 29209148 was issued in the name of Centennary. HLI transferred the remaining
200 hectares covered by TCT No. 287909 to Luisita Realty Corporation (LRC) 49 in two
separate transactions in 1997 and 1998, both uniformly involving 100 hectares for PhP 250
million each.50
Centennary, a corporation with an authorized capital stock of PhP 12,100,000 divided into
12,100,000 shares and wholly-owned by HLI, had the following incorporators: Pedro
Cojuangco, Josephine C. Reyes, Teresita C. Lopa, Ernesto G. Teopaco, and Bernardo R.
Lahoz.
Subsequently, Centennary sold51 the entire 300 hectares to Luisita Industrial Park
Corporation (LIPCO) for PhP 750 million. The latter acquired it for the purpose of developing
an industrial complex.52 As a result, Centennary’s TCT No. 292091 was canceled to be
replaced by TCT No. 31098653 in the name of LIPCO.
From the area covered by TCT No. 310986 was carved out two (2) parcels, for which two (2)
separate titles were issued in the name of LIPCO, specifically: (a) TCT No. 36580054 and (b)
TCT No. 365801,55 covering 180 and four hectares, respectively. TCT No. 310986 was,
accordingly, partially canceled.
Later on, in a Deed of Absolute Assignment dated November 25, 2004, LIPCO transferred
the parcels covered by its TCT Nos. 365800 and 365801 to the Rizal Commercial Banking
Corporation (RCBC) by way of dacion en pago in payment of LIPCO’s PhP 431,695,732.10
loan obligations. LIPCO’s titles were canceled and new ones, TCT Nos. 391051 and 391052,
were issued to RCBC.
Apart from the 500 hectares alluded to, another 80.51 hectares were later detached from the
area coverage of Hacienda Luisita which had been acquired by the government as part of the
Subic-Clark-Tarlac Expressway (SCTEX) complex. In absolute terms, 4,335.75 hectares
remained of the original 4,915 hectares Tadeco ceded to HLI.56
Such, in short, was the state of things when two separate petitions, both undated, reached
the DAR in the latter part of 2003. In the first, denominated as Petition/Protest,57 respondents
Jose Julio Suniga and Windsor Andaya, identifying themselves as head of the Supervisory
Group of HLI (Supervisory Group), and 60 other supervisors sought to revoke the SDOA,
alleging that HLI had failed to give them their dividends and the one percent (1%) share in
gross sales, as well as the thirty-three percent (33%) share in the proceeds of the sale of the
converted 500 hectares of land. They further claimed that their lives have not improved
contrary to the promise and rationale for the adoption of the SDOA. They also cited violations
by HLI of the SDOA’s terms.58 They prayed for a renegotiation of the SDOA, or, in the
alternative, its revocation.
Revocation and nullification of the SDOA and the distribution of the lands in the hacienda
were the call in the second petition, styled as Petisyon (Petition).59 The Petisyon was
ostensibly filed on December 4, 2003 by Alyansa ng mga Manggagawang Bukid ng Hacienda
Luisita (AMBALA), where the handwritten name of respondents Rene Galang as "Pangulo
AMBALA" and Noel Mallari as "Sec-Gen. AMBALA"60 appeared. As alleged, the petition was
filed on behalf of AMBALA’s members purportedly composing about 80% of the 5,339 FWBs
of Hacienda Luisita.
HLI would eventually answer61 the petition/protest of the Supervisory Group. On the other
hand, HLI’s answer62 to the AMBALA petition was contained in its letter dated January 21,
2005 also filed with DAR.
Meanwhile, the DAR constituted a Special Task Force to attend to issues relating to the SDP
of HLI. Among other duties, the Special Task Force was mandated to review the terms and
conditions of the SDOA and PARC Resolution No. 89-12-2 relative to HLI’s SDP; evaluate
HLI’s compliance reports; evaluate the merits of the petitions for the revocation of the SDP;
conduct ocular inspections or field investigations; and recommend appropriate remedial
measures for approval of the Secretary.63
After investigation and evaluation, the Special Task Force submitted its "Terminal Report:
Hacienda Luisita, Incorporated (HLI) Stock Distribution Plan (SDP) Conflict" 64 dated
September 22, 2005 (Terminal Report), finding that HLI has not complied with its obligations
under RA 6657 despite the implementation of the SDP. 65 The Terminal Report and the
Special Task Force’s recommendations were adopted by then DAR Sec. Nasser
Pangandaman (Sec. Pangandaman).66
Subsequently, Sec. Pangandaman recommended to the PARC Executive Committee
(Excom) (a) the recall/revocation of PARC Resolution No. 89-12-2 dated November 21, 1989
approving HLI’s SDP; and (b) the acquisition of Hacienda Luisita through the compulsory
acquisition scheme. Following review, the PARC Validation Committee favorably endorsed
the DAR Secretary’s recommendation afore-stated.67
On December 22, 2005, the PARC issued the assailed Resolution No. 2005-32-01, disposing
as follows:
NOW, THEREFORE, on motion duly seconded, RESOLVED, as it is HEREBY RESOLVED,
to approve and confirm the recommendation of the PARC Executive Committee adopting in
toto the report of the PARC ExCom Validation Committee affirming the recommendation of
the DAR to recall/revoke the SDO plan of Tarlac Development Corporation/Hacienda Luisita
Incorporated.
RESOLVED, further, that the lands subject of the recalled/revoked TDC/HLI SDO plan be
forthwith placed under the compulsory coverage or mandated land acquisition scheme of the
[CARP].
APPROVED.68
A copy of Resolution No. 2005-32-01 was served on HLI the following day, December 23,
without any copy of the documents adverted to in the resolution attached. A letter-request
dated December 28, 200569 for certified copies of said documents was sent to, but was not
acted upon by, the PARC secretariat.
Therefrom, HLI, on January 2, 2006, sought reconsideration.70 On the same day, the DAR
Tarlac provincial office issued the Notice of Coverage71 which HLI received on January 4,
2006.
Its motion notwithstanding, HLI has filed the instant recourse in light of what it considers as
the DAR’s hasty placing of Hacienda Luisita under CARP even before PARC could rule or
even read the motion for reconsideration.72 As HLI later rued, it "can not know from the
above-quoted resolution the facts and the law upon which it is based."73
PARC would eventually deny HLI’s motion for reconsideration via Resolution No. 2006-34-01
dated May 3, 2006.
By Resolution of June 14, 2006,74 the Court, acting on HLI’s motion, issued a temporary
restraining order,75enjoining the implementation of Resolution No. 2005-32-01 and the notice
of coverage.
On July 13, 2006, the OSG, for public respondents PARC and the DAR, filed its
Comment76 on the petition.
On December 2, 2006, Noel Mallari, impleaded by HLI as respondent in his capacity as "Sec-
Gen. AMBALA," filed his Manifestation and Motion with Comment Attached dated December
4, 2006 (Manifestation and Motion).77 In it, Mallari stated that he has broken away from
AMBALA with other AMBALA ex-members and formed Farmworkers Agrarian Reform
Movement, Inc. (FARM).78 Should this shift in alliance deny him standing, Mallari also prayed
that FARM be allowed to intervene.
As events would later develop, Mallari had a parting of ways with other FARM members,
particularly would-be intervenors Renato Lalic, et al. As things stand, Mallari returned to the
AMBALA fold, creating the AMBALA-Noel Mallari faction and leaving Renato Lalic, et al. as
the remaining members of FARM who sought to intervene.
On January 10, 2007, the Supervisory Group79 and the AMBALA-Rene Galang faction
submitted their Comment/Opposition dated December 17, 2006.80
On October 30, 2007, RCBC filed a Motion for Leave to Intervene and to File and Admit
Attached Petition-In-Intervention dated October 18, 2007.81 LIPCO later followed with a
similar motion.82 In both motions, RCBC and LIPCO contended that the assailed resolution
effectively nullified the TCTs under their respective names as the properties covered in the
TCTs were veritably included in the January 2, 2006 notice of coverage. In the main, they
claimed that the revocation of the SDP cannot legally affect their rights as innocent
purchasers for value. Both motions for leave to intervene were granted and the corresponding
petitions-in-intervention admitted.
On August 18, 2010, the Court heard the main and intervening petitioners on oral arguments.
On the other hand, the Court, on August 24, 2010, heard public respondents as well as the
respective counsels of the AMBALA-Mallari-Supervisory Group, the AMBALA-Galang faction,
and the FARM and its 27 members83 argue their case.
Prior to the oral arguments, however, HLI; AMBALA, represented by Mallari; the Supervisory
Group, represented by Suniga and Andaya; and the United Luisita Workers Union,
represented by Eldifonso Pingol, filed with the Court a joint submission and motion for
approval of a Compromise Agreement (English and Tagalog versions) dated August 6, 2010.
On August 31, 2010, the Court, in a bid to resolve the dispute through an amicable
settlement, issued a Resolution84 creating a Mediation Panel composed of then Associate
Justice Ma. Alicia Austria-Martinez, as chairperson, and former CA Justices Hector Hofileña
and Teresita Dy-Liacco Flores, as members. Meetings on five (5) separate dates, i.e.,
September 8, 9, 14, 20, and 27, 2010, were conducted. Despite persevering and painstaking
efforts on the part of the panel, mediation had to be discontinued when no acceptable
agreement could be reached.
The Issues
HLI raises the following issues for our consideration:
I.
WHETHER OR NOT PUBLIC RESPONDENTS PARC AND SECRETARY
PANGANDAMAN HAVE JURISDICTION, POWER AND/OR AUTHORITY TO
NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA.
II.
[IF SO], x x x CAN THEY STILL EXERCISE SUCH JURISDICTION, POWER
AND/OR AUTHORITY AT THIS TIME, I.E., AFTER SIXTEEN (16) YEARS FROM
THE EXECUTION OF THE SDOA AND ITS IMPLEMENTATION WITHOUT
VIOLATING SECTIONS 1 AND 10 OF ARTICLE III (BILL OF RIGHTS) OF THE
CONSTITUTION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW AND THE IMPAIRMENT OF CONTRACTUAL RIGHTS AND
OBLIGATIONS? MOREOVER, ARE THERE LEGAL GROUNDS UNDER THE CIVIL
CODE, viz, ARTICLE 1191 x x x, ARTICLES 1380, 1381 AND 1382 x x x ARTICLE
1390 x x x AND ARTICLE 1409 x x x THAT CAN BE INVOKED TO NULLIFY,
RECALL, REVOKE, OR RESCIND THE SDOA?
III.
WHETHER THE PETITIONS TO NULLIFY, RECALL, REVOKE OR RESCIND THE
SDOA HAVE ANY LEGAL BASIS OR GROUNDS AND WHETHER THE
PETITIONERS THEREIN ARE THE REAL PARTIES-IN-INTEREST TO FILE SAID
PETITIONS.
IV.
WHETHER THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES TO
THE SDOA ARE NOW GOVERNED BY THE CORPORATION CODE (BATAS
PAMBANSA BLG. 68) AND NOT BY THE x x x [CARL] x x x.
On the other hand, RCBC submits the following issues:
I.
RESPONDENT PARC COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DID NOT
EXCLUDE THE SUBJECT PROPERTY FROM THE COVERAGE OF THE CARP
DESPITE THE FACT THAT PETITIONER-INTERVENOR RCBC HAS ACQUIRED
VESTED RIGHTS AND INDEFEASIBLE TITLE OVER THE SUBJECT PROPERTY
AS AN INNOCENT PURCHASER FOR VALUE.
 A. THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF
COVERAGE DATED 02 JANUARY 2006 HAVE THE EFFECT OF
NULLIFYING TCT NOS. 391051 AND 391052 IN THE NAME OF
PETITIONER-INTERVENOR RCBC.
B. AS AN INNOCENT PURCHASER FOR VALUE, PETITIONER-
INTERVENOR RCBC CANNOT BE PREJUDICED BY A SUBSEQUENT
REVOCATION OR RESCISSION OF THE SDOA.
II.
THE ASSAILED RESOLUTION NO. 2005-32-01 AND THE NOTICE OF COVERAGE
DATED 02 JANUARY 2006 WERE ISSUED WITHOUT AFFORDING PETITIONER-
INTERVENOR RCBC ITS RIGHT TO DUE PROCESS AS AN INNOCENT
PURCHASER FOR VALUE.
LIPCO, like RCBC, asserts having acquired vested and indefeasible rights over certain
portions of the converted property, and, hence, would ascribe on PARC the commission of
grave abuse of discretion when it included those portions in the notice of coverage. And apart
from raising issues identical with those of HLI, such as but not limited to the absence of valid
grounds to warrant the rescission and/or revocation of the SDP, LIPCO would allege that the
assailed resolution and the notice of coverage were issued without affording it the right to due
process as an innocent purchaser for value. The government, LIPCO also argues, is
estopped from recovering properties which have since passed to innocent parties.
Simply formulated, the principal determinative issues tendered in the main petition and to
which all other related questions must yield boil down to the following: (1) matters of standing;
(2) the constitutionality of Sec. 31 of RA 6657; (3) the jurisdiction of PARC to recall or revoke
HLI’s SDP; (4) the validity or propriety of such recall or revocatory action; and (5) corollary to
(4), the validity of the terms and conditions of the SDP, as embodied in the SDOA.
Our Ruling
I.
We first proceed to the examination of the preliminary issues before delving on the more
serious challenges bearing on the validity of PARC’s assailed issuance and the grounds for it.
Supervisory Group, AMBALA and their
respective leaders are real parties-in-interest
HLI would deny real party-in-interest status to the purported leaders of the Supervisory Group
and AMBALA, i.e., Julio Suniga, Windsor Andaya, and Rene Galang, who filed the revocatory
petitions before the DAR. As HLI would have it, Galang, the self-styled head of AMBALA,
gained HLI employment in June 1990 and, thus, could not have been a party to the SDOA
executed a year earlier.85 As regards the Supervisory Group, HLI alleges that supervisors are
not regular farmworkers, but the company nonetheless considered them FWBs under the
SDOA as a mere concession to enable them to enjoy the same benefits given qualified
regular farmworkers. However, if the SDOA would be canceled and land distribution effected,
so HLI claims, citing Fortich v. Corona,86 the supervisors would be excluded from receiving
lands as farmworkers other than the regular farmworkers who are merely entitled to the "fruits
of the land."87
The SDOA no less identifies "the SDP qualified beneficiaries" as "the farmworkers who
appear in the annual payroll, inclusive of the permanent and seasonal employees, who are
regularly or periodically employed by [HLI]."88 Galang, per HLI’s own admission, is employed
by HLI, and is, thus, a qualified beneficiary of the SDP; he comes within the definition of a
real party-in-interest under Sec. 2, Rule 3 of the Rules of Court, meaning, one who stands to
be benefited or injured by the judgment in the suit or is the party entitled to the avails of the
suit.
The same holds true with respect to the Supervisory Group whose members were admittedly
employed by HLI and whose names and signatures even appeared in the annex of the
SDOA. Being qualified beneficiaries of the SDP, Suniga and the other 61 supervisors are
certainly parties who would benefit or be prejudiced by the judgment recalling the SDP or
replacing it with some other modality to comply with RA 6657.
Even assuming that members of the Supervisory Group are not regular farmworkers, but are
in the category of "other farmworkers" mentioned in Sec. 4, Article XIII of the
Constitution,89 thus only entitled to a share of the fruits of the land, as indeed Fortich teaches,
this does not detract from the fact that they are still identified as being among the "SDP
qualified beneficiaries." As such, they are, thus, entitled to bring an action upon the SDP.90 At
any rate, the following admission made by Atty. Gener Asuncion, counsel of HLI, during the
oral arguments should put to rest any lingering doubt as to the status of protesters Galang,
Suniga, and Andaya:
Justice Bersamin: x x x I heard you a while ago that you were conceding the qualified farmer
beneficiaries of Hacienda Luisita were real parties in interest?
Atty. Asuncion: Yes, Your Honor please, real party in interest which that question refers to the
complaints of protest initiated before the DAR and the real party in interest there be
considered as possessed by the farmer beneficiaries who initiated the protest.91
Further, under Sec. 50, paragraph 4 of RA 6657, farmer-leaders are expressly allowed to
represent themselves, their fellow farmers or their organizations in any proceedings before
the DAR. Specifically:
SEC. 50. Quasi-Judicial Powers of the DAR.¾x x x
 xxxx
Responsible farmer leaders shall be allowed to represent themselves, their fellow
farmers or their organizations in any proceedings before the DAR: Provided, however,
that when there are two or more representatives for any individual or group, the
representatives should choose only one among themselves to represent such party or group
before any DAR proceedings. (Emphasis supplied.)
Clearly, the respective leaders of the Supervisory Group and AMBALA are contextually real
parties-in-interest allowed by law to file a petition before the DAR or PARC.
This is not necessarily to say, however, that Galang represents AMBALA, for as records
show and as HLI aptly noted,92 his "petisyon" filed with DAR did not carry the usual
authorization of the individuals in whose behalf it was supposed to have been instituted. To
date, such authorization document, which would logically include a list of the names of the
authorizing FWBs, has yet to be submitted to be part of the records.
PARC’s Authority to Revoke a Stock Distribution Plan
On the postulate that the subject jurisdiction is conferred by law, HLI maintains that PARC is
without authority to revoke an SDP, for neither RA 6657 nor EO 229 expressly vests PARC
with such authority. While, as HLI argued, EO 229 empowers PARC to approve the plan for
stock distribution in appropriate cases, the empowerment only includes the power to
disapprove, but not to recall its previous approval of the SDP after it has been implemented
by the parties.93 To HLI, it is the court which has jurisdiction and authority to order the
revocation or rescission of the PARC-approved SDP.
We disagree.
Under Sec. 31 of RA 6657, as implemented by DAO 10, the authority to approve the plan for
stock distribution of the corporate landowner belongs to PARC. However, contrary to
petitioner HLI’s posture, PARC also has the power to revoke the SDP which it previously
approved. It may be, as urged, that RA 6657 or other executive issuances on agrarian reform
do not explicitly vest the PARC with the power to revoke/recall an approved SDP. Such
power or authority, however, is deemed possessed by PARC under the principle of necessary
implication, a basic postulate that what is implied in a statute is as much a part of it as that
which is expressed.94
We have explained that "every statute is understood, by implication, to contain all such
provisions as may be necessary to effectuate its object and purpose, or to make effective
rights, powers, privileges or jurisdiction which it grants, including all such collateral and
subsidiary consequences as may be fairly and logically inferred from its terms." 95 Further,
"every statutory grant of power, right or privilege is deemed to include all incidental power,
right or privilege.96
Gordon v. Veridiano II is instructive:
The power to approve a license includes by implication, even if not expressly granted, the
power to revoke it. By extension, the power to revoke is limited by the authority to grant the
license, from which it is derived in the first place. Thus, if the FDA grants a license upon its
finding that the applicant drug store has complied with the requirements of the general laws
and the implementing administrative rules and regulations, it is only for their violation that the
FDA may revoke the said license. By the same token, having granted the permit upon his
ascertainment that the conditions thereof as applied x x x have been complied with, it is only
for the violation of such conditions that the mayor may revoke the said permit. 97 (Emphasis
supplied.)
Following the doctrine of necessary implication, it may be stated that the conferment of
express power to approve a plan for stock distribution of the agricultural land of corporate
owners necessarily includes the power to revoke or recall the approval of the plan.
As public respondents aptly observe, to deny PARC such revocatory power would reduce it
into a toothless agency of CARP, because the very same agency tasked to ensure
compliance by the corporate landowner with the approved SDP would be without authority to
impose sanctions for non-compliance with it.98 With the view We take of the case, only PARC
can effect such revocation. The DAR Secretary, by his own authority as such, cannot
plausibly do so, as the acceptance and/or approval of the SDP sought to be taken back or
undone is the act of PARC whose official composition includes, no less, the President as
chair, the DAR Secretary as vice-chair, and at least eleven (11) other department heads.99
On another but related issue, the HLI foists on the Court the argument that subjecting its
landholdings to compulsory distribution after its approved SDP has been implemented would
impair the contractual obligations created under the SDOA.
The broad sweep of HLI’s argument ignores certain established legal precepts and must,
therefore, be rejected.
A law authorizing interference, when appropriate, in the contractual relations between or
among parties is deemed read into the contract and its implementation cannot successfully
be resisted by force of the non-impairment guarantee. There is, in that instance, no
impingement of the impairment clause, the non-impairment protection being applicable only
to laws that derogate prior acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties. Impairment, in fine, obtains if a subsequent law changes
the terms of a contract between the parties, imposes new conditions, dispenses with those
agreed upon or withdraws existing remedies for the enforcement of the rights of the
parties.100 Necessarily, the constitutional proscription would not apply to laws already in effect
at the time of contract execution, as in the case of RA 6657, in relation to DAO 10, vis-à-vis
HLI’s SDOA. As held in Serrano v. Gallant Maritime Services, Inc.:
The prohibition [against impairment of the obligation of contracts] is aligned with the general
principle that laws newly enacted have only a prospective operation, and cannot affect acts or
contracts already perfected; however, as to laws already in existence, their provisions are
read into contracts and deemed a part thereof. Thus, the non-impairment clause under
Section 10, Article II [of the Constitution] is limited in application to laws about to be enacted
that would in any way derogate from existing acts or contracts by enlarging, abridging or in
any manner changing the intention of the parties thereto.101 (Emphasis supplied.)
Needless to stress, the assailed Resolution No. 2005-32-01 is not the kind of issuance within
the ambit of Sec. 10, Art. III of the Constitution providing that "[n]o law impairing the obligation
of contracts shall be passed."
Parenthetically, HLI tags the SDOA as an ordinary civil law contract and, as such, a breach of
its terms and conditions is not a PARC administrative matter, but one that gives rise to a
cause of action cognizable by regular courts.102 This contention has little to commend itself.
The SDOA is a special contract imbued with public interest, entered into and crafted pursuant
to the provisions of RA 6657. It embodies the SDP, which requires for its validity, or at least
its enforceability, PARC’s approval. And the fact that the certificate of compliance103––to be
issued by agrarian authorities upon completion of the distribution of stocks––is revocable by
the same issuing authority supports the idea that everything about the implementation of the
SDP is, at the first instance, subject to administrative adjudication.
HLI also parlays the notion that the parties to the SDOA should now look to the Corporation
Code, instead of to RA 6657, in determining their rights, obligations and remedies. The Code,
it adds, should be the applicable law on the disposition of the agricultural land of HLI.
Contrary to the view of HLI, the rights, obligations and remedies of the parties to the SDOA
embodying the SDP are primarily governed by RA 6657. It should abundantly be made clear
that HLI was precisely created in order to comply with RA 6657, which the OSG aptly
described as the "mother law" of the SDOA and the SDP.104 It is, thus, paradoxical for HLI to
shield itself from the coverage of CARP by invoking exclusive applicability of the Corporation
Code under the guise of being a corporate entity.
Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI
are also stockholders, its applicability is limited as the rights of the parties arising from the
SDP should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the special
law on agrarian reform. As between a general and special law, the latter shall prevail—
generalia specialibus non derogant.105 Besides, the present impasse between HLI and the
private respondents is not an intra-corporate dispute which necessitates the application of the
Corporation Code. What private respondents questioned before the DAR is the proper
implementation of the SDP and HLI’s compliance with RA 6657. Evidently, RA 6657 should
be the applicable law to the instant case.
HLI further contends that the inclusion of the agricultural land of Hacienda Luisita under the
coverage of CARP and the eventual distribution of the land to the FWBs would amount to a
disposition of all or practically all of the corporate assets of HLI. HLI would add that this
contingency, if ever it comes to pass, requires the applicability of the Corporation Code
provisions on corporate dissolution.
We are not persuaded.
Indeed, the provisions of the Corporation Code on corporate dissolution would apply insofar
as the winding up of HLI’s affairs or liquidation of the assets is concerned. However, the mere
inclusion of the agricultural land of Hacienda Luisita under the coverage of CARP and the
land’s eventual distribution to the FWBs will not, without more, automatically trigger the
dissolution of HLI. As stated in the SDOA itself, the percentage of the value of the agricultural
land of Hacienda Luisita in relation to the total assets transferred and conveyed by Tadeco to
HLI comprises only 33.296%, following this equation: value of the agricultural lands divided
by total corporate assets. By no stretch of imagination would said percentage amount to a
disposition of all or practically all of HLI’s corporate assets should compulsory land acquisition
and distribution ensue.
This brings us to the validity of the revocation of the approval of the SDP sixteen (16) years
after its execution pursuant to Sec. 31 of RA 6657 for the reasons set forth in the Terminal
Report of the Special Task Force, as endorsed by PARC Excom. But first, the matter of the
constitutionality of said section.
Constitutional Issue
FARM asks for the invalidation of Sec. 31 of RA 6657, insofar as it affords the corporation, as
a mode of CARP compliance, to resort to stock distribution, an arrangement which, to FARM,
impairs the fundamental right of farmers and farmworkers under Sec. 4, Art. XIII of the
Constitution.106
To a more specific, but direct point, FARM argues that Sec. 31 of RA 6657 permits stock
transfer in lieu of outright agricultural land transfer; in fine, there is stock certificate ownership
of the farmers or farmworkers instead of them owning the land, as envisaged in the
Constitution. For FARM, this modality of distribution is an anomaly to be annulled for being
inconsistent with the basic concept of agrarian reform ingrained in Sec. 4, Art. XIII of the
Constitution.107
Reacting, HLI insists that agrarian reform is not only about transfer of land ownership to
farmers and other qualified beneficiaries. It draws attention in this regard to Sec. 3(a) of RA
6657 on the concept and scope of the term "agrarian reform." The constitutionality of a law,
HLI added, cannot, as here, be attacked collaterally.
The instant challenge on the constitutionality of Sec. 31 of RA 6657 and necessarily its
counterpart provision in EO 229 must fail as explained below.
When the Court is called upon to exercise its power of judicial review over, and pass upon the
constitutionality of, acts of the executive or legislative departments, it does so only when the
following essential requirements are first met, to wit:
(1) there is an actual case or controversy;
(2) that the constitutional question is raised at the earliest possible opportunity by a
proper party or one with locus standi; and
(3) the issue of constitutionality must be the very lis mota of the case.108
Not all the foregoing requirements are satisfied in the case at bar.
While there is indeed an actual case or controversy, intervenor FARM, composed of a small
minority of 27 farmers, has yet to explain its failure to challenge the constitutionality of Sec. 3l
of RA 6657, since as early as November 21, l989 when PARC approved the SDP of
Hacienda Luisita or at least within a reasonable time thereafter and why its members
received benefits from the SDP without so much of a protest. It was only on December 4,
2003 or 14 years after approval of the SDP via PARC Resolution No. 89-12-2 dated
November 21, 1989 that said plan and approving resolution were sought to be revoked, but
not, to stress, by FARM or any of its members, but by petitioner AMBALA. Furthermore, the
AMBALA petition did NOT question the constitutionality of Sec. 31 of RA 6657, but
concentrated on the purported flaws and gaps in the subsequent implementation of the SDP.
Even the public respondents, as represented by the Solicitor General, did not question the
constitutionality of the provision. On the other hand, FARM, whose 27 members formerly
belonged to AMBALA, raised the constitutionality of Sec. 31 only on May 3, 2007 when it filed
its Supplemental Comment with the Court. Thus, it took FARM some eighteen (18) years
from November 21, 1989 before it challenged the constitutionality of Sec. 31 of RA 6657
which is quite too late in the day. The FARM members slept on their rights and even
accepted benefits from the SDP with nary a complaint on the alleged unconstitutionality of
Sec. 31 upon which the benefits were derived. The Court cannot now be goaded into
resolving a constitutional issue that FARM failed to assail after the lapse of a long period of
time and the occurrence of numerous events and activities which resulted from the
application of an alleged unconstitutional legal provision.
It has been emphasized in a number of cases that the question of constitutionality will not be
passed upon by the Court unless it is properly raised and presented in an appropriate case at
the first opportunity.109 FARM is, therefore, remiss in belatedly questioning the
constitutionality of Sec. 31 of RA 6657. The second requirement that the constitutional
question should be raised at the earliest possible opportunity is clearly wanting.
The last but the most important requisite that the constitutional issue must be the very lis
mota of the case does not likewise obtain. The lis mota aspect is not present, the
constitutional issue tendered not being critical to the resolution of the case. The unyielding
rule has been to avoid, whenever plausible, an issue assailing the constitutionality of a statute
or governmental act.110 If some other grounds exist by which judgment can be made without
touching the constitutionality of a law, such recourse is favored. 111 Garcia v. Executive
Secretary explains why:
Lis Mota — the fourth requirement to satisfy before this Court will undertake judicial review —
means that the Court will not pass upon a question of unconstitutionality, although properly
presented, if the case can be disposed of on some other ground, such as the application of
the statute or the general law. The petitioner must be able to show that the case cannot be
legally resolved unless the constitutional question raised is determined. This requirement is
based on the rule that every law has in its favor the presumption of constitutionality; to justify
its nullification, there must be a clear and unequivocal breach of the Constitution, and not one
that is doubtful, speculative, or argumentative.112 (Italics in the original.)
The lis mota in this case, proceeding from the basic positions originally taken by AMBALA (to
which the FARM members previously belonged) and the Supervisory Group, is the alleged
non-compliance by HLI with the conditions of the SDP to support a plea for its revocation.
And before the Court, the lis mota is whether or not PARC acted in grave abuse of discretion
when it ordered the recall of the SDP for such non-compliance and the fact that the SDP, as
couched and implemented, offends certain constitutional and statutory provisions. To be sure,
any of these key issues may be resolved without plunging into the constitutionality of Sec. 31
of RA 6657. Moreover, looking deeply into the underlying petitions of AMBALA, et al., it is not
the said section per se that is invalid, but rather it is the alleged application of the said
provision in the SDP that is flawed.
It may be well to note at this juncture that Sec. 5 of RA 9700,113 amending Sec. 7 of RA 6657,
has all but superseded Sec. 31 of RA 6657 vis-à-vis the stock distribution component of said
Sec. 31. In its pertinent part, Sec. 5 of RA 9700 provides: "[T]hat after June 30, 2009, the
modes of acquisition shall be limited to voluntary offer to sell and compulsory acquisition."
Thus, for all intents and purposes, the stock distribution scheme under Sec. 31 of RA 6657 is
no longer an available option under existing law. The question of whether or not it is
unconstitutional should be a moot issue.
It is true that the Court, in some cases, has proceeded to resolve constitutional issues
otherwise already moot and academic114 provided the following requisites are present:
x x x first, there is a grave violation of the Constitution; second, the exceptional character of
the situation and the paramount public interest is involved; third, when the constitutional issue
raised requires formulation of controlling principles to guide the bench, the bar, and the
public; fourth, the case is capable of repetition yet evading review.
These requisites do not obtain in the case at bar.
For one, there appears to be no breach of the fundamental law. Sec. 4, Article XIII of the
Constitution reads:
The State shall, by law, undertake an agrarian reform program founded on the right of the
farmers and regular farmworkers, who are landless, to OWN directly or COLLECTIVELY THE
LANDS THEY TILL or, in the case of other farmworkers, to receive a just share of the fruits
thereof. To this end, the State shall encourage and undertake the just distribution of all
agricultural lands, subject to such priorities and reasonable retention limits as the Congress
may prescribe, taking into account ecological, developmental, or equity considerations, and
subject to the payment of just compensation. In determining retention limits, the State shall
respect the right of small landowners. The State shall further provide incentives for voluntary
land-sharing. (Emphasis supplied.)
The wording of the provision is unequivocal––the farmers and regular farmworkers have a
right TO OWN DIRECTLY OR COLLECTIVELY THE LANDS THEY TILL. The basic law
allows two (2) modes of land distribution—direct and indirect ownership. Direct transfer to
individual farmers is the most commonly used method by DAR and widely accepted. Indirect
transfer through collective ownership of the agricultural land is the alternative to direct
ownership of agricultural land by individual farmers. The aforequoted Sec. 4 EXPRESSLY
authorizes collective ownership by farmers. No language can be found in the 1987
Constitution that disqualifies or prohibits corporations or cooperatives of farmers from being
the legal entity through which collective ownership can be exercised. The word "collective" is
defined as "indicating a number of persons or things considered as constituting one group or
aggregate,"115 while "collectively" is defined as "in a collective sense or manner; in a mass or
body."116 By using the word "collectively," the Constitution allows for indirect ownership of
land and not just outright agricultural land transfer. This is in recognition of the fact that land
reform may become successful even if it is done through the medium of juridical entities
composed of farmers.
Collective ownership is permitted in two (2) provisions of RA 6657. Its Sec. 29 allows workers’
cooperatives or associations to collectively own the land, while the second paragraph of Sec.
31 allows corporations or associations to own agricultural land with the farmers becoming
stockholders or members. Said provisions read:
SEC. 29. Farms owned or operated by corporations or other business associations.—In the
case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. x x x (Emphasis supplied.)
SEC. 31. Corporate Landowners.— x x x
xxxx
Upon certification by the DAR, corporations owning agricultural lands may give their qualified
beneficiaries the right to purchase such proportion of the capital stock of the corporation that
the agricultural land, actually devoted to agricultural activities, bears in relation to the
company’s total assets, under such terms and conditions as may be agreed upon by them. In
no case shall the compensation received by the workers at the time the shares of stocks are
distributed be reduced. The same principle shall be applied to associations, with respect to
their equity or participation. x x x (Emphasis supplied.)
Clearly, workers’ cooperatives or associations under Sec. 29 of RA 6657 and corporations or
associations under the succeeding Sec. 31, as differentiated from individual farmers, are
authorized vehicles for the collective ownership of agricultural land. Cooperatives can be
registered with the Cooperative Development Authority and acquire legal personality of their
own, while corporations are juridical persons under the Corporation Code. Thus, Sec. 31 is
constitutional as it simply implements Sec. 4 of Art. XIII of the Constitution that land can be
owned COLLECTIVELY by farmers. Even the framers of the l987 Constitution are in unison
with respect to the two (2) modes of ownership of agricultural lands tilled by farmers––
DIRECT and COLLECTIVE, thus:
MR. NOLLEDO. And when we talk of the phrase "to own directly," we mean the principle of
direct ownership by the tiller?
MR. MONSOD. Yes.
MR. NOLLEDO. And when we talk of "collectively," we mean communal ownership,
stewardship or State ownership?
MS. NIEVA. In this section, we conceive of cooperatives; that is farmers’ cooperatives owning
the land, not the State.
MR. NOLLEDO. And when we talk of "collectively," referring to farmers’ cooperatives, do the
farmers own specific areas of land where they only unite in their efforts?
MS. NIEVA. That is one way.
MR. NOLLEDO. Because I understand that there are two basic systems involved: the
"moshave" type of agriculture and the "kibbutz." So are both contemplated in the report?
MR. TADEO. Ang dalawa kasing pamamaraan ng pagpapatupad ng tunay na reporma sa
lupa ay ang pagmamay-ari ng lupa na hahatiin sa individual na pagmamay-ari – directly – at
ang tinatawag na sama-samang gagawin ng mga magbubukid. Tulad sa Negros, ang gusto
ng mga magbubukid ay gawin nila itong "cooperative or collective farm." Ang ibig sabihin ay
sama-sama nilang sasakahin.
xxxx
MR. TINGSON. x x x When we speak here of "to own directly or collectively the lands they
till," is this land for the tillers rather than land for the landless? Before, we used to hear "land
for the landless," but now the slogan is "land for the tillers." Is that right?
MR. TADEO. Ang prinsipyong umiiral dito ay iyong land for the tillers. Ang ibig sabihin ng
"directly" ay tulad sa implementasyon sa rice and corn lands kung saan inaari na ng mga
magsasaka ang lupang binubungkal nila. Ang ibig sabihin naman ng "collectively" ay sama-
samang paggawa sa isang lupain o isang bukid, katulad ng sitwasyon sa
Negros.117 (Emphasis supplied.)
As Commissioner Tadeo explained, the farmers will work on the agricultural land "sama-
sama" or collectively. Thus, the main requisite for collective ownership of land is collective or
group work by farmers of the agricultural land. Irrespective of whether the landowner is a
cooperative, association or corporation composed of farmers, as long as concerted group
work by the farmers on the land is present, then it falls within the ambit of collective
ownership scheme.
Likewise, Sec. 4, Art. XIII of the Constitution makes mention of a commitment on the part of
the State to pursue, by law, an agrarian reform program founded on the policy of land for the
landless, but subject to such priorities as Congress may prescribe, taking into account such
abstract variable as "equity considerations." The textual reference to a law and Congress
necessarily implies that the above constitutional provision is not self-executoryand that
legislation is needed to implement the urgently needed program of agrarian reform. And RA
6657 has been enacted precisely pursuant to and as a mechanism to carry out the
constitutional directives. This piece of legislation, in fact, restates118 the agrarian reform policy
established in the aforementioned provision of the Constitution of promoting the welfare of
landless farmers and farmworkers. RA 6657 thus defines "agrarian reform" as "the
redistribution of lands … to farmers and regular farmworkers who are landless … to lift the
economic status of the beneficiaries and all other arrangements alternative to the
physical redistribution of lands, such as production or profit sharing, labor administration
and the distribution of shares of stock which will allow beneficiaries to receive a just share
of the fruits of the lands they work."
With the view We take of this case, the stock distribution option devised under Sec. 31 of RA
6657 hews with the agrarian reform policy, as instrument of social justice under Sec. 4 of
Article XIII of the Constitution. Albeit land ownership for the landless appears to be the
dominant theme of that policy, We emphasize that Sec. 4, Article XIII of the Constitution, as
couched, does not constrict Congress to passing an agrarian reform law planted on direct
land transfer to and ownership by farmers and no other, or else the enactment suffers from
the vice of unconstitutionality. If the intention were otherwise, the framers of the Constitution
would have worded said section in a manner mandatory in character.
For this Court, Sec. 31 of RA 6657, with its direct and indirect transfer features, is not
inconsistent with the State’s commitment to farmers and farmworkers to advance their
interests under the policy of social justice. The legislature, thru Sec. 31 of RA 6657, has
chosen a modality for collective ownership by which the imperatives of social justice may, in
its estimation, be approximated, if not achieved. The Court should be bound by such policy
choice.
FARM contends that the farmers in the stock distribution scheme under Sec. 31 do not own
the agricultural land but are merely given stock certificates. Thus, the farmers lose control
over the land to the board of directors and executive officials of the corporation who actually
manage the land. They conclude that such arrangement runs counter to the mandate of the
Constitution that any agrarian reform must preserve the control over the land in the hands of
the tiller.
This contention has no merit.
While it is true that the farmer is issued stock certificates and does not directly own the land,
still, the Corporation Code is clear that the FWB becomes a stockholder who acquires an
equitable interest in the assets of the corporation, which include the agricultural lands. It was
explained that the "equitable interest of the shareholder in the property of the corporation is
represented by the term stock, and the extent of his interest is described by the term shares.
The expression shares of stock when qualified by words indicating number and ownership
expresses the extent of the owner’s interest in the corporate property."119 A share of stock
typifies an aliquot part of the corporation’s property, or the right to share in its proceeds to
that extent when distributed according to law and equity and that its holder is not the owner of
any part of the capital of the corporation.120 However, the FWBs will ultimately own the
agricultural lands owned by the corporation when the corporation is eventually dissolved and
liquidated.
Anent the alleged loss of control of the farmers over the agricultural land operated and
managed by the corporation, a reading of the second paragraph of Sec. 31 shows otherwise.
Said provision provides that qualified beneficiaries have "the right to purchase such
proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets." The wording of the
formula in the computation of the number of shares that can be bought by the farmers does
not mean loss of control on the part of the farmers. It must be remembered that the
determination of the percentage of the capital stock that can be bought by the farmers
depends on the value of the agricultural land and the value of the total assets of the
corporation.
There is, thus, nothing unconstitutional in the formula prescribed by RA 6657. The policy on
agrarian reform is that control over the agricultural land must always be in the hands of the
farmers. Then it falls on the shoulders of DAR and PARC to see to it the farmers should
always own majority of the common shares entitled to elect the members of the board of
directors to ensure that the farmers will have a clear majority in the board. Before the SDP is
approved, strict scrutiny of the proposed SDP must always be undertaken by the DAR and
PARC, such that the value of the agricultural land contributed to the corporation must always
be more than 50% of the total assets of the corporation to ensure that the majority of the
members of the board of directors are composed of the farmers. The PARC composed of the
President of the Philippines and cabinet secretaries must see to it that control over the board
of directors rests with the farmers by rejecting the inclusion of non-agricultural assets which
will yield the majority in the board of directors to non-farmers. Any deviation, however, by
PARC or DAR from the correct application of the formula prescribed by the second paragraph
of Sec. 31 of RA 6675 does not make said provision constitutionally infirm. Rather, it is the
application of said provision that can be challenged. Ergo, Sec. 31 of RA 6657 does not
trench on the constitutional policy of ensuring control by the farmers.
A view has been advanced that there can be no agrarian reform unless there is land
distribution and that actual land distribution is the essential characteristic of a constitutional
agrarian reform program. On the contrary, there have been so many instances where, despite
actual land distribution, the implementation of agrarian reform was still unsuccessful. As a
matter of fact, this Court may take judicial notice of cases where FWBs sold the awarded land
even to non-qualified persons and in violation of the prohibition period provided under the
law. This only proves to show that the mere fact that there is land distribution does not
guarantee a successful implementation of agrarian reform.
As it were, the principle of "land to the tiller" and the old pastoral model of land ownership
where non-human juridical persons, such as corporations, were prohibited from owning
agricultural lands are no longer realistic under existing conditions. Practically, an individual
farmer will often face greater disadvantages and difficulties than those who exercise
ownership in a collective manner through a cooperative or corporation. The former is too
often left to his own devices when faced with failing crops and bad weather, or compelled to
obtain usurious loans in order to purchase costly fertilizers or farming equipment. The
experiences learned from failed land reform activities in various parts of the country are lack
of financing, lack of farm equipment, lack of fertilizers, lack of guaranteed buyers of produce,
lack of farm-to-market roads, among others. Thus, at the end of the day, there is still no
successful implementation of agrarian reform to speak of in such a case.
Although success is not guaranteed, a cooperative or a corporation stands in a better position
to secure funding and competently maintain the agri-business than the individual farmer.
While direct singular ownership over farmland does offer advantages, such as the ability to
make quick decisions unhampered by interference from others, yet at best, these advantages
only but offset the disadvantages that are often associated with such ownership arrangement.
Thus, government must be flexible and creative in its mode of implementation to better its
chances of success. One such option is collective ownership through juridical persons
composed of farmers.
Aside from the fact that there appears to be no violation of the Constitution, the requirement
that the instant case be capable of repetition yet evading review is also wanting. It would be
speculative for this Court to assume that the legislature will enact another law providing for a
similar stock option.
As a matter of sound practice, the Court will not interfere inordinately with the exercise by
Congress of its official functions, the heavy presumption being that a law is the product of
earnest studies by Congress to ensure that no constitutional prescription or concept is
infringed.121 Corollarily, courts will not pass upon questions of wisdom, expediency and
justice of legislation or its provisions. Towards this end, all reasonable doubts should be
resolved in favor of the constitutionality of a law and the validity of the acts and processes
taken pursuant thereof.122
Consequently, before a statute or its provisions duly challenged are voided, an unequivocal
breach of, or a clear conflict with the Constitution, not merely a doubtful or argumentative
one, must be demonstrated in such a manner as to leave no doubt in the mind of the Court.
In other words, the grounds for nullity must be beyond reasonable doubt.123 FARM has not
presented compelling arguments to overcome the presumption of constitutionality of Sec. 31
of RA 6657.
The wisdom of Congress in allowing an SDP through a corporation as an alternative mode of
implementing agrarian reform is not for judicial determination. Established jurisprudence tells
us that it is not within the province of the Court to inquire into the wisdom of the law, for,
indeed, We are bound by words of the statute.124
II.
The stage is now set for the determination of the propriety under the premises of the
revocation or recall of HLI’s SDP. Or to be more precise, the inquiry should be: whether or not
PARC gravely abused its discretion in revoking or recalling the subject SDP and placing the
hacienda under CARP’s compulsory acquisition and distribution scheme.
The findings, analysis and recommendation of the DAR’s Special Task Force contained and
summarized in its Terminal Report provided the bases for the assailed PARC
revocatory/recalling Resolution. The findings may be grouped into two: (1) the SDP is
contrary to either the policy on agrarian reform, Sec. 31 of RA 6657, or DAO 10; and (2) the
alleged violation by HLI of the conditions/terms of the SDP. In more particular terms, the
following are essentially the reasons underpinning PARC’s revocatory or recall action:
(1) Despite the lapse of 16 years from the approval of HLI’s SDP, the lives of the
FWBs have hardly improved and the promised increased income has not
materialized;
(2) HLI has failed to keep Hacienda Luisita intact and unfragmented;
(3) The issuance of HLI shares of stock on the basis of number of hours worked––or
the so-called "man days"––is grossly onerous to the FWBs, as HLI, in the guise of
rotation, can unilaterally deny work to anyone. In elaboration of this ground, PARC’s
Resolution No. 2006-34-01, denying HLI’s motion for reconsideration of Resolution
 No. 2005-32-01, stated that the man days criterion worked to dilute the entitlement of
the original share beneficiaries;125
(4) The distribution/transfer of shares was not in accordance with the timelines fixed
by law;
(5) HLI has failed to comply with its obligations to grant 3% of the gross sales every
year as production-sharing benefit on top of the workers’ salary; and
(6) Several homelot awardees have yet to receive their individual titles.
Petitioner HLI claims having complied with, at least substantially, all its obligations under the
SDP, as approved by PARC itself, and tags the reasons given for the revocation of the SDP
as unfounded.
Public respondents, on the other hand, aver that the assailed resolution rests on solid
grounds set forth in the Terminal Report, a position shared by AMBALA, which, in some
pleadings, is represented by the same counsel as that appearing for the Supervisory Group.
FARM, for its part, posits the view that legal bases obtain for the revocation of the SDP,
because it does not conform to Sec. 31 of RA 6657 and DAO 10. And training its sight on the
resulting dilution of the equity of the FWBs appearing in HLI’s masterlist, FARM would state
that the SDP, as couched and implemented, spawned disparity when there should be none;
parity when there should have been differentiation.126
The petition is not impressed with merit.
In the Terminal Report adopted by PARC, it is stated that the SDP violates the agrarian
reform policy under Sec. 2 of RA 6657, as the said plan failed to enhance the dignity and
improve the quality of lives of the FWBs through greater productivity of agricultural lands. We
disagree.
Sec. 2 of RA 6657 states:
SECTION 2. Declaration of Principles and Policies.¾It is the policy of the State to pursue a
Comprehensive Agrarian Reform Program (CARP). The welfare of the landless farmers and
farm workers will receive the highest consideration to promote social justice and to move the
nation towards sound rural development and industrialization, and the establishment of owner
cultivatorship of economic-sized farms as the basis of Philippine agriculture.
To this end, a more equitable distribution and ownership of land, with due regard to the rights
of landowners to just compensation and to the ecological needs of the nation, shall be
undertaken to provide farmers and farm workers with the opportunity to enhance their dignity
and improve the quality of their lives through greater productivity of agricultural lands.
The agrarian reform program is founded on the right of farmers and regular farm workers,
who are landless, to own directly or collectively the lands they till or, in the case of other farm
workers, to receive a share of the fruits thereof. To this end, the State shall encourage the
just distribution of all agricultural lands, subject to the priorities and retention limits set forth in
this Act, having taken into account ecological, developmental, and equity considerations, and
subject to the payment of just compensation. The State shall respect the right of small
landowners and shall provide incentives for voluntary land-sharing. (Emphasis supplied.)
Paragraph 2 of the above-quoted provision specifically mentions that "a more equitable
distribution and ownership of land x x x shall be undertaken to provide farmers and farm
workers with the opportunity to enhance their dignity and improve the quality of their lives
through greater productivity of agricultural lands." Of note is the term "opportunity" which is
defined as a favorable chance or opening offered by circumstances. 127 Considering this, by
no stretch of imagination can said provision be construed as a guarantee in improving the
lives of the FWBs. At best, it merely provides for a possibility or favorable chance of uplifting
the economic status of the FWBs, which may or may not be attained.
Pertinently, improving the economic status of the FWBs is neither among the legal obligations
of HLI under the SDP nor an imperative imposition by RA 6657 and DAO 10, a violation of
which would justify discarding the stock distribution option. Nothing in that option agreement,
law or department order indicates otherwise.
Significantly, HLI draws particular attention to its having paid its FWBs, during the regime of
the SDP (1989-2005), some PhP 3 billion by way of salaries/wages and higher benefits
exclusive of free hospital and medical benefits to their immediate family. And attached as
Annex "G" to HLI’s Memorandum is the certified true report of the finance manager of Jose
Cojuangco & Sons Organizations-Tarlac Operations, captioned as "HACIENDA LUISITA,
INC. Salaries, Benefits and Credit Privileges (in Thousand Pesos) Since the Stock Option
was Approved by PARC/CARP," detailing what HLI gave their workers from 1989 to 2005.
The sum total, as added up by the Court, yields the following numbers: Total Direct Cash Out
(Salaries/Wages & Cash Benefits) = PhP 2,927,848; Total Non-Direct Cash Out
(Hospital/Medical Benefits) = PhP 303,040. The cash out figures, as stated in the report,
include the cost of homelots; the PhP 150 million or so representing 3% of the gross produce
of the hacienda; and the PhP 37.5 million representing 3% from the proceeds of the sale of
the 500-hectare converted lands. While not included in the report, HLI manifests having given
the FWBs 3% of the PhP 80 million paid for the 80 hectares of land traversed by the
SCTEX.128 On top of these, it is worth remembering that the shares of stocks were given by
HLI to the FWBs for free. Verily, the FWBs have benefited from the SDP.
To address urgings that the FWBs be allowed to disengage from the SDP as HLI has not
anyway earned profits through the years, it cannot be over-emphasized that, as a matter of
common business sense, no corporation could guarantee a profitable run all the time. As has
been suggested, one of the key features of an SDP of a corporate landowner is the likelihood
of the corporate vehicle not earning, or, worse still, losing money.129
The Court is fully aware that one of the criteria under DAO 10 for the PARC to consider the
advisability of approving a stock distribution plan is the likelihood that the plan "would result in
increased income and greater benefits to [qualified beneficiaries] than if the lands were
divided and distributed to them individually."130 But as aptly noted during the oral arguments,
DAO 10 ought to have not, as it cannot, actually exact assurance of success on something
that is subject to the will of man, the forces of nature or the inherent risky nature of
business.131 Just like in actual land distribution, an SDP cannot guarantee, as indeed the
SDOA does not guarantee, a comfortable life for the FWBs. The Court can take judicial notice
of the fact that there were many instances wherein after a farmworker beneficiary has been
awarded with an agricultural land, he just subsequently sells it and is eventually left with
nothing in the end.
In all then, the onerous condition of the FWBs’ economic status, their life of hardship, if that
really be the case, can hardly be attributed to HLI and its SDP and provide a valid ground for
the plan’s revocation.
Neither does HLI’s SDP, whence the DAR-attested SDOA/MOA is based, infringe Sec. 31 of
RA 6657, albeit public respondents erroneously submit otherwise.
The provisions of the first paragraph of the adverted Sec. 31 are without relevance to the
issue on the propriety of the assailed order revoking HLI’s SDP, for the paragraph deals with
the transfer of agricultural lands to the government, as a mode of CARP compliance, thus:
SEC. 31. Corporate Landowners.¾Corporate landowners may voluntarily transfer ownership
over their agricultural landholdings to the Republic of the Philippines pursuant to Section 20
hereof or to qualified beneficiaries under such terms and conditions, consistent with this Act,
as they may agree, subject to confirmation by the DAR.
The second and third paragraphs, with their sub-paragraphs, of Sec. 31 provide as follows:
Upon certification by the DAR, corporations owning agricultural lands may give their
qualified beneficiaries the right to purchase such proportion of the capital stock of the
corporation that the agricultural land, actually devoted to agricultural activities, bears
in relation to the company’s total assets, under such terms and conditions as may be
agreed upon by them. In no case shall the compensation received by the workers at the time
the shares of stocks are distributed be reduced. x x x
Corporations or associations which voluntarily divest a proportion of their capital stock, equity
or participation in favor of their workers or other qualified beneficiaries under this section shall
be deemed to have complied with the provisions of this Act: Provided, That the following
conditions are complied with:
(a) In order to safeguard the right of beneficiaries who own shares of stocks to
dividends and other financial benefits, the books of the corporation or association
shall be subject to periodic audit by certified public accountants chosen by the
beneficiaries;
(b) Irrespective of the value of their equity in the corporation or association, the
beneficiaries shall be assured of at least one (1) representative in the board of
directors, or in a management or executive committee, if one exists, of the
corporation or association;
(c) Any shares acquired by such workers and beneficiaries shall have the same rights
and features as all other shares; and
(d) Any transfer of shares of stocks by the original beneficiaries shall be void ab initio
unless said transaction is in favor of a qualified and registered beneficiary within the
same corporation.
The mandatory minimum ratio of land-to-shares of stock supposed to be distributed or
allocated to qualified beneficiaries, adverting to what Sec. 31 of RA 6657 refers to as that
"proportion of the capital stock of the corporation that the agricultural land, actually devoted to
agricultural activities, bears in relation to the company’s total assets" had been observed.
Paragraph one (1) of the SDOA, which was based on the SDP, conforms to Sec. 31 of RA
6657. The stipulation reads:
1. The percentage of the value of the agricultural land of Hacienda Luisita (P196,630,000.00)
in relation to the total assets (P590,554,220.00) transferred and conveyed to the SECOND
PARTY is 33.296% that, under the law, is the proportion of the outstanding capital stock of
the SECOND PARTY, which is P355,531,462.00 or 355,531,462 shares with a par value of
P1.00 per share, that has to be distributed to the THIRD PARTY under the stock distribution
plan, the said 33.296% thereof being P118,391,976.85 or 118,391,976.85 shares.
The appraised value of the agricultural land is PhP 196,630,000 and of HLI’s other assets is
PhP 393,924,220. The total value of HLI’s assets is, therefore, PhP 590,554,220.132 The
percentage of the value of the agricultural lands (PhP 196,630,000) in relation to the total
assets (PhP 590,554,220) is 33.296%, which represents the stockholdings of the 6,296
original qualified farmworker-beneficiaries (FWBs) in HLI. The total number of shares to be
distributed to said qualified FWBs is 118,391,976.85 HLI shares. This was arrived at by
getting 33.296% of the 355,531,462 shares which is the outstanding capital stock of HLI with
a value of PhP 355,531,462. Thus, if we divide the 118,391,976.85 HLI shares by 6,296
FWBs, then each FWB is entitled to 18,804.32 HLI shares. These shares under the SDP are
to be given to FWBs for free.
The Court finds that the determination of the shares to be distributed to the 6,296 FWBs
strictly adheres to the formula prescribed by Sec. 31(b) of RA 6657.
Anent the requirement under Sec. 31(b) of the third paragraph, that the FWBs shall be
assured of at least one (1) representative in the board of directors or in a management or
executive committee irrespective of the value of the equity of the FWBs in HLI, the Court finds
that the SDOA contained provisions making certain the FWBs’ representation in HLI’s
governing board, thus:
5. Even if only a part or fraction of the shares earmarked for distribution will have been
acquired from the FIRST PARTY and distributed to the THIRD PARTY, FIRST PARTY shall
execute at the beginning of each fiscal year an irrevocable proxy, valid and effective for one
(1) year, in favor of the farmworkers appearing as shareholders of the SECOND PARTY at
the start of said year which will empower the THIRD PARTY or their representative to vote in
stockholders’ and board of directors’ meetings of the SECOND PARTY convened during the
year the entire 33.296% of the outstanding capital stock of the SECOND PARTY earmarked
for distribution and thus be able to gain such number of seats in the board of directors of the
SECOND PARTY that the whole 33.296% of the shares subject to distribution will be entitled
to.
Also, no allegations have been made against HLI restricting the inspection of its books by
accountants chosen by the FWBs; hence, the assumption may be made that there has been
no violation of the statutory prescription under sub-paragraph (a) on the auditing of HLI’s
accounts.
Public respondents, however, submit that the distribution of the mandatory minimum ratio of
land-to-shares of stock, referring to the 118,391,976.85 shares with par value of PhP 1 each,
should have been made in full within two (2) years from the approval of RA 6657, in line with
the last paragraph of Sec. 31 of said law.133
Public respondents’ submission is palpably erroneous. We have closely examined the last
paragraph alluded to, with particular focus on the two-year period mentioned, and nothing in it
remotely supports the public respondents’ posture. In its pertinent part, said Sec. 31 provides:
SEC. 31. Corporate Landowners x x x
If within two (2) years from the approval of this Act, the [voluntary] land or stock transfer
envisioned above is not made or realized or the plan for such stock distribution approved by
the PARC within the same period, the agricultural land of the corporate owners or corporation
shall be subject to the compulsory coverage of this Act. (Word in bracket and emphasis
added.)
Properly viewed, the words "two (2) years" clearly refer to the period within which the
corporate landowner, to avoid land transfer as a mode of CARP coverage under RA 6657, is
to avail of the stock distribution option or to have the SDP approved. The HLI secured
approval of its SDP in November 1989, well within the two-year period reckoned from June
1988 when RA 6657 took effect.
Having hurdled the alleged breach of the agrarian reform policy under Sec. 2 of RA 6657 as
well as the statutory issues, We shall now delve into what PARC and respondents deem to
be other instances of violation of DAO 10 and the SDP.
On the Conversion of Lands
Contrary to the almost parallel stance of the respondents, keeping Hacienda Luisita
unfragmented is also not among the imperative impositions by the SDP, RA 6657, and DAO
10.
The Terminal Report states that the proposed distribution plan submitted in 1989 to the
PARC effectively assured the intended stock beneficiaries that the physical integrity of the
farm shall remain inviolate. Accordingly, the Terminal Report and the PARC-assailed
resolution would take HLI to task for securing approval of the conversion to non-agricultural
uses of 500 hectares of the hacienda. In not too many words, the Report and the resolution
view the conversion as an infringement of Sec. 5(a) of DAO 10 which reads: "a. that the
continued operation of the corporation with its agricultural land intact and unfragmented is
viable with potential for growth and increased profitability."
The PARC is wrong.
In the first place, Sec. 5(a)––just like the succeeding Sec. 5(b) of DAO 10 on increased
income and greater benefits to qualified beneficiaries––is but one of the stated criteria to
guide PARC in deciding on whether or not to accept an SDP. Said Sec. 5(a) does not exact
from the corporate landowner-applicant the undertaking to keep the farm intact and
unfragmented ad infinitum. And there is logic to HLI’s stated observation that the key phrase
in the provision of Sec. 5(a) is "viability of corporate operations": "[w]hat is thus required is not
the agricultural land remaining intact x x x but the viability of the corporate operations with its
agricultural land being intact and unfragmented. Corporate operation may be viable even if
the corporate agricultural land does not remain intact or [un]fragmented."134
It is, of course, anti-climactic to mention that DAR viewed the conversion as not violative of
any issuance, let alone undermining the viability of Hacienda Luisita’s operation, as the DAR
Secretary approved the land conversion applied for and its disposition via his Conversion
Order dated August 14, 1996 pursuant to Sec. 65 of RA 6657 which reads:
Sec. 65. Conversion of Lands.¾After the lapse of five years from its award when the land
ceases to be economically feasible and sound for agricultural purposes, or the locality has
become urbanized and the land will have a greater economic value for residential,
commercial or industrial purposes, the DAR upon application of the beneficiary or landowner
with due notice to the affected parties, and subject to existing laws, may authorize the x x x
conversion of the land and its dispositions. x x x
On the 3% Production Share
On the matter of the alleged failure of HLI to comply with sharing the 3% of the gross
production sales of the hacienda and pay dividends from profit, the entries in its financial
books tend to indicate compliance by HLI of the profit-sharing equivalent to 3% of the gross
sales from the production of the agricultural land on top of (a) the salaries and wages due
FWBs as employees of the company and (b) the 3% of the gross selling price of the
converted land and that portion used for the SCTEX. A plausible evidence of compliance or
non-compliance, as the case may be, could be the books of account of HLI. Evidently, the cry
of some groups of not having received their share from the gross production sales has not
adequately been validated on the ground by the Special Task Force.
Indeed, factual findings of administrative agencies are conclusive when supported by
substantial evidence and are accorded due respect and weight, especially when they are
affirmed by the CA.135 However, such rule is not absolute. One such exception is when the
findings of an administrative agency are conclusions without citation of specific evidence on
which they are based,136 such as in this particular instance. As culled from its Terminal
Report, it would appear that the Special Task Force rejected HLI’s claim of compliance on the
basis of this ratiocination:
 The Task Force position: Though, allegedly, the Supervisory Group receives the 3%
gross production share and that others alleged that they received 30 million pesos
still others maintain that they have not received anything yet. Item No. 4 of the MOA
is clear and must be followed. There is a distinction between the total gross sales
from the production of the land and the proceeds from the sale of the land. The
former refers to the fruits/yield of the agricultural land while the latter is the land itself.
The phrase "the beneficiaries are entitled every year to an amount approximately
equivalent to 3% would only be feasible if the subject is the produce since there is at
least one harvest per year, while such is not the case in the sale of the agricultural
land. This negates then the claim of HLI that, all that the FWBs can be entitled to, if
any, is only 3% of the purchase price of the converted land.
 Besides, the Conversion Order dated 14 August 1996 provides that "the benefits,
wages and the like, presently received by the FWBs shall not in any way be reduced
or adversely affected. Three percent of the gross selling price of the sale of the
converted land shall be awarded to the beneficiaries of the SDO." The 3% gross
production share then is different from the 3% proceeds of the sale of the converted
land and, with more reason, the 33% share being claimed by the FWBs as part
owners of the Hacienda, should have been given the FWBs, as stockholders, and to
which they could have been entitled if only the land were acquired and redistributed
to them under the CARP.
xxxx
 The FWBs do not receive any other benefits under the MOA except the
aforementioned [(viz: shares of stocks (partial), 3% gross production sale (not all)
and homelots (not all)].
Judging from the above statements, the Special Task Force is at best silent on whether HLI
has failed to comply with the 3% production-sharing obligation or the 3% of the gross selling
price of the converted land and the SCTEX lot. In fact, it admits that the FWBs, though not all,
have received their share of the gross production sales and in the sale of the lot to SCTEX. At
most, then, HLI had complied substantially with this SDP undertaking and the conversion
order. To be sure, this slight breach would not justify the setting to naught by PARC of the
approval action of the earlier PARC. Even in contract law, rescission, predicated on violation
of reciprocity, will not be permitted for a slight or casual breach of contract; rescission may be
had only for such breaches that are substantial and fundamental as to defeat the object of the
parties in making the agreement.137
Despite the foregoing findings, the revocation of the approval of the SDP is not without basis
as shown below.
On Titles to Homelots
Under RA 6657, the distribution of homelots is required only for corporations or business
associations owning or operating farms which opted for land distribution. Sec. 30 of RA 6657
states:
SEC. 30. Homelots and Farmlots for Members of Cooperatives.¾The individual members of
the cooperatives or corporations mentioned in the preceding section shall be provided with
homelots and small farmlots for their family use, to be taken from the land owned by the
cooperative or corporation.
The "preceding section" referred to in the above-quoted provision is as follows:
SEC. 29. Farms Owned or Operated by Corporations or Other Business Associations.¾In the
case of farms owned or operated by corporations or other business associations, the
following rules shall be observed by the PARC.
In general, lands shall be distributed directly to the individual worker-beneficiaries.
In case it is not economically feasible and sound to divide the land, then it shall be owned
collectively by the worker-beneficiaries who shall form a workers’ cooperative or association
which will deal with the corporation or business association. Until a new agreement is entered
into by and between the workers’ cooperative or association and the corporation or business
association, any agreement existing at the time this Act takes effect between the former and
the previous landowner shall be respected by both the workers’ cooperative or association
and the corporation or business association.
Noticeably, the foregoing provisions do not make reference to corporations which opted for
stock distribution under Sec. 31 of RA 6657. Concomitantly, said corporations are not obliged
to provide for it except by stipulation, as in this case.
Under the SDP, HLI undertook to "subdivide and allocate for free and without charge among
the qualified family-beneficiaries x x x residential or homelots of not more than 240 sq. m.
each, with each family beneficiary being assured of receiving and owning a homelot in the
barrio or barangay where it actually resides," "within a reasonable time."
More than sixteen (16) years have elapsed from the time the SDP was approved by PARC,
and yet, it is still the contention of the FWBs that not all was given the 240-square meter
homelots and, of those who were already given, some still do not have the corresponding
titles.
During the oral arguments, HLI was afforded the chance to refute the foregoing allegation by
submitting proof that the FWBs were already given the said homelots:
Justice Velasco: x x x There is also an allegation that the farmer beneficiaries, the qualified
family beneficiaries were not given the 240 square meters each. So, can you also [prove] that
the qualified family beneficiaries were already provided the 240 square meter homelots.
Atty. Asuncion: We will, your Honor please.138
Other than the financial report, however, no other substantial proof showing that all the
qualified beneficiaries have received homelots was submitted by HLI. Hence, this Court is
constrained to rule that HLI has not yet fully complied with its undertaking to distribute
homelots to the FWBs under the SDP.
On "Man Days" and the Mechanics of Stock Distribution
In our review and analysis of par. 3 of the SDOA on the mechanics and timelines of stock
distribution, We find that it violates two (2) provisions of DAO 10. Par. 3 of the SDOA states:
3. At the end of each fiscal year, for a period of 30 years, the SECOND PARTY [HLI] shall
arrange with the FIRST PARTY [TDC] the acquisition and distribution to the THIRD PARTY
[FWBs] on the basis of number of days worked and at no cost to them of one-thirtieth (1/30)
of 118,391,976.85 shares of the capital stock of the SECOND PARTY that are presently
owned and held by the FIRST PARTY, until such time as the entire block of 118,391,976.85
shares shall have been completely acquired and distributed to the THIRD PARTY.
Based on the above-quoted provision, the distribution of the shares of stock to the FWBs,
albeit not entailing a cash out from them, is contingent on the number of "man days," that is,
the number of days that the FWBs have worked during the year. This formula deviates from
Sec. 1 of DAO 10, which decrees the distribution of equal number of shares to the FWBs as
the minimum ratio of shares of stock for purposes of compliance with Sec. 31 of RA 6657. As
stated in Sec. 4 of DAO 10:
Section 4. Stock Distribution Plan.¾The [SDP] submitted by the corporate landowner-
applicant shall provide for the distribution of an equal number of shares of the same class and
value, with the same rights and features as all other shares, to each of the qualified
beneficiaries. This distribution plan in all cases, shall be at least the minimum ratio for
purposes of compliance with Section 31 of R.A. No. 6657.
On top of the minimum ratio provided under Section 3 of this Implementing Guideline, the
corporate landowner-applicant may adopt additional stock distribution schemes taking into
account factors such as rank, seniority, salary, position and other circumstances which may
be deemed desirable as a matter of sound company policy. (Emphasis supplied.)
The above proviso gives two (2) sets or categories of shares of stock which a qualified
beneficiary can acquire from the corporation under the SDP. The first pertains, as earlier
explained, to the mandatory minimum ratio of shares of stock to be distributed to the FWBs in
compliance with Sec. 31 of RA 6657. This minimum ratio contemplates of that "proportion of
the capital stock of the corporation that the agricultural land, actually devoted to agricultural
activities, bears in relation to the company’s total assets."139 It is this set of shares of stock
which, in line with Sec. 4 of DAO 10, is supposed to be allocated "for the distribution of an
equal number of shares of stock of the same class and value, with the same rights and
features as all other shares, to each of the qualified beneficiaries."
On the other hand, the second set or category of shares partakes of a gratuitous extra grant,
meaning that this set or category constitutes an augmentation share/s that the corporate
landowner may give under an additional stock distribution scheme, taking into account such
variables as rank, seniority, salary, position and like factors which the management, in the
exercise of its sound discretion, may deem desirable.140
Before anything else, it should be stressed that, at the time PARC approved HLI’s SDP, HLI
recognized 6,296individuals as qualified FWBs. And under the 30-year stock distribution
program envisaged under the plan, FWBs who came in after 1989, new FWBs in fine, may be
accommodated, as they appear to have in fact been accommodated as evidenced by their
receipt of HLI shares.
Now then, by providing that the number of shares of the original 1989 FWBs shall depend on
the number of "man days," HLI violated the afore-quoted rule on stock distribution and
effectively deprived the FWBs of equal shares of stock in the corporation, for, in net effect,
these 6,296 qualified FWBs, who theoretically had given up their rights to the land that could
have been distributed to them, suffered a dilution of their due share entitlement. As has been
observed during the oral arguments, HLI has chosen to use the shares earmarked for
farmworkers as reward system chips to water down the shares of the original 6,296
FWBs.141 Particularly:
Justice Abad: If the SDOA did not take place, the other thing that would have happened is
that there would be CARP?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: That’s the only point I want to know x x x. Now, but they chose to enter SDOA
instead of placing the land under CARP. And for that reason those who would have gotten
their shares of the land actually gave up their rights to this land in place of the shares of the
stock, is that correct?
Atty. Dela Merced: It would be that way, Your Honor.
Justice Abad: Right now, also the government, in a way, gave up its right to own the land
because that way the government takes own [sic] the land and distribute it to the farmers and
pay for the land, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: And then you gave thirty-three percent (33%) of the shares of HLI to the
farmers at that time that numbered x x x those who signed five thousand four hundred ninety
eight (5,498) beneficiaries, is that correct?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: But later on, after assigning them their shares, some workers came in from
1989, 1990, 1991, 1992 and the rest of the years that you gave additional shares who were
not in the original list of owners?
Atty. Dela Merced: Yes, Your Honor.
Justice Abad: Did those new workers give up any right that would have belong to them in
1989 when the land was supposed to have been placed under CARP?
Atty. Dela Merced: If you are talking or referring… (interrupted)
Justice Abad: None! You tell me. None. They gave up no rights to land?
Atty. Dela Merced: They did not do the same thing as we did in 1989, Your Honor.
Justice Abad: No, if they were not workers in 1989 what land did they give up? None, if they
become workers later on.
Atty. Dela Merced: None, Your Honor, I was referring, Your Honor, to the original…
(interrupted)
Justice Abad: So why is it that the rights of those who gave up their lands would be diluted,
because the company has chosen to use the shares as reward system for new workers who
come in? It is not that the new workers, in effect, become just workers of the corporation
whose stockholders were already fixed. The TADECO who has shares there about sixty six
percent (66%) and the five thousand four hundred ninety eight (5,498) farmers at the time of
the SDOA? Explain to me. Why, why will you x x x what right or where did you get that right to
use this shares, to water down the shares of those who should have been benefited, and to
use it as a reward system decided by the company?142
From the above discourse, it is clear as day that the original 6,296 FWBs, who were qualified
beneficiaries at the time of the approval of the SDP, suffered from watering down of shares.
As determined earlier, each original FWB is entitled to 18,804.32 HLI shares. The original
FWBs got less than the guaranteed 18,804.32 HLI shares per beneficiary, because the
acquisition and distribution of the HLI shares were based on "man days" or "number of days
worked" by the FWB in a year’s time. As explained by HLI, a beneficiary needs to work for at
least 37 days in a fiscal year before he or she becomes entitled to HLI shares. If it falls below
37 days, the FWB, unfortunately, does not get any share at year end. The number of HLI
shares distributed varies depending on the number of days the FWBs were allowed to work in
one year. Worse, HLI hired farmworkers in addition to the original 6,296 FWBs, such that, as
indicated in the Compliance dated August 2, 2010 submitted by HLI to the Court, the total
number of farmworkers of HLI as of said date stood at 10,502. All these farmworkers, which
include the original 6,296 FWBs, were given shares out of the 118,931,976.85 HLI shares
representing the 33.296% of the total outstanding capital stock of HLI. Clearly, the minimum
individual allocation of each original FWB of 18,804.32 shares was diluted as a result of the
use of "man days" and the hiring of additional farmworkers.
Going into another but related matter, par. 3 of the SDOA expressly providing for a 30-year
timeframe for HLI-to-FWBs stock transfer is an arrangement contrary to what Sec. 11 of DAO
10 prescribes. Said Sec. 11 provides for the implementation of the approved stock distribution
plan within three (3) months from receipt by the corporate landowner of the approval of the
plan by PARC. In fact, based on the said provision, the transfer of the shares of stock in the
names of the qualified FWBs should be recorded in the stock and transfer books and must be
submitted to the SEC within sixty (60) days from implementation. As stated:
Section 11. Implementation/Monitoring of Plan.¾The approved stock distribution plan shall
be implemented within three (3) months from receipt by the corporate landowner-applicant of
the approval thereof by the PARC, and the transfer of the shares of stocks in the names of
the qualified beneficiaries shall be recorded in stock and transfer books and submitted to the
Securities and Exchange Commission (SEC) within sixty (60) days from the said
implementation of the stock distribution plan. (Emphasis supplied.)
It is evident from the foregoing provision that the implementation, that is, the distribution of
the shares of stock to the FWBs, must be made within three (3) months from receipt by HLI of
the approval of the stock distribution plan by PARC. While neither of the clashing parties has
made a compelling case of the thrust of this provision, the Court is of the view and so holds
that the intent is to compel the corporate landowner to complete, not merely initiate, the
transfer process of shares within that three-month timeframe. Reinforcing this conclusion is
the 60-day stock transfer recording (with the SEC) requirement reckoned from the
implementation of the SDP.
To the Court, there is a purpose, which is at once discernible as it is practical, for the three-
month threshold. Remove this timeline and the corporate landowner can veritably evade
compliance with agrarian reform by simply deferring to absurd limits the implementation of the
stock distribution scheme.
The argument is urged that the thirty (30)-year distribution program is justified by the fact that,
under Sec. 26 of RA 6657, payment by beneficiaries of land distribution under CARP shall be
made in thirty (30) annual amortizations. To HLI, said section provides a justifying dimension
to its 30-year stock distribution program.
HLI’s reliance on Sec. 26 of RA 6657, quoted in part below, is obviously misplaced as the
said provision clearly deals with land distribution.
SEC. 26. Payment by Beneficiaries.¾Lands awarded pursuant to this Act shall be paid for by
the beneficiaries to the LBP in thirty (30) annual amortizations x x x.
Then, too, the ones obliged to pay the LBP under the said provision are the beneficiaries. On
the other hand, in the instant case, aside from the fact that what is involved is stock
distribution, it is the corporate landowner who has the obligation to distribute the shares of
stock among the FWBs.
Evidently, the land transfer beneficiaries are given thirty (30) years within which to pay the
cost of the land thus awarded them to make it less cumbersome for them to pay the
government. To be sure, the reason underpinning the 30-year accommodation does not apply
to corporate landowners in distributing shares of stock to the qualified beneficiaries, as the
shares may be issued in a much shorter period of time.
Taking into account the above discussion, the revocation of the SDP by PARC should be
upheld for violating DAO 10. It bears stressing that under Sec. 49 of RA 6657, the PARC and
the DAR have the power to issue rules and regulations, substantive or procedural. Being a
product of such rule-making power, DAO 10 has the force and effect of law and must be duly
complied with.143 The PARC is, therefore, correct in revoking the SDP. Consequently, the
PARC Resolution No. 89-12-2 dated November 21, l989 approving the HLI’s SDP is nullified
and voided.
III.
We now resolve the petitions-in-intervention which, at bottom, uniformly pray for the exclusion
from the coverage of the assailed PARC resolution those portions of the converted land
within Hacienda Luisita which RCBC and LIPCO acquired by purchase.
Both contend that they are innocent purchasers for value of portions of the converted farm
land. Thus, their plea for the exclusion of that portion from PARC Resolution 2005-32-01, as
implemented by a DAR-issued Notice of Coverage dated January 2, 2006, which called for
mandatory CARP acquisition coverage of lands subject of the SDP.
To restate the antecedents, after the conversion of the 500 hectares of land in Hacienda
Luisita, HLI transferred the 300 hectares to Centennary, while ceding the remaining 200-
hectare portion to LRC. Subsequently, LIPCO purchased the entire three hundred (300)
hectares of land from Centennary for the purpose of developing the land into an industrial
complex.144 Accordingly, the TCT in Centennary’s name was canceled and a new one issued
in LIPCO’s name. Thereafter, said land was subdivided into two (2) more parcels of land.
Later on, LIPCO transferred about 184 hectares to RCBC by way of dacion en pago, by virtue
of which TCTs in the name of RCBC were subsequently issued.
Under Sec. 44 of PD 1529 or the Property Registration Decree, "every registered owner
receiving a certificate of title in pursuance of a decree of registration and every subsequent
purchaser of registered land taking a certificate of title for value and in good faith shall hold
the same free from all encumbrances except those noted on the certificate and enumerated
therein."145
It is settled doctrine that one who deals with property registered under the Torrens system
need not go beyond the four corners of, but can rely on what appears on, the title. He is
charged with notice only of such burdens and claims as are annotated on the title. This
principle admits of certain exceptions, such as when the party has actual knowledge of facts
and circumstances that would impel a reasonably cautious man to make such inquiry, or
when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient
facts to induce a reasonably prudent man to inquire into the status of the title of the property
in litigation.146 A higher level of care and diligence is of course expected from banks, their
business being impressed with public interest.147
Millena v. Court of Appeals describes a purchaser in good faith in this wise:
x x x A purchaser in good faith is one who buys property of another, without notice that some
other person has a right to, or interest in, such property at the time of such purchase, or
before he has notice of the claim or interest of some other persons in the property. Good
faith, or the lack of it, is in the final analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are necessarily controlled by the
evidence as to the conduct and outward acts by which alone the inward motive may, with
safety, be determined. Truly, good faith is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only be judged by actual or fancied
tokens or signs. Otherwise stated, good faith x x x refers to the state of mind which is
manifested by the acts of the individual concerned. 148 (Emphasis supplied.)
In fine, there are two (2) requirements before one may be considered a purchaser in good
faith, namely: (1) that the purchaser buys the property of another without notice that some
other person has a right to or interest in such property; and (2) that the purchaser pays a full
and fair price for the property at the time of such purchase or before he or she has notice of
the claim of another.
It can rightfully be said that both LIPCO and RCBC are––based on the above requirements
and with respect to the adverted transactions of the converted land in question––purchasers
in good faith for value entitled to the benefits arising from such status.
First, at the time LIPCO purchased the entire three hundred (300) hectares of industrial land,
there was no notice of any supposed defect in the title of its transferor, Centennary, or that
any other person has a right to or interest in such property. In fact, at the time LIPCO
acquired said parcels of land, only the following annotations appeared on the TCT in the
name of Centennary: the Secretary’s Certificate in favor of Teresita Lopa, the Secretary’s
Certificate in favor of Shintaro Murai, and the conversion of the property from agricultural to
industrial and residential use.149
The same is true with respect to RCBC. At the time it acquired portions of Hacienda Luisita,
only the following general annotations appeared on the TCTs of LIPCO: the Deed of
Restrictions, limiting its use solely as an industrial estate; the Secretary’s Certificate in favor
of Koji Komai and Kyosuke Hori; and the Real Estate Mortgage in favor of RCBC to
guarantee the payment of PhP 300 million.
It cannot be claimed that RCBC and LIPCO acted in bad faith in acquiring the lots that were
previously covered by the SDP. Good faith "consists in the possessor’s belief that the person
from whom he received it was the owner of the same and could convey his title. Good faith
requires a well-founded belief that the person from whom title was received was himself the
owner of the land, with the right to convey it. There is good faith where there is an honest
intention to abstain from taking any unconscientious advantage from another." 150 It is the
opposite of fraud.
To be sure, intervenor RCBC and LIPCO knew that the lots they bought were subjected to
CARP coverage by means of a stock distribution plan, as the DAR conversion order was
annotated at the back of the titles of the lots they acquired. However, they are of the honest
belief that the subject lots were validly converted to commercial or industrial purposes and for
which said lots were taken out of the CARP coverage subject of PARC Resolution No. 89-12-
2 and, hence, can be legally and validly acquired by them. After all, Sec. 65 of RA 6657
explicitly allows conversion and disposition of agricultural lands previously covered by CARP
land acquisition "after the lapse of five (5) years from its award when the land ceases to be
economically feasible and sound for agricultural purposes or the locality has become
urbanized and the land will have a greater economic value for residential, commercial or
industrial purposes." Moreover, DAR notified all the affected parties, more particularly the
FWBs, and gave them the opportunity to comment or oppose the proposed conversion. DAR,
after going through the necessary processes, granted the conversion of 500 hectares of
Hacienda Luisita pursuant to its primary jurisdiction under Sec. 50 of RA 6657 to determine
and adjudicate agrarian reform matters and its original exclusive jurisdiction over all matters
involving the implementation of agrarian reform. The DAR conversion order became final and
executory after none of the FWBs interposed an appeal to the CA. In this factual setting,
RCBC and LIPCO purchased the lots in question on their honest and well-founded belief that
the previous registered owners could legally sell and convey the lots though these were
previously subject of CARP coverage. Ergo, RCBC and LIPCO acted in good faith in
acquiring the subject lots.
And second, both LIPCO and RCBC purchased portions of Hacienda Luisita for value.
Undeniably, LIPCO acquired 300 hectares of land from Centennary for the amount of PhP
750 million pursuant to a Deed of Sale dated July 30, 1998.151 On the other hand, in a Deed
of Absolute Assignment dated November 25, 2004, LIPCO conveyed portions of Hacienda
Luisita in favor of RCBC by way of dacion en pago to pay for a loan of PhP 431,695,732.10.
As bona fide purchasers for value, both LIPCO and RCBC have acquired rights which cannot
just be disregarded by DAR, PARC or even by this Court. As held in Spouses Chua v.
Soriano:
With the property in question having already passed to the hands of purchasers in good faith,
it is now of no moment that some irregularity attended the issuance of the SPA, consistent
with our pronouncement in Heirs of Spouses Benito Gavino and Juana Euste v. Court of
Appeals, to wit:
x x x the general rule that the direct result of a previous void contract cannot be valid, is
inapplicable in this case as it will directly contravene the Torrens system of
registration. Where innocent third persons, relying on the correctness of the certificate
of title thus issued, acquire rights over the property, the court cannot disregard such
rights and order the cancellation of the certificate. The effect of such outright cancellation
will be to impair public confidence in the certificate of title. The sanctity of the Torrens system
must be preserved; otherwise, everyone dealing with the property registered under the
system will have to inquire in every instance as to whether the title had been regularly or
irregularly issued, contrary to the evident purpose of the law.
Being purchasers in good faith, the Chuas already acquired valid title to the property.
A purchaser in good faith holds an indefeasible title to the property and he is entitled
to the protection of the law.152 x x x (Emphasis supplied.)
To be sure, the practicalities of the situation have to a point influenced Our disposition on the
fate of RCBC and LIPCO. After all, the Court, to borrow from Association of Small
Landowners in the Philippines, Inc.,153 is not a "cloistered institution removed" from the
realities on the ground. To note, the approval and issuances of both the national and local
governments showing that certain portions of Hacienda Luisita have effectively ceased,
legally and physically, to be agricultural and, therefore, no longer CARPable are a matter of
fact which cannot just be ignored by the Court and the DAR. Among the approving/endorsing
issuances:154
 (a) Resolution No. 392 dated 11 December 1996 of the Sangguniang Bayan of Tarlac
favorably endorsing the 300-hectare industrial estate project of LIPCO;
(b) BOI Certificate of Registration No. 96-020 dated 20 December 1996 issued in
accordance with the Omnibus Investments Code of 1987;
(c) PEZA Certificate of Board Resolution No. 97-202 dated 27 June 1997, approving
LIPCO’s application for a mixed ecozone and proclaiming the three hundred (300)
hectares of the industrial land as a Special Economic Zone;
(d) Resolution No. 234 dated 08 August 1997 of the Sangguniang Bayan of Tarlac,
approving the Final Development Permit for the Luisita Industrial Park II Project;
(e) Development Permit dated 13 August 1997 for the proposed Luisita Industrial
Park II Project issued by the Office of the Sangguniang Bayan of Tarlac;155
(f) DENR Environmental Compliance Certificate dated 01 October 1997 issued for
the proposed project of building an industrial complex on three hundred (300)
hectares of industrial land;156
(g) Certificate of Registration No. 00794 dated 26 December 1997 issued by the
HLURB on the project of Luisita Industrial Park II with an area of three million
(3,000,000) square meters;157
(h) License to Sell No. 0076 dated 26 December 1997 issued by the HLURB
authorizing the sale of lots in the Luisita Industrial Park II;
(i) Proclamation No. 1207 dated 22 April 1998 entitled "Declaring Certain Parcels of
Private Land in Barangay San Miguel, Municipality of Tarlac, Province of Tarlac, as a
Special Economic Zone pursuant to Republic Act No. 7916," designating the Luisita
Industrial Park II consisting of three hundred hectares (300 has.) of industrial land as
a Special Economic Zone; and
(j) Certificate of Registration No. EZ-98-05 dated 07 May 1998 issued by the PEZA,
stating that pursuant to Presidential Proclamation No. 1207 dated 22 April 1998 and
Republic Act No. 7916, LIPCO has been registered as an Ecozone
Developer/Operator of Luisita Industrial Park II located in San Miguel, Tarlac, Tarlac.
While a mere reclassification of a covered agricultural land or its inclusion in an economic
zone does not automatically allow the corporate or individual landowner to change its
use,158 the reclassification process is a prima facie indicium that the land has ceased to be
economically feasible and sound for agricultural uses. And if only to stress, DAR Conversion
Order No. 030601074-764-(95) issued in 1996 by then DAR Secretary Garilao had effectively
converted 500 hectares of hacienda land from agricultural to industrial/commercial use and
authorized their disposition.
In relying upon the above-mentioned approvals, proclamation and conversion order, both
RCBC and LIPCO cannot be considered at fault for believing that certain portions of
Hacienda Luisita are industrial/commercial lands and are, thus, outside the ambit of CARP.
The PARC, and consequently DAR, gravely abused its discretion when it placed LIPCO’s and
RCBC’s property which once formed part of Hacienda Luisita under the CARP compulsory
acquisition scheme via the assailed Notice of Coverage.
As regards the 80.51-hectare land transferred to the government for use as part of the
SCTEX, this should also be excluded from the compulsory agrarian reform coverage
considering that the transfer was consistent with the government’s exercise of the power of
eminent domain159 and none of the parties actually questioned the transfer.
While We affirm the revocation of the SDP on Hacienda Luisita subject of PARC Resolution
Nos. 2005-32-01 and 2006-34-01, the Court cannot close its eyes to certain "operative facts"
that had occurred in the interim. Pertinently, the "operative fact" doctrine realizes that, in
declaring a law or executive action null and void, or, by extension, no longer without force
and effect, undue harshness and resulting unfairness must be avoided. This is as it should
realistically be, since rights might have accrued in favor of natural or juridical persons and
obligations justly incurred in the meantime.160 The actual existence of a statute or executive
act is, prior to such a determination, an operative fact and may have consequences which
cannot justly be ignored; the past cannot always be erased by a new judicial declaration. 161
The oft-cited De Agbayani v. Philippine National Bank162 discussed the effect to be given to a
legislative or executive act subsequently declared invalid:
x x x It does not admit of doubt that prior to the declaration of nullity such challenged
legislative or executive act must have been in force and had to be complied with. This is so
as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to
obedience and respect. Parties may have acted under it and may have changed their
positions. What could be more fitting than that in a subsequent litigation regard be had to
what has been done while such legislative or executive act was in operation and presumed to
be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its
existence as a fact must be reckoned with. This is merely to reflect awareness that precisely
because the judiciary is the government organ which has the final say on whether or not a
legislative or executive measure is valid, a period of time may have elapsed before it can
exercise the power of judicial review that may lead to a declaration of nullity. It would be to
deprive the law of its quality of fairness and justice then, if there be no recognition of what
had transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute,
prior to such a determination of [unconstitutionality], is an operative fact and may have
consequences which cannot justly be ignored. The past cannot always be erased by a new
judicial declaration. The effect of the subsequent ruling as to invalidity may have to be
considered in various aspects,––with respect to particular relations, individual and corporate,
and particular conduct, private and official." x x x
Given the above perspective and considering that more than two decades had passed since
the PARC’s approval of the HLI’s SDP, in conjunction with numerous activities performed in
good faith by HLI, and the reliance by the FWBs on the legality and validity of the PARC-
approved SDP, perforce, certain rights of the parties, more particularly the FWBs, have to be
respected pursuant to the application in a general way of the operative fact doctrine.
A view, however, has been advanced that the operative fact doctrine is of minimal or
altogether without relevance to the instant case as it applies only in considering the effects of
a declaration of unconstitutionality of a statute, and not of a declaration of nullity of a contract.
This is incorrect, for this view failed to consider is that it is NOT the SDOA dated May 11,
1989 which was revoked in the instant case. Rather, it is PARC’s approval of the HLI’s
Proposal for Stock Distribution under CARP which embodied the SDP that was nullified.
A recall of the antecedent events would show that on May 11, 1989, Tadeco, HLI, and the
qualified FWBs executed the SDOA. This agreement provided the basis and mechanics of
the SDP that was subsequently proposed and submitted to DAR for approval. It was only
after its review that the PARC, through then Sec. Defensor-Santiago, issued the assailed
Resolution No. 89-12-2 approving the SDP. Considerably, it is not the SDOA which gave
legal force and effect to the stock distribution scheme but instead, it is the approval of the
SDP under the PARC Resolution No. 89-12-2 that gave it its validity.
The above conclusion is bolstered by the fact that in Sec. Pangandaman’s recommendation
to the PARC Excom, what he proposed is the recall/revocation of PARC Resolution No. 89-
12-2 approving HLI’s SDP, and not the revocation of the SDOA. Sec. Pangandaman’s
recommendation was favorably endorsed by the PARC Validation Committee to the PARC
Excom, and these recommendations were referred to in the assailed Resolution No. 2005-32-
01. Clearly, it is not the SDOA which was made the basis for the implementation of the stock
distribution scheme.
That the operative fact doctrine squarely applies to executive acts––in this case, the approval
by PARC of the HLI proposal for stock distribution––is well-settled in our jurisprudence. In
Chavez v. National Housing Authority,163 We held:
Petitioner postulates that the "operative fact" doctrine is inapplicable to the present case
because it is an equitable doctrine which could not be used to countenance an inequitable
result that is contrary to its proper office.
On the other hand, the petitioner Solicitor General argues that the existence of the various
agreements implementing the SMDRP is an operative fact that can no longer be disturbed or
simply ignored, citing Rieta v. People of the Philippines.
The argument of the Solicitor General is meritorious.
The "operative fact" doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is
stated that a legislative or executive act, prior to its being declared as unconstitutional by the
courts, is valid and must be complied with, thus:
xxx xxx xxx
This doctrine was reiterated in the more recent case of City of Makati v. Civil Service
Commission, wherein we ruled that:
Moreover, we certainly cannot nullify the City Government's order of suspension, as we have
no reason to do so, much less retroactively apply such nullification to deprive private
respondent of a compelling and valid reason for not filing the leave application. For as we
have held, a void act though in law a mere scrap of paper nonetheless confers legitimacy
upon past acts or omissions done in reliance thereof. Consequently, the existence of a
statute or executive order prior to its being adjudged void is an operative fact to which legal
consequences are attached. It would indeed be ghastly unfair to prevent private respondent
from relying upon the order of suspension in lieu of a formal leave application. (Citations
omitted; Emphasis supplied.)
The applicability of the operative fact doctrine to executive acts was further explicated by this
Court in Rieta v. People,164 thus:
Petitioner contends that his arrest by virtue of Arrest Search and Seizure Order (ASSO) No.
4754 was invalid, as the law upon which it was predicated — General Order No. 60, issued
by then President Ferdinand E. Marcos — was subsequently declared by the Court, in
Tañada v. Tuvera, 33 to have no force and effect. Thus, he asserts, any evidence obtained
pursuant thereto is inadmissible in evidence.
We do not agree. In Tañada, the Court addressed the possible effects of its declaration of the
invalidity of various presidential issuances. Discussing therein how such a declaration might
affect acts done on a presumption of their validity, the Court said:
". . .. In similar situations in the past this Court had taken the pragmatic and realistic course
set forth in Chicot County Drainage District vs. Baxter Bank to wit:
‘The courts below have proceeded on the theory that the Act of Congress, having been found
to be unconstitutional, was not a law; that it was inoperative, conferring no rights and
imposing no duties, and hence affording no basis for the challenged decree. . . . It is quite
clear, however, that such broad statements as to the effect of a determination of
unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to
[the determination of its invalidity], is an operative fact and may have consequences which
cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The
effect of the subsequent ruling as to invalidity may have to be considered in various aspects
— with respect to particular conduct, private and official. Questions of rights claimed to have
become vested, of status, of prior determinations deemed to have finality and acted upon
accordingly, of public policy in the light of the nature both of the statute and of its previous
application, demand examination. These questions are among the most difficult of those
which have engaged the attention of courts, state and federal, and it is manifest from
numerous decisions that an all-inclusive statement of a principle of absolute retroactive
invalidity cannot be justified.’
xxx xxx xxx
"Similarly, the implementation/enforcement of presidential decrees prior to their publication in
the Official Gazette is ‘an operative fact which may have consequences which cannot be
justly ignored. The past cannot always be erased by a new judicial declaration . . . that an all-
inclusive statement of a principle of absolute retroactive invalidity cannot be justified.’"
The Chicot doctrine cited in Tañada advocates that, prior to the nullification of a statute, there
is an imperative necessity of taking into account its actual existence as an operative fact
negating the acceptance of "a principle of absolute retroactive invalidity." Whatever was done
while the legislative or the executive act was in operation should be duly recognized and
presumed to be valid in all respects. The ASSO that was issued in 1979 under General Order
No. 60 — long before our Decision in Tañada and the arrest of petitioner — is an operative
fact that can no longer be disturbed or simply ignored. (Citations omitted; Emphasis
supplied.)
To reiterate, although the assailed Resolution No. 2005-32-01 states that it revokes or recalls
the SDP, what it actually revoked or recalled was the PARC’s approval of the SDP embodied
in Resolution No. 89-12-2. Consequently, what was actually declared null and void was an
executive act, PARC Resolution No. 89-12-2,165and not a contract (SDOA). It is, therefore,
wrong to say that it was the SDOA which was annulled in the instant case. Evidently, the
operative fact doctrine is applicable.
IV.
While the assailed PARC resolutions effectively nullifying the Hacienda Luisita SDP are
upheld, the revocation must, by application of the operative fact principle, give way to the
right of the original 6,296 qualified FWBs to choose whether they want to remain as HLI
stockholders or not. The Court cannot turn a blind eye to the fact that in 1989, 93% of the
FWBs agreed to the SDOA (or the MOA), which became the basis of the SDP approved by
PARC per its Resolution No. 89-12-2 dated November 21, 1989. From 1989 to 2005, the
FWBs were said to have received from HLI salaries and cash benefits, hospital and medical
benefits, 240-square meter homelots, 3% of the gross produce from agricultural lands, and
3% of the proceeds of the sale of the 500-hectare converted land and the 80.51-hectare lot
sold to SCTEX. HLI shares totaling 118,391,976.85 were distributed as of April 22,
2005.166 On August 6, 20l0, HLI and private respondents submitted a Compromise
Agreement, in which HLI gave the FWBs the option of acquiring a piece of agricultural land or
remain as HLI stockholders, and as a matter of fact, most FWBs indicated their choice of
remaining as stockholders. These facts and circumstances tend to indicate that some, if not
all, of the FWBs may actually desire to continue as HLI shareholders. A matter best left to
their own discretion.
With respect to the other FWBs who were not listed as qualified beneficiaries as of November
21, 1989 when the SDP was approved, they are not accorded the right to acquire land but
shall, however, continue as HLI stockholders. All the benefits and homelots167 received by the
10,502 FWBs (6,296 original FWBs and 4,206 non-qualified FWBs) listed as HLI stockholders
as of August 2, 2010 shall be respected with no obligation to refund or return them since the
benefits (except the homelots) were received by the FWBs as farmhands in the agricultural
enterprise of HLI and other fringe benefits were granted to them pursuant to the existing
collective bargaining agreement with Tadeco. If the number of HLI shares in the names of the
original FWBs who opt to remain as HLI stockholders falls below the guaranteed allocation of
18,804.32 HLI shares per FWB, the HLI shall assign additional shares to said FWBs to
complete said minimum number of shares at no cost to said FWBs.
With regard to the homelots already awarded or earmarked, the FWBs are not obliged to
return the same to HLI or pay for its value since this is a benefit granted under the SDP. The
homelots do not form part of the 4,915.75 hectares covered by the SDP but were taken from
the 120.9234 hectare residential lot owned by Tadeco. Those who did not receive the
homelots as of the revocation of the SDP on December 22, 2005 when PARC Resolution No.
2005-32-01 was issued, will no longer be entitled to homelots. Thus, in the determination of
the ultimate agricultural land that will be subjected to land distribution, the aggregate area of
the homelots will no longer be deducted.
There is a claim that, since the sale and transfer of the 500 hectares of land subject of the
August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot came after compulsory
coverage has taken place, the FWBs should have their corresponding share of the land’s
value. There is merit in the claim. Since the SDP approved by PARC Resolution No. 89-12-2
has been nullified, then all the lands subject of the SDP will automatically be subject of
compulsory coverage under Sec. 31 of RA 6657. Since the Court excluded the 500-hectare
lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare SCTEX lot
acquired by the government from the area covered by SDP, then HLI and its subsidiary,
Centennary, shall be liable to the FWBs for the price received for said lots. HLI shall be liable
for the value received for the sale of the 200-hectare land to LRC in the amount of PhP
500,000,000 and the equivalent value of the 12,000,000 shares of its subsidiary, Centennary,
for the 300-hectare lot sold to LIPCO for the consideration of PhP 750,000,000. Likewise, HLI
shall be liable for PhP 80,511,500 as consideration for the sale of the 80.51-hectare SCTEX
lot.
We, however, note that HLI has allegedly paid 3% of the proceeds of the sale of the 500-
hectare land and 80.51-hectare SCTEX lot to the FWBs. We also take into account the
payment of taxes and expenses relating to the transfer of the land and HLI’s statement that
most, if not all, of the proceeds were used for legitimate corporate purposes. In order to
determine once and for all whether or not all the proceeds were properly utilized by HLI and
its subsidiary, Centennary, DAR will engage the services of a reputable accounting firm to be
approved by the parties to audit the books of HLI to determine if the proceeds of the sale of
the 500-hectare land and the 80.51-hectare SCTEX lot were actually used for legitimate
corporate purposes, titling expenses and in compliance with the August 14, 1996 Conversion
Order. The cost of the audit will be shouldered by HLI. If after such audit, it is determined that
there remains a balance from the proceeds of the sale, then the balance shall be distributed
to the qualified FWBs.
A view has been advanced that HLI must pay the FWBs yearly rent for use of the land from
1989. We disagree. It should not be forgotten that the FWBs are also stockholders of HLI,
and the benefits acquired by the corporation from its possession and use of the land
ultimately redounded to the FWBs’ benefit based on its business operations in the form of
salaries, and other fringe benefits under the CBA. To still require HLI to pay rent to the FWBs
will result in double compensation.
For sure, HLI will still exist as a corporation even after the revocation of the SDP although it
will no longer be operating under the SDP, but pursuant to the Corporation Code as a private
stock corporation. The non-agricultural assets amounting to PhP 393,924,220 shall remain
with HLI, while the agricultural lands valued at PhP 196,630,000 with an original area of
4,915.75 hectares shall be turned over to DAR for distribution to the FWBs. To be deducted
from said area are the 500-hectare lot subject of the August 14, 1996 Conversion Order, the
80.51-hectare SCTEX lot, and the total area of 6,886.5 square meters of individual lots that
should have been distributed to FWBs by DAR had they not opted to stay in HLI.
HLI shall be paid just compensation for the remaining agricultural land that will be transferred
to DAR for land distribution to the FWBs. We find that the date of the "taking" is November
21, 1989, when PARC approved HLI’s SDP per PARC Resolution No. 89-12-2. DAR shall
coordinate with LBP for the determination of just compensation. We cannot use May 11, 1989
when the SDOA was executed, since it was the SDP, not the SDOA, that was approved by
PARC.
The instant petition is treated pro hac vice in view of the peculiar facts and circumstances of
the case.
WHEREFORE, the instant petition is DENIED. PARC Resolution No. 2005-32-01 dated
December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands
subject of HLI’s SDP under compulsory coverage on mandated land acquisition scheme of
the CARP, are hereby AFFIRMED with the MODIFICATION that the original 6,296 qualified
FWBs shall have the option to remain as stockholders of HLI. DAR shall immediately
schedule meetings with the said 6,296 FWBs and explain to them the effects, consequences
and legal or practical implications of their choice, after which the FWBs will be asked to
manifest, in secret voting, their choices in the ballot, signing their signatures or placing their
thumbmarks, as the case may be, over their printed names.
Of the 6,296 FWBs, he or she who wishes to continue as an HLI stockholder is entitled to
18,804.32 HLI shares, and, in case the HLI shares already given to him or her is less than
18,804.32 shares, the HLI is ordered to issue or distribute additional shares to complete said
prescribed number of shares at no cost to the FWB within thirty (30) days from finality of this
Decision. Other FWBs who do not belong to the original 6,296 qualified beneficiaries are not
entitled to land distribution and shall remain as HLI shareholders. All salaries, benefits, 3%
production share and 3% share in the proceeds of the sale of the 500-hectare converted land
and the 80.51-hectare SCTEX lot and homelots already received by the 10,502 FWBs,
composed of 6,296 original FWBs and 4,206 non-qualified FWBs, shall be respected with no
obligation to refund or return them.
Within thirty (30) days after determining who from among the original FWBs will stay as
stockholders, DAR shall segregate from the HLI agricultural land with an area of 4,915.75
hectares subject of PARC’s SDP-approving Resolution No. 89-12-2 the following: (a) the 500-
hectare lot subject of the August 14, l996 Conversion Order; (b) the 80.51-hectare lot sold to,
or acquired by, the government as part of the SCTEX complex; and (c) the aggregate area of
6,886.5 square meters of individual lots that each FWB is entitled to under the CARP had he
or she not opted to stay in HLI as a stockholder. After the segregation process, as indicated,
is done, the remaining area shall be turned over to DAR for immediate land distribution to the
original qualified FWBs who opted not to remain as HLI stockholders.
The aforementioned area composed of 6,886.5-square meter lots allotted to the FWBs who
stayed with the corporation shall form part of the HLI assets.
HLI is directed to pay the 6,296 FWBs the consideration of PhP 500,000,000 received by it
from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares
covered by the August 14, 1996 Conversion Order, the consideration of PhP 750,000,000
received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300
hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the
price of PhP 80,511,500 paid by the government through the Bases Conversion Development
Authority for the sale of the 80.51-hectare lot used for the construction of the SCTEX road
network. From the total amount of PhP 1,330,511,500 (PhP 500,000,000 + PhP 750,000,000
+ PhP 80,511,500 = PhP 1,330,511,500) shall be deducted the 3% of the total gross sales
from the production of the agricultural land and the 3% of the proceeds of said transfers that
were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the
transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for
legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a
reputable accounting firm approved by the parties to audit the books of HLI and Centennary
Holdings, Inc. to determine if the PhP 1,330,511,500 proceeds of the sale of the three (3)
aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or
unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.
HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to
be reckoned from November 21, 1989 per PARC Resolution No. 89-12-2. DAR and LBP are
ordered to determine the compensation due to HLI.
DAR shall submit a compliance report after six (6) months from finality of this judgment. It
shall also submit, after submission of the compliance report, quarterly reports on the
execution of this judgment to be submitted within the first 15 days at the end of each quarter,
until fully implemented.
The temporary restraining order is lifted.
SO ORDERED.
G.R. No. L-26097 November 29, 1977
DOMINADOR ANUCENSION AND 114 OTHER IGLESIA NI CRISTO AGRICULTURAL
WORKERS OF HACIENDA LUISITA, petitioners,
vs.
NATIONAL LABOR UNION, TARLAC DEVELOPMENT CORPORATION AND COURT OF
INDUSTRIAL RELATIONS, respondents.
MAKASIAR, J.:
Petition for review on certiorari of the decision of the Court of Industrial Relations in its Case
No. 49-IPA, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, the Court concludes that republic Act No.
3350 excluding from the coverage of Section 4 (a) (4) of the Industrial Peace
Act (referring to closed-shop) any religious sects which prohibits affiliation of
their members in any labor organization is unconstitutional and declares the
Collective Bargaining Agreement of August 2, 1962, valid and binding upon
the parties, and for the Hacienda to discharge the 115 followers of the Iglesia
who resigned from the Union on May 8, 1964 if they do not withdraw their
resignation as indicated in the preceding paragraph of this decision.
Meanwhile all the workers should return to work immediately upon receipt of
a copy of this Order.
Separate motions for reconsideration filed by the 115 petitioners, who are agricultural workers
of Hacienda Luisita, owned and operated by respondent Tarlac Development Corporation
(hereinafter referred to as Hacienda), and who are members of the United Luisita Workers'
Union, an affiliate of the other respondent National Labor Union (hereinafter referred to as
Union), as well as by respondent Union, having been denied by respondent court (Judge
Paredes dissenting for lack of jurisdiction), the petitioners appealed to this Court, praying,
among other things:
c) That after due hearing, judgment be rendered setting aside the Resolution
of the respondent Court dated October 24 (27), 1964 (Promulgated only on
May 13, 1966), as well as the Decision dated August 15, 1964, and
dismissing Case No. 49-IPA with costs against the private respondents, or
should be respondent Court be found to have jurisdiction over the case,
declaring that Republic Act No. 3350 is valid and restraining the respondents
from dismissing petitioners from their employment.
On July 11, 1964, then Executive Secretary Calixto O. Zaldivar subsequently an Associate
Justice of this Court, now retired), acting by authority of the President of the Philippines, sent
a letter to the Presiding Judge of the respondent court, certifying the labor dispute between
the management of the Hacienda and the 115 members of the United Luisita Workers' Union,
an affiliate of respondent Union, based on Section 10 of Republic Act 875, otherwise known
as the Industrial Peace Act (Annex A, Petition; p, 1, rec.). Immediately upon receipt of said
letter, respondent court caused the dispute to be docketed as Case No. 49-IPA and then
proceeded to hear the same.
The pertinent portions of the findings of fact of the respondent court are quoted hereunder:
Petitioner union and the Hacienda entered into a collective bargaining
agreement on August 2, 1962, which, among others, embodies union
security provisions as follows:
SEC. 3. Except only for present members of the 'Iglesia ni
Cristo' are not now members of the UNION, all employees
and workers within the appropriate bargaining unit who are
not members of the UNION at the time of the execution of
this agreement shall have fifteen (15) days from the date of
the execution of this agreement within which to apply for
membership in the UNION. The UNION agrees to accept
said employees into membership, under the same terms and
conditions under which the employees and workers now
members were admitted into membership.
SEC. 4. Persons who may hereafter be employed to hold
positions included in the bargaining unit shall be required to
become members of the UNION within fifteen (15) days after
they shall have been included within the said bargaining
unit.
SEC. 5. Employees and workers within the appropriate
bargaining unit who are now members of the UNION, as well
as those who may subsequently join the UNION pursuant to
Sections 3 and 4 above, shall remain members of the
UNION during the effectivity of this agreement as a condition
of co continued employment.
 (a) The HACIENDA, upon the written request of the UNION,
shall discharge any employee who shall fail to fulfill the
conditions aforesaid or who resigns or is suspended from
membership in the UNION for disloyalty, violation of the
Constitution or By-Laws of the UNION, or for any valid
cause, but it assumes no obligation to discharge any
employee if it has reasonable grounds for believing that
membership in the UNION was not available to the
employee on the same terms arid conditions generally
applicable to other members' (Exhibit '1-Company').
The agreement to take effect from July 1, 1962 to June 30, for a period of
three years.
Prior to the execution of the collective contract of August 2, 1962, the same
union security provisions appeared verbatim in the collective bargaining
contract that was in force from 1959 to 1962.
In a letter to the union president, Rufino D. Lagman, dated May 8, 1964, a
group of more than one hundred and fifty person representing themselves to
be members of the United Luisita Union (NLU), and followers of a religious
sect known as the Iglesia ni Cristo, made manifest their 'irrevocable
resignation' from the United Luisita Workers' Union (NLU), herein called the
UNION, for short. The letter ended with the statement that 'We believe our
resignation is legal and it is within the purview of the freedom of religion
guaranteed by our Constitution. Hence, it can not be made a ground for the
termination of our employment nor a cause for discrimination against us'
(Exhibit 'D-Union').
Earlier, that is, on September 1, 1963, a letter of the same tenor signed by
practically the same persons, alleged followers of Iglesia ni Cristo, whose
names appear in Exhibit 'D-Union', was delivered personally on said date by
Jeremias Mendoza, minister of the Church, Ernesto C. Teopeco,
Administrator of the Hacienda (Exhibits '5', 5-A' and '5-B'). Teopeco promised
Mendoza that he would bring the matter to the attention of the higher
authorities of the Hacienda in Tarlac, Tarlac. The Union never received a
copy of the letter dated September 1, 1963. As the Hacienda did not take any
action or the matter treated in the letter of September 1, 1963, the group of
Iglesia ni Cristo followers who signed the letter informed the Union officially
of their irrevocable resignation on May 8, 1964 as hereinabove indicated as
shown by Exhibit 'D-Union'.
The evidence discloses that the followers of Iglesia ni Cristo were prompted
to resign from the union because of the circular, dated April 1, 1959, from the
Iglesia ni Cristo, thru its Secretary General, Teofilo Ramos, enjoining all
members of the sect not to join any outside association or organization of
whatever kind or nature or that if they are already members of such
association or organization that they disaffiliate themselves, otherwise they
would be expelled from the church. For ready reference, the circular is
hereinbelow quoted in full:
TANGGAPAN NG IGLESIA NI IGLESIA 154 Riverside, San Juan, Rizal Abril
1, 1959
SA LAHAT NG MGA KAPATID SA IGLESIA NI CRISTO SA KAPULUANG
PILIPINAS
Buong higpit na aming ibinababala sa inyo na sinomang kapatid sa Iglesia ay
huwag aanib sa anumang uri ng kapisanan o samahang labas sa Iglesia Ni
Cristo. Ang sinomang kapatid na sa kasalukuyan ay kaanib sa anumang uri
ng kapisanan o samahan, ay dapat na umalis at huwag ng kailanman
uugnay sa mga ito. Ito ay salig sa utos ng Dios na tayo ay 'huwag
makikipamatok ng kabilang sa mga hindi sumasampalataya' (II Cor. 6:14).
Si ROSENDO PAULINO, dating kaanib sa Iglesia ni Cristo, ay itiniwalag sa
Iglesia mula ngayon. Siya ay itiniwalag sa Iglesia hindi lamang dahil sa ayaw
niyang umalis sa kapisanang kaniyang kinaaniban kundi naman kaniya pang
ipinagkanulo ang Iglesia. Kaya, itinatagubilin namin sa inyo na siya ay huwag
ninyong kakausapin o babatiin man lamang at huwag din ninyo siyang
tatanggapin sa inyong mga tahanan (II Juan 1:10-11).
Gayon din naman, aming ibinababala sa inyo na sinomang kapatid sa Iglesia
ang lumabag sa mga tagubilin ng 'circular' na ito ay lubusang ititiwalag sa
Iglesia upang kailanman ay huwag na muling mabalik.
UMAASA kami na ang mga tagubilin sa 'circular' na ito ay inyong tutuparing
may katapatan upang manatili sa Iglesia at sa piling ng Sugo ng Dios sa
Huling Araw.
Tulungan nawa tayo ng Dios.
Ang inyong kapatid sa Panginoon (Sgd.) 'T. RAMOS 'TEOFILO C. RAMOS'
(Exh. "J")
Upon the passage by Congress of Republic Act No. 3350, the Iglesia ni
Cristo, in another circular dated October 13, 1961, informed all its followers
about the provisions of said Act, as follows:
Nais naming ipagbigay alam sa inyo na nagkaroon ng susog ang batas ukol
sa maggagawa ng pagawaan na tinatawag na Industrial Peace Act' na
ngayon ay kilala sa tawag na 'Republic Act Blg. 3350.' Gaya ng alam na
ninyo ipinagbabawal ng ating pananampalataya na umanib ang sinomang
kapatid sa alinmang unyon o samahan ng mga manggagawa. Ang ating
pananampalatayang ito ay kinilala ng panibagong batas na nagsasaad na
hindi inaalis ang karapatan ng alinmang pagawaan na makipagkasundo sa
alinmang unyon o samahan ng paggawa sa nasabing pagawaan, dadapuwat
- bargaining agreement.
. . . ang nasabing kasunduan ay hindi maaaring sumaklaw sa mga kaanib ng
alinmang sekta ng relihiyon na ipinagbabawal ang pakikiugnay ng kanilang
kaanib sa alinmang kapisanan ng paggawa.
Dahil dito, aming tinatagubilin sa inyo na kayo ay pumanatag sa inyong
pagtatrabaho sa pagawaang inyong pinapasukan, gumawa kayo na may
kasipagan at katapatan at huwag ninyong ikabalisa na kayo ay aalisin sa
trabaho dahil sa hindi ninyo paggawa o pagsanib sa unyon o kapisanan sa
pagawaan ninyong pinapasukan.
Hanggang dito na po lamang muna at umaasa kami na ito'y malinaw sa
inyo.'
(Exhibit "A", also marked Exhibit "2")
Be that as it may, the Union, upon receipt of the letter of masa resignation
dated May 8, 1964, sent a letter dated May 22, 1964 to Vivencio M. Pineda,
representing the group of Iglesia ni Cristo followers, informing the latter that
of those whose names appear in the letter of resignation, two (2) are already
dead (Dalencio Catacutan and Mariano de la Cruz), twenty-seven (27) were
not union members at the time of their resignation, eight (8) have not signed
their names in the letter of resignation, thus reducing the number of workers
covered by the tender of resignation to 115, (Exhibit "E"). On the same date,
May 22, 1964, the Union informed the Hacienda by letter that 115 followers
of Iglesia ni Cristo have resigned from the Union as of May 8,1964, indicating
therein the names of such workers. (Exhibit '3-Company', also marked
Exhibit '3-Iglesia'). Finally,. on May 26, 1964, the Union, in another letter
dated May 26, 1964, demanded from the Hacieda the immediate lay-off of
employment of those mentioned laborers as provided for in Article 2, Section
5(a) of our present collective bargaining. The body of said letter is hereby
quoted in full, for ready reference:
This is with respect to the irrevocable resignation from the union tendered by
some 115 laborers that took effect on May 8, 1964 whose names were
transmitted to the personal officer on May 22, 1964.
However, in justice and in fairness to them, our office exerted all efforts
appealing and convincing each and every one of them to consider their
resignation from the union, but to no avail, except for few who reconsidered
theirs as evidenced by their attached letters.
For this reason, the union has no alternative but to demand from the
management for the immediate lay-off of employment of those mentioned
laborers as provided for in Article 2, Section 5(a) of our present collective
hoping for your prompt action on the above matter.
Sensing that their resignation from the Union might cause the termination of
their employment with the Hacienda, the followers of Iglesia ni Cristo who
resigned, through their counsel, Eliseo M. Cruz, sent a letter dated May 25,
1964 to the Hacienda (Exhibit 'A-Union') with the plea that 'Should the
contractee union take any drastic step to compel the Hacienda to dismiss
those workers pursuant to your current collective bargaining agreement, it is
most urgently requested that I informed so that I may take proper steps to
protect their interest, and hereby save the Hacienda from any lawsuit.
As matters were coming to a head, the resigning Iglesia ni Cristo workers,
through Samuel Gana and Vivencio Pineda, assisted by their legal counsel,
Eliseo M. Cruz, filed on June 1, 1964, a notice of strike against the Hacienda
for alleged 'mass dismissal of INC agricultural laborers in violation of Rep.
Act 3350, for 'violation of collective bargaining contract to favor contrcting
union' and 'unlawful encouragement of union membership' (Exhibit 'B-
Union'). The group did not go on strike, but on July 7, 1964, they filed a
complaint with the Court of Agrarian Relations, docketed as Case No. 1888-
T-64, alleging, among others, that they were laid off from the time they
resigned em masse on May 8, 1964 until they were recalled to work on June
3, 1964 by the Hacienda (Exhibit 'K').
Meanwhile, the Union, on June 8, 1964, filed a notice of strike (Exhibit '4')
against the Hacienda for violation of the collective contract dated August 2,
1962. The Union actually staged the strike in the afternoon of July 10, 1964,
and is still going on, for failure of the Hacienda to dismiss the 115 alleged
Iglesia ni Cristo members who had resigned from the Union. The Acting
Secretary of Labor intervened to effect a settlement of the dispute but no
settlement could be reached by the parties involved. Obviously the case was
certified to this Court for compulsory arbitration, under the existing law. (pp.
2-10, Decision; pp. 25-33, rollo).
One issue raised by the petitioners in this appeal boy certiorari on question of law is: since
the case involved agricultural laborers, and the petitioners themselves are engaged in
agricultural pursuits, the case was not within the jurisdiction of the Court of Industrial
Relations but in that of the Court of Agrarian Relations. WE find merit in this contention.
There is no dispute that respondent Hacienda is an agricultural enterprise. No less than the
respondent court arrived at this finding in its decision under review. Respondent Union never
denied such finding of fact by respondent court. Petitioners, including members of the
respondent Union, are all agricultural workers. This fact had likewise been admitted and
established. There is no showing, whether from the records of the case or from the briefs of
the parties, much less from the appealed decision, that the tasks assigned to petitioners were
totally unconnected with agricultural operations. Hence, there is complete abscence of any
showing that said petitioners do no agricultural work of any kind at all (cf. Pampanga Sugar
Mills vs. Pasumil Workers' Union, 98 Phil, 558; 52 O.G. [16]6924). Under the circumstances,
WE are constrained to hold that the conflict was not within the competence of the Court of
Agrarian Relations created by Republic Act 1267 (Sec. 7). This issue has been previously
cocsidered and decided in the case of Santos vs. Court of Industrial Relations, et al., 113
Phil. 725, where WE said:
The question to be determined is: considering that complianants are
agricultural laborers in the legal sense can their claim relative to an unfair
labor practice committed by petitioner be filed with the Court of Industrial
Relations? In other words, can the latter court take cognizance of this claim
under Republic Act No. 875 considering i hat the complainants are
agricultural laborers?
We are inclined to uphold the negative view not only because an agricultural
laborer does not come within the purview of the word employee defined in
Section 2(d ) of Republic Act No. 875 but also because any matter that may
pertain to the relation of tenant and landlord comes under the Agricultural
Tenancy Act (Republic Act No. 1199, as amended by Republic Act No.
2263), and any controversy that may arise between them as an incident of
their relationship comes under the exclusive, jurisdiction of the Court of
Agrarian Relations created by Republic Act No. 1267.
xxx xxx xxx
With regard to Our conclusion that the present controversy comes under the
exclusive jurisdiction of the Court of Agrarian Relations, suffice it, to state,
that the latter court was created for 'the enforcement of all laws and
regulations governing the relation of capital and labor on all agricultural lands
under any system of cultivation' (Section 1, Republic Act 1267, and amended
by Republic Act 1409), settle all questions, or disputes involving all those
relationships, established by law which determine the varying rights of
persons in the agricultural land where one of the parties works the land'
(Section 7, Ibid.). Complainants, therefore, should have lodged their
complaint with the agrarian court for the redress of their grievance
considering this broad power given to it by law even if nothing is said therein
relative to unfair labor practice. The subsequent enactment of Republic Act
No. 2268 which grants to agricultural workers the right to file an action of this
nature merely to confirm this jurisdiction of the agrarian court. The conclusion
is, therefore, inescapable that the industry court has improperly assumed
jurisdiction over the. Present case for it comes the exclusive jurisdiction of
the agrarian court" (italics supplied; cited in Hacienda Esperanza and
Hacienda Cammisana vs. Court of Ind. Relations and Nat. Sugar Workers
Union, 116 Phil. 951, 954-955).
Another issue raised by petitioners is that the respondent court improperly assumed the
power and authority to declare, as it did declare, Republic Act 3350 unconstitutional.
The Act in question is an amendment, consisting of the underlined phrase added to
paragraph (4), subsection (a) of Section four of the Industrial Peace Act, which provides:
SEC. 4. UNFAIR LABOR PRACTICE.-
(a) It shall be unfair labor practice for an employer.
xxx xxx xxx
(4) To discriminate in regard to hire or tenure of employment or any term or
condition of employment to encourage or discourage membership in any
labor organization: Provided, That nothing in this act or in any other act or
statute of the Republic of the Philippines shall preclude an employer from
making an agreement with a labor organization to require as a condition of
employment membership therein, if such labor organization is the
representative of the employees as provided in section twelve, but such
agreement shall not cover members of any religious sects which prohibit
affiliation of their members in any such labor organization.
In the decision appealed from, the respondent court maintains that the Act is unconstitutional
because it offers from constitutional infirmities such as the following:
(a) It abridges the freedom of workers to form associations for purposes not contrary to law;
(b) It impairs the obligation of contracts;
(c) It discriminates in favor of the religious sect known as Iglesia ni Cristo in violation of the
constitutional provision prohibiting legislation for the support of any religious sect; and
(d) It denies to the workers their constitutional right to equal on of the laws.
Although, as pointed out earlier, it is the Court of Agrarian Relations, and not respondent
court, that had exclusive jurisdiction over the subject matter and therefore it becomes
unnecessary to resolve the ng issue of constitutionality of Republic Act 3350, nevertheless, in
view of the provocative nature of the arguments of respondent court in support of its stand on
unconstitutionality it behooves US to resolve said issue once more.
This issue had twice been considered and decided by this Court: first, in the case of Benjamin
Victoriano vs. Elizalde Rope Workers' Union, et al. (G.R. No. L-25246, September 12, 1974);
and again in the case of Basa vs. Federacion Obrera de la Industria Tabaquera y Otros
Trabajadores de Filipinos (FOITAF) [L-27113, November 19, 1974; 61 SCRA 93, 102-113]. In
these two cases, WE declared the constitutionality of Republic Act 3350. We have noted,
however, that the grounds relied upon and the arguments of the respondent court in support
thereof, imputing to Republic Act 3350 certain constitutional infirmities, are similar, if not
wholly Identical, to those asserted by appelants in the two cases oforecited. Hence, WE can
do no better that reiterate and reproduce hereunder the pertinent portions of what WE said in
the Victoriano case, which were reproduced for the first time in the Basa case, as follows:
Both the Constitution and Republic Act No. 875 recognized freedom of
association. Section 1(6) of Article III of the Constitution of 1935, as well as
Section 7 Article IV of the Constitution of 1973, provide that the right to form
associations as societies for purposes not contrary to law shall not abridge.
Section 3 of Republic Act No. 875 provides that employees shall have the
rightto self-organization and to form, join or assist labor organizations of their
own choosing for the prupose of coolective bargaining and to engage in
concerted activities for the purpose of collective bargaining and other mutual
aid or protection. What the Constitution and the Industrial Peace Act
recognize and guarantee is the right to form or join associations.
Notwithstanding the different theories propounded by the different schools of
jurisprudence regarding the the nature and contents of a 'right', it can be
safely said that whatever theory one subscribes to, a right comprehends at
least two broad notions, namely; first, liberty or freedom, i.e., the abscence of
legal restraint, whereby an employee who should decde for himself whether
he should join or not an association; and should he choose to join, he himself
make up his mind as to which association he would join; and even after he
has joined, he still retains the liberty or freedom, i.e., the abscence of legal
restraint, whereby an employee may, as he pleases, join or refrain from
joining an association. It is, therefore, the employee who should decide for
himself whether he would join; and even after he has joined, he still retains
the liberty and the power to leave and cancel his membership with said
organization at any time. It is clear, therefore that the right to join a union
includes the right to abstain from joining any union. Inasmuch as what both
the Constitution and the Industrial Peace Act have recognized, and
guaranteed to the employee, is the right to join associations of his choice, it
would be absurd to say that the law also imposes, in the same breath, upon
the employee to sign up with any associations.
The right to refrain from joining labor organizations recognized by Section 3
of the Industrial Peace Act is, however, limited. The legal protection, granted
to such right to refrain from joinging is withdrawn by operation of law, where
a labor union and an employer have agreed on a closed shop, by virtue of
the collective bargaining unit, and the employer have agreed on a closed
shop, by virtue of the collective bargaining unit, and the employees must
continue to be members of the union for the duration of the contract in order
to keep their jobs. Thus Section 4 [a] (4) of the Industrial Peace Act, before
its amendment by Republic Act No. 3350, provides that although it would be
an unfair labor practice for an employer to discriminate in regard to hire or
tenure of employment to encourage or discourage membership in any labor
organization the employer is, however, not precluded "from making an
agreement with a labor organization, to require as a condition of employment
membership therein, if such labor organization is the representative of the
employees. By virtue, therefore, of a closed shop agreement, before the
enactment of Republic Act No. 3350, if any person, regardless of his religious
beliefs, wishes to be employed or to keep his employment, he must become
of the collective bargaining union. Hence, the right of said employee not to
join the labor union is crutailed and withdrawn.
To that all-embracing coverage of the closed shop agreement, Republic Act
No. 3350 introduced an exception, when it added to Section 4 [a](4) of the
Industrial Peace Act the following proviso: 'but such agreement shall not
cover members of any religious sects which prohibit affiliation of their
members with any labor organization. What the exception provides,
threrefore, is that members of said religious sects cannot be refused
employment or dismissed from their jobs on the sole ground that they are not
members of the collective bargaining union. It is clear, therefore, that the
assailed Act, far from infringing the constitutional provision on freedom of
association, upholds and reinforces it. It does not prohibit the members of
said religious sects from affiliating with labor unions. It still leaves to said
members the liberty and the power to affiliate, with labor unions. If,
notwithstanding their religious beliefs, the members of said religious faith,
they refuse to sign up, they can do so; the law does not coerce them to join;
neither does the law prohibit them from joining; and neither may the
employer or labor union compel them to join. Republic Act No. 3350,
therefore, does not violate the constitutional provision on frredom of
association.
2. Appellant Union also contends that the Act is unconstitutional for impairing
the obligation of its contract, specifically, the 'union security clause' embodied
in its Collective Bargaining Agreement with the Company, by virtue of which
'membership in the union was required as a condition for employment for all
permanent employees workers'. This agreement was already in existence at
the time Republic Act No. 3350 was enacted on June 18, 1961, and it
cannot, therefore, be deemed to have been incorporated into the agreement.
But by reason of this amendment, appellee, as well as others similarly
situated, could no longer be dismissed from his job even if he should cease
to be a member, or disaffiliate from the Union, and the Company could
continue employing him notwithstanding his disaffiliation from the Union. The
Act, therefore, introduced a change into the express terms of the union
security clause; the Company was partly absolved by law from the
contractual obligation it had with the Union of employing only Union members
in permanent positions. It cannot be denied, therefore, that there was indeed
an impairment of said union security clause.
It should not be overlooked, however, that the prohibition to impair the
obligation of contracts is not absolute and unqualified. The prohibition is
general, affording a broad outline and requiring construction to fill in the
details. The prohibition is not to be read with literal exactness like a
mathematical formula, for it prohibits unreasonable impairment only. In spite
of the constitutional prohibition, the State continues to possess authority to
safeguard the vital interests of its people. Legislation appropriate to
safeguard said interest may modify or abrogate contracts already in effect.
For not only are existing laws read into contracts in order to fix the
obligations as between the parties, but the reservation of essential attributes
of sovereign power is also read into contracts as a postulate of the legal
order. All contracts made with reference to any matter that is subject to
regulation under the police power must be understood as made in reference
to the possible exercise of that power. Otherwise, important and valuable
reforms may be precluded by the simple device of entering into contracts for
the purpose of doing that which otherwise may be prohibited. The policy of
protecting contracts against impairment presupposes the maintenance of a
government by virtue of which contractual relations are worthwhile - a
government which retains adequate authority to secure the peace and good
order of society. The contract clause of the Constitution must, therefore, be
not only in harmony with, but also in subordination to, in appropriate
instances, the reserved power of the state to safeguard the vital interests of
the people. It follows that not all legislations, which have the effect of
impairing a contract are obnoxious to the constitutional prohibition as to
impairment, and a statute passed in the legitimate exercise of police power,
although it incidentally destroys existing contract rights, must be upheld by
the courts. This has special application to contracts regulating relations
between capital and labor which are not merely contractual, and said labor
contracts, for being impressed with public interest, must yield to the common
good.
xxx xxx xxx
In order to determine whether legislation unconstitutionally impairs contract
obligations, no unchanging yardstick, applicable at all times and under all
circumstances, by which the validity of each statute may be measured or
determined, has been fashioned, but every case must be determined upon
its own circumstances. Legislation impairing the obligation of contracts can
be sustained when it is enacted for the promotion of the general good of the
people, and when the means adopted to secure that end are reasonable.
Both the end sought and the means adopted must be legitimate, i.e., within
the scope of the reserved power of the state construed in harmony with the
constitutional limitation of that power.
What then was the purpose sought to be achieved by Republic Act No.
3350? Its purpose was to insure freedom of belief and religion, and to
promote the general welfare by preventing discrimination against those
members of religious sects which prohibit their members from joining labor
unions, confirming thereby their natural, statutory and constitutional right to
work, the fruits of which work are usually the only means whereby they can
maintain their own life and the life of their dependents. It cannot be gainsaid
that said purpose is legitimate.
The questioned Act also provides protection to members of said religious
sects against two aggregates of group strength from which the individual
needs protection. The individual employee, at various times in his working
life, is confronted by two aggregates of power collective labor, directed by a
union, and collective capital, directed by management. The union, an
institution developed to organize labor into a collective force and thus protect
the individual employee from the power of collective capital, is paradoxically,
both champion of employee rights, and a new source of their frustration.
Moreover, when the Union interacts with management, it produces yet a third
aggregate of group strength from which the individual also needs protection
the collective bargaining relationship.
It may not he amiss to point out here that the free exercise of religious
profession or belief is superior to contract rights. In case of conflict, the latter
must, therefore, yield to the former. The Supreme Court of the United States
has also declared on several occasions that the rights in the First
Amendment, which include freedom of religion, enjoy a preferred position in
the constitutional system. Religious freedom, although not unlimited, is a
fundamental personal right and liberty, and has a preferred position in the
heirarchy of values. Contractual rights, therefore, must yield to freedom of
religion. It is only where unavoidably necessary to prevent an immediate and
grave danger to the security and welfare of the community that infringement
of religious freedom may be justified, and only to the smallest extent
necessary to avoid the danger.
3. In further support of its contention that Republic Act No. 3350 is
unconstitutional, appellant Union averred that said Act discriminates in favor
of members of said religious sects in violation of Section 1 (7) of Article III of
the 1935 Constitution, and which is now Section 8 of Article IV of the 1973
Constitution, which provides:
No law shall be made respecting an establishment of religion, or prohibiting
the free exercise thereof, and the free exercise and enjoyment of religious
profession and worship, without discrimination and preference, shall forever
be allowed. No religious test shall be, required for the exercise of civil
political rights.'
The constitutional provision not only prohibits legislation for the support of
any religious tenets or the modes of worship of any sect, thus forestalling
compulsion by law of the acceptance of any creed or any practice of any,
form of worship but also assures the free exercise of one's chosen form of
religion within the limits of utmost amplitude. It has been said that the religion
clauses of the Constitution are all designed to protect the broadest possible
liberty of conscience, to allow each man to believe as his conscience directs,
to profess his beliefs, and to live as he believes he ought to live, consistent
with the liberty of others and with the common good. Any legislation whose
effect or purpose is to impede the observance of one or all religions, or to
discriminate invidiously between the religions, is invalid, even as I though the
burden may be characterized being only indirect. But if the state regulates
conduct by enacting, within its power, a general law which has for its purpose
and effect to advance the state's secular goals, the statute is valid despite its
indirect burden on religious observance, unless the state can accomplish its
purpose without imposing such burden.
In Aglipay vs. Ruiz, this Court had occasion to state that the government
should not be precluded from pursuing valid objectives secular character
even if the incidental result would be favorable to a religion or sect. It has
likewise been held that the statute, in order to withstand the strictures of
constitutional prohibition, must have a secular legislative purpose and a
primary effect that neither advances nor inhibits religion. Assessed by these
criteria, Republic Act No. 3350 cannot be said to violate the co constitutional
inhibition of the 'no establishment of religion) clause of the Constitution.
The purpose of Republic Act No. 3350 is secular, wordly, and temporal, not
spiritual or religious or holy and eternal. It was intended to serve the secular
purpose of advancing the constitutional right to the free exercise of religion,
by averting that certain persons be refused work, or be dismissed from work,
or be dispossessed of their right to work and of being impeded to pursue a
modest means of livelihood, by reason of union security agreements. To help
its citizens to find gainful employment whereby they can make a living to
support themselves and their families is a valid objective of the state. In fact,
the state is enjoined, in the 1935 Constitution, to afford protection to labor,
and regulate the relations between labor and capital and industry. More so
now in the 1973 Constitution where it is mandated that 'the State shall afford
protection to labor, promote full employment and security in employment,
ensure equal work opportunities regardless of sex, race or creed and
regulate the relation between workers and employers.
The primary effects of the exemption from closed shop agreements in favor
of members of religious sects that prohibit their members from affiliating with
a labor organization, is the protection i of said employees against the
aggregate force of the collective bargaining agreement, and relieving certain
citizens of a burden or, other religious beliefs; and by eliminating to a certain
extent economic insecurity due to unemployment, which is a serious menace
to the with, morals, and welfare of the people of the State, the Act also
promotes the well-being of society. It is our view that the exemption The
effects of closed shop agreement does not directly advance diminish, the
interests of any particular religion, Although the exemption may benefit those
who are members of religious sects that prohibit their members from joining
labor unions, the benefit upon the religious sects is merely incidental and
indirect. The establishment clause' (of religion) does not ban regulation on
conduct whose reason or effect merely happens to coincide or harmonize
with the tenets of some or all religions. The free exercise clause of the
Constitution has been interpreted to required that religious exercise be
preferentially aided.
We believe that in enacting Republic Act No. 3350, Congress acted
consistently with the spirit of the constitutional provision. it acted merely to
relieve the exercise of religion, by certain persons, of a that is imposed by
union security agreements. It was Congress itself that imposed that burden
when it enacted the Industrial Peace Act (Republic Act 875), and, certainly
Congress, if it so deems advisable, could take away the same burden. It is
certain that not every conscience can be accommodated by all the laws of
the land; but when general laws conflict with scruples of conscience,
exemptions ought to be granted unless some compelling state interest'
intervenes. In the instant case, We see no such compelling state interest to
withhold the exemption.
Appellant bewails that while Republic Act No. 3350 protects members of
certain religious sects, it leaves no right to, and is silent as to the protection
of, labor organizations. The purpose of Republic Act No. 3350 was not to
grant rights to labor unions. The rights of labor unions are amply provided for
in Republic Act No. 3350 was not to grant rights to labor union. The rights of
labor union are amply provided for in Republic Act No. 875 and the new
Labor Code. As to the lamented silence of the Act regarding the rights and
protection of labor unions, suffice it to say, first, that the validity of a statute is
determined by its provisions, not by its silence; and, second, the fact that the
law may work hardship does not render it unconstitutional.
It would not be amiss to state, regarding this matter, that to compel persons
to join and remain members of a union to keep their jobs in violation of their
religious scruples, would hurt, rather than help, labor unions, Congress has
seen it fit to exempt religious objectors lest their resistance spread to other
workers, for religious objections have contagious potentialities more than
political and philosophic objections.
Furthermore, let it be noted that coerced unity and loyalty even to the
country, and a fortiori to a labor union assuming that such unity and loyalty
can be attained through coercion - is not a goal that is constitutionally
obtainable at the expense of religious liberty. A desirable end cannot be
promoted by prohibited means.
xxx xxx xxx
5. Appellant avers as its fifth ground that Republic Act No. 3350 is a
discriminatory legislation, inasmuch as it grants to the members of certain
religious sects undue advantage over other workers, thus violating Section I
of Article III 6f the 1985 Constitution which forbids the denial to any person of
the equal protection of the laws.
The guaranty of equal protection of the laws is not a guaranty of equality in
the application of the laws upon all citizens of the State. It is not, therefore, a
requirement, in order to avoid the constitutional prohibition against inequality,
that every man, woman and child should be affected alike by a statute.
Equality of operation of statutes does not mean indiscriminate operation on
persons merely as such, but on persons according to the circumstances
surrounding them. it guarantees equality, not Identity of rights. The
Constitution does not require that things which are different in fact be treated
in law as though they were the same. The equal protection clause does not
forbid discrimination as to things that are different. It does not prohibit
legislation which is limited either in the object to which it is directed or by the
territory within which it is to operate.
The equal protection of the laws clause of the Constitution allows
classification. Classification in law, as in the other departments of knowledge
or practice, is the grouping of things in speculation or practice because they
agree with one another in certain particulars. A law is not invalid because of
simple inequality. The very Idea of classification is that of inequality, so that it
goes without saying that the mere fact of inequality in no manner determines
the matter of constitutionality. All that is required of a valid classification is
that it be reasonable, which means that the classification should be based on
substantial distinctions which make for real differences; that it must not be
limited to existing conditions only; and that it must apply equally to each
member of the class. This Court has held that the ' e standard is satisfied if
the classification or distinction is based on a reasonable foundation or
rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of
enacting laws over matters within its jurisdiction, the state is recognized as
enjoying a wide range of discretion. It is not necessary that the classification
be based on scientific or marked differences of things or in their relation.
Neither is it necessary that the classification be made with mathematical
nicety. hence legislative classification may in many cases properly rest on
narrow distinctions, for the equal protection guaranty does not preclude the
legislature from recognizing degrees of evil or harm, and legislation is
addressed to evils as they may appear.
We believe that Republic Act No. 3350 satisfies the aforementioned
requirements, The act classifies employees and workers, as to the effect and
coverage of union shop security agreements, into those who by reason of
their religious beliefs and convictions cannot sign up with a labor union, and
those whose religion does not prohibit membership in labor unions. The
classification rests on real or substantial, not merely imaginary whimsical,
distinctions. There is such real distinction in the belief feelings and
sentiments of employees. Employees do not believe in the same religions
faith and different religions differ in their dogmas and canons. Religious
beliefs, manifestations and practices, though they are found in all place, and
in all times, take so may varied forms as to be almost beyond imagination.
There are diverse manners in which beliefs, equally paramount in the lives of
their possessor, may be articulated. Today the country is far more
heterogenous in religion then before, differences in religion do exist, and
these differences are important and should not be ignored.
Even from the psychological point of view, the classification is based on real
and important differences. Religious beliefs are not mere beliefs, mere Ideas
existing only in the mind, for they carry wiht them practical consequences
and are the motives of certain rules of human conduct and the jurisdiction of
certain acts. Religious sentimnet makes a man view things and events in
their relation to his God. It gives to human life this distinctive characters, its
tone enjoyment or irksomeness. Usually, a strong and passionate desire is
involved in a religious belief. To certain persons, no single factor of their
experience is more important to them that their religion, or their not having
any religion. Because of differences in religious beliefs and sentiments, a
very poor person may consider himself better than the rich, and the man who
even lacks the necessities of life may be more cheerful than the one who has
all possible luxuries. Due to their religious beliefs people, like the martyrs,
became resigned to the inevitable and accepted cheerfully even the most
 painful and excruciating pains. Because of differences in religious beliefs, the
world has witnessd turmoil, civil strife, persecution, hatred, bloodshed and
war, generated to a large extent by members of sects who were intolerant of
other religious beliefs. The classification, intoduced by Republic Act No.
3350, therefore, rests on substantial distinctions.
The classifications introduced by said Act is also germane to its purpose. The
purpose of the law is precisely to avod those who cannot, because their
religious belief, join labor unions from being deprived of their right to work
and from being dismissed from their work because of union shop security
agreements.
xxx xxx xxx
As comprehensively observed by Justice Fernando in his concurring opinion
in that case:
3. There is, however, the question of wheteher such a exception possess an
implication that lessens the effectiveness of state efforts to protect labor,
likewise, as noted, constitutionally ordained. Such a view, on the surface,
may not be lacking in plausibility, but upon closer analysis, it cannot stand
scrutiny. Though must be given to the freedom of association, likewise an
aspects of intellectual liberty. For the late Professor Howe, a constitutionalist
and his lifetime the biographer of the great Holmes, it even partakes of the
political theory of pluralistic sovereignity. So great is the respect for the
autonomy accorded voluntery societies. Such a right implies at the very least
that one can determine for himself whether or not he should join or refrain
from joining a labor organization, an institutionalize device for promoting the
welfare of the working man. A closed shop, on the other hand, is inherently
coercive. That is why, as is unmistakably reflected in our decisions, the latest
of which is Guijarno v. Court of Industrial relations, it is far from being a
favorite of the law. For a statutory Vision then to further curtain its operation,
is precisely to follow the dictates of sound public policy.
In resume, WE come to the inescapable conclusion that the petitioners cannot be summarily
dismissed from their employment the Hacienda as a result of their resignation from the
respondent Union, notwithstanding the existence of a union shop security clause in the
Collective Bargaining Agreement of August 2, 1962, Republic Act 3350, which is
constitutional, exempts them labor organization. when such is contrary to their from joining
any religious beliefs and convictions.
WHEREFORE, THE DECISION OF THE COURT OF INDUSTRIAL RELATIONS HEREIN
APPEALED FROM IS HEREBY VACATED AND SET ASIDE, AND THE CASE ORDERED
DISMISSED. WITH COST AGAINST PRIVATE RESPONDENTS.
G.R. No. 167614 March 24, 2009
ANTONIO M. SERRANO, Petitioner,
vs.
Gallant MARITIME SERVICES, INC. and MARLOW NAVIGATION CO., INC., Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
For decades, the toil of solitary migrants has helped lift entire families and communities out of
poverty. Their earnings have built houses, provided health care, equipped schools and
planted the seeds of businesses. They have woven together the world by transmitting ideas
and knowledge from country to country. They have provided the dynamic human link between
cultures, societies and economies. Yet, only recently have we begun to understand not only
how much international migration impacts development, but how smart public policies can
magnify this effect.
United Nations Secretary-General Ban Ki-Moon
Global Forum on Migration and Development
Brussels, July 10, 20071
For Antonio Serrano (petitioner), a Filipino seafarer, the last clause in the 5th paragraph of
Section 10, Republic Act (R.A.) No. 8042,2 to wit:
Sec. 10. Money Claims. - x x x In case of termination of overseas employment without just,
valid or authorized cause as defined by law or contract, the workers shall be entitled to the full
reimbursement of his placement fee with interest of twelve percent (12%) per annum, plus his
salaries for the unexpired portion of his employment contract or for three (3) months for
every year of the unexpired term, whichever is less.
x x x x (Emphasis and underscoring supplied)
does not magnify the contributions of overseas Filipino workers (OFWs) to national
development, but exacerbates the hardships borne by them by unduly limiting their
entitlement in case of illegal dismissal to their lump-sum salary either for the unexpired
portion of their employment contract "or for three months for every year of the unexpired term,
whichever is less" (subject clause). Petitioner claims that the last clause violates the OFWs'
constitutional rights in that it impairs the terms of their contract, deprives them of equal
protection and denies them due process.
By way of Petition for Review under Rule 45 of the Rules of Court, petitioner assails the
December 8, 2004 Decision3 and April 1, 2005 Resolution4 of the Court of Appeals (CA),
which applied the subject clause, entreating this Court to declare the subject clause
1998
unconstitutional.
July 01/31, 2,590.00
Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. 1998
(respondents) under a Philippine Overseas Employment Administration (POEA)-approved
Contract of Employment with the following terms and conditions: August 2,590.00
01/31,
1998
Duration of contract 12 months
Sept. 01/30, 2,590.00
Position Chief Officer 1998

Basic monthly salary US$1,400.00 Oct. 01/31, 2,590.00

1998
Hours of work 48.0 hours per week
Nov. 01/30, 2,590.00
Overtime US$700.00 per month 1998

Vacation leave with pay 7.00 days per month5 Dec. 01/31, 2,590.00
1998

On March 19, 1998, the date of his departure, petitioner was constrained to accept a Jan. 01/31, 2,590.00
downgraded employment contract for the position of Second Officer with a monthly salary of 1999
US$1,000.00, upon the assurance and representation of respondents that he would be made
Chief Officer by the end of April 1998.6 Feb. 01/28, 2,590.00
1999
Respondents did not deliver on their promise to make petitioner Chief Officer. 7 Hence, Mar. 1/19, 1,640.00
petitioner refused to stay on as Second Officer and was repatriated to the Philippines on May 1999 (19
26, 1998.8 days) incl.
leave pay
Petitioner's employment contract was for a period of 12 months or from March 19, 1998 up to
March 19, 1999, but at the time of his repatriation on May 26, 1998, he had served only two --------------------------------------------------------------------------------
(2) months and seven (7) days of his contract, leaving an unexpired portion of nine (9)
months and twenty-three (23) days. 25,382.23

Amount
Petitioner filed with the Labor Arbiter (LA) a Complaint9 against respondents for constructive adjusted to
dismissal and for payment of his money claims in the total amount of US$26,442.73, broken
chief mate's
down as follows:
salary

May 27/31, US$ 413.90 (March 1,060.5010

1998 (5 19/31, 1998
days) incl. to April
Leave pay 1/30, 1998)
+
June 01/30, 2,590.00

----------------------------------------------------------------------------------------------
TOTAL US$ 26,442.7311
CLAIM
as well as moral and exemplary damages and attorney's fees.
The LA rendered a Decision dated July 15, 1999, declaring the dismissal of petitioner
illegal and awarding him monetary benefits, to wit:
WHEREFORE, premises considered, judgment is hereby rendered declaring that the
dismissal of the complainant (petitioner) by the respondents in the above-entitled
case was illegal and the respondents are hereby ordered to pay the complainant
[petitioner], jointly and severally, in Philippine Currency, based on the rate of
exchange prevailing at the time of payment, the amount of EIGHT THOUSAND
SEVEN HUNDRED SEVENTY U.S. DOLLARS (US $8,770.00), representing the
complainant’s salary for three (3) months of the unexpired portion of the
aforesaid contract of employment.1avvphi1
The respondents are likewise ordered to pay the complainant [petitioner], jointly and
severally, in Philippine Currency, based on the rate of exchange prevailing at the time
of payment, the amount of FORTY FIVE U.S. DOLLARS (US$ 45.00),12 representing
the complainant’s claim for a salary differential. In addition, the respondents are
hereby ordered to pay the complainant, jointly and severally, in Philippine Currency,
at the exchange rate prevailing at the time of payment, the complainant’s
(petitioner's) claim for attorney’s fees equivalent to ten percent (10%) of the total
amount awarded to the aforesaid employee under this Decision.
The claims of the complainant for moral and exemplary damages are hereby
DISMISSED for lack of merit.
All other claims are hereby DISMISSED.
SO ORDERED.13 (Emphasis supplied)
In awarding petitioner a lump-sum salary of US$8,770.00, the LA based his
computation on the salary period of three months only -- rather than the entire
unexpired portion of nine months and 23 days of petitioner's employment contract -
applying the subject clause. However, the LA applied the salary rate of US$2,590.00,
consisting of petitioner's "[b]asic salary, US$1,400.00/month + US$700.00/month,
fixed overtime pay, + US$490.00/month, vacation leave pay =
US$2,590.00/compensation per month."14
Respondents appealed15 to the National Labor Relations Commission (NLRC) to
question the finding of the LA that petitioner was illegally dismissed.
Petitioner also appealed16 to the NLRC on the sole issue that the LA erred in not
applying the ruling of the Court in Triple Integrated Services, Inc. v. National Labor
Relations Commission17 that in case of illegal dismissal, OFWs are entitled to their
salaries for the unexpired portion of their contracts.18
In a Decision dated June 15, 2000, the NLRC modified the LA Decision, to wit:
WHEREFORE, the Decision dated 15 July 1999 is MODIFIED. Respondents are
hereby ordered to pay complainant, jointly and severally, in Philippine currency, at
the prevailing rate of exchange at the time of payment the following:
1. Three (3) months salary
$1,400 x 3 US$4,200.00
2. Salary differential 45.00
US$4,245.00
3. 10% Attorney’s fees 424.50
TOTAL US$4,669.50
The other findings are affirmed.
SO ORDERED.19
The NLRC corrected the LA's computation of the lump-sum salary awarded to petitioner by
reducing the applicable salary rate from US$2,590.00 to US$1,400.00 because R.A. No.
8042 "does not provide for the award of overtime pay, which should be proven to have been
actually performed, and for vacation leave pay."20
Petitioner filed a Motion for Partial Reconsideration, but this time he questioned the
constitutionality of the subject clause.21 The NLRC denied the motion.22
Petitioner filed a Petition for Certiorari23 with the CA, reiterating the constitutional challenge
against the subject clause.24 After initially dismissing the petition on a technicality, the CA
eventually gave due course to it, as directed by this Court in its Resolution dated August 7,
2003 which granted the petition for certiorari, docketed as G.R. No. 151833, filed by
petitioner.
In a Decision dated December 8, 2004, the CA affirmed the NLRC ruling on the reduction of
the applicable salary rate; however, the CA skirted the constitutional issue raised by
petitioner.25
His Motion for Reconsideration26 having been denied by the CA,27 petitioner brings his cause
to this Court on the following grounds:
I unexpired portion of nine months and 23 days of his employment contract or a total of
The Court of Appeals and the labor tribunals have decided the case in a way not in accord
with applicable decision of the Supreme Court involving similar issue of granting unto the
migrant worker back wages equal to the unexpired portion of his contract of employment
instead of limiting it to three (3) months
II
In the alternative that the Court of Appeals and the Labor Tribunals were merely applying
their interpretation of Section 10 of Republic Act No. 8042, it is submitted that the Court of
Appeals gravely erred in law when it failed to discharge its judicial duty to decide questions of
substance not theretofore determined by the Honorable Supreme Court, particularly, the
constitutional issues raised by the petitioner on the constitutionality of said law, which
unreasonably, unfairly and arbitrarily limits payment of the award for back wages of overseas
workers to three (3) months.
III
Even without considering the constitutional limitations [of] Sec. 10 of Republic Act No. 8042,
the Court of Appeals gravely erred in law in excluding from petitioner’s award the overtime
pay and vacation pay provided in his contract since under the contract they form part of his
salary.28
On February 26, 2008, petitioner wrote the Court to withdraw his petition as he is already old
and sickly, and he intends to make use of the monetary award for his medical treatment and
medication.29 Required to comment, counsel for petitioner filed a motion, urging the court to
allow partial execution of the undisputed monetary award and, at the same time, praying that
the constitutional question be resolved.30
Considering that the parties have filed their respective memoranda, the Court now takes up
the full merit of the petition mindful of the extreme importance of the constitutional question
raised therein.
On the first and second issues
The unanimous finding of the LA, NLRC and CA that the dismissal of petitioner was illegal is
not disputed. Likewise not disputed is the salary differential of US$45.00 awarded to
petitioner in all three fora. What remains disputed is only the computation of the lump-sum
salary to be awarded to petitioner by reason of his illegal dismissal.
Applying the subject clause, the NLRC and the CA computed the lump-sum salary of
petitioner at the monthly rate of US$1,400.00 covering the period of three months out of the
US$4,200.00.
Impugning the constitutionality of the subject clause, petitioner contends that, in addition to
the US$4,200.00 awarded by the NLRC and the CA, he is entitled to US$21,182.23 more or a
total of US$25,382.23, equivalent to his salaries for the entire nine months and 23 days left of
his employment contract, computed at the monthly rate of US$2,590.00.31
The Arguments of Petitioner
Petitioner contends that the subject clause is unconstitutional because it unduly impairs the
freedom of OFWs to negotiate for and stipulate in their overseas employment contracts a
determinate employment period and a fixed salary package.32 It also impinges on the equal
protection clause, for it treats OFWs differently from local Filipino workers (local workers) by
putting a cap on the amount of lump-sum salary to which OFWs are entitled in case of illegal
dismissal, while setting no limit to the same monetary award for local workers when their
dismissal is declared illegal; that the disparate treatment is not reasonable as there is no
substantial distinction between the two groups;33and that it defeats Section 18,34 Article II of
the Constitution which guarantees the protection of the rights and welfare of all Filipino
workers, whether deployed locally or overseas.35
Moreover, petitioner argues that the decisions of the CA and the labor tribunals are not in line
with existing jurisprudence on the issue of money claims of illegally dismissed OFWs. Though
there are conflicting rulings on this, petitioner urges the Court to sort them out for the
guidance of affected OFWs.36
Petitioner further underscores that the insertion of the subject clause into R.A. No. 8042
serves no other purpose but to benefit local placement agencies. He marks the statement
made by the Solicitor General in his Memorandum, viz.:
Often, placement agencies, their liability being solidary, shoulder the payment of money
claims in the event that jurisdiction over the foreign employer is not acquired by the court or if
the foreign employer reneges on its obligation. Hence, placement agencies that are in good
faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign
employer. To protect them and to promote their continued helpful contribution in deploying
Filipino migrant workers, liability for money claims was reduced under Section 10 of R.A. No.
8042. 37 (Emphasis supplied)
Petitioner argues that in mitigating the solidary liability of placement agencies, the subject
clause sacrifices the well-being of OFWs. Not only that, the provision makes foreign
employers better off than local employers because in cases involving the illegal dismissal of
employees, foreign employers are liable for salaries covering a maximum of only three
months of the unexpired employment contract while local employers are liable for the full
lump-sum salaries of their employees. As petitioner puts it:
In terms of practical application, the local employers are not limited to the amount of
backwages they have to give their employees they have illegally dismissed, following well-
entrenched and unequivocal jurisprudence on the matter. On the other hand, foreign
employers will only be limited to giving the illegally dismissed migrant workers the maximum
of three (3) months unpaid salaries notwithstanding the unexpired term of the contract that
can be more than three (3) months.38
Lastly, petitioner claims that the subject clause violates the due process clause, for it deprives
him of the salaries and other emoluments he is entitled to under his fixed-period employment
contract.39
The Arguments of Respondents
In their Comment and Memorandum, respondents contend that the constitutional issue
should not be entertained, for this was belatedly interposed by petitioner in his appeal before
the CA, and not at the earliest opportunity, which was when he filed an appeal before the
NLRC.40
The Arguments of the Solicitor General
The Solicitor General (OSG)41 points out that as R.A. No. 8042 took effect on July 15, 1995,
its provisions could not have impaired petitioner's 1998 employment contract. Rather, R.A.
No. 8042 having preceded petitioner's contract, the provisions thereof are deemed part of the
minimum terms of petitioner's employment, especially on the matter of money claims, as this
was not stipulated upon by the parties.42
Moreover, the OSG emphasizes that OFWs and local workers differ in terms of the nature of
their employment, such that their rights to monetary benefits must necessarily be treated
differently. The OSG enumerates the essential elements that distinguish OFWs from local
workers: first, while local workers perform their jobs within Philippine territory, OFWs perform
their jobs for foreign employers, over whom it is difficult for our courts to acquire jurisdiction,
or against whom it is almost impossible to enforce judgment; and second, as held in Coyoca
v. National Labor Relations Commission43 and Millares v. National Labor Relations
Commission,44 OFWs are contractual employees who can never acquire regular employment
status, unlike local workers who are or can become regular employees. Hence, the OSG
posits that there are rights and privileges exclusive to local workers, but not available to
OFWs; that these peculiarities make for a reasonable and valid basis for the differentiated
treatment under the subject clause of the money claims of OFWs who are illegally dismissed.
Thus, the provision does not violate the equal protection clause nor Section 18, Article II of
the Constitution.45
Lastly, the OSG defends the rationale behind the subject clause as a police power measure
adopted to mitigate the solidary liability of placement agencies for this "redounds to the
benefit of the migrant workers whose welfare the government seeks to promote. The survival
of legitimate placement agencies helps [assure] the government that migrant workers are
properly deployed and are employed under decent and humane conditions."46
The Court's Ruling
The Court sustains petitioner on the first and second issues.
When the Court is called upon to exercise its power of judicial review of the acts of its co-
equals, such as the Congress, it does so only when these conditions obtain: (1) that there is
an actual case or controversy involving a conflict of rights susceptible of judicial
determination;47 (2) that the constitutional question is raised by a proper party48 and at the
earliest opportunity;49 and (3) that the constitutional question is the very lis mota of the
case,50otherwise the Court will dismiss the case or decide the same on some other ground. 51
Without a doubt, there exists in this case an actual controversy directly involving petitioner
who is personally aggrieved that the labor tribunals and the CA computed his monetary
award based on the salary period of three months only as provided under the subject clause.
The constitutional challenge is also timely. It should be borne in mind that the requirement
that a constitutional issue be raised at the earliest opportunity entails the interposition of the
issue in the pleadings before a competent court, such that, if the issue is not raised in the
pleadings before that competent court, it cannot be considered at the trial and, if not
considered in the trial, it cannot be considered on appeal.52 Records disclose that the issue
on the constitutionality of the subject clause was first raised, not in petitioner's appeal with the
NLRC, but in his Motion for Partial Reconsideration with said labor tribunal,53 and reiterated in
his Petition for Certiorari before the CA.54Nonetheless, the issue is deemed seasonably
raised because it is not the NLRC but the CA which has the competence to resolve the
constitutional issue. The NLRC is a labor tribunal that merely performs a quasi-judicial
function – its function in the present case is limited to determining questions of fact to which
the legislative policy of R.A. No. 8042 is to be applied and to resolving such questions in
accordance with the standards laid down by the law itself;55 thus, its foremost function is to
administer and enforce R.A. No. 8042, and not to inquire into the validity of its provisions. The
CA, on the other hand, is vested with the power of judicial review or the power to declare
unconstitutional a law or a provision thereof, such as the subject clause. 56 Petitioner's
interposition of the constitutional issue before the CA was undoubtedly seasonable. The CA
was therefore remiss in failing to take up the issue in its decision.
The third condition that the constitutional issue be critical to the resolution of the case likewise
obtains because the monetary claim of petitioner to his lump-sum salary for the entire
unexpired portion of his 12-month employment contract, and not just for a period of three
months, strikes at the very core of the subject clause.
Thus, the stage is all set for the determination of the constitutionality of the subject clause.
Does the subject clause violate Section 10,
Article III of the Constitution on non-impairment
of contracts?
The answer is in the negative.
Petitioner's claim that the subject clause unduly interferes with the stipulations in his contract
on the term of his employment and the fixed salary package he will receive 57 is not tenable.
Section 10, Article III of the Constitution provides:
No law impairing the obligation of contracts shall be passed.
The prohibition is aligned with the general principle that laws newly enacted have only a
prospective operation,58and cannot affect acts or contracts already perfected;59 however, as
to laws already in existence, their provisions are read into contracts and deemed a part
thereof.60 Thus, the non-impairment clause under Section 10, Article II is limited in application
to laws about to be enacted that would in any way derogate from existing acts or contracts by
enlarging, abridging or in any manner changing the intention of the parties thereto.
As aptly observed by the OSG, the enactment of R.A. No. 8042 in 1995 preceded the
execution of the employment contract between petitioner and respondents in 1998. Hence, it
cannot be argued that R.A. No. 8042, particularly the subject clause, impaired the
employment contract of the parties. Rather, when the parties executed their 1998
employment contract, they were deemed to have incorporated into it all the provisions of R.A.
No. 8042.
But even if the Court were to disregard the timeline, the subject clause may not be declared
unconstitutional on the ground that it impinges on the impairment clause, for the law was
enacted in the exercise of the police power of the State to regulate a business, profession or
calling, particularly the recruitment and deployment of OFWs, with the noble end in view of
ensuring respect for the dignity and well-being of OFWs wherever they may be
employed.61Police power legislations adopted by the State to promote the health, morals,
peace, education, good order, safety, and general welfare of the people are generally
applicable not only to future contracts but even to those already in existence, for all private
contracts must yield to the superior and legitimate measures taken by the State to promote
public welfare.62
Does the subject clause violate Section 1,
Article III of the Constitution, and Section 18,
Article II and Section 3, Article XIII on labor
as a protected sector?
The answer is in the affirmative.
Section 1, Article III of the Constitution guarantees:
No person shall be deprived of life, liberty, or property without due process of law nor shall
any person be denied the equal protection of the law.
Section 18,63 Article II and Section 3,64 Article XIII accord all members of the labor sector,
without distinction as to place of deployment, full protection of their rights and welfare.
To Filipino workers, the rights guaranteed under the foregoing constitutional provisions
translate to economic security and parity: all monetary benefits should be equally enjoyed by
workers of similar category, while all monetary obligations should be borne by them in equal
degree; none should be denied the protection of the laws which is enjoyed by, or spared the
burden imposed on, others in like circumstances.65
Such rights are not absolute but subject to the inherent power of Congress to incorporate,
when it sees fit, a system of classification into its legislation; however, to be valid, the
classification must comply with these requirements: 1) it is based on substantial distinctions;
2) it is germane to the purposes of the law; 3) it is not limited to existing conditions only; and
4) it applies equally to all members of the class.66
There are three levels of scrutiny at which the Court reviews the constitutionality of a
classification embodied in a law: a) the deferential or rational basis scrutiny in which the
challenged classification needs only be shown to be rationally related to serving a legitimate
state interest;67 b) the middle-tier or intermediate scrutiny in which the government must show
that the challenged classification serves an important state interest and that the classification
is at least substantially related to serving that interest;68 and c) strict judicial scrutiny69 in
which a legislative classification which impermissibly interferes with the exercise of a
fundamental right70 or operates to the peculiar disadvantage of a suspect class 71 is presumed
unconstitutional, and the burden is upon the government to prove that the classification is
necessary to achieve a compelling state interest and that it is the least restrictive
means to protect such interest.72
Under American jurisprudence, strict judicial scrutiny is triggered by suspect
classifications73 based on race74 or gender75 but not when the classification is drawn along
income categories.76
It is different in the Philippine setting. In Central Bank (now Bangko Sentral ng Pilipinas)
Employee Association, Inc. v. Bangko Sentral ng Pilipinas,77 the constitutionality of a
provision in the charter of the Bangko Sentral ng Pilipinas(BSP), a government financial
institution (GFI), was challenged for maintaining its rank-and-file employees under the Salary
Standardization Law (SSL), even when the rank-and-file employees of other GFIs had been
exempted from the SSL by their respective charters. Finding that the disputed provision
contained a suspect classification based on salary grade, the Court deliberately employed the
standard of strict judicial scrutiny in its review of the constitutionality of said provision. More
significantly, it was in this case that the Court revealed the broad outlines of its judicial
philosophy, to wit:
Congress retains its wide discretion in providing for a valid classification, and its policies
should be accorded recognition and respect by the courts of justice except when they run
afoul of the Constitution. The deference stops where the classification violates a fundamental
right, or prejudices persons accorded special protection by the Constitution. When
these violations arise, this Court must discharge its primary role as the vanguard of
constitutional guaranties, and require a stricter and more exacting adherence to constitutional
limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special protection by the Constitution
requires a stricter judicial scrutiny finds no support in American or English jurisprudence.
Nevertheless, these foreign decisions and authorities are not per se controlling in this
jurisdiction. At best, they are persuasive and have been used to support many of our
decisions. We should not place undue and fawning reliance upon them and regard them as
indispensable mental crutches without which we cannot come to our own decisions through
the employment of our own endowments. We live in a different ambience and must decide
our own problems in the light of our own interests and needs, and of our qualities and even
idiosyncrasies as a people, and always with our own concept of law and justice. Our laws
must be construed in accordance with the intention of our own lawmakers and such intent
may be deduced from the language of each law and the context of other local legislation
related thereto. More importantly, they must be construed to serve our own public interest
which is the be-all and the end-all of all our laws. And it need not be stressed that our public
interest is distinct and different from others.
xxxx
Further, the quest for a better and more "equal" world calls for the use of equal protection as
a tool of effective judicial intervention.
Equality is one ideal which cries out for bold attention and action in the Constitution. The
Preamble proclaims "equality" as an ideal precisely in protest against crushing inequities in
Philippine society. The command to promote social justice in Article II, Section 10, in "all
phases of national development," further explicitated in Article XIII, are clear commands to
the State to take affirmative action in the direction of greater equality. x x x [T]here is thus in
the Philippine Constitution no lack of doctrinal support for a more vigorous state effort
towards achieving a reasonable measure of equality.
Our present Constitution has gone further in guaranteeing vital social and economic rights to
marginalized groups of society, including labor. Under the policy of social justice, the law
bends over backward to accommodate the interests of the working class on the humane
justification that those with less privilege in life should have more in law. And the obligation to
afford protection to labor is incumbent not only on the legislative and executive branches but
also on the judiciary to translate this pledge into a living reality. Social justice calls for the
humanization of laws and the equalization of social and economic forces by the State so that
justice in its rational and objectively secular conception may at least be approximated.
xxxx
Under most circumstances, the Court will exercise judicial restraint in deciding questions of
constitutionality, recognizing the broad discretion given to Congress in exercising its
legislative power. Judicial scrutiny would be based on the "rational basis" test, and the
legislative discretion would be given deferential treatment.
But if the challenge to the statute is premised on the denial of a fundamental right, or the
perpetuation of prejudice against persons favored by the Constitution with special
protection, judicial scrutiny ought to be more strict. A weak and watered down view
would call for the abdication of this Court’s solemn duty to strike down any law repugnant to
the Constitution and the rights it enshrines. This is true whether the actor committing the
unconstitutional act is a private person or the government itself or one of its instrumentalities.
Oppressive acts will be struck down regardless of the character or nature of the actor.
xxxx
In the case at bar, the challenged proviso operates on the basis of the salary grade or officer-
employee status. It is akin to a distinction based on economic class and status, with the
higher grades as recipients of a benefit specifically withheld from the lower grades. Officers of
the BSP now receive higher compensation packages that are competitive with the industry,
while the poorer, low-salaried employees are limited to the rates prescribed by the SSL. The
implications are quite disturbing: BSP rank-and-file employees are paid the strictly
regimented rates of the SSL while employees higher in rank - possessing higher and better
education and opportunities for career advancement - are given higher compensation
packages to entice them to stay. Considering that majority, if not all, the rank-and-file
employees consist of people whose status and rank in life are less and limited, especially in
terms of job marketability, it is they - and not the officers - who have the real economic and
financial need for the adjustment . This is in accord with the policy of the Constitution "to free
the people from poverty, provide adequate social services, extend to them a decent standard
of living, and improve the quality of life for all." Any act of Congress that runs counter to this
constitutional desideratum deserves strict scrutiny by this Court before it can pass muster.
(Emphasis supplied)
Imbued with the same sense of "obligation to afford protection to labor," the Court in the
present case also employs the standard of strict judicial scrutiny, for it perceives in the
subject clause a suspect classification prejudicial to OFWs.
Upon cursory reading, the subject clause appears facially neutral, for it applies to all OFWs.
However, a closer examination reveals that the subject clause has a discriminatory intent
against, and an invidious impact on, OFWs at two levels:
contract. On appeal, the Court reduced the award to SR3,600.00 equivalent to his three
months’ salary, this being the lesser value, to wit:
Under Section 10 of R.A. No. 8042, a worker dismissed from overseas employment without
just, valid or authorized cause is entitled to his salary for the unexpired portion of his
employment contract or for three (3) months for every year of the unexpired term, whichever
is less.

First, OFWs with employment contracts of less than one year vis-à-vis OFWs with In the case at bar, the unexpired portion of private respondent’s employment contract is eight
employment contracts of one year or more; (8) months. Private respondent should therefore be paid his basic salary corresponding to
three (3) months or a total of SR3,600.82
Second, among OFWs with employment contracts of more than one year; and
Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations
Third, OFWs vis-à-vis local workers with fixed-period employment; Commission (Third Division, December 1998),83 which involved an OFW (therein respondent
Erlinda Osdana) who was originally granted a 12-month contract, which was
OFWs with employment contracts of less than one year vis-à-vis OFWs with deemed renewed for another 12 months. After serving for one year and seven-and-a-half
employment contracts of one year or more months, respondent Osdana was illegally dismissed, and the Court awarded her salaries for
the entire unexpired portion of four and one-half months of her contract.
As pointed out by petitioner,78 it was in Marsaman Manning Agency, Inc. v. National Labor
The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:
Relations Commission79(Second Division, 1999) that the Court laid down the following rules
on the application of the periods prescribed under Section 10(5) of R.A. No. 804, to wit:
Case Title Contract Period of Unexpired Period Applied in
A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an Period Service Period the Computation
illegally dismissed overseas contract worker, i.e., whether his salaries for the of the Monetary
unexpired portion of his employment contract or three (3) months’ salary for every Award
year of the unexpired term, whichever is less, comes into play only when the
employment contract concerned has a term of at least one (1) year or more. This is Skippers v. 6 months 2 months 4 months 4 months
evident from the words "for every year of the unexpired term" which follows the words Maguad84
"salaries x x x for three months." To follow petitioners’ thinking that private respondent is
entitled to three (3) months salary only simply because it is the lesser amount is to completely Bahia Shipping 9 months 8 months 4 months 4 months
disregard and overlook some words used in the statute while giving effect to some. This is v. Reynaldo
contrary to the well-established rule in legal hermeneutics that in interpreting a statute, care Chua 85
should be taken that every part or word thereof be given effect since the law-making body is
presumed to know the meaning of the words employed in the statue and to have used them Centennial 9 months 4 months 5 months 5 months
advisedly. Ut res magis valeat quam pereat.80 (Emphasis supplied) Transmarine v.
dela Cruz l86
In Marsaman, the OFW involved was illegally dismissed two months into his 10-month
contract, but was awarded his salaries for the remaining 8 months and 6 days of his contract. Talidano v. 12 months 3 months 9 months 3 months
Falcon87
Prior to Marsaman, however, there were two cases in which the Court made conflicting
rulings on Section 10(5). One was Asian Center for Career and Employment System and Univan v. CA 88 12 months 3 months 9 months 3 months
Services v. National Labor Relations Commission (Second Division, October 1998),81 which
involved an OFW who was awarded a two-year employment contract, but was dismissed Oriental v. CA 89 12 months more than 2 10 months 3 months
after working for one year and two months. The LA declared his dismissal illegal and awarded months
him SR13,600.00 as lump-sum salary covering eight months, the unexpired portion of his
 contract, whereas OFW-B will be entitled to only US$3,000.00, equivalent to his salaries for 3
PCL v. NLRC90 12 months more than 2 more or less 9 3 months
months of the unexpired portion of his contract, instead of US$14,000.00 for the unexpired
months months
portion of 14 months of his contract, as the US$3,000.00 is the lesser amount.
Olarte v. 12 months 21 days 11 months and 9 3 months
Nayona91 days The disparity becomes more aggravating when the Court takes into account jurisprudence
that, prior to the effectivity of R.A. No. 8042 on July 14, 1995,97 illegally dismissed OFWs,
JSS v.Ferrer92 12 months 16 days 11 months and 24 3 months no matter how long the period of their employment contracts, were entitled to their salaries for
days the entire unexpired portions of their contracts. The matrix below speaks for itself:

Pentagon v. 12 months 9 months and 2 months and 23 2 months and 23 Case Title Contract Period of Unexpired Period Applied in the
Adelantar93 7 days days days Period Service Period Computation of the
Monetary Award
Phil. Employ v. 12 months 10 months 2 months Unexpired portion
Paramio, et al.94 2 months
ATCI v. CA, et 2 years 22 months 22 months
al.98
Flourish 2 years 26 days 23 months and 4 6 months or 3
Maritime v. days months for each
Phil. Integrated 2 years 7 days 23 months 23 months and 23 days
Almanzor 95 year of contract
v. NLRC99 and 23 days
Athenna 1 year, 10 1 month 1 year, 9 months 6 months or 3
JGB v. NLC100 2 years 9 months 15 months 15 months
Manpower v. months and and 28 days months for each
Villanos 96 28 days year of contract Agoy v. 2 years 2 months 22 months 22 months
NLRC101
As the foregoing matrix readily shows, the subject clause classifies OFWs into two
categories. The first category includes OFWs with fixed-period employment contracts of less EDI v. NLRC, et 2 years 5 months 19 months 19 months
than one year; in case of illegal dismissal, they are entitled to their salaries for the entire al.102
unexpired portion of their contract. The second category consists of OFWs with fixed-period
employment contracts of one year or more; in case of illegal dismissal, they are entitled to Barros v. NLRC, 12 months 4 months 8 months 8 months
monetary award equivalent to only 3 months of the unexpired portion of their contracts. et al.103

Philippine 12 months 6 months and 5 months and 5 months and 18 days

The disparity in the treatment of these two groups cannot be discounted. In Skippers, the
respondent OFW worked for only 2 months out of his 6-month contract, but was awarded his
salaries for the remaining 4 months. In contrast, the respondent OFWs
in Oriental and PCL who had also worked for about 2 months out of their 12-month contracts
were awarded their salaries for only 3 months of the unexpired portion of their contracts.
Even the OFWs involved in Talidano and Univan who had worked for a longer period of 3
months out of their 12-month contracts before being illegally dismissed were awarded their
salaries for only 3 months.
To illustrate the disparity even more vividly, the Court assumes a hypothetical OFW-A with an
employment contract of 10 months at a monthly salary rate of US$1,000.00 and a
hypothetical OFW-B with an employment contract of 15 months with the same monthly salary
rate of US$1,000.00. Both commenced work on the same day and under the same employer,
and were illegally dismissed after one month of work. Under the subject clause, OFW-A will
be entitled to US$9,000.00, equivalent to his salaries for the remaining 9 months of his
Transmarine v. 22 days 18 days
Carilla104
It is plain that prior to R.A. No. 8042, all OFWs, regardless of contract periods or the
unexpired portions thereof, were treated alike in terms of the computation of their monetary
benefits in case of illegal dismissal. Their claims were subjected to a uniform rule of
computation: their basic salaries multiplied by the entire unexpired portion of their
employment contracts.
The enactment of the subject clause in R.A. No. 8042 introduced a differentiated rule of
computation of the money claims of illegally dismissed OFWs based on their employment
periods, in the process singling out one category whose contracts have an unexpired portion
of one year or more and subjecting them to the peculiar disadvantage of having their
monetary awards limited to their salaries for 3 months or for the unexpired portion thereof,
whichever is less, but all the while sparing the other category from such prejudice, simply
because the latter's unexpired contracts fall short of one year.
Among OFWs With Employment Contracts of More Than One Year
Upon closer examination of the terminology employed in the subject clause, the Court now
has misgivings on the accuracy of the Marsaman interpretation.
The Court notes that the subject clause "or for three (3) months for every year of the
unexpired term, whichever is less" contains the qualifying phrases "every year" and
"unexpired term." By its ordinary meaning, the word "term" means a limited or definite extent
of time.105 Corollarily, that "every year" is but part of an "unexpired term" is significant in many
ways: first, the unexpired term must be at least one year, for if it were any shorter, there
would be no occasion for such unexpired term to be measured by every year; and second,
the original term must be more than one year, for otherwise, whatever would be the
unexpired term thereof will not reach even a year. Consequently, the more decisive factor in
the determination of when the subject clause "for three (3) months for every year of the
unexpired term, whichever is less" shall apply is not the length of the original contract period
as held in Marsaman,106 but the length of the unexpired portion of the contract period -- the
subject clause applies in cases when the unexpired portion of the contract period is at least
one year, which arithmetically requires that the original contract period be more than one
year.
Viewed in that light, the subject clause creates a sub-layer of discrimination among OFWs
whose contract periods are for more than one year: those who are illegally dismissed with
less than one year left in their contracts shall be entitled to their salaries for the entire
unexpired portion thereof, while those who are illegally dismissed with one year or more
remaining in their contracts shall be covered by the subject clause, and their monetary
benefits limited to their salaries for three months only.
To concretely illustrate the application of the foregoing interpretation of the subject clause, the
Court assumes hypothetical OFW-C and OFW-D, who each have a 24-month contract at a
salary rate of US$1,000.00 per month. OFW-C is illegally dismissed on the 12th month, and
OFW-D, on the 13th month. Considering that there is at least 12 months remaining in the
contract period of OFW-C, the subject clause applies to the computation of the latter's
monetary benefits. Thus, OFW-C will be entitled, not to US$12,000,00 or the latter's total
salaries for the 12 months unexpired portion of the contract, but to the lesser amount of
US$3,000.00 or the latter's salaries for 3 months out of the 12-month unexpired term of the
contract. On the other hand, OFW-D is spared from the effects of the subject clause, for there
are only 11 months left in the latter's contract period. Thus, OFW-D will be entitled to
US$11,000.00, which is equivalent to his/her total salaries for the entire 11-month unexpired
portion.
OFWs vis-à-vis Local Workers
With Fixed-Period Employment
As discussed earlier, prior to R.A. No. 8042, a uniform system of computation of the monetary
awards of illegally dismissed OFWs was in place. This uniform system was applicable even to
local workers with fixed-term employment.107
The earliest rule prescribing a uniform system of computation was actually Article 299 of the
Code of Commerce (1888),108 to wit:
Article 299. If the contracts between the merchants and their shop clerks and employees
should have been made of a fixed period, none of the contracting parties, without the consent
of the other, may withdraw from the fulfillment of said contract until the termination of the
period agreed upon.
Persons violating this clause shall be subject to indemnify the loss and damage suffered, with
the exception of the provisions contained in the following articles.
In Reyes v. The Compañia Maritima,109 the Court applied the foregoing provision to
determine the liability of a shipping company for the illegal discharge of its managers prior to
the expiration of their fixed-term employment. The Court therein held the shipping company
liable for the salaries of its managers for the remainder of their fixed-term employment.
There is a more specific rule as far as seafarers are concerned: Article 605 of the Code of
Commerce which provides:
Article 605. If the contracts of the captain and members of the crew with the agent should be
for a definite period or voyage, they cannot be discharged until the fulfillment of their
contracts, except for reasons of insubordination in serious matters, robbery, theft, habitual
drunkenness, and damage caused to the vessel or to its cargo by malice or manifest or
proven negligence.
Article 605 was applied to Madrigal Shipping Company, Inc. v. Ogilvie,110 in
which the Court held the shipping company liable for the salaries and subsistence allowance
of its illegally dismissed employees for the entire unexpired portion of their employment
contracts.
While Article 605 has remained good law up to the present,111 Article 299 of the Code of
Commerce was replaced by Art. 1586 of the Civil Code of 1889, to wit:
Article 1586. Field hands, mechanics, artisans, and other laborers hired for a certain time and
for a certain work cannot leave or be dismissed without sufficient cause, before the fulfillment
of the contract. (Emphasis supplied.)
Citing Manresa, the Court in Lemoine v. Alkan112 read the disjunctive "or" in Article 1586 as a
conjunctive "and" so as to apply the provision to local workers who are employed for a time
certain although for no particular skill. This interpretation of Article 1586 was reiterated in
Garcia Palomar v. Hotel de France Company.113 And in both Lemoine and Palomar, the Court
adopted the general principle that in actions for wrongful discharge founded on Article 1586,
local workers are entitled to recover damages to the extent of the amount stipulated to be
paid to them by the terms of their contract. On the computation of the amount of such
damages, the Court in Aldaz v. Gay114 held:
The doctrine is well-established in American jurisprudence, and nothing has been brought to
our attention to the contrary under Spanish jurisprudence, that when an employee is
wrongfully discharged it is his duty to seek other employment of the same kind in the same
community, for the purpose of reducing the damages resulting from such wrongful discharge.
However, while this is the general rule, the burden of showing that he failed to make an effort
to secure other employment of a like nature, and that other employment of a like nature was
obtainable, is upon the defendant. When an employee is wrongfully discharged under a
contract of employment his prima facie damage is the amount which he would be entitled to
had he continued in such employment until the termination of the period. (Howard vs. Daly,
61 N. Y., 362; Allen vs. Whitlark, 99 Mich., 492; Farrell vs. School District No. 2, 98 Mich.,
43.)115(Emphasis supplied)
On August 30, 1950, the New Civil Code took effect with new provisions on fixed-term
employment: Section 2 (Obligations with a Period), Chapter 3, Title I, and Sections 2
(Contract of Labor) and 3 (Contract for a Piece of Work), Chapter 3, Title VIII, Book
IV.116 Much like Article 1586 of the Civil Code of 1889, the new provisions of the Civil Code
do not expressly provide for the remedies available to a fixed-term worker who is illegally
discharged. However, it is noted that in Mackay Radio & Telegraph Co., Inc. v. Rich, 117 the
Court carried over the principles on the payment of damages underlying Article 1586 of the
Civil Code of 1889 and applied the same to a case involving the illegal discharge of a local
worker whose fixed-period employment contract was entered into in 1952, when the new Civil
Code was already in effect.118
More significantly, the same principles were applied to cases involving overseas Filipino
workers whose fixed-term employment contracts were illegally terminated, such as in First
Asian Trans & Shipping Agency, Inc. v. Ople,119involving seafarers who were illegally
discharged. In Teknika Skills and Trade Services, Inc. v. National Labor Relations
Commission,120 an OFW who was illegally dismissed prior to the expiration of her fixed-period
employment contract as a baby sitter, was awarded salaries corresponding to the unexpired
portion of her contract. The Court arrived at the same ruling in Anderson v. National Labor
Relations Commission,121 which involved a foreman hired in 1988 in Saudi Arabia for a fixed
term of two years, but who was illegally dismissed after only nine months on the job -- the
Court awarded him salaries corresponding to 15 months, the unexpired portion of his
contract. In Asia World Recruitment, Inc. v. National Labor Relations Commission, 122 a
Filipino working as a security officer in 1989 in Angola was awarded his salaries for the
remaining period of his 12-month contract after he was wrongfully discharged. Finally,
in Vinta Maritime Co., Inc. v. National Labor Relations Commission,123 an OFW whose 12-
month contract was illegally cut short in the second month was declared entitled to his
salaries for the remaining 10 months of his contract.
In sum, prior to R.A. No. 8042, OFWs and local workers with fixed-term employment who
were illegally discharged were treated alike in terms of the computation of their money claims:
they were uniformly entitled to their salaries for the entire unexpired portions of their
contracts. But with the enactment of R.A. No. 8042, specifically the adoption of the subject
clause, illegally dismissed OFWs with an unexpired portion of one year or more in their
employment contract have since been differently treated in that their money claims are
subject to a 3-month cap, whereas no such limitation is imposed on local workers with fixed-
term employment.
The Court concludes that the subject clause contains a suspect classification in that,
in the computation of the monetary benefits of fixed-term employees who are illegally
discharged, it imposes a 3-month cap on the claim of OFWs with an unexpired portion
of one year or more in their contracts, but none on the claims of other OFWs or local
workers with fixed-term employment. The subject clause singles out one classification
of OFWs and burdens it with a peculiar disadvantage.
There being a suspect classification involving a vulnerable sector protected by the
Constitution, the Court now subjects the classification to a strict judicial scrutiny, and
determines whether it serves a compelling state interest through the least restrictive means.
What constitutes compelling state interest is measured by the scale of rights and powers
arrayed in the Constitution and calibrated by history. 124 It is akin to the paramount interest of
the state125 for which some individual liberties must give way, such as the public interest in
safeguarding health or maintaining medical standards, 126 or in maintaining access to
information on matters of public concern.127
In the present case, the Court dug deep into the records but found no compelling state
interest that the subject clause may possibly serve.
The OSG defends the subject clause as a police power measure "designed to protect the
employment of Filipino seafarers overseas x x x. By limiting the liability to three months [sic],
Filipino seafarers have better chance of getting hired by foreign employers." The limitation
also protects the interest of local placement agencies, which otherwise may be made to
shoulder millions of pesos in "termination pay."128
The OSG explained further:
Often, placement agencies, their liability being solidary, shoulder the payment of money
claims in the event that jurisdiction over the foreign employer is not acquired by the court or if
the foreign employer reneges on its obligation. Hence, placement agencies that are in good
faith and which fulfill their obligations are unnecessarily penalized for the acts of the foreign
employer. To protect them and to promote their continued helpful contribution in deploying
Filipino migrant workers, liability for money are reduced under Section 10 of RA 8042.
This measure redounds to the benefit of the migrant workers whose welfare the government
seeks to promote. The survival of legitimate placement agencies helps [assure] the
government that migrant workers are properly deployed and are employed under decent and
humane conditions.129 (Emphasis supplied)
However, nowhere in the Comment or Memorandum does the OSG cite the source of its
perception of the state interest sought to be served by the subject clause.
The OSG locates the purpose of R.A. No. 8042 in the speech of Rep. Bonifacio Gallego in
sponsorship of House Bill No. 14314 (HB 14314), from which the law originated;130 but the
speech makes no reference to the underlying reason for the adoption of the subject clause.
That is only natural for none of the 29 provisions in HB 14314 resembles the subject clause.
On the other hand, Senate Bill No. 2077 (SB 2077) contains a provision on money claims, to
wit:
Sec. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor
Arbiters of the National Labor Relations Commission (NLRC) shall have the original and
exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of the
complaint, the claims arising out of an employer-employee relationship or by virtue of the
complaint, the claim arising out of an employer-employee relationship or by virtue of any law
or contract involving Filipino workers for overseas employment including claims for actual,
moral, exemplary and other forms of damages.
The liability of the principal and the recruitment/placement agency or any and all claims under
this Section shall be joint and several.
Any compromise/amicable settlement or voluntary agreement on any money claims exclusive
of damages under this Section shall not be less than fifty percent (50%) of such money
claims: Provided, That any installment payments, if applicable, to satisfy any such
compromise or voluntary settlement shall not be more than two (2) months. Any
compromise/voluntary agreement in violation of this paragraph shall be null and void.
Non-compliance with the mandatory period for resolutions of cases provided under this
Section shall subject the responsible officials to any or all of the following penalties:
(1) The salary of any such official who fails to render his decision or resolution within
the prescribed period shall be, or caused to be, withheld until the said official
complies therewith;
(2) Suspension for not more than ninety (90) days; or
(3) Dismissal from the service with disqualification to hold any appointive public office
for five (5) years.
Provided, however, That the penalties herein provided shall be without prejudice to any
liability which any such official may have incurred under other existing laws or rules and
regulations as a consequence of violating the provisions of this paragraph.
But significantly, Section 10 of SB 2077 does not provide for any rule on the computation of
money claims.
A rule on the computation of money claims containing the subject clause was inserted and
eventually adopted as the 5th paragraph of Section 10 of R.A. No. 8042. The Court examined
the rationale of the subject clause in the transcripts of the "Bicameral Conference Committee
(Conference Committee) Meetings on the Magna Carta on OCWs (Disagreeing Provisions of
Senate Bill No. 2077 and House Bill No. 14314)." However, the Court finds no discernible
state interest, let alone a compelling one, that is sought to be protected or advanced by the
adoption of the subject clause.
In fine, the Government has failed to discharge its burden of proving the existence of a
compelling state interest that would justify the perpetuation of the discrimination against
OFWs under the subject clause.
Assuming that, as advanced by the OSG, the purpose of the subject clause is to protect the
employment of OFWs by mitigating the solidary liability of placement agencies, such callous
and cavalier rationale will have to be rejected. There can never be a justification for any form
of government action that alleviates the burden of one sector, but imposes the same burden
on another sector, especially when the favored sector is composed of private businesses
such as placement agencies, while the disadvantaged sector is composed of OFWs whose
protection no less than the Constitution commands. The idea that private business interest
can be elevated to the level of a compelling state interest is odious.
Moreover, even if the purpose of the subject clause is to lessen the solidary liability of
placement agencies vis-a-vistheir foreign principals, there are mechanisms already in place
that can be employed to achieve that purpose without infringing on the constitutional rights of
OFWs.
The POEA Rules and Regulations Governing the Recruitment and Employment of Land-
Based Overseas Workers, dated February 4, 2002, imposes administrative disciplinary
measures on erring foreign employers who default on their contractual obligations to migrant
workers and/or their Philippine agents. These disciplinary measures range from temporary
disqualification to preventive suspension. The POEA Rules and Regulations Governing the
Recruitment and Employment of Seafarers, dated May 23, 2003, contains similar
administrative disciplinary measures against erring foreign employers.
Resort to these administrative measures is undoubtedly the less restrictive means of aiding
local placement agencies in enforcing the solidary liability of their foreign principals.
Thus, the subject clause in the 5th paragraph of Section 10 of R.A. No. 8042 is violative of
the right of petitioner and other OFWs to equal protection.1avvphi1
Further, there would be certain misgivings if one is to approach the declaration of the
unconstitutionality of the subject clause from the lone perspective that the clause directly
violates state policy on labor under Section 3,131Article XIII of the Constitution.
While all the provisions of the 1987 Constitution are presumed self-executing,132 there are
some which this Court has declared not judicially enforceable, Article XIII being
one,133 particularly Section 3 thereof, the nature of which, this Court, in Agabon v. National
Labor Relations Commission,134 has described to be not self-actuating:
Thus, the constitutional mandates of protection to labor and security of tenure may be
deemed as self-executing in the sense that these are automatically acknowledged and
observed without need for any enabling legislation. However, to declare that the constitutional
provisions are enough to guarantee the full exercise of the rights embodied therein, and the
realization of ideals therein expressed, would be impractical, if not unrealistic. The espousal
of such view presents the dangerous tendency of being overbroad and exaggerated. The
guarantees of "full protection to labor" and "security of tenure", when examined in isolation,
are facially unqualified, and the broadest interpretation possible suggests a blanket shield in
favor of labor against any form of removal regardless of circumstance. This interpretation
implies an unimpeachable right to continued employment-a utopian notion, doubtless-but still
hardly within the contemplation of the framers. Subsequent legislation is still needed to define
the parameters of these guaranteed rights to ensure the protection and promotion, not only
the rights of the labor sector, but of the employers' as well. Without specific and pertinent
legislation, judicial bodies will be at a loss, formulating their own conclusion to approximate at
least the aims of the Constitution.
Ultimately, therefore, Section 3 of Article XIII cannot, on its own, be a source of a
positive enforceable right to stave off the dismissal of an employee for just cause owing to
the failure to serve proper notice or hearing. As manifested by several framers of the 1987
Constitution, the provisions on social justice require legislative enactments for their
enforceability.135 (Emphasis added)
Thus, Section 3, Article XIII cannot be treated as a principal source of direct enforceable
rights, for the violation of which the questioned clause may be declared unconstitutional. It
may unwittingly risk opening the floodgates of litigation to every worker or union over every
conceivable violation of so broad a concept as social justice for labor.
It must be stressed that Section 3, Article XIII does not directly bestow on the working class
any actual enforceable right, but merely clothes it with the status of a sector for whom the
Constitution urges protection through executive or legislative action and judicial recognition.
Its utility is best limited to being an impetus not just for the executive and legislative
departments, but for the judiciary as well, to protect the welfare of the working class. And it
was in fact consistent with that constitutional agenda that the Court in Central Bank (now
Bangko Sentral ng Pilipinas) Employee Association, Inc. v. Bangko Sentral ng
Pilipinas, penned by then Associate Justice now Chief Justice Reynato S. Puno, formulated
the judicial precept that when the challenge to a statute is premised on the perpetuation of
prejudice against persons favored by the Constitution with special protection -- such as the
working class or a section thereof -- the Court may recognize the existence of a suspect
classification and subject the same to strict judicial scrutiny.
The view that the concepts of suspect classification and strict judicial scrutiny formulated
in Central Bank Employee Association exaggerate the significance of Section 3, Article XIII is
a groundless apprehension. Central Bank applied Article XIII in conjunction with the equal
protection clause. Article XIII, by itself, without the application of the equal protection clause,
has no life or force of its own as elucidated in Agabon.
Along the same line of reasoning, the Court further holds that the subject clause violates
petitioner's right to substantive due process, for it deprives him of property, consisting of
monetary benefits, without any existing valid governmental purpose.136
The argument of the Solicitor General, that the actual purpose of the subject clause of limiting
the entitlement of OFWs to their three-month salary in case of illegal dismissal, is to give
them a better chance of getting hired by foreign employers. This is plain speculation. As
earlier discussed, there is nothing in the text of the law or the records of the deliberations
leading to its enactment or the pleadings of respondent that would indicate that there is an
existing governmental purpose for the subject clause, or even just a pretext of one.
The subject clause does not state or imply any definitive governmental purpose; and it is for
that precise reason that the clause violates not just petitioner's right to equal protection, but
also her right to substantive due process under Section 1,137 Article III of the Constitution.
The subject clause being unconstitutional, petitioner is entitled to his salaries for the entire
unexpired period of nine months and 23 days of his employment contract, pursuant to law
and jurisprudence prior to the enactment of R.A. No. 8042.
On the Third Issue
Petitioner contends that his overtime and leave pay should form part of the salary basis in the
computation of his monetary award, because these are fixed benefits that have been
stipulated into his contract.
Petitioner is mistaken.
The word salaries in Section 10(5) does not include overtime and leave pay. For seafarers
like petitioner, DOLE Department Order No. 33, series 1996, provides a Standard
Employment Contract of Seafarers, in which salary is understood as the basic wage,
exclusive of overtime, leave pay and other bonuses; whereas overtime pay is compensation
for all work "performed" in excess of the regular eight hours, and holiday pay is compensation
for any work "performed" on designated rest days and holidays.
By the foregoing definition alone, there is no basis for the automatic inclusion of overtime and
holiday pay in the computation of petitioner's monetary award, unless there is evidence that
he performed work during those periods. As the Court held in Centennial Transmarine, Inc. v.
Dela Cruz,138
However, the payment of overtime pay and leave pay should be disallowed in light of our
ruling in Cagampan v. National Labor Relations Commission, to wit:
The rendition of overtime work and the submission of sufficient proof that said was actually
performed are conditions to be satisfied before a seaman could be entitled to overtime pay
which should be computed on the basis of 30% of the basic monthly salary. In short, the
contract provision guarantees the right to overtime pay but the entitlement to such benefit
must first be established.
In the same vein, the claim for the day's leave pay for the unexpired portion of the contract is
unwarranted since the same is given during the actual service of the seamen.
WHEREFORE, the Court GRANTS the Petition. The subject clause "or for three months for
every year of the unexpired term, whichever is less" in the 5th paragraph of Section 10 of
Republic Act No. 8042 is DECLAREDUNCONSTITUTIONAL; and the December 8, 2004
Decision and April 1, 2005 Resolution of the Court of Appeals are MODIFIED to the effect
that petitioner is AWARDED his salaries for the entire unexpired portion of his employment
contract consisting of nine months and 23 days computed at the rate of US$1,400.00 per
month.
No costs.
SO ORDERED.
G.R. No. L-104776 December 5, 1994
BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B. EVANGELISTA, and the
rest of 1,767 NAMED-COMPLAINANTS, thru and by their Attorney-in-fact, Atty.
GERARDO A. DEL MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S ADMINISTRATOR,
NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL,
INC. AND/OR ASIA INTERNATIONAL BUILDERS CORPORATION, respondents.
QUIASON, J.:
The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v. Philippine
Overseas Employment Administration's Administrator, et. al.," was filed under Rule 65 of the
Revised Rules of Court:
(1) to modify the Resolution dated September 2, 1991 of the National Labor
Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to render a new
decision: (i) declaring private respondents as in default; (ii) declaring the said
labor cases as a class suit; (iii) ordering Asia International Builders
Corporation (AIBC) and Brown and Root International Inc. (BRII) to pay the
claims of the 1,767 claimants in said labor cases; (iv) declaring Atty. Florante
M. de Castro guilty of forum-shopping; and (v) dismissing POEA Case No. L-
86-05-460; and
(3) to reverse the Resolution dated March 24, 1992 of NLRC, denying the
motion for reconsideration of its Resolution dated September 2, 1991 (Rollo,
pp. 8-288).
The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al., v. Hon. National
Labor Relations Commission, et. al.," was filed under Rule 65 of the Revised Rules of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA
Cases Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive period under
the Labor Code of the Philippines instead of the ten-year prescriptive period
under the Civil Code of the Philippines; and (ii) denied the
"three-hour daily average" formula in the computation of petitioners' overtime
pay; and
(2) to reverse the Resolution dated March 24, 1992 of NLRC, denying the
motion for reconsideration of its Resolution dated September 2, 1991 (Rollo,
pp. 8-25; 26-220).
The petition in G.R. Nos. 105029-32, entitled "Asia International Builders Corporation, et. al.,
v. National Labor Relations Commission, et. al." was filed under Rule 65 of the Revised Rules
of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA
Cases Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and
 (2) to reverse the Resolution dated March 21, 1992 of NLRC insofar as it
denied the motions for reconsideration of AIBC and BRII (Rollo, pp. 2-59; 61-
230).
The Resolution dated September 2, 1991 of NLRC, which modified the decision of POEA in
four labor cases: (1) awarded monetary benefits only to 149 claimants and (2) directed Labor
Arbiter Fatima J. Franco to conduct hearings and to receive evidence on the claims
dismissed by the POEA for lack of substantial evidence or proof of employment.
Consolidation of Cases
G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division while G.R. Nos.
104911-14 were raffled to the Second Division. In the Resolution dated July 26, 1993, the
Second Division referred G.R. Nos. 104911-14 to the Third Division (G.R. Nos. 104911-
14, Rollo, p. 895).
In the Resolution dated September 29, 1993, the Third Division granted the motion filed in
G.R. Nos. 104911-14 for the consolidation of said cases with G.R. Nos. 104776 and 105029-
32, which were assigned to the First Division (G.R. Nos. 104911-14, Rollo, pp. 986-1,107;
G.R. Nos. 105029-30, Rollo, pp. 369-377, 426-432). In the Resolution dated October 27,
1993, the First Division granted the motion to consolidate G.R. Nos. 104911-14 with G.R. No.
104776 (G.R. Nos. 104911-14, Rollo, p. 1109; G.R. Nos. 105029-32, Rollo, p. 1562).
I be deemed submitted for decision. On the same day, Atty. Florante de Castro filed another
On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B. Evangelista, in
their own behalf and on behalf of 728 other overseas contract workers (OCWs) instituted a
class suit by filing an "Amended Complaint" with the Philippine Overseas Employment
Administration (POEA) for money claims arising from their recruitment by AIBC and
employment by BRII (POEA Case No. L-84-06-555). The claimants were represented by Atty.
Gerardo del Mundo.
BRII is a foreign corporation with headquarters in Houston, Texas, and is engaged in
construction; while AIBC is a domestic corporation licensed as a service contractor to recruit,
mobilize and deploy Filipino workers for overseas employment on behalf of its foreign
principals.
The amended complaint principally sought the payment of the unexpired portion of the
employment contracts, which was terminated prematurely, and secondarily, the payment of
the interest of the earnings of the Travel and Reserved Fund, interest on all the unpaid
benefits; area wage and salary differential pay; fringe benefits; refund of SSS and premium
not remitted to the SSS; refund of withholding tax not remitted to the BIR; penalties for
committing prohibited practices; as well as the suspension of the license of AIBC and the
accreditation of BRII (G.R. No. 104776, Rollo, pp. 13-14).
At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint and was given,
together with BRII, up to July 5, 1984 to file its answer.
On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered the claimants
to file a bill of particulars within ten days from receipt of the order and the movants to file their
answers within ten days from receipt of the bill of particulars. The POEA Administrator also
scheduled a pre-trial conference on July 25, 1984.
On July 13, 1984, the claimants submitted their "Compliance and Manifestation." On July 23,
1984, AIBC filed a "Motion to Strike Out of the Records", the "Complaint" and the
"Compliance and Manifestation." On July 25, 1984, the claimants filed their "Rejoinder and
Comments," averring, among other matters, the failure of AIBC and BRII to file their answers
and to attend the pre-trial conference on July 25, 1984. The claimants alleged that AIBC and
BRII had waived their right to present evidence and had defaulted by failing to file their
answers and to attend the pre-trial conference.
On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out of the
Records" filed by AIBC but required the claimants to correct the deficiencies in the complaint
pointed out in the order.
On October 10, 1984, claimants asked for time within which to comply with the Order of
October 2, 1984 and filed an "Urgent Manifestation," praying that the POEA Administrator
direct the parties to submit simultaneously their position papers, after which the case should
complaint for the same money claims and benefits in behalf of several claimants, some of
whom were also claimants in POEA Case No. L-84-06-555 (POEA Case No. 85-10-779).
On October 19, 1984, claimants filed their "Compliance" with the Order dated October 2,
1984 and an "Urgent Manifestation," praying that the POEA direct the parties to submit
simultaneously their position papers after which the case would be deemed submitted for
decision. On the same day, AIBC asked for time to file its comment on the "Compliance" and
"Urgent Manifestation" of claimants. On November 6, 1984, it filed a second motion for
extension of time to file the comment.
On November 8, 1984, the POEA Administrator informed AIBC that its motion for extension of
time was granted.
On November 14, 1984, claimants filed an opposition to the motions for extension of time and
asked that AIBC and BRII be declared in default for failure to file their answers.
On November 20, 1984, AIBC and BRII filed a "Comment" praying, among other reliefs, that
claimants should be ordered to amend their complaint.
On December 27, 1984, the POEA Administrator issued an order directing AIBC and BRII to
file their answers within ten days from receipt of the order.
On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal of the said
order of the POEA Administrator. Claimants opposed the appeal, claiming that it was dilatory
and praying that AIBC and BRII be declared in default.
On April 2, 1985, the original claimants filed an "Amended Complaint and/or Position Paper"
dated March 24, 1985, adding new demands: namely, the payment of overtime pay, extra
night work pay, annual leave differential pay, leave indemnity pay, retirement and savings
benefits and their share of forfeitures (G.R. No. 104776, Rollo, pp. 14-16). On April 15, 1985,
the POEA Administrator directed AIBC to file its answer to the amended complaint (G.R. No.
104776, Rollo, p. 20).
On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment." On the same
day, the POEA issued an order directing AIBC and BRII to file their answers to the "Amended
Complaint," otherwise, they would be deemed to have waived their right to present evidence
and the case would be resolved on the basis of complainant's evidence.
On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper Class Suit and
Motion for Bill of Particulars Re: Amended Complaint dated March 24, 1985." Claimants
opposed the motions.
On September 4, 1985, the POEA Administrator reiterated his directive to AIBC and BRII to
file their answers in POEA Case No. L-84-06-555.
On September 18, 1985, AIBC filed its second appeal to the NLRC, together with a petition
for the issuance of a writ of injunction. On September 19, 1985, NLRC enjoined the POEA
Administrator from hearing the labor cases and suspended the period for the filing of the
answers of AIBC and BRII.
On September 19, 1985, claimants asked the POEA Administrator to include additional
claimants in the case and to investigate alleged wrongdoings of BRII, AIBC and their
respective lawyers.
On October 10, 1985, Romeo Patag and two co-claimants filed a complaint (POEA Case No.
L-85-10-777) against AIBC and BRII with the POEA, demanding monetary claims similar to
those subject of POEA Case No. L-84-06-555. In the same month, Solomon Reyes also filed
his own complaint (POEA Case No. L-85-10-779) against AIBC and BRII.
On October 17, 1985, the law firm of Florante M. de Castro & Associates asked for the
substitution of the original counsel of record and the cancellation of the special powers of
attorney given the original counsel.
On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to enforce
attorney's lien.
On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA Case No. 86-05-
460) in behalf of 11 claimants including Bienvenido Cadalin, a claimant in POEA Case No.
84-06-555.
On December 12, 1986, the NLRC dismissed the two appeals filed on February 27, 1985 and
September 18, 1985 by AIBC and BRII.
In narrating the proceedings of the labor cases before the POEA Administrator, it is not amiss
to mention that two cases were filed in the Supreme Court by the claimants, namely — G.R.
No. 72132 on September 26, 1985 and Administrative Case No. 2858 on March 18, 1986. On
May 13, 1987, the Supreme Court issued a resolution in Administrative Case No. 2858
directing the POEA Administrator to resolve the issues raised in the motions and oppositions
filed in POEA Cases Nos. L-84-06-555 and L-86-05-460 and to decide the labor cases with
deliberate dispatch.
AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning the Order
dated September 4, 1985 of the POEA Administrator. Said order required BRII and AIBC to
answer the amended complaint in POEA Case No. L-84-06-555. In a resolution dated
November 9, 1987, we dismissed the petition by informing AIBC that all its technical
objections may properly be resolved in the hearings before the POEA.
Complaints were also filed before the Ombudsman. The first was filed on September 22,
1988 by claimant Hermie Arguelles and 18 co-claimants against the POEA Administrator and
several NLRC Commissioners. The Ombudsman merely referred the complaint to the
Secretary of Labor and Employment with a request for the early disposition of POEA Case
No. L-84-06-555. The second was filed on April 28, 1989 by claimants Emigdio P. Bautista
and Rolando R. Lobeta charging AIBC and BRII for violation of labor and social legislations.
The third was filed by Jose R. Santos, Maximino N. Talibsao and Amado B. Bruce
denouncing AIBC and BRII of violations of labor laws.
On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC Resolution dated
December 12, 1986.
On January 14, 1987, AIBC reiterated before the POEA Administrator its motion for
suspension of the period for filing an answer or motion for extension of time to file the same
until the resolution of its motion for reconsideration of the order of the NLRC dismissing the
two appeals. On April 28, 1987, NLRC en banc denied the motion for reconsideration.
At the hearing on June 19, 1987, AIBC submitted its answer to the complaint. At the same
hearing, the parties were given a period of 15 days from said date within which to submit their
respective position papers. On June 24, 1987 claimants filed their "Urgent Motion to Strike
Out Answer," alleging that the answer was filed out of time. On June 29, 1987, claimants filed
their "Supplement to Urgent Manifestational Motion" to comply with the POEA Order of June
19, 1987. On February 24, 1988, AIBC and BRII submitted their position paper. On March 4,
1988, claimants filed their "Ex-Parte Motion to Expunge from the Records" the position paper
of AIBC and BRII, claiming that it was filed out of time.
On September 1, 1988, the claimants represented by Atty. De Castro filed their memorandum
in POEA Case No. L-86-05-460. On September 6, 1988, AIBC and BRII submitted their
Supplemental Memorandum. On September 12, 1988, BRII filed its "Reply to Complainant's
Memorandum." On October 26, 1988, claimants submitted their "Ex-Parte Manifestational
Motion and Counter-Supplemental Motion," together with 446 individual contracts of
employments and service records. On October 27, 1988, AIBC and BRII filed a "Consolidated
Reply."
On January 30, 1989, the POEA Administrator rendered his decision in POEA Case No. L-
84-06-555 and the other consolidated cases, which awarded the amount of $824,652.44 in
favor of only 324 complainants.
On February 10, 1989, claimants submitted their "Appeal Memorandum For Partial Appeal"
from the decision of the POEA. On the same day, AIBC also filed its motion for
reconsideration and/or appeal in addition to the "Notice of Appeal" filed earlier on February 6,
1989 by another counsel for AIBC.
On February 17, 1989, claimants filed their "Answer to Appeal," praying for the dismissal of
the appeal of AIBC and BRII.
On March 15, 1989, claimants filed their "Supplement to Complainants' Appeal
Memorandum," together with their "newly discovered evidence" consisting of payroll records.
On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation," stating among
other matters that there were only 728 named claimants. On April 20, 1989, the claimants
filed their "Counter-Manifestation," alleging that there were 1,767 of them.
On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the Decision dated
January 30, 1989 on the grounds that BRII had failed to appeal on time and AIBC had not
posted the supersedeas bond in the amount of $824,652.44.
On December 23, 1989, claimants filed another motion to resolve the labor cases.
On August 21, 1990, claimants filed their "Manifestational Motion," praying that all the 1,767
claimants be awarded their monetary claims for failure of private respondents to file their
answers within the reglamentary period required by law.
On September 2, 1991, NLRC promulgated its Resolution, disposing as follows:
WHEREFORE, premises considered, the Decision of the POEA in these
consolidated cases is modified to the extent and in accordance with the
following dispositions:
1. The claims of the 94 complainants identified and listed in
Annex "A" hereof are dismissed for having prescribed;
2. Respondents AIBC and Brown & Root are hereby
ordered, jointly and severally, to pay the 149 complainants,
identified and listed in Annex "B" hereof, the peso equivalent,
at the time of payment, of the total amount in US dollars
indicated opposite their respective names;
3. The awards given by the POEA to the 19 complainants
classified and listed in Annex "C" hereof, who appear to have
worked elsewhere than in Bahrain are hereby set aside.
4. All claims other than those indicated in Annex "B",
including those for overtime work and favorably granted by
the POEA, are hereby dismissed for lack of substantial
evidence in support thereof or are beyond the competence of
this Commission to pass upon.
In addition, this Commission, in the exercise of its powers and authority
under Article 218(c) of the Labor Code, as amended by R.A. 6715, hereby
directs Labor Arbiter Fatima J. Franco of this Commission to summon
parties, conduct hearings and receive evidence, as expeditiously as possible,
and thereafter submit a written report to this Commission (First Division) of
the proceedings taken, regarding the claims of the following:
(a) complainants identified and listed in Annex "D" attached
and made an integral part of this Resolution, whose claims
were dismissed by the POEA for lack of proof of employment
in Bahrain (these complainants numbering 683, are listed in
pages 13 to 23 of the decision of POEA, subject of the
appeals) and,
(b) complainants identified and listed in Annex "E" attached
and made an integral part of this Resolution, whose awards
decreed by the POEA, to Our mind, are not supported by
substantial evidence" (G.R. No. 104776; Rollo, pp. 113-115;
G.R. Nos. 104911-14, pp. 85-87; G.R. Nos. 105029-31, pp.
120-122).
On November 27, 1991, claimant Amado S. Tolentino and 12
co-claimants, who were former clients of Atty. Del Mundo, filed a petition for certiorari with the
Supreme Court (G.R. Nos. 120741-44). The petition was dismissed in a resolution dated
January 27, 1992.
Three motions for reconsideration of the September 2, 1991 Resolution of the NLRC were
filed. The first, by the claimants represented by Atty. Del Mundo; the second, by the claimants
represented by Atty. De Castro; and the third, by AIBC and BRII.
In its Resolution dated March 24, 1992, NLRC denied all the motions for reconsideration.
Hence, these petitions filed by the claimants represented by Atty. Del Mundo (G.R. No.
104776), the claimants represented by Atty. De Castro (G.R. Nos. 104911-14) and by AIBC
and BRII (G.R. Nos. 105029-32).
II
Compromise Agreements
Before this Court, the claimants represented by Atty. De Castro and AIBC and BRII have
submitted, from time to time, compromise agreements for our approval and jointly moved for
the dismissal of their respective petitions insofar as the claimants-parties to the compromise
agreements were concerned (See Annex A for list of claimants who signed quitclaims).
Thus the following manifestations that the parties had arrived at a compromise agreement
and the corresponding motions for the approval of the agreements were filed by the parties
and approved by the Court:
1) Joint Manifestation and Motion involving claimant Emigdio Abarquez and
47 co-claimants dated September 2, 1992 (G.R. Nos. 104911-14, Rollo, pp.
263-406; G.R. Nos. 105029-32, Rollo, pp.
470-615);
2) Joint Manifestation and Motion involving petitioner Bienvenido Cadalin and
82 co-petitioners dated September 3, 1992 (G.R. No. 104776, Rollo, pp. 364-
507);
3) Joint Manifestation and Motion involving claimant Jose
M. Aban and 36 co-claimants dated September 17, 1992 (G.R. Nos. 105029-
32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp. 518-626; G.R. Nos.
104911-14, Rollo, pp. 407-516);
4) Joint Manifestation and Motion involving claimant Antonio T. Anglo and 17
co-claimants dated October 14, 1992 (G.R. Nos.
105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650-713; G.R.
Nos. 104911-14, Rollo, pp. 530-590);
5) Joint Manifestation and Motion involving claimant Dionisio Bobongo and 6
co-claimants dated January 15, 1993 (G.R. No. 104776, Rollo, pp. 813-836;
G.R. Nos. 104911-14, Rollo, pp. 629-652);
6) Joint Manifestation and Motion involving claimant Valerio A. Evangelista
and 4 co-claimants dated March 10, 1993 (G.R. Nos. 104911-14, Rollo, pp.
731-746; G.R. No. 104776, Rollo, pp. 1815-1829);
7) Joint Manifestation and Motion involving claimants Palconeri Banaag and
5 co-claimants dated March 17, 1993 (G.R. No. 104776, Rollo, pp. 1657-
1703; G.R. Nos. 104911-14, Rollo, pp. 655-675);
8) Joint Manifestation and Motion involving claimant Benjamin Ambrosio and
15 other co-claimants dated May 4, 1993 (G.R. Nos. 105029-32, Rollo, pp.
906-956; G.R. Nos. 104911-14, Rollo, pp. 679-729; G.R. No. 104776, Rollo,
pp. 1773-1814);
9) Joint Manifestation and Motion involving Valerio Evangelista and 3 co-
claimants dated May 10, 1993 (G.R. No. 104776, Rollo, pp. 1815-1829);
10) Joint Manifestation and Motion involving petitioner Quiterio R. Agudo and
36 co-claimants dated June 14, 1993 (G.R. Nos. 105029-32, Rollo, pp. 974-
1190; G.R. Nos. 104911-14, Rollo, pp. 748-864; G.R. No. 104776, Rollo, pp.
1066-1183);
11) Joint Manifestation and Motion involving claimant Arnaldo J. Alonzo and
19 co-claimants dated July 22, 1993 (G.R. No. 104776, Rollo, pp. 1173-
1235; G.R. Nos. 105029-32, Rollo, pp. 1193-1256; G.R. Nos. 104911-
14, Rollo, pp. 896-959);
12) Joint Manifestation and Motion involving claimant Ricardo C. Dayrit and 2
co-claimants dated September 7, 1993 (G.R. Nos.
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp. 1243-1254;
G.R. Nos. 104911-14, Rollo, pp. 972-984);
13) Joint Manifestation and Motion involving claimant Dante C. Aceres and
37 co-claimants dated September 8, 1993 (G.R. No. 104776, Rollo, pp.
1257-1375; G.R. Nos. 104911-14, Rollo, pp. 987-1105; G.R. Nos. 105029-
32, Rollo, pp. 1280-1397);
 14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 co-
claimants dated January 10, 1994 (G.R. Nos. 105029-32, Rollo, Vol. II);
15) Joint Manifestation and Motion involving Domingo B. Solano and six co-
claimants dated August 25, 1994 (G.R. Nos. 105029-32; G.R. No. 104776;
G.R. Nos. 104911-14).
III
The facts as found by the NLRC are as follows:
We have taken painstaking efforts to sift over the more than fifty volumes
now comprising the records of these cases. From the records, it appears that
the complainants-appellants allege that they were recruited by respondent-
appellant AIBC for its accredited foreign principal, Brown & Root, on various
dates from 1975 to 1983. They were all deployed at various projects
undertaken by Brown & Root in several countries in the Middle East, such as
Saudi Arabia, Libya, United Arab Emirates and Bahrain, as well as in
Southeast Asia, in Indonesia and Malaysia.
Having been officially processed as overseas contract workers by the
Philippine Government, all the individual complainants signed standard
overseas employment contracts (Records, Vols. 25-32. Hereafter, reference
to the records would be sparingly made, considering their chaotic
arrangement) with AIBC before their departure from the Philippines. These
overseas employment contracts invariably contained the following relevant
terms and conditions.
PART B —
(1) Employment Position Classification :—————————
(Code) :—————————
(2) Company Employment Status :—————————
(3) Date of Employment to Commence on :—————————
(4) Basic Working Hours Per Week :—————————
(5) Basic Working Hours Per Month :—————————
(6) Basic Hourly Rate :—————————
(7) Overtime Rate Per Hour :—————————
(8) Projected Period of Service
(Subject to C(1) of this [sic]) :—————————
Months and/or
Job Completion
xxx xxx xxx
3. HOURS OF WORK AND COMPENSATION
a) The Employee is employed at the hourly rate and overtime rate as set out
in Part B of this Document.
b) The hours of work shall be those set forth by the Employer, and Employer
may, at his sole option, change or adjust such hours as maybe deemed
necessary from time to time.
4. TERMINATION
a) Notwithstanding any other terms and conditions of this agreement, the
Employer may, at his sole discretion, terminate employee's service with
cause, under this agreement at any time. If the Employer terminates the
services of the Employee under this Agreement because of the completion or
termination, or suspension of the work on which the Employee's services
were being utilized, or because of a reduction in force due to a decrease in
scope of such work, or by change in the type of construction of such work.
The Employer will be responsible for his return transportation to his country
of origin. Normally on the most expeditious air route, economy class
accommodation.
xxx xxx xxx
10. VACATION/SICK LEAVE BENEFITS
a) After one (1) year of continuous service and/or satisfactory completion of
contract, employee shall be entitled to 12-days vacation leave with pay. This
shall be computed at the basic wage rate. Fractions of a year's service will be
computed on a pro-rata basis.
b) Sick leave of 15-days shall be granted to the employee for every year of
service for non-work connected injuries or illness. If the employee failed to
avail of such leave benefits, the same shall be forfeited at the end of the year
in which said sick leave is granted.
11. BONUS
A bonus of 20% (for offshore work) of gross income will be accrued and
payable only upon satisfactory completion of this contract.
12. OFFDAY PAY
The seventh day of the week shall be observed as a day of rest with 8 hours
regular pay. If work is performed on this day, all hours work shall be paid at
the premium rate. However, this offday pay provision is applicable only when
the laws of the Host Country require payments for rest day.
In the State of Bahrain, where some of the individual complainants were
deployed, His Majesty Isa Bin Salman Al Kaifa, Amir of Bahrain, issued his
Amiri Decree No. 23 on June 16, 1976, otherwise known as the Labour Law
for the Private Sector (Records, Vol. 18). This decree took effect on August
16, 1976. Some of the provisions of Amiri Decree No. 23 that are relevant to
the claims of the complainants-appellants are as follows (italics supplied only
for emphasis):
Art. 79: . . . A worker shall receive payment for each extra
hour equivalent to his wage entitlement increased by a
minimum of twenty-five per centum thereof for hours worked
during the day; and by a minimum of fifty per centum thereof
for hours worked during the night which shall be deemed to
being from seven o'clock in the evening until seven o'clock in
the morning. . . .
Art. 80: Friday shall be deemed to be a weekly day of rest on
full pay.
. . . an employer may require a worker, with his consent, to
work on his weekly day of restif circumstances so require
and in respect of which an additional sum equivalent to
150% of his normal wage shall be paid to him. . . .
Art. 81: . . . When conditions of work require the worker to
work on any official holiday, he shall be paid an additional
sum equivalent to 150% of his normal wage.
Art. 84: Every worker who has completed one year's
continuous service with his employer shall be entitled to
leave on full pay for a period of not less than 21 days for
each year increased to a period not less than 28 days after
five continuous years of service.
A worker shall be entitled to such leave upon a quantum
meruit in respect of the proportion of his service in that year.
Art. 107: A contract of employment made for a period of
indefinite duration may be terminated by either party thereto
after giving the other party thirty days' prior notice before
such termination, in writing, in respect of monthly paid
workers and fifteen days' notice in respect of other
workers. The party terminating a contract without giving the
required notice shall pay to the other party compensation
equivalent to the amount of wages payable to the worker for
the period of such notice or the unexpired portion thereof.
Art. 111: . . . the employer concerned shall pay to such
worker, upon termination of employment, a leaving indemnity
for the period of his employment calculated on the basis of
fifteen days' wages for each year of the first three years of
service and of one month's wages for each year of service
thereafter. Such worker shall be entitled to payment of
leaving indemnity upon a quantum meruit in proportion to the
period of his service completed within a year.
All the individual complainants-appellants have already been
repatriated to the Philippines at the time of the filing of these
cases (R.R. No. 104776, Rollo, pp. 59-65).
IV
The issues raised before and resolved by the NLRC were:
First: — Whether or not complainants are entitled to the benefits provided by
Amiri Decree No. 23 of Bahrain;
(a) Whether or not the complainants who have worked in
Bahrain are entitled to the above-mentioned benefits.
(b) Whether or not Art. 44 of the same Decree (allegedly
prescribing a more favorable treatment of alien employees)
bars complainants from enjoying its benefits.
Second: — Assuming that Amiri Decree No. 23 of Bahrain is applicable in
these cases, whether or not complainants' claim for the benefits provided
therein have prescribed.
Third: — Whether or not the instant cases qualify as a class suit.
Fourth: — Whether or not the proceedings conducted by the POEA, as well
as the decision that is the subject of these appeals, conformed with the
requirements of due process;
 (a) Whether or not the respondent-appellant was denied its
right to due process;
(b) Whether or not the admission of evidence by the POEA
after these cases were submitted for decision was valid;
(c) Whether or not the POEA acquired jurisdiction over
Brown & Root International, Inc.;
(d) Whether or not the judgment awards are supported by
substantial evidence;
(e) Whether or not the awards based on the averages and
formula presented by the complainants-appellants are
supported by substantial evidence;
(f) Whether or not the POEA awarded sums beyond what the
complainants-appellants prayed for; and, if so, whether or
not these awards are valid.
Fifth: — Whether or not the POEA erred in holding respondents AIBC and
Brown & Root jointly are severally liable for the judgment awards despite the
alleged finding that the former was the employer of the complainants;
(a) Whether or not the POEA has acquired jurisdiction over
Brown & Root;
(b) Whether or not the undisputed fact that AIBC was a
licensed construction contractor precludes a finding that
Brown & Root is liable for complainants claims.
Sixth: — Whether or not the POEA Administrator's failure to hold
respondents in default constitutes a reversible error.
Seventh: — Whether or not the POEA Administrator erred in dismissing the
following claims:
a. Unexpired portion of contract;
b. Interest earnings of Travel and Reserve Fund;
c. Retirement and Savings Plan benefits;
d. War Zone bonus or premium pay of at least 100% of basic
pay;
e. Area Differential Pay;
f. Accrued interests on all the unpaid benefits;
g. Salary differential pay;
h. Wage differential pay;
i. Refund of SSS premiums not remitted to SSS;
j. Refund of withholding tax not remitted to BIR;
k. Fringe benefits under B & R's "A Summary of Employee
Benefits" (Annex "Q" of Amended Complaint);
l. Moral and exemplary damages;
m. Attorney's fees of at least ten percent of the judgment
award;
n. Other reliefs, like suspending and/or cancelling the license
to recruit of AIBC and the accreditation of B & R issued by
POEA;
o. Penalty for violations of Article 34 (prohibited practices),
not excluding reportorial requirements thereof.
Eighth: — Whether or not the POEA Administrator erred in not dismissing
POEA Case No. (L) 86-65-460 on the ground of multiplicity of suits (G.R.
Nos. 104911-14, Rollo, pp. 25-29, 51-55).
Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised Rules on
Evidence governing the pleading and proof of a foreign law and admitted in evidence a
simple copy of the Bahrain's Amiri Decree No. 23 of 1976 (Labour Law for the Private
Sector). NLRC invoked Article 221 of the Labor Code of the Philippines, vesting on the
Commission ample discretion to use every and all reasonable means to ascertain the facts in
each case without regard to the technicalities of law or procedure. NLRC agreed with the
POEA Administrator that the Amiri Decree No. 23, being more favorable and beneficial to the
workers, should form part of the overseas employment contract of the complainants.
NLRC, however, held that the Amiri Decree No. 23 applied only to the claimants, who worked
in Bahrain, and set aside awards of the POEA Administrator in favor of the claimants, who
worked elsewhere.
On the second issue, NLRC ruled that the prescriptive period for the filing of the claims of the
complainants was three years, as provided in Article 291 of the Labor Code of the
Philippines, and not ten years as provided in Article 1144 of the Civil Code of the Philippines
nor one year as provided in the Amiri Decree No. 23 of 1976.
On the third issue, NLRC agreed with the POEA Administrator that the labor cases cannot be
treated as a class suit for the simple reason that not all the complainants worked in Bahrain
and therefore, the subject matter of the action, the claims arising from the Bahrain law, is not
of common or general interest to all the complainants.
On the fourth issue, NLRC found at least three infractions of the cardinal rules of
administrative due process: namely, (1) the failure of the POEA Administrator to consider the
evidence presented by AIBC and BRII; (2) some findings of fact were not supported by
substantial evidence; and (3) some of the evidence upon which the decision was based were
not disclosed to AIBC and BRII during the hearing.
On the fifth issue, NLRC sustained the ruling of the POEA Administrator that BRII and AIBC
are solidarily liable for the claims of the complainants and held that BRII was the actual
employer of the complainants, or at the very least, the indirect employer, with AIBC as the
labor contractor.
NLRC also held that jurisdiction over BRII was acquired by the POEA Administrator through
the summons served on AIBC, its local agent.
On the sixth issue, NLRC held that the POEA Administrator was correct in denying the Motion
to Declare AIBC in default.
On the seventh issue, which involved other money claims not based on the Amiri Decree No.
23, NLRC ruled:
(1) that the POEA Administrator has no jurisdiction over the claims for refund
of the SSS premiums and refund of withholding taxes and the claimants
should file their claims for said refund with the appropriate government
agencies;
(2) the claimants failed to establish that they are entitled to the claims which
are not based on the overseas employment contracts nor the Amiri Decree
No. 23 of 1976;
(3) that the POEA Administrator has no jurisdiction over claims for moral and
exemplary damages and nonetheless, the basis for granting said damages
was not established;
(4) that the claims for salaries corresponding to the unexpired portion of their
contract may be allowed if filed within the three-year prescriptive period;
(5) that the allegation that complainants were prematurely repatriated prior to
the expiration of their overseas contract was not established; and
(6) that the POEA Administrator has no jurisdiction over the complaint for the
suspension or cancellation of the AIBC's recruitment license and the
cancellation of the accreditation of BRII.
NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-65-460 should
have been dismissed on the ground that the claimants in said case were also claimants in
POEA Case No. (L) 84-06-555. Instead of dismissing POEA Case No. (L) 86-65-460, the
POEA just resolved the corresponding claims in POEA Case No. (L) 84-06-555. In other
words, the POEA did not pass upon the same claims twice.
V
G.R. No. 104776
Claimants in G.R. No. 104776 based their petition for certiorari on the following grounds:
(1) that they were deprived by NLRC and the POEA of their right to a speedy
disposition of their cases as guaranteed by Section 16, Article III of the 1987
Constitution. The POEA Administrator allowed private respondents to file
their answers in two years (on June 19, 1987) after the filing of the original
complaint (on April 2, 1985) and NLRC, in total disregard of its own rules,
affirmed the action of the POEA Administrator;
(2) that NLRC and the POEA Administrator should have declared AIBC and
BRII in default and should have rendered summary judgment on the basis of
the pleadings and evidence submitted by claimants;
(3) the NLRC and POEA Administrator erred in not holding that the labor
cases filed by AIBC and BRII cannot be considered a class suit;
(4) that the prescriptive period for the filing of the claims is ten years; and
 (5) that NLRC and the POEA Administrator should have dismissed POEA
Case No. L-86-05-460, the case filed by Atty. Florante de Castro (Rollo, pp.
31-40).
AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:
(1) that they were not responsible for the delay in the disposition of the labor
cases, considering the great difficulty of getting all the records of the more
than 1,500 claimants, the piece-meal filing of the complaints and the addition
of hundreds of new claimants by petitioners;
(2) that considering the number of complaints and claimants, it was
impossible to prepare the answers within the ten-day period provided in the
NLRC Rules, that when the motion to declare AIBC in default was filed on
July 19, 1987, said party had already filed its answer, and that considering
the staggering amount of the claims (more than US$50,000,000.00) and the
complicated issues raised by the parties, the ten-day rule to answer was not
fair and reasonable;
(3) that the claimants failed to refute NLRC's finding that
there was no common or general interest in the subject matter of the
controversy — which was the applicability of the Amiri Decree No. 23.
Likewise, the nature of the claims varied, some being based on salaries
pertaining to the unexpired portion of the contracts while others being for
pure money claims. Each claimant demanded separate claims peculiar only
to himself and depending upon the particular circumstances obtaining in his
case;
(4) that the prescriptive period for filing the claims is that prescribed by Article
291 of the Labor Code of the Philippines (three years) and not the one
prescribed by Article 1144 of the Civil Code of the Philippines (ten years);
and
(5) that they are not concerned with the issue of whether POEA Case No. L-
86-05-460 should be dismissed, this being a private quarrel between the two
labor lawyers (Rollo, pp. 292-305).
Attorney's Lien
On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the joint
manifestations and motions of AIBC and BRII dated September 2 and 11, 1992, claiming that
all the claimants who entered into the compromise agreements subject of said manifestations
and motions were his clients and that Atty. Florante M. de Castro had no right to represent
them in said agreements. He also claimed that the claimants were paid less than the award
given them by NLRC; that Atty. De Castro collected additional attorney's fees on top of the
25% which he was entitled to receive; and that the consent of the claimants to the
compromise agreements and quitclaims were procured by fraud (G.R. No. 104776, Rollo, pp.
838-810). In the Resolution dated November 23, 1992, the Court denied the motion to strike
out the Joint Manifestations and Motions dated September 2 and 11, 1992 (G.R. Nos.
104911-14, Rollo, pp. 608-609).
On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce Attorney's
Lien," alleging that the claimants who entered into compromise agreements with AIBC and
BRII with the assistance of Atty. De Castro, had all signed a retainer agreement with his law
firm (G.R. No. 104776, Rollo, pp. 623-624; 838-1535).
Contempt of Court
On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to cite Atty. De
Castro and Atty. Katz Tierra for contempt of court and for violation of Canons 1, 15 and 16 of
the Code of Professional Responsibility. The said lawyers allegedly misled this Court, by
making it appear that the claimants who entered into the compromise agreements were
represented by Atty. De Castro, when in fact they were represented by Atty. Del Mundo (G.R.
No. 104776, Rollo, pp. 1560-1614).
On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty. De Castro for
unethical practices and moved for the voiding of the quitclaims submitted by some of the
claimants.
G.R. Nos. 104911-14
The claimants in G.R. Nos. 104911-14 based their petition for certiorari on the grounds that
NLRC gravely abused its discretion when it: (1) applied the three-year prescriptive period
under the Labor Code of the Philippines; and (2) it denied the claimant's formula based on an
average overtime pay of three hours a day (Rollo, pp. 18-22).
The claimants argue that said method was proposed by BRII itself during the negotiation for
an amicable settlement of their money claims in Bahrain as shown in the Memorandum dated
April 16, 1983 of the Ministry of Labor of Bahrain (Rollo, pp. 21-22).
BRII and AIBC, in their Comment, reiterated their contention in G.R. No. 104776 that the
prescriptive period in the Labor Code of the Philippines, a special law, prevails over that
provided in the Civil Code of the Philippines, a general law.
As to the memorandum of the Ministry of Labor of Bahrain on the method of computing the
overtime pay, BRII and AIBC claimed that they were not bound by what appeared therein,
because such memorandum was proposed by a subordinate Bahrain official and there was
no showing that it was approved by the Bahrain Minister of Labor. Likewise, they claimed that
the averaging method was discussed in the course of the negotiation for the amicable
settlement of the dispute and any offer made by a party therein could not be used as an
admission by him (Rollo, pp. 228-236).
G.R. Nos. 105029-32
In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its discretion when
it: (1) enforced the provisions of the Amiri Decree No. 23 of 1976 and not the terms of the
employment contracts; (2) granted claims for holiday, overtime and leave indemnity pay and
other benefits, on evidence admitted in contravention of petitioner's constitutional right to due
process; and (3) ordered the POEA Administrator to hold new hearings for the 683 claimants
whose claims had been dismissed for lack of proof by the POEA Administrator or NLRC itself.
Lastly, they allege that assuming that the Amiri Decree No. 23 of 1976 was applicable, NLRC
erred when it did not apply the one-year prescription provided in said law (Rollo, pp. 29-30).
VI
G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32
All the petitions raise the common issue of prescription although they disagreed as to the time
that should be embraced within the prescriptive period.
To the POEA Administrator, the prescriptive period was ten years, applying Article 1144 of
the Civil Code of the Philippines. NLRC believed otherwise, fixing the prescriptive period at
three years as provided in Article 291 of the Labor Code of the Philippines.
The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking different grounds,
insisted that NLRC erred in ruling that the prescriptive period applicable to the claims was
three years, instead of ten years, as found by the POEA Administrator.
The Solicitor General expressed his personal view that the prescriptive period was one year
as prescribed by the Amiri Decree No. 23 of 1976 but he deferred to the ruling of NLRC that
Article 291 of the Labor Code of the Philippines was the operative law.
The POEA Administrator held the view that:
These money claims (under Article 291 of the Labor Code) refer to those
arising from the employer's violation of the employee's right as provided by
the Labor Code.
In the instant case, what the respondents violated are not the rights of the
workers as provided by the Labor Code, but the provisions of the Amiri
Decree No. 23 issued in Bahrain, which ipso facto amended the worker's
contracts of employment. Respondents consciously failed to conform to
these provisions which specifically provide for the increase of the worker's
rate. It was only after June 30, 1983, four months after the brown builders
brought a suit against B & R in Bahrain for this same claim, when respondent
AIBC's contracts have undergone amendments in Bahrain for the new
hires/renewals (Respondent's Exhibit 7).
Hence, premises considered, the applicable law of prescription to this instant
case is Article 1144 of the Civil Code of the Philippines, which provides:
Art. 1144. The following actions may be brought within ten
years from the time the cause of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
Thus, herein money claims of the complainants against the respondents shall
prescribe in ten years from August 16, 1976. Inasmuch as all claims were
filed within the ten-year prescriptive period, no claim suffered the infirmity of
being prescribed (G.R. No. 104776, Rollo, 89-90).
In overruling the POEA Administrator, and holding that the prescriptive period is three years
as provided in Article 291 of the Labor Code of the Philippines, the NLRC argued as follows:
The Labor Code provides that "all money claims arising from employer-
employee relations . . . shall be filed within three years from the time the
cause of action accrued; otherwise they shall be forever barred" (Art. 291,
Labor Code, as amended). This three-year prescriptive period shall be the
one applied here and which should be reckoned from the date of repatriation
of each individual complainant, considering the fact that the case is having
(sic) filed in this country. We do not agree with the POEA Administrator that
this three-year prescriptive period applies only to money claims specifically
recoverable under the Philippine Labor Code. Article 291 gives no such
indication. Likewise, We can not consider complainants' cause/s of action to
have accrued from a violation of their employment contracts. There was no
violation; the claims arise from the benefits of the law of the country where
they worked. (G.R. No. 104776, Rollo, pp.
90-91).
Anent the applicability of the one-year prescriptive period as provided by the Amiri Decree
No. 23 of 1976, NLRC opined that the applicability of said law was one of characterization,
i.e., whether to characterize the foreign law on prescription or statute of limitation as
"substantive" or "procedural." NLRC cited the decision in Bournias v. Atlantic Maritime
Company (220 F. 2d. 152, 2d Cir. [1955], where the issue was the applicability of the Panama
Labor Code in a case filed in the State of New York for claims arising from said Code. In said
case, the claims would have prescribed under the Panamanian Law but not under the Statute
of Limitations of New York. The U.S. Circuit Court of Appeals held that the Panamanian Law
was procedural as it was not "specifically intended to be substantive," hence, the prescriptive
period provided in the law of the forum should apply. The Court observed:
. . . And where, as here, we are dealing with a statute of limitations of a
foreign country, and it is not clear on the face of the statute that its purpose
was to limit the enforceability, outside as well as within the foreign country
concerned, of the substantive rights to which the statute pertains, we think
that as a yardstick for determining whether that was the purpose this test is
the most satisfactory one. It does not lead American courts into the necessity
of examining into the unfamiliar peculiarities and refinements of different
foreign legal systems. . .
The court further noted:
xxx xxx xxx
Applying that test here it appears to us that the libelant is entitled to succeed,
for the respondents have failed to satisfy us that the Panamanian period of
limitation in question was specifically aimed against the particular rights
which the libelant seeks to enforce. The Panama Labor Code is a statute
having broad objectives, viz: "The present Code regulates the relations
between capital and labor, placing them on a basis of social justice, so that,
without injuring any of the parties, there may be guaranteed for labor the
necessary conditions for a normal life and to capital an equitable return to its
investment." In pursuance of these objectives the Code gives laborers
various rights against their employers. Article 623 establishes the period of
limitation for all such rights, except certain ones which are enumerated in
Article 621. And there is nothing in the record to indicate that the
Panamanian legislature gave special consideration to the impact of Article
623 upon the particular rights sought to be enforced here, as distinguished
from the other rights to which that Article is also applicable. Were we
confronted with the question of whether the limitation period of Article 621
(which carves out particular rights to be governed by a shorter limitation
period) is to be regarded as "substantive" or "procedural" under the rule of
"specifity" we might have a different case; but here on the surface of things
we appear to be dealing with a "broad," and not a "specific," statute of
limitations (G.R. No. 104776, Rollo, pp.
92-94).
Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the Labor Code of the
Philippines, which was applied by NLRC, refers only to claims "arising from the employer's
violation of the employee's right as provided by the Labor Code." They assert that their claims
are based on the violation of their employment contracts, as amended by the Amiri Decree
No. 23 of 1976 and therefore the claims may be brought within ten years as provided by
Article 1144 of the Civil Code of the Philippines (Rollo, G.R. Nos. 104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines, Inc., 70 SCRA 244
(1976).
AIBC and BRII, insisting that the actions on the claims have prescribed under the Amiri
Decree No. 23 of 1976, argue that there is in force in the Philippines a "borrowing law," which
is Section 48 of the Code of Civil Procedure and that where such kind of law exists, it takes
precedence over the common-law conflicts rule (G.R. No. 104776, Rollo, pp. 45-46).
First to be determined is whether it is the Bahrain law on prescription of action based on the
Amiri Decree No. 23 of 1976 or a Philippine law on prescription that shall be the governing
law.
Article 156 of the Amiri Decree No. 23 of 1976 provides:
A claim arising out of a contract of employment shall not be actionable after
the lapse of one year from the date of the expiry of the contract. (G.R. Nos.
105029-31, Rollo, p. 226).
As a general rule, a foreign procedural law will not be applied in the forum. Procedural
matters, such as service of process, joinder of actions, period and requisites for appeal, and
so forth, are governed by the laws of the forum. This is true even if the action is based upon a
foreign substantive law (Restatement of the Conflict of Laws, Sec. 685; Salonga, Private
International Law, 131 [1979]).
A law on prescription of actions is sui generis in Conflict of Laws in the sense that it may be
viewed either as procedural or substantive, depending on the characterization given such a
law.
Thus in Bournias v. Atlantic Maritime Company, supra, the American court applied the statute
of limitations of New York, instead of the Panamanian law, after finding that there was no
showing that the Panamanian law on prescription was intended to be substantive. Being
considered merely a procedural law even in Panama, it has to give way to the law of the
forum on prescription of actions.
However, the characterization of a statute into a procedural or substantive law becomes
irrelevant when the country of the forum has a "borrowing statute." Said statute has the
practical effect of treating the foreign statute of limitation as one of substance (Goodrich,
Conflict of Laws 152-153 [1938]). A "borrowing statute" directs the state of the forum to apply
the foreign statute of limitations to the pending claims based on a foreign law (Siegel,
Conflicts, 183 [1975]). While there are several kinds of "borrowing statutes," one form
provides that an action barred by the laws of the place where it accrued, will not be enforced
in the forum even though the local statute has not run against it (Goodrich and Scoles,
Conflict of Laws, 152-153 [1938]). Section 48 of our Code of Civil Procedure is of this kind.
Said Section provides:
 If by the laws of the state or country where the cause of action arose, the
action is barred, it is also barred in the Philippines Islands.
Section 48 has not been repealed or amended by the Civil Code of the Philippines. Article
2270 of said Code repealed only those provisions of the Code of Civil Procedures as to which
were inconsistent with it. There is no provision in the Civil Code of the Philippines, which is
inconsistent with or contradictory to Section 48 of the Code of Civil Procedure (Paras,
Philippine Conflict of Laws 104 [7th ed.]).
In the light of the 1987 Constitution, however, Section 48 cannot be enforced ex proprio
vigore insofar as it ordains the application in this jurisdiction of Section 156 of the Amiri
Decree No. 23 of 1976.
The courts of the forum will not enforce any foreign claim obnoxious to the forum's public
policy (Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713
[1920]). To enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976 as
regards the claims in question would contravene the public policy on the protection to labor.
In the Declaration of Principles and State Policies, the 1987 Constitution emphasized that:
The state shall promote social justice in all phases of national development.
(Sec. 10).
The state affirms labor as a primary social economic force. It shall protect the
rights of workers and promote their welfare (Sec. 18).
In article XIII on Social Justice and Human Rights, the 1987 Constitution provides:
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.
Having determined that the applicable law on prescription is the Philippine law, the next
question is whether the prescriptive period governing the filing of the claims is three years, as
provided by the Labor Code or ten years, as provided by the Civil Code of the Philippines.
The claimants are of the view that the applicable provision is Article 1144 of the Civil Code of
the Philippines, which provides:
The following actions must be brought within ten years from the time the right
of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
NLRC, on the other hand, believes that the applicable provision is Article 291 of the Labor
Code of the Philippines, which in pertinent part provides:
Money claims-all money claims arising from employer-employee relations
accruing during the effectivity of this Code shall be filed within three (3) years
from the time the cause of action accrued, otherwise they shall be forever
barred.
xxx xxx xxx
The case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc., 70 SCRA
244 (1976) invoked by the claimants in G.R. Nos. 104911-14 is inapplicable to the cases at
bench (Rollo, p. 21). The said case involved the correct computation of overtime pay as
provided in the collective bargaining agreements and not the Eight-Hour Labor Law.
As noted by the Court: "That is precisely why petitioners did not make any reference as to the
computation for overtime work under the Eight-Hour Labor Law (Secs. 3 and 4, CA No. 494)
and instead insisted that work computation provided in the collective bargaining agreements
between the parties be observed. Since the claim for pay differentials is primarily anchored
on the written contracts between the litigants, the ten-year prescriptive period provided by Art.
1144(1) of the New Civil Code should govern."
Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A. No. 19933)
provides:
Any action to enforce any cause of action under this Act shall be commenced
within three years after the cause of action accrued otherwise such action
shall be forever barred, . . . .
The court further explained:
The three-year prescriptive period fixed in the Eight-Hour Labor Law (CA No.
444 as amended) will apply, if the claim for differentials for overtime work is
solely based on said law, and not on a collective bargaining agreement or
any other contract. In the instant case, the claim for overtime compensation
is not so much because of Commonwealth Act No. 444, as amended but
because the claim is demandable right of the employees, by reason of the
above-mentioned collective bargaining agreement.
Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for filing "actions to
enforce any cause of action under said law." On the other hand, Article 291 of the Labor
Code of the Philippines provides the prescriptive period for filing "money claims arising from
employer-employee relations." The claims in the cases at bench all arose from the employer-
employee relations, which is broader in scope than claims arising from a specific law or from
the collective bargaining agreement.
The contention of the POEA Administrator, that the three-year prescriptive period under
Article 291 of the Labor Code of the Philippines applies only to money claims specifically
recoverable under said Code, does not find support in the plain language of the provision.
Neither is the contention of the claimants in G.R. Nos. 104911-14 that said Article refers only
to claims "arising from the employer's violation of the employee's right," as provided by the
Labor Code supported by the facial reading of the provision.
VII
G.R. No. 104776
A. As to the first two grounds for the petition in G.R. No. 104776, claimants aver: (1) that
while their complaints were filed on June 6, 1984 with POEA, the case was decided only on
January 30, 1989, a clear denial of their right to a speedy disposition of the case; and (2) that
NLRC and the POEA Administrator should have declared AIBC and BRII in default (Rollo, pp.
31-35).
Claimants invoke a new provision incorporated in the 1987 Constitution, which provides:
Sec. 16. All persons shall have the right to a speedy disposition of their
cases before all judicial, quasi-judicial, or administrative bodies.
It is true that the constitutional right to "a speedy disposition of cases" is not limited to the
accused in criminal proceedings but extends to all parties in all cases, including civil and
administrative cases, and in all proceedings, including judicial and quasi-judicial hearings.
Hence, under the Constitution, any party to a case may demand expeditious action on all
officials who are tasked with the administration of justice.
However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy disposition of
cases" is a relative term. Just like the constitutional guarantee of "speedy trial" accorded to
the accused in all criminal proceedings, "speedy disposition of cases" is a flexible concept. It
is consistent with delays and depends upon the circumstances of each case. What the
Constitution prohibits are unreasonable, arbitrary and oppressive delays which render rights
nugatory.
Caballero laid down the factors that may be taken into consideration in determining whether
or not the right to a "speedy disposition of cases" has been violated, thus:
In the determination of whether or not the right to a "speedy trial" has been
violated, certain factors may be considered and balanced against each other.
These are length of delay, reason for the delay, assertion of the right or
failure to assert it, and prejudice caused by the delay. The same factors may
also be considered in answering judicial inquiry whether or not a person
officially charged with the administration of justice has violated the speedy
disposition of cases.
Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:
It must be here emphasized that the right to a speedy disposition of a case,
like the right to speedy trial, is deemed violated only when the proceeding is
attended by vexatious, capricious, and oppressive delays; or when unjustified
postponements of the trial are asked for and secured, or when without cause
or justified motive a long period of time is allowed to elapse without the party
having his case tried.
Since July 25, 1984 or a month after AIBC and BRII were served with a copy of the amended
complaint, claimants had been asking that AIBC and BRII be declared in default for failure to
file their answers within the ten-day period provided in Section 1, Rule III of Book VI of the
Rules and Regulations of the POEA. At that time, there was a pending motion of AIBC and
BRII to strike out of the records the amended complaint and the "Compliance" of claimants to
the order of the POEA, requiring them to submit a bill of particulars.
The cases at bench are not of the run-of-the-mill variety, such that their final disposition in the
administrative level after seven years from their inception, cannot be said to be attended by
unreasonable, arbitrary and oppressive delays as to violate the constitutional rights to a
speedy disposition of the cases of complainants.
The amended complaint filed on June 6, 1984 involved a total of 1,767 claimants. Said
complaint had undergone several amendments, the first being on April 3, 1985.
The claimants were hired on various dates from 1975 to 1983. They were deployed in
different areas, one group in and the other groups outside of, Bahrain. The monetary claims
totalling more than US$65 million according to Atty. Del Mundo, included:
1. Unexpired portion of contract;
2. Interest earnings of Travel and Fund;
3. Retirement and Savings Plan benefit;
4. War Zone bonus or premium pay of at least 100% of basic pay;
 5. Area Differential pay;
6. Accrued Interest of all the unpaid benefits;
7. Salary differential pay;
8. Wage Differential pay;
9. Refund of SSS premiums not remitted to Social Security System;
10. Refund of Withholding Tax not remitted to Bureau of Internal Revenue
(B.I.R.);
11. Fringe Benefits under Brown & Root's "A Summary of Employees
Benefits consisting of 43 pages (Annex "Q" of Amended Complaint);
12. Moral and Exemplary Damages;
13. Attorney's fees of at least ten percent of amounts;
14. Other reliefs, like suspending and/or cancelling the license to recruit of
AIBC and issued by the POEA; and
15. Penalty for violation of Article 34 (Prohibited practices) not excluding
reportorial requirements thereof (NLRC Resolution, September 2, 1991, pp.
18-19; G.R. No. 104776, Rollo, pp. 73-74).
Inasmuch as the complaint did not allege with sufficient definiteness and clarity of some facts,
the claimants were ordered to comply with the motion of AIBC for a bill of particulars. When
claimants filed their "Compliance and Manifestation," AIBC moved to strike out the complaint
from the records for failure of claimants to submit a proper bill of particulars. While the POEA
Administrator denied the motion to strike out the complaint, he ordered the claimants "to
correct the deficiencies" pointed out by AIBC.
Before an intelligent answer could be filed in response to the complaint, the records of
employment of the more than 1,700 claimants had to be retrieved from various countries in
the Middle East. Some of the records dated as far back as 1975.
The hearings on the merits of the claims before the POEA Administrator were interrupted
several times by the various appeals, first to NLRC and then to the Supreme Court.
Aside from the inclusion of additional claimants, two new cases were filed against AIBC and
BRII on October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986 (POEA Case
No. L-86-05-460). NLRC, in exasperation, noted that the exact number of claimants had
never been completely established (Resolution, Sept. 2, 1991, G.R. No. 104776, Rollo, p.
57). All the three new cases were consolidated with POEA Case No. L-84-06-555.
NLRC blamed the parties and their lawyers for the delay in terminating the proceedings, thus:
These cases could have been spared the long and arduous route towards
resolution had the parties and their counsel been more interested in pursuing
the truth and the merits of the claims rather than exhibiting a fanatical
reliance on technicalities. Parties and counsel have made these cases a
litigation of emotion. The intransigence of parties and counsel is remarkable.
As late as last month, this Commission made a last and final attempt to bring
the counsel of all the parties (this Commission issued a special order
directing respondent Brown & Root's resident agent/s to appear) to come to a
more conciliatory stance. Even this failed (Rollo,
p. 58).
The squabble between the lawyers of claimants added to the delay in the disposition of the
cases, to the lament of NLRC, which complained:
It is very evident from the records that the protagonists in these consolidated
cases appear to be not only the individual complainants, on the one hand,
and AIBC and Brown & Root, on the other hand. The two lawyers for the
complainants, Atty. Gerardo Del Mundo and Atty. Florante De Castro, have
yet to settle the right of representation, each one persistently claiming to
appear in behalf of most of the complainants. As a result, there are two
appeals by the complainants. Attempts by this Commission to resolve
counsels' conflicting claims of their respective authority to represent the
complainants prove futile. The bickerings by these two counsels are reflected
in their pleadings. In the charges and countercharges of falsification of
documents and signatures, and in the disbarment proceedings by one
against the other. All these have, to a large extent, abetted in confounding
the issues raised in these cases, jumble the presentation of evidence, and
even derailed the prospects of an amicable settlement. It would not be far-
fetched to imagine that both counsel, unwittingly, perhaps, painted a rainbow
for the complainants, with the proverbial pot of gold at its end containing
more than US$100 million, the aggregate of the claims in these cases. It is,
likewise, not improbable that their misplaced zeal and exuberance caused
them to throw all caution to the wind in the matter of elementary rules of
procedure and evidence (Rollo, pp. 58-59).
Adding to the confusion in the proceedings before NLRC, is the listing of some of the
complainants in both petitions filed by the two lawyers. As noted by NLRC, "the problem
created by this situation is that if one of the two petitions is dismissed, then the parties and
the public respondents would not know which claim of which petitioner was dismissed and
which was not."
B. Claimants insist that all their claims could properly be consolidated in a "class suit"
because "all the named complainants have similar money claims and similar rights sought
irrespective of whether they worked in Bahrain, United Arab Emirates or in Abu Dhabi, Libya
or in any part of the Middle East" (Rollo, pp. 35-38).
A class suit is proper where the subject matter of the controversy is one of common or
general interest to many and the parties are so numerous that it is impracticable to bring them
all before the court (Revised Rules of Court, Rule 3, Sec. 12).
While all the claims are for benefits granted under the Bahrain Law, many of the claimants
worked outside Bahrain. Some of the claimants were deployed in Indonesia and Malaysia
under different terms and conditions of employment.
NLRC and the POEA Administrator are correct in their stance that inasmuch as the first
requirement of a class suit is not present (common or general interest based on the Amiri
Decree of the State of Bahrain), it is only logical that only those who worked in Bahrain shall
be entitled to file their claims in a class suit.
While there are common defendants (AIBC and BRII) and the nature of the claims is the
same (for employee's benefits), there is no common question of law or fact. While some
claims are based on the Amiri Law of Bahrain, many of the claimants never worked in that
country, but were deployed elsewhere. Thus, each claimant is interested only in his own
demand and not in the claims of the other employees of defendants. The named claimants
have a special or particular interest in specific benefits completely different from the benefits
in which the other named claimants and those included as members of a "class" are claiming
(Berses v. Villanueva, 25 Phil. 473 [1913]). It appears that each claimant is only interested in
collecting his own claims. A claimants has no concern in protecting the interests of the other
claimants as shown by the fact, that hundreds of them have abandoned their co-claimants
and have entered into separate compromise settlements of their respective claims. A
principle basic to the concept of "class suit" is that plaintiffs brought on the record must fairly
represent and protect the interests of the others (Dimayuga v. Court of Industrial Relations,
101 Phil. 590 [1957]). For this matter, the claimants who worked in Bahrain can not be
allowed to sue in a class suit in a judicial proceeding. The most that can be accorded to them
under the Rules of Court is to be allowed to join as plaintiffs in one complaint (Revised Rules
of Court, Rule 3, Sec. 6).
The Court is extra-cautious in allowing class suits because they are the exceptions to the
condition sine qua non, requiring the joinder of all indispensable parties.
In an improperly instituted class suit, there would be no problem if the decision secured is
favorable to the plaintiffs. The problem arises when the decision is adverse to them, in which
case the others who were impleaded by their self-appointed representatives, would surely
claim denial of due process.
C. The claimants in G.R. No. 104776 also urged that the POEA Administrator and NLRC
should have declared Atty. Florante De Castro guilty of "forum shopping, ambulance chasing
activities, falsification, duplicity and other unprofessional activities" and his appearances as
counsel for some of the claimants as illegal (Rollo, pp. 38-40).
The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to put a stop to the
practice of some parties of filing multiple petitions and complaints involving the same issues,
with the result that the courts or agencies have to resolve the same issues. Said Rule,
however, applies only to petitions filed with the Supreme Court and the Court of Appeals. It is
entitled "Additional Requirements For Petitions Filed with the Supreme Court and the Court of
Appeals To Prevent Forum Shopping or Multiple Filing of Petitioners and Complainants." The
first sentence of the circular expressly states that said circular applies to an governs the filing
of petitions in the Supreme Court and the Court of Appeals.
While Administrative Circular No. 04-94 extended the application of the anti-forum shopping
rule to the lower courts and administrative agencies, said circular took effect only on April 1,
1994.
POEA and NLRC could not have entertained the complaint for unethical conduct against Atty.
De Castro because NLRC and POEA have no jurisdiction to investigate charges of unethical
conduct of lawyers.
Attorney's Lien
The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992 was filed by
Atty. Gerardo A. Del Mundo to protect his claim for attorney's fees for legal services rendered
in favor of the claimants (G.R. No. 104776, Rollo, pp. 841-844).
A statement of a claim for a charging lien shall be filed with the court or administrative agency
which renders and executes the money judgment secured by the lawyer for his clients. The
lawyer shall cause written notice thereof to be delivered to his clients and to the adverse party
(Revised Rules of Court, Rule 138, Sec. 37). The statement of the claim for the charging lien
of Atty. Del Mundo should have been filed with the administrative agency that rendered and
executed the judgment.
Contempt of Court
The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro and Atty. Katz
Tierra for violation of the Code of Professional Responsibility should be filed in a separate
and appropriate proceeding.
 G.R. No. 104911-14
Claimants charge NLRC with grave abuse of discretion in not accepting their formula of
"Three Hours Average Daily Overtime" in computing the overtime payments. They claim that
it was BRII itself which proposed the formula during the negotiations for the settlement of their
claims in Bahrain and therefore it is in estoppel to disclaim said offer (Rollo, pp. 21-22).
Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated April 16, 1983,
which in pertinent part states:
After the perusal of the memorandum of the Vice President and the Area
Manager, Middle East, of Brown & Root Co. and the Summary of the
compensation offered by the Company to the employees in respect of the
difference of pay of the wages of the overtime and the difference of vacation
leave and the perusal of the documents attached thereto i.e., minutes of the
meetings between the Representative of the employees and the
management of the Company, the complaint filed by the employees on
14/2/83 where they have claimed as hereinabove stated, sample of the
Service Contract executed between one of the employees and the company
through its agent in (sic) Philippines, Asia International Builders
Corporation where it has been provided for 48 hours of work per week and
an annual leave of 12 days and an overtime wage of 1 & 1/4 of the normal
hourly wage.
xxx xxx xxx
The Company in its computation reached the following averages:
A. 1. The average duration of the actual service of the employee is 35
months for the Philippino (sic) employees . . . .
2. The average wage per hour for the Philippino (sic) employee is US$2.69 . .
..
3. The average hours for the overtime is 3 hours plus in all public holidays
and weekends.
4. Payment of US$8.72 per months (sic) of service as compensation for the
difference of the wages of the overtime done for each Philippino (sic)
employee . . . (Rollo, p.22).
BRII and AIBC countered: (1) that the Memorandum was not prepared by them but by a
subordinate official in the Bahrain Department of Labor; (2) that there was no showing that
the Bahrain Minister of Labor had approved said memorandum; and (3) that the offer was
made in the course of the negotiation for an amicable settlement of the claims and therefore it
was not admissible in evidence to prove that anything is due to the claimants.
While said document was presented to the POEA without observing the rule on presenting
official documents of a foreign government as provided in Section 24, Rule 132 of the 1989
Revised Rules on Evidence, it can be admitted in evidence in proceedings before an
administrative body. The opposing parties have a copy of the said memorandum, and they
could easily verify its authenticity and accuracy.
The admissibility of the offer of compromise made by BRII as contained in the memorandum
is another matter. Under Section 27, Rule 130 of the 1989 Revised Rules on Evidence, an
offer to settle a claim is not an admission that anything is due.
Said Rule provides:
Offer of compromise not admissible. — In civil cases, an offer of compromise
is not an admission of any liability, and is not admissible in evidence against
the offeror.
This Rule is not only a rule of procedure to avoid the cluttering of the record with unwanted
evidence but a statement of public policy. There is great public interest in having the
protagonists settle their differences amicable before these ripen into litigation. Every effort
must be taken to encourage them to arrive at a settlement. The submission of offers and
counter-offers in the negotiation table is a step in the right direction. But to bind a party to his
offers, as what claimants would make this Court do, would defeat the salutary purpose of the
Rule.
G.R. Nos. 105029-32
A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater benefits than
those stipulated in the overseas-employment contracts of the claimants. It was of the belief
that "where the laws of the host country are more favorable and beneficial to the workers,
then the laws of the host country shall form part of the overseas employment contract." It
quoted with approval the observation of the POEA Administrator that ". . . in labor
proceedings, all doubts in the implementation of the provisions of the Labor Code and its
implementing regulations shall be resolved in favor of labor" (Rollo, pp. 90-94).
AIBC and BRII claim that NLRC acted capriciously and whimsically when it refused to enforce
the overseas-employment contracts, which became the law of the parties. They contend that
the principle that a law is deemed to be a part of a contract applies only to provisions of
Philippine law in relation to contracts executed in the Philippines.
The overseas-employment contracts, which were prepared by AIBC and BRII themselves,
provided that the laws of the host country became applicable to said contracts if they offer
terms and conditions more favorable that those stipulated therein. It was stipulated in said
contracts that:
The Employee agrees that while in the employ of the Employer, he will not
engage in any other business or occupation, nor seek employment with
anyone other than the Employer; that he shall devote his entire time and
attention and his best energies, and abilities to the performance of such
duties as may be assigned to him by the Employer; that he shall at all times
be subject to the direction and control of the Employer; and that the benefits
provided to Employee hereunder are substituted for and in lieu of all other
benefits provided by any applicable law, provided of course, that total
remuneration and benefits do not fall below that of the host country
regulation or custom, it being understood that should applicable laws
establish that fringe benefits, or other such benefits additional to the
compensation herein agreed cannot be waived, Employee agrees that such
compensation will be adjusted downward so that the total compensation
hereunder, plus the non-waivable benefits shall be equivalent to the
compensation herein agreed (Rollo, pp. 352-353).
The overseas-employment contracts could have been drafted more felicitously. While a part
thereof provides that the compensation to the employee may be "adjusted downward so that
the total computation (thereunder) plus the non-waivable benefits shall be equivalent to the
compensation" therein agreed, another part of the same provision categorically states "that
total remuneration and benefits do not fall below that of the host country regulation and
custom."
Any ambiguity in the overseas-employment contracts should be interpreted against AIBC and
BRII, the parties that drafted it (Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union, 93
SCRA 257 [1979]).
Article 1377 of the Civil Code of the Philippines provides:
The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
Said rule of interpretation is applicable to contracts of adhesion where there is already a
prepared form containing the stipulations of the employment contract and the employees
merely "take it or leave it." The presumption is that there was an imposition by one party
against the other and that the employees signed the contracts out of necessity that reduced
their bargaining power (Fieldmen's Insurance Co., Inc. v. Songco, 25 SCRA 70 [1968]).
Applying the said legal precepts, we read the overseas-employment contracts in question as
adopting the provisions of the Amiri Decree No. 23 of 1976 as part and parcel thereof.
The parties to a contract may select the law by which it is to be governed (Cheshire, Private
International Law, 187 [7th ed.]). In such a case, the foreign law is adopted as a "system" to
regulate the relations of the parties, including questions of their capacity to enter into the
contract, the formalities to be observed by them, matters of performance, and so forth (16 Am
Jur 2d,
150-161).
Instead of adopting the entire mass of the foreign law, the parties may just agree that specific
provisions of a foreign statute shall be deemed incorporated into their contract "as a set of
terms." By such reference to the provisions of the foreign law, the contract does not become
a foreign contract to be governed by the foreign law. The said law does not operate as a
statute but as a set of contractual terms deemed written in the contract (Anton, Private
International Law, 197 [1967]; Dicey and Morris, The Conflict of Laws, 702-703, [8th ed.]).
A basic policy of contract is to protect the expectation of the parties (Reese, Choice of Law in
Torts and Contracts, 16 Columbia Journal of Transnational Law 1, 21 [1977]). Such party
expectation is protected by giving effect to the parties' own choice of the applicable law
(Fricke v. Isbrandtsen Co., Inc., 151 F. Supp. 465, 467 [1957]). The choice of law must,
however, bear some relationship to the parties or their transaction (Scoles and Hayes,
Conflict of Law 644-647 [1982]). There is no question that the contracts sought to be enforced
by claimants have a direct connection with the Bahrain law because the services were
rendered in that country.
In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486 (1982), the
"Employment Agreement," between Norse Management Co. and the late husband of the
private respondent, expressly provided that in the event of illness or injury to the employee
arising out of and in the course of his employment and not due to his own misconduct,
"compensation shall be paid to employee in accordance with and subject to the limitation of
the Workmen's Compensation Act of the Republic of the Philippines or the Worker's
Insurance Act of registry of the vessel, whichever is greater." Since the laws of Singapore,
the place of registry of the vessel in which the late husband of private respondent served at
the time of his death, granted a better compensation package, we applied said foreign law in
preference to the terms of the contract.
The case of Bagong Filipinas Overseas Corporation v. National Labor Relations Commission,
135 SCRA 278 (1985), relied upon by AIBC and BRII is inapposite to the facts of the cases at
bench. The issue in that case was whether the amount of the death compensation of a
Filipino seaman should be determined under the shipboard employment contract executed in
the Philippines or the Hongkong law. Holding that the shipboard employment contract was
controlling, the court differentiated said case from Norse Management Co. in that in the latter
case there was an express stipulation in the employment contract that the foreign law would
be applicable if it afforded greater compensation.
B. AIBC and BRII claim that they were denied by NLRC of their right to due process when
said administrative agency granted Friday-pay differential, holiday-pay differential, annual-
leave differential and leave indemnity pay to the claimants listed in Annex B of the Resolution.
At first, NLRC reversed the resolution of the POEA Administrator granting these benefits on a
finding that the POEA Administrator failed to consider the evidence presented by AIBC and
BRII, that some findings of fact of the POEA Administrator were not supported by the
evidence, and that some of the evidence were not disclosed to AIBC and BRII (Rollo, pp. 35-
36; 106-107). But instead of remanding the case to the POEA Administrator for a new
hearing, which means further delay in the termination of the case, NLRC decided to pass
upon the validity of the claims itself. It is this procedure that AIBC and BRII complain of as
being irregular and a "reversible error."
They pointed out that NLRC took into consideration evidence submitted on appeal, the same
evidence which NLRC found to have been "unilaterally submitted by the claimants and not
disclosed to the adverse parties" (Rollo, pp. 37-39).
NLRC noted that so many pieces of evidentiary matters were submitted to the POEA
administrator by the claimants after the cases were deemed submitted for resolution and
which were taken cognizance of by the POEA Administrator in resolving the cases. While
AIBC and BRII had no opportunity to refute said evidence of the claimants before the POEA
Administrator, they had all the opportunity to rebut said evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII themselves were able to
present before NLRC additional evidence which they failed to present before the POEA
Administrator.
Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to "use every and
all reasonable means to ascertain the facts in each case speedily and objectively and without
regard to technicalities of law or procedure, all in the interest of due process."
In deciding to resolve the validity of certain claims on the basis of the evidence of both parties
submitted before the POEA Administrator and NLRC, the latter considered that it was not
expedient to remand the cases to the POEA Administrator for that would only prolong the
already protracted legal controversies.
Even the Supreme Court has decided appealed cases on the merits instead of remanding
them to the trial court for the reception of evidence, where the same can be readily
determined from the uncontroverted facts on record (Development Bank of the Philippines v.
Intermediate Appellate Court, 190 SCRA 653 [1990]; Pagdonsalan v. National Labor
Relations Commission, 127 SCRA 463 [1984]).
C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered the POEA
Administrator to hold new hearings for 683 claimants listed in Annex D of the Resolution
dated September 2, 1991 whose claims had been denied by the POEA Administrator "for lack
of proof" and for 69 claimants listed in Annex E of the same Resolution, whose claims had
been found by NLRC itself as not "supported by evidence" (Rollo, pp. 41-45).
NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines, which
empowers it "[to] conduct investigation for the determination of a question, matter or
controversy, within its jurisdiction, . . . ."
It is the posture of AIBC and BRII that NLRC has no authority under Article 218(c) to remand
a case involving claims which had already been dismissed because such provision
contemplates only situations where there is still a question or controversy to be resolved
(Rollo, pp. 41-42).
A principle well embedded in Administrative Law is that the technical rules of procedure and
evidence do not apply to the proceedings conducted by administrative agencies (First Asian
Transport & Shipping Agency, Inc. v. Ople, 142 SCRA 542 [1986]; Asiaworld Publishing
House, Inc. v. Ople, 152 SCRA 219 [1987]). This principle is enshrined in Article 221 of the
Labor Code of the Philippines and is now the bedrock of proceedings before NLRC.
Notwithstanding the non-applicability of technical rules of procedure and evidence in
administrative proceedings, there are cardinal rules which must be observed by the hearing
officers in order to comply with the due process requirements of the Constitution. These
cardinal rules are collated in Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).
VIII
The three petitions were filed under Rule 65 of the Revised Rules of Court on the grounds
that NLRC had committed grave abuse of discretion amounting to lack of jurisdiction in
issuing the questioned orders. We find no such abuse of discretion.
WHEREFORE, all the three petitions are DISMISSED.
SO ORDERED.
G.R. No. 164301 August 10, 2010
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
BPI EMPLOYEES UNION-DAVAO CHAPTER-FEDERATION OF UNIONS IN BPI
UNIBANK, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
May a corporation invoke its merger with another corporation as a valid ground to exempt its
"absorbed employees" from the coverage of a union shop clause contained in its existing
Collective Bargaining Agreement (CBA) with its own certified labor union? That is the
question we shall endeavor to answer in this petition for review filed by an employer after the
Court of Appeals decided in favor of respondent union, which is the employees’ recognized
collective bargaining representative.
At the outset, we should call to mind the spirit and the letter of the Labor Code provisions on
union security clauses, specifically Article 248 (e), which states, "x x x Nothing in this Code
or in any other law shall stop the parties from requiring membership in a recognized collective
bargaining agent as a condition for employment, except those employees who are already
members of another union at the time of the signing of the collective bargaining
agreement."1 This case which involves the application of a collective bargaining agreement
with a union shop clause should be resolved principally from the standpoint of the clear
provisions of our labor laws, and the express terms of the CBA in question, and not by
inference from the general consequence of the merger of corporations under the Corporation
Code, which obviously does not deal with and, therefore, is silent on the terms and conditions
of employment in corporations or juridical entities.
This issue must be resolved NOW, instead of postponing it to a future time when the CBA is
renegotiated as suggested by the Honorable Justice Arturo D. Brion because the same issue
may still be resurrected in the renegotiation if the absorbed employees insist on their
privileged status of being exempt from any union shop clause or any variant thereof.
We find it significant to note that it is only the employer, Bank of the Philippine Islands (BPI),
that brought the case up to this Court via the instant petition for review; while the employees
actually involved in the case did not pursue the same relief, but had instead chosen in effect
to acquiesce to the decision of the Court of Appeals which effectively required them to comply
with the union shop clause under the existing CBA at the time of the merger of BPI with Far
East Bank and Trust Company (FEBTC), which decision had already become final and
executory as to the aforesaid employees. By not appealing the decision of the Court of
Appeals, the aforesaid employees are bound by the said Court of Appeals’ decision to join
BPI’s duly certified labor union. In view of the apparent acquiescence of the affected FEBTC
employees in the Court of Appeals’ decision, BPI should not have pursued this petition for
review. However, even assuming that BPI may do so, the same still cannot prosper.
What is before us now is a petition for review under Rule 45 of the Rules of Court of the
Decision2 dated September 30, 2003 of the Court of Appeals, as reiterated in its
Resolution3 of June 9, 2004, reversing and setting aside the Decision4 dated November 23,
2001 of Voluntary Arbitrator Rosalina Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled
BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank v. Bank of the
Philippine Islands, et al.
The antecedent facts are as follows:
On March 23, 2000, the Bangko Sentral ng Pilipinas approved the Articles of Merger
executed on January 20, 2000 by and between BPI, herein petitioner, and FEBTC. 5 This
Article and Plan of Merger was approved by the Securities and Exchange Commission on
April 7, 2000.6
Pursuant to the Article and Plan of Merger, all the assets and liabilities of FEBTC were
transferred to and absorbed by BPI as the surviving corporation. FEBTC employees,
including those in its different branches across the country, were hired by petitioner as its own
employees, with their status and tenure recognized and salaries and benefits maintained.
Respondent BPI Employees Union-Davao Chapter - Federation of Unions in BPI Unibank
(hereinafter the "Union," for brevity) is the exclusive bargaining agent of BPI’s rank and file
employees in Davao City. The former FEBTC rank-and-file employees in Davao City did not
belong to any labor union at the time of the merger. Prior to the effectivity of the merger, or on
March 31, 2000, respondent Union invited said FEBTC employees to a meeting regarding the
Union Shop Clause (Article II, Section 2) of the existing CBA between petitioner BPI and
respondent Union.7
The parties both advert to certain provisions of the existing CBA, which are quoted below:
ARTICLE I
Section 1. Recognition and Bargaining Unit – The BANK recognizes the UNION as the sole
and exclusive collective bargaining representative of all the regular rank and file employees of
the Bank offices in Davao City.
Section 2. Exclusions
Section 3. Additional Exclusions
Section 4. Copy of Contract
ARTICLE II
Section 1. Maintenance of Membership – All employees within the bargaining unit who are
members of the Union on the date of the effectivity of this Agreement as well as employees
within the bargaining unit who subsequently join or become members of the Union during the
lifetime of this Agreement shall as a condition of their continued employment with the Bank,
maintain their membership in the Union in good standing.
Section 2. Union Shop - New employees falling within the bargaining unit as defined in
Article I of this Agreement, who may hereafter be regularly employed by the Bank shall,
within thirty (30) days after they become regular employees, join the Union as a condition of
their continued employment. It is understood that membership in good standing in the Union
is a condition of their continued employment with the Bank.8 (Emphases supplied.)
After the meeting called by the Union, some of the former FEBTC employees joined the
Union, while others refused. Later, however, some of those who initially joined retracted their
membership.9
Respondent Union then sent notices to the former FEBTC employees who refused to join, as
well as those who retracted their membership, and called them to a hearing regarding the
matter. When these former FEBTC employees refused to attend the hearing, the president of
the Union requested BPI to implement the Union Shop Clause of the CBA and to terminate
their employment pursuant thereto.10
After two months of management inaction on the request, respondent Union informed
petitioner BPI of its decision to refer the issue of the implementation of the Union Shop
Clause of the CBA to the Grievance Committee. However, the issue remained unresolved at
this level and so it was subsequently submitted for voluntary arbitration by the parties. 11
Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision12 dated November 23, 2001,
ruled in favor of petitioner BPI’s interpretation that the former FEBTC employees were not
covered by the Union Security Clause of the CBA between the Union and the Bank on the
ground that the said employees were not new employees who were hired and subsequently
regularized, but were absorbed employees "by operation of law" because the "former
employees of FEBTC can be considered assets and liabilities of the absorbed
corporation." The Voluntary Arbitrator concluded that the former FEBTC employees could
not be compelled to join the Union, as it was their constitutional right to join or not to join any
organization.
Respondent Union filed a Motion for Reconsideration, but the Voluntary Arbitrator denied the
same in an Order dated March 25, 2002.13
Dissatisfied, respondent then appealed the Voluntary Arbitrator’s decision to the Court of
Appeals. In the herein assailed Decision dated September 30, 2003, the Court of Appeals
reversed and set aside the Decision of the Voluntary Arbitrator.14 Likewise, the Court of
Appeals denied herein petitioner’s Motion for Reconsideration in a Resolution dated June 9,
2004.
The Court of Appeals pertinently ruled in its Decision:
A union-shop clause has been defined as a form of union security provision wherein non-
members may be hired, but to retain employment must become union members after a
certain period.
There is no question as to the existence of the union-shop clause in the CBA between the
petitioner-union and the company. The controversy lies in its application to the "absorbed"
employees.
This Court agrees with the voluntary arbitrator that the ABSORBED employees are distinct
and different from NEW employees BUT only in so far as their employment service is
concerned. The distinction ends there. In the case at bar, the absorbed employees’ length of
service from its former employer is tacked with their employment with BPI. Otherwise stated,
the absorbed employees service is continuous and there is no gap in their service record.
This Court is persuaded that the similarities of "new" and "absorbed" employees far
outweighs the distinction between them. The similarities lies on the following, to wit: (a) they
have a new employer; (b) new working conditions; (c) new terms of employment and; (d) new
company policy to follow. As such, they should be considered as "new" employees for
purposes of applying the provisions of the CBA regarding the "union-shop" clause.
To rule otherwise would definitely result to a very awkward and unfair situation wherein the
"absorbed" employees shall be in a different if not, better situation than the existing BPI
employees. The existing BPI employees by virtue of the "union-shop" clause are required to
pay the monthly union dues, remain as members in good standing of the union otherwise,
they shall be terminated from the company, and other union-related obligations. On the other
hand, the "absorbed" employees shall enjoy the "fruits of labor" of the petitioner-union and its
members for nothing in exchange. Certainly, this would disturb industrial peace in the
company which is the paramount reason for the existence of the CBA and the union.
The voluntary arbitrator’s interpretation of the provisions of the CBA concerning the coverage
of the "union-shop" clause is at war with the spirit and the rationale why the Labor Code itself
allows the existence of such provision.
The Supreme Court in the case of Manila Mandarin Employees Union vs. NLRC (G.R. No.
76989, September 29, 1987) rule, to quote:
"This Court has held that a valid form of union security, and such a provision in a collective
bargaining agreement is not a restriction of the right of freedom of association guaranteed by
the Constitution.
A closed-shop agreement is an agreement whereby an employer binds himself to hire only
members of the contracting union who must continue to remain members in good standing to
keep their jobs. It is "THE MOST PRIZED ACHIEVEMENT OF UNIONISM." IT ADDS
MEMBERSHIP AND COMPULSORY DUES. By holding out to loyal members a promise of
employment in the closed-shop, it wields group solidarity." (Emphasis supplied)
Hence, the voluntary arbitrator erred in construing the CBA literally at the expense of
industrial peace in the company.
With the foregoing ruling from this Court, necessarily, the alternative prayer of the petitioner
to require the individual respondents to become members or if they refuse, for this Court to
direct respondent BPI to dismiss them, follows.15
Hence, petitioner’s present recourse, raising the following issues:
I Section 2, Article II of the CBA is silent as to how one becomes a "regular employee" of the
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE FORMER FEBTC EMPLOYEES SHOULD BE CONSIDERED ‘NEW’
EMPLOYEES OF BPI FOR PURPOSES OF APPLYING THE UNION SHOP
CLAUSE OF THE CBA
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING
THAT THE VOLUNTARY ARBITRATOR’S INTERPRETATION OF THE COVERAGE
OF THE UNION SHOP CLAUSE IS "AT WAR WITH THE SPIRIT AND THE
RATIONALE WHY THE LABOR CODE ITSELF ALLOWS THE EXISTENCE OF
SUCH PROVISION"16
In essence, the sole issue in this case is whether or not the former FEBTC employees that
were absorbed by petitioner upon the merger between FEBTC and BPI should be covered by
the Union Shop Clause found in the existing CBA between petitioner and respondent Union.
Petitioner is of the position that the former FEBTC employees are not new employees of BPI
for purposes of applying the Union Shop Clause of the CBA, on this note, petitioner points to
Section 2, Article II of the CBA, which provides:
New employees falling within the bargaining unit as defined in Article I of this Agreement, who
may hereafter be regularly employed by the Bank shall, within thirty (30) days after they
become regular employees, join the Union as a condition of their continued employment. It is
understood that membership in good standing in the Union is a condition of their continued
employment with the Bank.17 (Emphases supplied.)
Petitioner argues that the term "new employees" in the Union Shop Clause of the CBA is
qualified by the phrases "who may hereafter be regularly employed" and "after they become
regular employees" which led petitioner to conclude that the "new employees" referred to in,
and contemplated by, the Union Shop Clause of the CBA were only those employees who
were "new" to BPI, on account of having been hired initially on a temporary or probationary
status for possible regular employment at some future date. BPI argues that the FEBTC
employees absorbed by BPI cannot be considered as "new employees" of BPI for purposes
of applying the Union Shop Clause of the CBA.18
According to petitioner, the contrary interpretation made by the Court of Appeals of this
particular CBA provision ignores, or even defies, what petitioner assumes as its clear
meaning and scope which allegedly contradicts the Court’s strict and restrictive enforcement
of union security agreements.
We do not agree.
BPI for the first time. There is nothing in the said provision which requires that a "new" regular
employee first undergo a temporary or probationary status before being deemed as such
under the union shop clause of the CBA.
"Union security" is a generic term which is applied to and comprehends "closed shop," "union
shop," "maintenance of membership" or any other form of agreement which imposes upon
employees the obligation to acquire or retain union membership as a condition affecting
employment. There is union shop when all new regular employees are required to join the
union within a certain period for their continued employment. There is maintenance of
membership shop when employees, who are union members as of the effective date of the
agreement, or who thereafter become members, must maintain union membership as a
condition for continued employment until they are promoted or transferred out of the
bargaining unit or the agreement is terminated. A closed-shop, on the other hand, may be
defined as an enterprise in which, by agreement between the employer and his employees or
their representatives, no person may be employed in any or certain agreed departments of
the enterprise unless he or she is, becomes, and, for the duration of the agreement, remains
a member in good standing of a union entirely comprised of or of which the employees in
interest are a part.19
In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,20 we ruled that:
It is the policy of the State to promote unionism to enable the workers to negotiate with
management on the same level and with more persuasiveness than if they were to
individually and independently bargain for the improvement of their respective
conditions. To this end, the Constitution guarantees to them the rights "to self-organization,
collective bargaining and negotiations and peaceful concerted actions including the right to
strike in accordance with law." There is no question that these purposes could be thwarted if
every worker were to choose to go his own separate way instead of joining his co-employees
in planning collective action and presenting a united front when they sit down to bargain with
their employers. It is for this reason that the law has sanctioned stipulations for the union
shop and the closed shop as a means of encouraging the workers to join and support the
labor union of their own choice as their representative in the negotiation of their demands and
the protection of their interest vis-à-vis the employer. (Emphasis ours.)
In other words, the purpose of a union shop or other union security arrangement is to
guarantee the continued existence of the union through enforced membership for the benefit
of the workers.
All employees in the bargaining unit covered by a Union Shop Clause in their CBA with
management are subject to its terms. However, under law and jurisprudence, the
following kinds of employees are exempted from its coverage, namely, employees who
at the time the union shop agreement takes effect are bona fide members of a religious
organization which prohibits its members from joining labor unions on religious
grounds;21 employees already in the service and already members of a union other than
the majority at the time the union shop agreement took effect;22 confidential employees
who are excluded from the rank and file bargaining unit;23 and employees excluded from
the union shop by express terms of the agreement.
When certain employees are obliged to join a particular union as a requisite for continued
employment, as in the case of Union Security Clauses, this condition is a valid restriction of
the freedom or right not to join any labor organization because it is in favor of unionism. This
Court, on occasion, has even held that a union security clause in a CBA is not a restriction of
the right of freedom of association guaranteed by the Constitution. 24
Moreover, a closed shop agreement is an agreement whereby an employer binds himself to
hire only members of the contracting union who must continue to remain members in good
standing to keep their jobs. It is "the most prized achievement of unionism." It adds
membership and compulsory dues. By holding out to loyal members a promise of
employment in the closed shop, it wields group solidarity.25
Indeed, the situation of the former FEBTC employees in this case clearly does not fall within
the first three exceptions to the application of the Union Shop Clause discussed earlier. No
allegation or evidence of religious exemption or prior membership in another union or
engagement as a confidential employee was presented by both parties. The sole category
therefore in which petitioner may prove its claim is the fourth recognized exception or whether
the former FEBTC employees are excluded by the express terms of the existing CBA
between petitioner and respondent.
To reiterate, petitioner insists that the term "new employees," as the same is used in the
Union Shop Clause of the CBA at issue, refers only to employees hired by BPI as non-regular
employees who later qualify for regular employment and become regular employees, and
not those who, as a legal consequence of a merger, are allegedly automatically deemed
regular employees of BPI. However, the CBA does not make a distinction as to how a regular
employee attains such a status. Moreover, there is nothing in the Corporation Law and the
merger agreement mandating the automatic employment as regular employees by the
surviving corporation in the merger.
It is apparent that petitioner hinges its argument that the former FEBTC employees were
absorbed by BPI merely as a legal consequence of a merger based on the characterization
by the Voluntary Arbiter of these absorbed employees as included in the "assets and
liabilities" of the dissolved corporation - assets because they help the Bank in its operation
and liabilities because redundant employees may be terminated and company benefits will be
paid to them, thus reducing the Bank’s financial status. Based on this ratiocination, she ruled
that the same are not new employees of BPI as contemplated by the CBA at issue, noting
that the Certificate of Filing of the Articles of Merger and Plan of Merger between FEBTC and
BPI stated that "x x x the entire assets and liabilities of FAR EASTERN BANK & TRUST
COMPANY will be transferred to and absorbed by the BANK OF THE PHILIPPINE ISLANDS
x x x (underlining supplied)."26 In sum, the Voluntary Arbiter upheld the reasoning of petitioner
that the FEBTC employees became BPI employees by "operation of law" because they are
included in the term "assets and liabilities."
Absorbed FEBTC Employees are Neither Assets nor Liabilities
In legal parlance, however, human beings are never embraced in the term "assets and
liabilities." Moreover, BPI’s absorption of former FEBTC employees was neither by operation
of law nor by legal consequence of contract. There was no government regulation or law that
compelled the merger of the two banks or the absorption of the employees of the dissolved
corporation by the surviving corporation. Had there been such law or regulation, the
absorption of employees of the non-surviving entities of the merger would have been
mandatory on the surviving corporation.27 In the present case, the merger was voluntarily
entered into by both banks presumably for some mutually acceptable consideration. In fact,
the Corporation Code does not also mandate the absorption of the employees of the non-
surviving corporation by the surviving corporation in the case of a merger. Section 80 of the
Corporation Code provides:
SEC. 80. Effects of merger or consolidation. – The merger or consolidation, as provided in
the preceding sections shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and
every other interest of, or belonging to, or due to each constituent corporation, shall
be taken and deemed to be transferred to and vested in such surviving or
consolidated corporation without further act or deed; and
5. The surviving or the consolidated corporation shall be responsible and liable for all
the liabilities and obligations of each of the constituent corporations in the same
manner as if such surviving or consolidated corporation had itself incurred such
liabilities or obligations; and any claim, action or proceeding pending by or against
 any of such constituent corporations may be prosecuted by or against the surviving
or consolidated corporation, as the case may be. Neither the rights of creditors nor
any lien upon the property of any of such constituent corporations shall be impaired
by such merger or consolidated.
Significantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000
did not contain any specific stipulation with respect to the employment contracts of existing
personnel of the non-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this
Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC
assets and liabilities to BPI as set forth in the Articles of Merger necessarily includes the
transfer of all FEBTC employees into the employ of BPI and neither BPI nor the FEBTC
employees allegedly could do anything about it. Even if it is so, it does not follow that the
absorbed employees should not be subject to the terms and conditions of employment
obtaining in the surviving corporation.
The rule is that unless expressly assumed, labor contracts such as employment contracts
and collective bargaining agreements are not enforceable against a transferee of an
enterprise, labor contracts being in personam, thus binding only between the parties. A labor
contract merely creates an action in personam and does not create any real right which
should be respected by third parties. This conclusion draws its force from the right of an
employer to select his employees and to decide when to engage them as protected under our
Constitution, and the same can only be restricted by law through the exercise of the police
power.28
Furthermore, this Court believes that it is contrary to public policy to declare the former
FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred
and absorbed by BPI in the Articles of Merger. Assets and liabilities, in this instance, should
be deemed to refer only to property rights and obligations of FEBTC and do not include the
employment contracts of its personnel. A corporation cannot unilaterally transfer its
employees to another employer like chattel. Certainly, if BPI as an employer had the right to
choose who to retain among FEBTC’s employees, FEBTC employees had the concomitant
right to choose not to be absorbed by BPI. Even though FEBTC employees had no choice or
control over the merger of their employer with BPI, they had a choice whether or not they
would allow themselves to be absorbed by BPI. Certainly nothing prevented the FEBTC’s
employees from resigning or retiring and seeking employment elsewhere instead of going
along with the proposed absorption.
Employment is a personal consensual contract and absorption by BPI of a former FEBTC
employee without the consent of the employee is in violation of an individual’s freedom to
contract. It would have been a different matter if there was an express provision in the articles
of merger that as a condition for the merger, BPI was being required to assume all the
employment contracts of all existing FEBTC employees with the conformity of the employees.
In the absence of such a provision in the articles of merger, then BPI clearly had the business
management decision as to whether or not employ FEBTC’s employees. FEBTC employees
likewise retained the prerogative to allow themselves to be absorbed or not; otherwise, that
would be tantamount to involuntary servitude.
There appears to be no dispute that with respect to FEBTC employees that BPI chose not to
employ or FEBTC employees who chose to retire or be separated from employment instead
of "being absorbed," BPI’s assumed liability to these employees pursuant to the merger is
FEBTC’s liability to them in terms of separation pay,29retirement pay30 or other benefits that
may be due them depending on the circumstances.
Legal Consequences of Mergers
Although not binding on this Court, American jurisprudence on the consequences of voluntary
mergers on the right to employment and seniority rights is persuasive and illuminating. We
quote the following pertinent discussion from the American Law Reports:
Several cases have involved the situation where as a result of mergers, consolidations, or
shutdowns, one group of employees, who had accumulated seniority at one plant or for one
employer, finds that their jobs have been discontinued except to the extent that they are
offered employment at the place or by the employer where the work is to be carried on in the
future. Such cases have involved the question whether such transferring employees should
be entitled to carry with them their accumulated seniority or whether they are to be compelled
to start over at the bottom of the seniority list in the "new" job. It has been recognized in some
cases that the accumulated seniority does not survive and cannot be transferred to the "new"
job.
In Carver v Brien (1942) 315 Ill App 643, 43 NE2d 597, the shop work of three formerly
separate railroad corporations, which had previously operated separate facilities, was
consolidated in the shops of one of the roads. Displaced employees of the other two roads
were given preference for the new jobs created in the shops of the railroad which took over
the work. A controversy arose between the employees as to whether the displaced
employees were entitled to carry with them to the new jobs the seniority rights they had
accumulated with their prior employers, that is, whether the rosters of the three corporations,
for seniority purposes, should be "dovetailed" or whether the transferring employees should
go to the bottom of the roster of their new employer. Labor representatives of the various
systems involved attempted to work out an agreement which, in effect, preserved the
seniority status obtained in the prior employment on other roads, and the action was for
specific performance of this agreement against a demurring group of the original employees
of the railroad which was operating the consolidated shops. The relief sought was denied, the
court saying that, absent some specific contract provision otherwise, seniority rights were
ordinarily limited to the employment in which they were earned, and concluding that the
contract for which specific performance was sought was not such a completed and binding
agreement as would support such equitable relief, since the railroad, whose concurrence in
the arrangements made was essential to their effectuation, was not a party to the agreement.
Where the provisions of a labor contract provided that in the event that a
trucker absorbed the business of another private contractor or common carrier, or was a
party to a merger of lines, the seniority of the employees absorbedor affected thereby
should be determined by mutual agreement between the trucker and the unions involved, it
was held in Moore v International Brotherhood of Teamsters, etc. (1962, Ky) 356 SW2d 241,
that the trucker was not required to absorb the affected employees as well as the business,
the court saying that they could find no such meaning in the above clause, stating that it dealt
only with seniority, and not with initial employment. Unless and until the absorbing company
agreed to take the employees of the company whose business was being absorbed, no
seniority problem was created, said the court, hence the provision of the contract could have
no application. Furthermore, said the court, it did not require that the absorbing company take
these employees, but only that if it did take them the question of seniority between the old
and new employees would be worked out by agreement or else be submitted to the
grievance procedure.31 (Emphasis ours.)
Indeed, from the tenor of local and foreign authorities, in voluntary mergers, absorption of the
dissolved corporation’s employees or the recognition of the absorbed employees’ service with
their previous employer may be demanded from the surviving corporation if required by
provision of law or contract. The dissent of Justice Arturo D. Brion tries to make a distinction
as to the terms and conditions of employment of the absorbed employees in the case of a
corporate merger or consolidation which will, in effect, take away from corporate
management the prerogative to make purely business decisions on the hiring of employees
or will give it an excuse not to apply the CBA in force to the prejudice of its own employees
and their recognized collective bargaining agent. In this regard, we disagree with Justice
Brion.
Justice Brion takes the position that because the surviving corporation continues the
personality of the dissolved corporation and acquires all the latter’s rights and obligations, it is
duty-bound to absorb the dissolved corporation’s employees, even in the absence of a
stipulation in the plan of merger. He proposes that this interpretation would provide the
necessary protection to labor as it spares workers from being "left in legal limbo."
However, there are instances where an employer can validly discontinue or terminate the
employment of an employee without violating his right to security of tenure. Among others, in
case of redundancy, for example, superfluous employees may be terminated and such
termination would be authorized under Article 283 of the Labor Code. 32
Moreover, assuming for the sake of argument that there is an obligation to hire or absorb all
employees of the non-surviving corporation, there is still no basis to conclude that the terms
and conditions of employment under a valid collective bargaining agreement in force in the
surviving corporation should not be made to apply to the absorbed employees.
The Corporation Code and the Subject Merger Agreement are Silent on Efficacy, Terms and
Conditions of Employment Contracts
The lack of a provision in the plan of merger regarding the transfer of employment contracts
to the surviving corporation could have very well been deliberate on the part of the parties to
the merger, in order to grant the surviving corporation the freedom to choose who among the
dissolved corporation’s employees to retain, in accordance with the surviving corporation’s
business needs. If terminations, for instance due to redundancy or labor-saving devices or to
prevent losses, are done in good faith, they would be valid. The surviving corporation too is
duty-bound to protect the rights of its own employees who may be affected by the merger in
terms of seniority and other conditions of their employment due to the merger. Thus, we are
not convinced that in the absence of a stipulation in the merger plan the surviving corporation
was compelled, or may be judicially compelled, to absorb all employees under the same
terms and conditions obtaining in the dissolved corporation as the surviving corporation
should also take into consideration the state of its business and its obligations to its own
employees, and to their certified collective bargaining agent or labor union.
Even assuming we accept Justice Brion’s theory that in a merger situation the surviving
corporation should be compelled to absorb the dissolved corporation’s employees as a legal
consequence of the merger and as a social justice consideration, it bears to emphasize his
dissent also recognizes that the employee may choose to end his employment at any time by
voluntarily resigning. For the employee to be "absorbed" by BPI, it requires the employees’
implied or express consent. It is because of this human element in employment contracts and
the personal, consensual nature thereof that we cannot agree that, in a merger situation,
employment contracts are automatically transferable from one entity to another in the same
manner that a contract pertaining to purely proprietary rights – such as a promissory note or a
deed of sale of property – is perfectly and automatically transferable to the surviving
corporation.
That BPI is the same entity as FEBTC after the merger is but a legal fiction intended as a tool
to adjudicate rights and obligations between and among the merged corporations and the
persons that deal with them. Although in a merger it is as if there is no change in the
personality of the employer, there is in reality a change in the situation of the employee. Once
an FEBTC employee is absorbed, there are presumably changes in his condition of
employment even if his previous tenure and salary rate is recognized by BPI. It is reasonable
to assume that BPI would have different rules and regulations and company practices than
FEBTC and it is incumbent upon the former FEBTC employees to obey these new rules and
adapt to their new environment. Not the least of the changes in employment condition that the
absorbed FEBTC employees must face is the fact that prior to the merger they were
employees of an unorganized establishment and after the merger they became employees of
a unionized company that had an existing collective bargaining agreement with the certified
union. This presupposes that the union who is party to the collective bargaining agreement is
the certified union that has, in the appropriate certification election, been shown to represent
a majority of the members of the bargaining unit.
Likewise, with respect to FEBTC employees that BPI chose to employ and who also chose to
be absorbed, then due to BPI’s blanket assumption of liabilities and obligations under the
articles of merger, BPI was bound to respect the years of service of these FEBTC employees
and to pay the same, or commensurate salaries and other benefits that these employees
previously enjoyed with FEBTC.
As the Union likewise pointed out in its pleadings, there were benefits under the CBA that
the former FEBTC employees did not enjoy with their previous employer. As BPI
employees, they will enjoy all these CBA benefits upon their "absorption." Thus, although in a
sense BPI is continuing FEBTC’s employment of these absorbed employees, BPI’s
employment of these absorbed employees was not under exactly the same terms and
conditions as stated in the latter’s employment contracts with FEBTC. This further
strengthens the view that BPI and the former FEBTC employees voluntarily contracted with
each other for their employment in the surviving corporation.
Proper Appreciation of the Term "New Employees" Under the CBA
In any event, it is of no moment that the former FEBTC employees retained the regular status
that they possessed while working for their former employer upon their absorption by
petitioner. This fact would not remove them from the scope of the phrase "new employees" as
contemplated in the Union Shop Clause of the CBA, contrary to petitioner’s insistence that
the term "new employees" only refers to those who are initially hired as non-regular
employees for possible regular employment.
The Union Shop Clause in the CBA simply states that "new employees" who during the
effectivity of the CBA "may be regularly employed" by the Bank must join the union within
thirty (30) days from their regularization. There is nothing in the said clause that limits its
application to only new employees who possess non-regular status, meaning probationary
status, at the start of their employment. Petitioner likewise failed to point to any provision in
the CBA expressly excluding from the Union Shop Clause new employees who are
"absorbed" as regular employees from the beginning of their employment. What is indubitable
from the Union Shop Clause is that upon the effectivity of the CBA, petitioner’s new regular
employees (regardless of the manner by which they became employees of BPI) are required
to join the Union as a condition of their continued employment.
The dissenting opinion of Justice Brion dovetails with Justice Carpio’s view only in their
restrictive interpretation of who are "new employees" under the CBA. To our dissenting
colleagues, the phrase "new employees" (who are covered by the union shop clause) should
only include new employees who were hired as probationary during the life of the CBA and
were later granted regular status. They propose that the former FEBTC employees who were
deemed regular employees from the beginning of their employment with BPI should be
treated as a special class of employees and be excluded from the union shop clause.
Justice Brion himself points out that there is no clear, categorical definition of "new employee"
in the CBA. In other words, the term "new employee" as used in the union shop clause is
used broadly without any qualification or distinction. However, the Court should not uphold an
interpretation of the term "new employee" based on the general and extraneous provisions of
the Corporation Code on merger that would defeat, rather than fulfill, the purpose of the union
shop clause. To reiterate, the provision of the Article 248(e) of the Labor Code in point
mandates that nothing in the said Code or any other law should stop the parties from
requiring membership in a recognized collective bargaining agent as a condition of
employment.
Significantly, petitioner BPI never stretches its arguments so far as to state that the absorbed
employees should be deemed "old employees" who are not covered by the Union Shop
Clause. This is not surprising.
By law and jurisprudence, a merger only becomes effective upon approval by the Securities
and Exchange Commission (SEC) of the articles of merger. In Associated Bank v. Court of
Appeals,33 we held:
The procedure to be followed is prescribed under the Corporation Code. Section 79 of said
Code requires the approval by the Securities and Exchange Commission (SEC) of the articles
of merger which, in turn, must have been duly approved by a majority of the respective
stockholders of the constituent corporations. The same provision further states that the
merger shall be effective only upon the issuance by the SEC of a certificate of merger. The
effectivity date of the merger is crucial for determining when the merged or absorbed
corporation ceases to exist; and when its rights, privileges, properties as well as liabilities
pass on to the surviving corporation. (Emphasis ours.)
In other words, even though BPI steps into the shoes of FEBTC as the surviving corporation,
BPI does so at a particular point in time, i.e., the effectivity of the merger upon the SEC’s
issuance of a certificate of merger. In fact, the articles of merger themselves provided that
both BPI and FEBTC will continue their respective business operations until the SEC issues
the certificate of merger and in the event SEC does not issue such a certificate, they agree to
hold each other blameless for the non-consummation of the merger.
Considering the foregoing principle, BPI could have only become the employer of the FEBTC
employees it absorbed after the approval by the SEC of the merger. If the SEC did not
approve the merger, BPI would not be in the position to absorb the employees of FEBTC at
all. Indeed, there is evidence on record that BPI made the assignments of its absorbed
employees in BPI effective April 10, 2000, or after the SEC’s approval of the merger. 34 In
other words, BPI became the employer of the absorbed employees only at some point after
the effectivity of the merger, notwithstanding the fact that the absorbed employees’ years of
service with FEBTC were voluntarily recognized by BPI.
Even assuming for the sake of argument that we consider the absorbed FEBTC employees
as "old employees" of BPI who are not members of any union (i.e., it is their date of hiring by
FEBTC and not the date of their absorption that is considered), this does not necessarily
exclude them from the union security clause in the CBA. The CBA subject of this case was
effective from April 1, 1996 until March 31, 2001. Based on the allegations of the former
FEBTC employees themselves, there were former FEBTC employees who were hired by
FEBTC after April 1, 1996 and if their date of hiring by FEBTC is considered as their date of
hiring by BPI, they would undeniably be considered "new employees" of BPI within the
contemplation of the Union Shop Clause of the said CBA. Otherwise, it would lead to the
absurd situation that we would discriminate not only between new BPI employees (hired
during the life of the CBA) and former FEBTC employees (absorbed during the life of the
CBA) but also among the former FEBTC employees themselves. In other words, we would be
treating employees who are exactly similarly situated (i.e., the group of absorbed FEBTC
employees) differently. This hardly satisfies the demands of equality and justice.
Petitioner limited itself to the argument that its absorbed employees do not fall within the term
"new employees" contemplated under the Union Shop Clause with the apparent objective of
excluding all, and not just some, of the former FEBTC employees from the application of the
Union Shop Clause.
However, in law or even under the express terms of the CBA, there is no special class of
employees called "absorbed employees." In order for the Court to apply or not apply the
Union Shop Clause, we can only classify the former FEBTC employees as either "old" or
"new." If they are not "old" employees, they are necessarily "new" employees. If they are new
employees, the Union Shop Clause did not distinguish between new employees who are non-
regular at their hiring but who subsequently become regular and new employees who are
"absorbed" as regular and permanent from the beginning of their employment. The Union
Shop Clause did not so distinguish, and so neither must we.
No Substantial Distinction Under the CBA Between Regular Employees Hired After
Probationary Status and Regular Employees Hired After the Merger
Verily, we agree with the Court of Appeals that there are no substantial differences between a
newly hired non-regular employee who was regularized weeks or months after his hiring and
a new employee who was absorbed from another bank as a regular employee pursuant to a
merger, for purposes of applying the Union Shop Clause. Both employees were
hired/employed only after the CBA was signed. At the time they are being required to join the
Union, they are both already regular rank and file employees of BPI. They belong to the same
bargaining unit being represented by the Union. They both enjoy benefits that the Union was
able to secure for them under the CBA. When they both entered the employ of BPI, the CBA
and the Union Shop Clause therein were already in effect and neither of them had the
opportunity to express their preference for unionism or not. We see no cogent reason why the
Union Shop Clause should not be applied equally to these two types of new employees, for
they are undeniably similarly situated.
The effect or consequence of BPI’s so-called "absorption" of former FEBTC employees
should be limited to what they actually agreed to, i.e. recognition of the FEBTC employees’
years of service, salary rate and other benefits with their previous employer. The effect
should not be stretched so far as to exempt former FEBTC employees from the existing CBA
terms, company policies and rules which apply to employees similarly situated. If the Union
Shop Clause is valid as to other new regular BPI employees, there is no reason why the
same clause would be a violation of the "absorbed" employees’ freedom of association.
Non-Application of Union Shop Clause Contrary to the Policy of the Labor Code and
Inimical to Industrial Peace
It is but fair that similarly situated employees who enjoy the same privileges of a CBA should
be likewise subject to the same obligations the CBA imposes upon them. A contrary
interpretation of the Union Shop Clause will be inimical to industrial peace and workers’
solidarity. This unfavorable situation will not be sufficiently addressed by asking the former
FEBTC employees to simply pay agency fees to the Union in lieu of union membership, as
the dissent of Justice Carpio suggests. The fact remains that other new regular employees, to
whom the "absorbed employees" should be compared, do not have the option to simply pay
the agency fees and they must join the Union or face termination.
Petitioner’s restrictive reading of the Union Shop Clause could also inadvertently open an
avenue, which an employer could readily use, in order to dilute the membership base of the
certified union in the collective bargaining unit (CBU). By entering into a voluntary merger with
a non-unionized company that employs more workers, an employer could get rid of its
existing union by the simple expedient of arguing that the "absorbed employees" are not new
employees, as are commonly understood to be covered by a CBA’s union security clause.
This could then lead to a new majority within the CBU that could potentially threaten the
majority status of the existing union and, ultimately, spell its demise as the CBU’s bargaining
representative. Such a dreaded but not entirely far-fetched scenario is no different from the
ingenious and creative "union-busting" schemes that corporations have fomented throughout
the years, which this Court has foiled time and again in order to preserve and protect the
valued place of labor in this jurisdiction consistent with the Constitution’s mandate of insuring
social justice.
There is nothing in the Labor Code and other applicable laws or the CBA provision at issue
that requires that a new employee has to be of probationary or non-regular status at the
beginning of the employment relationship. An employer may confer upon a new employee the
status of regular employment even at the onset of his engagement. Moreover, no law
prohibits an employer from voluntarily recognizing the length of service of a new employee
with a previous employer in relation to computation of benefits or seniority but it should not
unduly be interpreted to exclude them from the coverage of the CBA which is a binding
contractual obligation of the employer and employees.
Indeed, a union security clause in a CBA should be interpreted to give meaning and effect to
its purpose, which is to afford protection to the certified bargaining agent and ensure that the
employer is dealing with a union that represents the interests of the legally mandated
percentage of the members of the bargaining unit.
The union shop clause offers protection to the certified bargaining agent by ensuring that
future regular employees who (a) enter the employ of the company during the life of the CBA;
(b) are deemed part of the collective bargaining unit; and (c) whose number will affect the
number of members of the collective bargaining unit will be compelled to join the union. Such
compulsion has legal effect, precisely because the employer by voluntarily entering in to a
union shop clause in a CBA with the certified bargaining agent takes on the responsibility of
dismissing the new regular employee who does not join the union.
Without the union shop clause or with the restrictive interpretation thereof as proposed in the
dissenting opinions, the company can jeopardize the majority status of the certified union by
excluding from union membership all new regular employees whom the Company will
"absorb" in future mergers and all new regular employees whom the Company hires as
regular from the beginning of their employment without undergoing a probationary period. In
this manner, the Company can increase the number of members of the collective bargaining
unit and if this increase is not accompanied by a corresponding increase in union
membership, the certified union may lose its majority status and render it vulnerable to attack
by another union who wishes to represent the same bargaining unit. 35
Or worse, a certified union whose membership falls below twenty percent (20%) of the total
members of the collective bargaining unit may lose its status as a legitimate labor
organization altogether, even in a situation where there is no competing union.36 In such a
case, an interested party may file for the cancellation of the union’s certificate of registration
with the Bureau of Labor Relations.37
Plainly, the restrictive interpretation of the union shop clause would place the certified union’s
very existence at the mercy and control of the employer. Relevantly, only BPI, the
employer appears to be interested in pursuing this case. The former FEBTC employees
have not joined BPI in this appeal.
For the foregoing reasons, Justice Carpio’s proposal to simply require the former FEBTC to
pay agency fees is wholly inadequate to compensate the certified union for the loss of
additional membership supposedly guaranteed by compliance with the union shop clause.
This is apart from the fact that treating these "absorbed employees" as a special class of new
employees does not encourage worker solidarity in the company since another class of new
employees (i.e. those whose were hired as probationary and later regularized during the life
of the CBA) would not have the option of substituting union membership with payment of
agency fees.
Justice Brion, on the other hand, appears to recognize the inherent unfairness of perpetually
excluding the "absorbed" employees from the ambit of the union shop clause. He proposes
that this matter be left to negotiation by the parties in the next CBA. To our mind, however,
this proposal does not sufficiently address the issue. With BPI already taking the position that
employees "absorbed" pursuant to its voluntary mergers with other banks are exempt from
the union shop clause, the chances of the said bank ever agreeing to the inclusion of such
employees in a future CBA is next to nil – more so, if BPI’s narrow interpretation of the union
shop clause is sustained by this Court.
Right of an Employee not to Join a Union is not Absolute and Must Give Way to the Collective
Good of All Members of the Bargaining Unit
The dissenting opinions place a premium on the fact that even if the former FEBTC
employees are not old employees, they nonetheless were employed as regular and
permanent employees without a gap in their service. However, an employee’s permanent and
regular employment status in itself does not necessarily exempt him from the coverage of a
union shop clause.
In the past this Court has upheld even the more stringent type of union security clause, i.e.,
the closed shop provision, and held that it can be made applicable to old employees who are
already regular and permanent but have chosen not to join a union. In the early case of Juat
v. Court of Industrial Relations,38 the Court held that an old employee who had no union may
be compelled to join the union even if the collective bargaining agreement (CBA) imposing
the closed shop provision was only entered into seven years after of the hiring of the said
employee. To quote from that decision:
A closed-shop agreement has been considered as one form of union security whereby only
union members can be hired and workers must remain union members as a condition of
continued employment. The requirement for employees or workers to become members of a
union as a condition for employment redounds to the benefit and advantage of said
employees because by holding out to loyal members a promise of employment in the closed-
shop the union wields group solidarity. In fact, it is said that "the closed-shop contract is the
most prized achievement of unionism."
xxxx
This Court had categorically held in the case of Freeman Shirt Manufacturing Co., Inc., et al.
vs. Court of Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961, that the closed-shop
proviso of a collective bargaining agreement entered into between an employer and a duly
authorized labor union is applicable not only to the employees or laborers that are employed
after the collective bargaining agreement had been entered into but also to old employees
who are not members of any labor union at the time the said collective bargaining agreement
was entered into. In other words, if an employee or laborer is already a member of a labor
union different from the union that entered into a collective bargaining agreement with the
employer providing for a closed-shop, said employee or worker cannot be obliged to become
a member of that union which had entered into a collective bargaining agreement with the
employer as a condition for his continued employment. (Emphasis and underscoring
supplied.)
Although the present case does not involve a closed shop provision that included even old
employees, the Juat example is but one of the cases that laid down the doctrine that the right
not to join a union is not absolute. Theoretically, there is nothing in law or jurisprudence to
prevent an employer and a union from stipulating that existing employees (who already
attained regular and permanent status but who are not members of any union) are to be
included in the coverage of a union security clause. Even Article 248(e) of the Labor Code
only expressly exempts old employees who already have a union from inclusion in a union
security clause.39
Contrary to the assertion in the dissent of Justice Carpio, Juat has not been overturned by
Victoriano v. Elizalde Rope Workers’ Union40 nor by Reyes v. Trajano.41 The factual milieus of
these three cases are vastly different.
In Victoriano, the issue that confronted the Court was whether or not employees who were
members of the Iglesia ni Kristo (INK) sect could be compelled to join the union under a
closed shop provision, despite the fact that their religious beliefs prohibited them from joining
a union. In that case, the Court was asked to balance the constitutional right to religious
freedom against a host of other constitutional provisions including the freedom of association,
the non-establishment clause, the non-impairment of contracts clause, the equal protection
clause, and the social justice provision. In the end, the Court held that "religious freedom,
although not unlimited, is a fundamental personal right and liberty, and has a preferred
position in the hierarchy of values."42
However, Victoriano is consistent with Juat since they both affirm that the right to refrain from
joining a union is not absolute. The relevant portion of Victoriano is quoted below:
The right to refrain from joining labor organizations recognized by Section 3 of the Industrial
Peace Act is, however, limited. The legal protection granted to such right to refrain from
joining is withdrawn by operation of law, where a labor union and an employer have agreed
on a closed shop, by virtue of which the employer may employ only member of the collective
bargaining union, and the employees must continue to be members of the union for the
duration of the contract in order to keep their jobs. Thus Section 4 (a) (4) of the Industrial
Peace Act, before its amendment by Republic Act No. 3350, provides that although it would
be an unfair labor practice for an employer "to discriminate in regard to hire or tenure of
employment or any term or condition of employment to encourage or discourage membership
in any labor organization" the employer is, however, not precluded "from making an
agreement with a labor organization to require as a condition of employment membership
therein, if such labor organization is the representative of the employees." By virtue,
therefore, of a closed shop agreement, before the enactment of Republic Act No. 3350, if any
person, regardless of his religious beliefs, wishes to be employed or to keep his employment,
he must become a member of the collective bargaining union. Hence, the right of said
employee not to join the labor union is curtailed and withdrawn. 43 (Emphases supplied.)
If Juat exemplified an exception to the rule that a person has the right not to join a union,
Victoriano merely created an exception to the exception on the ground of religious freedom.
Reyes, on the other hand, did not involve the interpretation of any union security clause. In
that case, there was no certified bargaining agent yet since the controversy arose during a
certification election. In Reyes, the Court highlighted the idea that the freedom of association
included the right not to associate or join a union in resolving the issue whether or not the
votes of members of the INK sect who were part of the bargaining unit could be excluded in
the results of a certification election, simply because they were not members of the two
contesting unions and were expected to have voted for "NO UNION" in view of their religious
affiliation. The Court upheld the inclusion of the votes of the INK members since in the
previous case of Victoriano we held that INK members may not be compelled to join a union
on the ground of religious freedom and even without Victoriano every employee has the right
to vote "no union" in a certification election as part of his freedom of association. However,
Reyes is not authority for Justice Carpio’s proposition that an employee who is not a member
of any union may claim an exemption from an existing union security clause because he
already has regular and permanent status but simply prefers not to join a union.
The other cases cited in Justice Carpio’s dissent on this point are likewise inapplicable. Basa
v. Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de
Filipinas,44 Anucension v. National Labor Union,45 and Gonzales v. Central Azucarera de
Tarlac Labor Union46 all involved members of the INK. In line with Victoriano, these cases
upheld the INK members’ claimed exemption from the union security clause on religious
grounds. In the present case, the former FEBTC employees never claimed any religious
grounds for their exemption from the Union Shop Clause. As for Philips Industrial
Development, Inc. v. National Labor Relations Corporation47 and Knitjoy Manufacturing, Inc.
v. Ferrer-Calleja,48 the employees who were exempted from joining the respondent union or
who were excluded from participating in the certification election were found to be not
members of the bargaining unit represented by respondent union and were free to form/join
their own union. In the case at bar, it is undisputed that the former FEBTC employees were
part of the bargaining unit that the Union represented. Thus, the rulings in Philips and Knitjoy
have no relevance to the issues at hand.
Time and again, this Court has ruled that the individual employee’s right not to join a union
may be validly restricted by a union security clause in a CBA49 and such union security clause
is not a violation of the employee’s constitutional right to freedom of association. 50
It is unsurprising that significant provisions on labor protection of the 1987 Constitution are
found in Article XIII on Social Justice. The constitutional guarantee given the right to form
unions51 and the State policy to promote unionism 52 have social justice considerations. In
People’s Industrial and Commercial Employees and Workers Organization v. People’s
Industrial and Commercial Corporation,53 we recognized that "[l]abor, being the weaker in
economic power and resources than capital, deserve protection that is actually substantial
and material."
The rationale for upholding the validity of union shop clauses in a CBA, even if they impinge
upon the individual employee’s right or freedom of association, is not to protect the union for
the union’s sake. Laws and jurisprudence promote unionism and afford certain protections to
the certified bargaining agent in a unionized company because a strong and effective union
presumably benefits all employees in the bargaining unit since such a union would be in a
better position to demand improved benefits and conditions of work from the employer. This
is the rationale behind the State policy to promote unionism declared in the Constitution,
which was elucidated in the above-cited case of Liberty Flour Mills Employees v. Liberty Flour
Mills, Inc.54
In the case at bar, since the former FEBTC employees are deemed covered by the Union
Shop Clause, they are required to join the certified bargaining agent, which supposedly has
gathered the support of the majority of workers within the bargaining unit in the appropriate
certification proceeding. Their joining the certified union would, in fact, be in the best interests
of the former FEBTC employees for it unites their interests with the majority of employees in
the bargaining unit. It encourages employee solidarity and affords sufficient protection to the
majority status of the union during the life of the CBA which are the precisely the objectives of
union security clauses, such as the Union Shop Clause involved herein. We are indeed not
being called to balance the interests of individual employees as against the State policy of
promoting unionism, since the employees, who were parties in the court below, no longer
contested the adverse Court of Appeals’ decision. Nonetheless, settled jurisprudence has
already swung the balance in favor of unionism, in recognition that ultimately the individual
employee will be benefited by that policy. In the hierarchy of constitutional values, this Court
has repeatedly held that the right to abstain from joining a labor organization is subordinate to
the policy of encouraging unionism as an instrument of social justice.
Also in the dissenting opinion of Justice Carpio, he maintains that one of the dire
consequences to the former FEBTC employees who refuse to join the union is the forfeiture
of their retirement benefits. This is clearly not the case precisely because BPI expressly
recognized under the merger the length of service of the absorbed employees with FEBTC.
Should some refuse to become members of the union, they may still opt to retire if they are
qualified under the law, the applicable retirement plan, or the CBA, based on their combined
length of service with FEBTC and BPI. Certainly, there is nothing in the union shop clause
that should be read as to curtail an employee’s eligibility to apply for retirement if qualified
under the law, the existing retirement plan, or the CBA as the case may be.
In sum, this Court finds it reasonable and just to conclude that the Union Shop Clause of the
CBA covers the former FEBTC employees who were hired/employed by BPI during the
effectivity of the CBA in a manner which petitioner describes as "absorption." A contrary
appreciation of the facts of this case would, undoubtedly, lead to an inequitable and very
volatile labor situation which this Court has consistently ruled against.1avvphi1
In the case of former FEBTC employees who initially joined the union but later withdrew their
membership, there is even greater reason for the union to request their dismissal from the
employer since the CBA also contained a Maintenance of Membership Clause.
A final point in relation to procedural due process, the Court is not unmindful that the former
FEBTC employees’ refusal to join the union and BPI’s refusal to enforce the Union Shop
Clause in this instance may have been based on the honest belief that the former FEBTC
employees were not covered by said clause. In the interest of fairness, we believe the former
FEBTC employees should be given a fresh thirty (30) days from notice of finality of this
decision to join the union before the union demands BPI to terminate their employment under
the Union Shop Clause, assuming said clause has been carried over in the present CBA and
there has been no material change in the situation of the parties.
WHEREFORE, the petition is hereby DENIED, and the Decision dated September 30, 2003
of the Court of Appeals is AFFIRMED, subject to the thirty (30) day notice requirement
imposed herein. Former FEBTC employees who opt not to become union members but who
qualify for retirement shall receive their retirement benefits in accordance with law, the
applicable retirement plan, or the CBA, as the case may be.
SO ORDERED.
G.R. No. 128845 June 1, 2000
INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE), petitioner,
vs.
HON. LEONARDO A. QUISUMBING in his capacity as the Secretary of Labor and
Employment; HON. CRESENCIANO B. TRAJANO in his capacity as the Acting
Secretary of Labor and Employment; DR. BRIAN MACCAULEY in his capacity as the
Superintendent of International School-Manila; and INTERNATIONAL SCHOOL,
INC., respondents.
KAPUNAN, J.:
Receiving salaries less than their counterparts hired abroad, the local-hires of private
respondent School, mostly Filipinos, cry discrimination. We agree. That the local-hires are
paid more than their colleagues in other schools is, of course, beside the point. The point is
that employees should be given equal pay for work of equal value. That is a principle long
honored in this jurisdiction. That is a principle that rests on fundamental notions of justice.
That is the principle we uphold today.1âwphi1.nêt
Private respondent International School, Inc. (the School, for short), pursuant to Presidential
Decree 732, is a domestic educational institution established primarily for dependents of
foreign diplomatic personnel and other temporary residents.1 To enable the School to
continue carrying out its educational program and improve its standard of instruction, Section
2(c) of the same decree authorizes the School to employ its own teaching and management
personnel selected by it either locally or abroad, from Philippine or other nationalities, such
personnel being exempt from otherwise applicable laws and regulations attending their
employment, except laws that have been or will be enacted for the protection of employees.
Accordingly, the School hires both foreign and local teachers as members of its faculty,
classifying the same into two: (1) foreign-hires and (2) local-hires. The School employs four
tests to determine whether a faculty member should be classified as a foreign-hire or a local
hire:
a. What is one's domicile?
b. Where is one's home economy?
 c. To which country does one owe economic allegiance?
d. Was the individual hired abroad specifically to work in the School and was the
School responsible for bringing that individual to the Philippines?2
Should the answer to any of these queries point to the Philippines, the faculty member is
classified as a local hire; otherwise, he or she is deemed a foreign-hire.
The School grants foreign-hires certain benefits not accorded local-hires.1avvphi1 These
include housing, transportation, shipping costs, taxes, and home leave travel allowance.
Foreign-hires are also paid a salary rate twenty-five percent (25%) more than local-hires. The
School justifies the difference on two "significant economic disadvantages" foreign-hires have
to endure, namely: (a) the "dislocation factor" and (b) limited tenure. The School explains:
A foreign-hire would necessarily have to uproot himself from his home country, leave
his family and friends, and take the risk of deviating from a promising career path —
all for the purpose of pursuing his profession as an educator, but this time in a foreign
land. The new foreign hire is faced with economic realities: decent abode for oneself
and/or for one's family, effective means of transportation, allowance for the education
of one's children, adequate insurance against illness and death, and of course the
primary benefit of a basic salary/retirement compensation.
Because of a limited tenure, the foreign hire is confronted again with the same
economic reality after his term: that he will eventually and inevitably return to his
home country where he will have to confront the uncertainty of obtaining suitable
employment after along period in a foreign land.
The compensation scheme is simply the School's adaptive measure to remain
competitive on an international level in terms of attracting competent professionals in
the field of international education.3
When negotiations for a new collective bargaining agreement were held on June 1995,
petitioner International School Alliance of Educators, "a legitimate labor union and the
collective bargaining representative of all faculty members"4 of the School, contested the
difference in salary rates between foreign and local-hires. This issue, as well as the question
of whether foreign-hires should be included in the appropriate bargaining unit, eventually
caused a deadlock between the parties.
On September 7, 1995, petitioner filed a notice of strike. The failure of the National
Conciliation and Mediation Board to bring the parties to a compromise prompted the
Department of Labor and Employment (DOLE) to assume jurisdiction over the dispute. On
June 10, 1996, the DOLE Acting Secretary, Crescenciano B. Trajano, issued an Order
resolving the parity and representation issues in favor of the School. Then DOLE Secretary
Leonardo A. Quisumbing subsequently denied petitioner's motion for reconsideration in an
Order dated March 19, 1997. Petitioner now seeks relief in this Court.
Petitioner claims that the point-of-hire classification employed by the School is discriminatory
to Filipinos and that the grant of higher salaries to foreign-hires constitutes racial
discrimination.
The School disputes these claims and gives a breakdown of its faculty members, numbering
38 in all, with nationalities other than Filipino, who have been hired locally and classified as
local hires.5 The Acting Secretary of Labor found that these non-Filipino local-hires received
the same benefits as the Filipino local-hires.
The compensation package given to local-hires has been shown to apply to all,
regardless of race. Truth to tell, there are foreigners who have been hired locally and
who are paid equally as Filipino local hires.6
The Acting secretary upheld the point-of-hire classification for the distinction in salary rates:
The Principle "equal pay for equal work" does not find applications in the present
case. The international character of the School requires the hiring of foreign
personnel to deal with different nationalities and different cultures, among the student
population.
We also take cognizance of the existence of a system of salaries and benefits
accorded to foreign hired personnel which system is universally recognized. We
agree that certain amenities have to be provided to these people in order to entice
them to render their services in the Philippines and in the process remain competitive
in the international market.
Furthermore, we took note of the fact that foreign hires have limited contract of
employment unlike the local hires who enjoy security of tenure. To apply parity
therefore, in wages and other benefits would also require parity in other terms and
conditions of employment which include the employment which include the
employment contract.
A perusal of the parties' 1992-1995 CBA points us to the conditions and provisions
for salary and professional compensation wherein the parties agree as follows:
All members of the bargaining unit shall be compensated only in accordance
with Appendix C hereof provided that the Superintendent of the School has
the discretion to recruit and hire expatriate teachers from abroad, under
terms and conditions that are consistent with accepted international practice.
Appendix C of said CBA further provides:
The new salary schedule is deemed at equity with the Overseas Recruited
Staff (OSRS) salary schedule. The 25% differential is reflective of the agreed
 value of system displacement and contracted status of the OSRS as
differentiated from the tenured status of Locally Recruited Staff (LRS).
To our mind, these provisions demonstrate the parties' recognition of the difference in
the status of two types of employees, hence, the difference in their salaries.
The Union cannot also invoke the equal protection clause to justify its claim of parity.
It is an established principle of constitutional law that the guarantee of equal
protection of the laws is not violated by legislation or private covenants based on
reasonable classification. A classification is reasonable if it is based on substantial
distinctions and apply to all members of the same class. Verily, there is a substantial
distinction between foreign hires and local hires, the former enjoying only a limited
tenure, having no amenities of their own in the Philippines and have to be given a
good compensation package in order to attract them to join the teaching faculty of the
School.7
We cannot agree.
That public policy abhors inequality and discrimination is beyond contention. Our Constitution
and laws reflect the policy against these evils. The Constitution 8 in the Article on Social
Justice and Human Rights exhorts Congress to "give highest priority to the enactment of
measures that protect and enhance the right of all people to human dignity, reduce social,
economic, and political inequalities." The very broad Article 19 of the Civil Code requires
every person, "in the exercise of his rights and in the performance of his duties, [to] act with
justice, give everyone his due, and observe honesty and good faith.
International law, which springs from general principles of law,9 likewise proscribes
discrimination. General principles of law include principles of equity, 10 i.e., the general
principles of fairness and justice, based on the test of what is reasonable. 11 The Universal
Declaration of Human Rights, 12 the International Covenant on Economic, Social, and Cultural
Rights, 13 the International Convention on the Elimination of All Forms of Racial
Discrimination, 14 the Convention against Discrimination in Education, 15 the Convention (No.
111) Concerning Discrimination in Respect of Employment and Occupation 16 — all embody
the general principle against discrimination, the very antithesis of fairness and justice. The
Philippines, through its Constitution, has incorporated this principle as part of its national
laws.
In the workplace, where the relations between capital and labor are often skewed in favor of
capital, inequality and discrimination by the employer are all the more reprehensible.
The Constitution 17 specifically provides that labor is entitled to "humane conditions of work."
These conditions are not restricted to the physical workplace — the factory, the office or the
field — but include as well the manner by which employers treat their employees.
The Constitution 18 also directs the State to promote "equality of employment opportunities for
all." Similarly, the Labor Code 19 provides that the State shall "ensure equal work
opportunities regardless of sex, race or creed." It would be an affront to both the spirit and
letter of these provisions if the State, in spite of its primordial obligation to promote and
ensure equal employment opportunities, closes its eyes to unequal and discriminatory terms
and conditions of employment. 20
Discrimination, particularly in terms of wages, is frowned upon by the Labor Code. Article
135, for example, prohibits and penalizes 21 the payment of lesser compensation to a female
employee as against a male employee for work of equal value. Article 248 declares it an
unfair labor practice for an employer to discriminate in regard to wages in order to encourage
or discourage membership in any labor organization.
Notably, the International Covenant on Economic, Social, and Cultural Rights, supra, in
Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right of everyone to the
enjoyment of just and favourable conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
(i) Fair wages and equal remuneration for work of equal value
without distinction of any kind, in particular women being guaranteed
conditions of work not inferior to those enjoyed by men, with equal
pay for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal
truism of "equal pay for equal work." Persons who work with substantially equal qualifications,
skill, effort and responsibility, under similar conditions, should be paid similar salaries. 22 This
rule applies to the School, its "international character" notwithstanding.
The School contends that petitioner has not adduced evidence that local-hires perform work
equal to that of foreign-hires. 23 The Court finds this argument a little cavalier. If an employer
accords employees the same position and rank, the presumption is that these employees
perform equal work. This presumption is borne by logic and human experience. If the
employer pays one employee less than the rest, it is not for that employee to explain why he
receives less or why the others receive more. That would be adding insult to injury. The
employer has discriminated against that employee; it is for the employer to explain why the
employee is treated unfairly.
The employer in this case has failed to discharge this burden. There is no evidence here that
foreign-hires perform 25% more efficiently or effectively than the local-hires. Both groups
have similar functions and responsibilities, which they perform under similar working
conditions.
The School cannot invoke the need to entice foreign-hires to leave their domicile to
rationalize the distinction in salary rates without violating the principle of equal work for equal
pay.
"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or recompense for
services performed." Similarly, the Philippine Legal Encyclopedia states that "salary" is the
"[c]onsideration paid at regular intervals for the rendering of services." In Songco v. National
Labor Relations Commission, 24 we said that:
"salary" means a recompense or consideration made to a person for his pains or
industry in another man's business. Whether it be derived from "salarium," or more
fancifully from "sal," the pay of the Roman soldier, it carries with it the fundamental
idea of compensation for services rendered. (Emphasis supplied.)
While we recognize the need of the School to attract foreign-hires, salaries should not be
used as an enticement to the prejudice of local-hires. The local-hires perform the same
services as foreign-hires and they ought to be paid the same salaries as the latter. For the
same reason, the "dislocation factor" and the foreign-hires' limited tenure also cannot serve
as valid bases for the distinction in salary rates. The dislocation factor and limited tenure
affecting foreign-hires are adequately compensated by certain benefits accorded them which
are not enjoyed by local-hires, such as housing, transportation, shipping costs, taxes and
home leave travel allowances.
The Constitution enjoins the State to "protect the rights of workers and promote their
welfare," 25 "to afford labor full protection." 26 The State, therefore, has the right and duty to
regulate the relations between labor and capital. 27 These relations are not merely contractual
but are so impressed with public interest that labor contracts, collective bargaining
agreements included, must yield to the common good. 28 Should such contracts contain
stipulations that are contrary to public policy, courts will not hesitate to strike down these
stipulations.
In this case, we find the point-of-hire classification employed by respondent School to justify
the distinction in the salary rates of foreign-hires and local hires to be an invalid classification.
There is no reasonable distinction between the services rendered by foreign-hires and local-
hires. The practice of the School of according higher salaries to foreign-hires contravenes
public policy and, certainly, does not deserve the sympathy of this Court.1avvphi1
We agree, however, that foreign-hires do not belong to the same bargaining unit as the local-
hires.
A bargaining unit is "a group of employees of a given employer, comprised of all or less than
all of the entire body of employees, consistent with equity to the employer, indicate to be the
best suited to serve the reciprocal rights and duties of the parties under the collective
bargaining provisions of the law." 29 The factors in determining the appropriate collective
bargaining unit are (1) the will of the employees (Globe Doctrine); (2) affinity and unity of the
employees' interest, such as substantial similarity of work and duties, or similarity of
compensation and working conditions (Substantial Mutual Interests Rule); (3) prior collective
bargaining history; and (4) similarity of employment status. 30 The basic test of an asserted
bargaining unit's acceptability is whether or not it is fundamentally the combination which will
best assure to all employees the exercise of their collective bargaining rights. 31
It does not appear that foreign-hires have indicated their intention to be grouped together with
local-hires for purposes of collective bargaining. The collective bargaining history in the
School also shows that these groups were always treated separately. Foreign-hires have
limited tenure; local-hires enjoy security of tenure. Although foreign-hires perform similar
functions under the same working conditions as the local-hires, foreign-hires are accorded
certain benefits not granted to local-hires. These benefits, such as housing, transportation,
shipping costs, taxes, and home leave travel allowance, are reasonably related to their status
as foreign-hires, and justify the exclusion of the former from the latter. To include foreign-
hires in a bargaining unit with local-hires would not assure either group the exercise of their
respective collective bargaining rights.
WHEREFORE, the petition is GIVEN DUE COURSE. The petition is hereby GRANTED IN
PART. The Orders of the Secretary of Labor and Employment dated June 10, 1996 and
March 19, 1997, are hereby REVERSED and SET ASIDE insofar as they uphold the practice
of respondent School of according foreign-hires higher salaries than local-hires.
SO ORDERED.
[G.R. NO. 158693 : November 17, 2004]
JENNY M. AGABON and VIRGILIO C. AGABON, Petitioners, v. NATIONAL LABOR
RELATIONS COMMISSION (NLRC), RIVIERA HOME IMPROVEMENTS, INC. and
VICENTE ANGELES, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review seeks to reverse the decision1 of the Court of Appeals dated January
23, 2003, in CA-G.R. SP No. 63017, modifying the decision of National Labor Relations
Commission (NLRC) in NLRC-NCR Case No. 023442-00.
Private respondent Riviera Home Improvements, Inc. is engaged in the business of selling
and installing ornamental and construction materials. It employed petitioners Virgilio Agabon
and Jenny Agabon as gypsum board and cornice installers on January 2, 19922 until
February 23, 1999 when they were dismissed for abandonment of work.
Petitioners then filed a complaint for illegal dismissal and payment of money claims 3 and on
December 28, 1999, the Labor Arbiter rendered a decision declaring the dismissals illegal
and ordered private respondent to pay the monetary claims. The dispositive portion of the
decision states:
WHEREFORE, premises considered, We find the termination of the complainants illegal.
Accordingly, respondent is hereby ordered to pay them their backwages up to November 29,
1999 in the sum of:
1. Jenny M. Agabon - P56, 231.93
2. Virgilio C. Agabon - 56, 231.93
and, in lieu of reinstatement to pay them their separation pay of one (1) month for every year
of service from date of hiring up to November 29, 1999.
Respondent is further ordered to pay the complainants their holiday pay and service incentive
leave pay for the years 1996, 1997 and 1998 as well as their premium pay for holidays and
rest days and Virgilio Agabon's 13th month pay differential amounting to TWO THOUSAND
ONE HUNDRED FIFTY (P2,150.00) Pesos, or the aggregate amount of ONE HUNDRED
TWENTY ONE THOUSAND SIX HUNDRED SEVENTY EIGHT & 93/100 (P121,678.93)
Pesos for Jenny Agabon, and ONE HUNDRED TWENTY THREE THOUSAND EIGHT
HUNDRED TWENTY EIGHT & 93/100 (P123,828.93) Pesos for Virgilio Agabon, as per
attached computation of Julieta C. Nicolas, OIC, Research and Computation Unit, NCR.
SO ORDERED.4
On appeal, the NLRC reversed the Labor Arbiter because it found that the petitioners had
abandoned their work, and were not entitled to backwages and separation pay. The other
money claims awarded by the Labor Arbiter were also denied for lack of evidence. 5
Upon denial of their motion for reconsideration, petitioners filed a petition for certiorari with
the Court of Appeals.
The Court of Appeals in turn ruled that the dismissal of the petitioners was not illegal because
they had abandoned their employment but ordered the payment of money claims. The
dispositive portion of the decision reads:
WHEREFORE, the decision of the National Labor Relations Commission is REVERSED only
insofar as it dismissed petitioner's money claims. Private respondents are ordered to pay
petitioners holiday pay for four (4) regular holidays in 1996, 1997, and 1998, as well as their
service incentive leave pay for said years, and to pay the balance of petitioner Virgilio
Agabon's 13th month pay for 1998 in the amount of P2,150.00.
SO ORDERED.6
Hence, this Petition for Review on the sole issue of whether petitioners were illegally
dismissed.7
Petitioners assert that they were dismissed because the private respondent refused to give
them assignments unless they agreed to work on a "pakyaw" basis when they reported for
duty on February 23, 1999. They did not agree on this arrangement because it would mean
losing benefits as Social Security System (SSS) members. Petitioners also claim that private
respondent did not comply with the twin requirements of notice and hearing. 8
Private respondent, on the other hand, maintained that petitioners were not dismissed but
had abandoned their work.9 In fact, private respondent sent two letters to the last known
addresses of the petitioners advising them to report for work. Private respondent's manager
even talked to petitioner Virgilio Agabon by telephone sometime in June 1999 to tell him
about the new assignment at Pacific Plaza Towers involving 40,000 square meters of cornice
installation work. However, petitioners did not report for work because they had
subcontracted to perform installation work for another company. Petitioners also demanded
for an increase in their wage to P280.00 per day. When this was not granted, petitioners
stopped reporting for work and filed the illegal dismissal case.10
It is well-settled that findings of fact of quasi-judicial agencies like the NLRC are accorded not
only respect but even finality if the findings are supported by substantial evidence. This is
especially so when such findings were affirmed by the Court of Appeals.11 However, if the
factual findings of the NLRC and the Labor Arbiter are conflicting, as in this case, the
reviewing court may delve into the records and examine for itself the questioned findings.12
Accordingly, the Court of Appeals, after a careful review of the facts, ruled that petitioners'
dismissal was for a just cause. They had abandoned their employment and were already
working for another employer.
To dismiss an employee, the law requires not only the existence of a just and valid cause but
also enjoins the employer to give the employee the opportunity to be heard and to defend
himself.13 Article 282 of the Labor Code enumerates the just causes for termination by the
employer: (a) serious misconduct or willful disobedience by the employee of the lawful orders
of his employer or the latter's representative in connection with the employee's work; (b)
gross and habitual neglect by the employee of his duties; (c) fraud or willful breach by the
employee of the trust reposed in him by his employer or his duly authorized representative;
(d) commission of a crime or offense by the employee against the person of his employer or
any immediate member of his family or his duly authorized representative; and (e) other
causes analogous to the foregoing.
Abandonment is the deliberate and unjustified refusal of an employee to resume his
employment.14 It is a form of neglect of duty, hence, a just cause for termination of
employment by the employer.15 For a valid finding of abandonment, these two factors should
be present: (1) the failure to report for work or absence without valid or justifiable reason; and
(2) a clear intention to sever employer-employee relationship, with the second as the more
determinative factor which is manifested by overt acts from which it may be deduced that the
employees has no more intention to work. The intent to discontinue the employment must be
shown by clear proof that it was deliberate and unjustified.16
In February 1999, petitioners were frequently absent having subcontracted for an installation
work for another company. Subcontracting for another company clearly showed the intention
to sever the employer-employee relationship with private respondent. This was not the first
time they did this. In January 1996, they did not report for work because they were working
for another company. Private respondent at that time warned petitioners that they would be
dismissed if this happened again. Petitioners disregarded the warning and exhibited a clear
intention to sever their employer-employee relationship. The record of an employee is a
relevant consideration in determining the penalty that should be meted out to him. 17
In Sandoval Shipyard v. Clave,18 we held that an employee who deliberately absented from
work without leave or permission from his employer, for the purpose of looking for a job
elsewhere, is considered to have abandoned his job. We should apply that rule with more
reason here where petitioners were absent because they were already working in another
company.
The law imposes many obligations on the employer such as providing just compensation to
workers, observance of the procedural requirements of notice and hearing in the termination
of employment. On the other hand, the law also recognizes the right of the employer to
expect from its workers not only good performance, adequate work and diligence, but also
good conduct19 and loyalty. The employer may not be compelled to continue to employ such
persons whose continuance in the service will patently be inimical to his interests. 20
After establishing that the terminations were for a just and valid cause, we now determine if
the procedures for dismissal were observed.
The procedure for terminating an employee is found in Book VI, Rule I, Section 2(d) of
the Omnibus Rules Implementing the Labor Code:
Standards of due process: requirements of notice. - In all cases of termination of
employment, the following standards of due process shall be substantially observed:
I. For termination of employment based on just causes as defined in Article 282 of the Code:
(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving to said employee reasonable opportunity within which to explain his side;
(b) A hearing or conference during which the employee concerned, with the assistance of
counsel if the employee so desires, is given opportunity to respond to the charge, present his
evidence or rebut the evidence presented against him; andcralawlibrary
(c) A written notice of termination served on the employee indicating that upon due
consideration of all the circumstances, grounds have been established to justify his
termination.
In case of termination, the foregoing notices shall be served on the employee's last known
address.
Dismissals based on just causes contemplate acts or omissions attributable to the employee
while dismissals based on authorized causes involve grounds under the Labor Code which
allow the employer to terminate employees. A termination for an authorized cause requires
payment of separation pay. When the termination of employment is declared illegal,
reinstatement and full backwages are mandated under Article 279. If reinstatement is no
longer possible where the dismissal was unjust, separation pay may be granted.
Procedurally, (1) if the dismissal is based on a just cause under Article 282, the employer
must give the employee two written notices and a hearing or opportunity to be heard if
requested by the employee before terminating the employment: a notice specifying the
grounds for which dismissal is sought a hearing or an opportunity to be heard and after
hearing or opportunity to be heard, a notice of the decision to dismiss; and (2) if the dismissal
is based on authorized causes under Articles 283 and 284, the employer must give the
employee and the Department of Labor and Employment written notices 30 days prior to the
effectivity of his separation.
From the foregoing rules four possible situations may be derived: (1) the dismissal is for a just
cause under Article 282 of the Labor Code, for an authorized cause under Article 283, or for
health reasons under Article 284, and due process was observed; (2) the dismissal is without
just or authorized cause but due process was observed; (3) the dismissal is without just or
authorized cause and there was no due process; and (4) the dismissal is for just or
authorized cause but due process was not observed.
In the first situation, the dismissal is undoubtedly valid and the employer will not suffer any
liability.
In the second and third situations where the dismissals are illegal, Article 279 mandates that
the employee is entitled to reinstatement without loss of seniority rights and other privileges
and full backwages, inclusive of allowances, and other benefits or their monetary equivalent
computed from the time the compensation was not paid up to the time of actual
reinstatement.
In the fourth situation, the dismissal should be upheld. While the procedural infirmity cannot
be cured, it should not invalidate the dismissal. However, the employer should be held liable
for non-compliance with the procedural requirements of due process.
The present case squarely falls under the fourth situation. The dismissal should be upheld
because it was established that the petitioners abandoned their jobs to work for another
company. Private respondent, however, did not follow the notice requirements and instead
argued that sending notices to the last known addresses would have been useless because
they did not reside there anymore. Unfortunately for the private respondent, this is not a valid
excuse because the law mandates the twin notice requirements to the employee's last known
address.21 Thus, it should be held liable for non-compliance with the procedural requirements
of due process.
A review and re-examination of the relevant legal principles is appropriate and timely to clarify
the various rulings on employment termination in the light of Serrano v. National Labor
Relations Commission.22
Prior to 1989, the rule was that a dismissal or termination is illegal if the employee was not
given any notice. In the 1989 case of Wenphil Corp. v. National Labor Relations
Commission,23 we reversed this long-standing rule and held that the dismissed employee,
although not given any notice and hearing, was not entitled to reinstatement and backwages
because the dismissal was for grave misconduct and insubordination, a just ground for
termination under Article 282. The employee had a violent temper and caused trouble during
office hours, defying superiors who tried to pacify him. We concluded that reinstating the
employee and awarding backwages "may encourage him to do even worse and will render a
mockery of the rules of discipline that employees are required to observe."24 We further held
that:
Under the circumstances, the dismissal of the private respondent for just cause should be
maintained. He has no right to return to his former employment.
However, the petitioner must nevertheless be held to account for failure to extend to private
respondent his right to an investigation before causing his dismissal. The rule is explicit as
above discussed. The dismissal of an employee must be for just or authorized cause and
after due process. Petitioner committed an infraction of the second requirement. Thus, it must
be imposed a sanction for its failure to give a formal notice and conduct an investigation as
required by law before dismissing petitioner from employment. Considering the
circumstances of this case petitioner must indemnify the private respondent the amount of
P1,000.00. The measure of this award depends on the facts of each case and the gravity of
the omission committed by the employer.25
The rule thus evolved: where the employer had a valid reason to dismiss an employee but did
not follow the due process requirement, the dismissal may be upheld but the employer will be
penalized to pay an indemnity to the employee. This became known as the Wenphilor
Belated Due Process Rule.
On January 27, 2000, in Serrano, the rule on the extent of the sanction was changed. We
held that the violation by the employer of the notice requirement in termination for just or
authorized causes was not a denial of due process that will nullify the termination. However,
the dismissal is ineffectual and the employer must pay full backwages from the time of
termination until it is judicially declared that the dismissal was for a just or authorized cause.
The rationale for the re-examination of the Wenphil doctrine in Serrano was the significant
number of cases involving dismissals without requisite notices. We concluded that the
imposition of penalty by way of damages for violation of the notice requirement was not
serving as a deterrent. Hence, we now required payment of full backwages from the time of
dismissal until the time the Court finds the dismissal was for a just or authorized cause.
Serrano was confronting the practice of employers to "dismiss now and pay later" by
imposing full backwages.
We believe, however, that the ruling in Serrano did not consider the full meaning of Article
279 of the Labor Code which states:
ART. 279. Security of Tenure. - In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full backwages, inclusive of
allowances, and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
This means that the termination is illegal only if it is not for any of the justified or authorized
causes provided by law. Payment of backwages and other benefits, including reinstatement,
is justified only if the employee was unjustly dismissed.
The fact that the Serrano ruling can cause unfairness and injustice which elicited strong
dissent has prompted us to revisit the doctrine.
To be sure, the Due Process Clause in Article III, Section 1 of the Constitution embodies a
system of rights based on moral principles so deeply imbedded in the traditions and feelings
of our people as to be deemed fundamental to a civilized society as conceived by our entire
history. Due process is that which comports with the deepest notions of what is fair and right
and just.26 It is a constitutional restraint on the legislative as well as on the executive and
judicial powers of the government provided by the Bill of Rights.
Due process under the Labor Code, like Constitutional due process, has two aspects:
substantive, i.e., the valid and authorized causes of employment termination under the Labor
Code; and procedural, i.e., the manner of dismissal. Procedural due process requirements for
dismissal are found in the Implementing Rules of P.D. 442, as amended, otherwise known as
the Labor Code of the Philippines in Book VI, Rule I, Sec. 2, as amended by Department
Order Nos. 9 and 10.27 Breaches of these due processrequirements violate the Labor Code.
Therefore statutory due process should be differentiated from failure to comply
with constitutional due process.
Constitutional due process protects the individual from the government and assures him of
his rights in criminal, civil or administrative proceedings; while statutory due process found in
the Labor Code and Implementing Rules protects employees from being unjustly terminated
without just cause after notice and hearing.
In Sebuguero v. National Labor Relations Commission,28 the dismissal was for a just and
valid cause but the employee was not accorded due process. The dismissal was upheld by
the Court but the employer was sanctioned. The sanction should be in the nature of
indemnification or penalty, and depends on the facts of each case and the gravity of the
omission committed by the employer.
In Nath v. National Labor Relations Commission,29 it was ruled that even if the employee was
not given due process, the failure did not operate to eradicate the just causes for dismissal.
The dismissal being for just cause, albeit without due process, did not entitle the employee to
reinstatement, backwages, damages and attorney's fees.
Mr. Justice Jose C. Vitug, in his separate opinion in MGG Marine Services, Inc. v. National
Labor Relations Commission,30 which opinion he reiterated in Serrano, stated:
C. Where there is just cause for dismissal but due process has not been properly observed
by an employer, it would not be right to order either the reinstatement of the dismissed
employee or the payment of backwages to him. In failing, however, to comply with the
procedure prescribed by law in terminating the services of the employee, the employer must
be deemed to have opted or, in any case, should be made liable, for the payment of
separation pay. It might be pointed out that the notice to be given and the hearing to be
conducted generally constitute the two-part due process requirement of law to be accorded to
the employee by the employer. Nevertheless, peculiar circumstances might obtain in certain
situations where to undertake the above steps would be no more than a useless formality and
where, accordingly, it would not be imprudent to apply the res ipsa loquitur rule and award, in
lieu of separation pay, nominal damages to the employee. x x x.31
After carefully analyzing the consequences of the divergent doctrines in the law on
employment termination, we believe that in cases involving dismissals for cause but without
observance of the twin requirements of notice and hearing, the better rule is to abandon the
Serrano doctrine and to follow Wenphil by holding that the dismissal was for just cause but
imposing sanctions on the employer. Such sanctions, however, must be stiffer than that
imposed in Wenphil. By doing so, this Court would be able to achieve a fair result by
dispensing justice not just to employees, but to employers as well.
The unfairness of declaring illegal or ineffectual dismissals for valid or authorized causes but
not complying with statutory due process may have far-reaching consequences.
This would encourage frivolous suits, where even the most notorious violators of company
policy are rewarded by invoking due process. This also creates absurd situations where there
is a just or authorized cause for dismissal but a procedural infirmity invalidates the
termination. Let us take for example a case where the employee is caught stealing or
threatens the lives of his co-employees or has become a criminal, who has fled and cannot
be found, or where serious business losses demand that operations be ceased in less than a
month. Invalidating the dismissal would not serve public interest. It could also discourage
investments that can generate employment in the local economy.
The constitutional policy to provide full protection to labor is not meant to be a sword to
oppress employers. The commitment of this Court to the cause of labor does not prevent us
from sustaining the employer when it is in the right, as in this case.32Certainly, an employer
should not be compelled to pay employees for work not actually performed and in fact
abandoned.
The employer should not be compelled to continue employing a person who is admittedly
guilty of misfeasance or malfeasance and whose continued employment is patently inimical to
the employer. The law protecting the rights of the laborer authorizes neither oppression nor
self-destruction of the employer.33
It must be stressed that in the present case, the petitioners committed a grave offense, i.e.,
abandonment, which, if the requirements of due process were complied with, would
undoubtedly result in a valid dismissal.
An employee who is clearly guilty of conduct violative of Article 282 should not be protected
by the Social Justice Clause of the Constitution. Social justice, as the term suggests, should
be used only to correct an injustice. As the eminent Justice Jose P. Laurel observed, social
justice must be founded on the recognition of the necessity of interdependence among
diverse units of a society and of the protection that should be equally and evenly extended to
all groups as a combined force in our social and economic life, consistent with the
fundamental and paramount objective of the state of promoting the health, comfort, and quiet
of all persons, and of bringing about "the greatest good to the greatest number."34
This is not to say that the Court was wrong when it ruled the way it did
in Wenphil, Serrano and related cases. Social justice is not based on rigid formulas set in
stone. It has to allow for changing times and circumstances.
Justice Isagani Cruz strongly asserts the need to apply a balanced approach to labor-
management relations and dispense justice with an even hand in every case:
We have repeatedly stressed that social justice - or any justice for that matter - is for the
deserving, whether he be a millionaire in his mansion or a pauper in his hovel. It is true that,
in case of reasonable doubt, we are to tilt the balance in favor of the poor to whom the
Constitution fittingly extends its sympathy and compassion. But never is it justified to give
preference to the poor simply because they are poor, or reject the rich simply because they
are rich, for justice must always be served for the poor and the rich alike, according to the
mandate of the law.35
Justice in every case should only be for the deserving party. It should not be presumed that
every case of illegal dismissal would automatically be decided in favor of labor, as
management has rights that should be fully respected and enforced by this Court. As
interdependent and indispensable partners in nation-building, labor and management need
each other to foster productivity and economic growth; hence, the need to weigh and balance
the rights and welfare of both the employee and employer.
Where the dismissal is for a just cause, as in the instant case, the lack of statutory due
process should not nullify the dismissal, or render it illegal, or ineffectual. However, the
employer should indemnify the employee for the violation of his statutory rights, as ruled
in Reta v. National Labor Relations Commission.36 The indemnity to be imposed should be
stiffer to discourage the abhorrent practice of "dismiss now, pay later," which we sought to
deter in the Serrano ruling. The sanction should be in the nature of indemnification or penalty
and should depend on the facts of each case, taking into special consideration the gravity of
the due process violation of the employer.
Under the Civil Code, nominal damages is adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him. 37
As enunciated by this Court in Viernes v. National Labor Relations Commissions,38 an
employer is liable to pay indemnity in the form of nominal damages to an employee who has
been dismissed if, in effecting such dismissal, the employer fails to comply with the
requirements of due process. The Court, after considering the circumstances therein, fixed
the indemnity at P2,590.50, which was equivalent to the employee's one month salary. This
indemnity is intended not to penalize the employer but to vindicate or recognize the
employee's right to statutory due process which was violated by the employer. 39
The violation of the petitioners' right to statutory due process by the private respondent
warrants the payment of indemnity in the form of nominal damages. The amount of such
damages is addressed to the sound discretion of the court, taking into account the relevant
circumstances.40Considering the prevailing circumstances in the case at bar, we deem it
proper to fix it at P30,000.00. We believe this form of damages would serve to deter
employers from future violations of the statutory due process rights of employees. At the very
least, it provides a vindication or recognition of this fundamental right granted to the latter
under the Labor Code and its Implementing Rules.
Private respondent claims that the Court of Appeals erred in holding that it failed to pay
petitioners' holiday pay, service incentive leave pay and 13th month pay.
We are not persuaded.
We affirm the ruling of the appellate court on petitioners' money claims. Private respondent is
liable for petitioners' holiday pay, service incentive leave pay and 13th month pay without
deductions.
As a general rule, one who pleads payment has the burden of proving it. Even where the
employee must allege non-payment, the general rule is that the burden rests on the employer
to prove payment, rather than on the employee to prove non-payment. The reason for the
rule is that the pertinent personnel files, payrolls, records, remittances and other similar
documents - which will show that overtime, differentials, service incentive leave and other
claims of workers have been paid - are not in the possession of the worker but in the custody
and absolute control of the employer.41
In the case at bar, if private respondent indeed paid petitioners' holiday pay and service
incentive leave pay, it could have easily presented documentary proofs of such monetary
benefits to disprove the claims of the petitioners. But it did not, except with respect to the 13th
month pay wherein it presented cash vouchers showing payments of the benefit in the years
disputed.42Allegations by private respondent that it does not operate during holidays and that
it allows its employees 10 days leave with pay, other than being self-serving, do not constitute
proof of payment. Consequently, it failed to discharge the onus probandi thereby making it
liable for such claims to the petitioners.
Anent the deduction of SSS loan and the value of the shoes from petitioner Virgilio Agabon's
13th month pay, we find the same to be unauthorized. The evident intention of Presidential
Decree No. 851 is to grant an additional income in the form of the 13th month pay to
employees not already receiving the same43 so as "to further protect the level of real wages
from the ravages of world-wide inflation."44 Clearly, as additional income, the 13th month pay
is included in the definition of wage under Article 97(f) of the Labor Code, to wit:
(f) "Wage" paid to any employee shall mean the remuneration or earnings, however
designated, capable of being expressed in terms of money whether fixed or ascertained on a
time, task, piece, or commission basis, or other method of calculating the same, which is
payable by an employer to an employee under a written or unwritten contract of employment
for work done or to be done, or for services rendered or to be rendered and includes the fair
and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other
facilities customarily furnished by the employer to the employee' "
from which an employer is prohibited under Article 113 45 of the same Code from making any
deductions without the employee's knowledge and consent. In the instant case, private
respondent failed to show that the deduction of the SSS loan and the value of the shoes from
petitioner Virgilio Agabon's 13th month pay was authorized by the latter. The lack of authority
to deduct is further bolstered by the fact that petitioner Virgilio Agabon included the same as
one of his money claims against private respondent.
The Court of Appeals properly reinstated the monetary claims awarded by the Labor Arbiter
ordering the private respondent to pay each of the petitioners holiday pay for four regular
holidays from 1996 to 1998, in the amount of P6,520.00, service incentive leave pay for the
same period in the amount of P3,255.00 and the balance of Virgilio Agabon's thirteenth
month pay for 1998 in the amount of P2,150.00.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of
Appeals dated January 23, 2003, in CA-G.R. SP No. 63017, finding that petitioners' Jenny
and Virgilio Agabon abandoned their work, and ordering private respondent to pay each of
the petitioners holiday pay for four regular holidays from 1996 to 1998, in the amount of
P6,520.00, service incentive leave pay for the same period in the amount of P3,255.00 and
the balance of Virgilio Agabon's thirteenth month pay for 1998 in the amount of P2,150.00
is AFFIRMED with the MODIFICATION that private respondent Riviera Home Improvements,
Inc. is further ORDERED to pay each of the petitioners the amount of P30,000.00 as nominal
damages for non-compliance with statutory due process.
No costs.
SO ORDERED.
G.R. Nos. 171594-96 September 18, 2013
ASIA BREWERY, INC., Petitioner,
vs.
TUNAY NA PAGKAKAISA NG MGA MANGGAGAWA SA ASIA (TPMA), Respondent.
DECISION
DEL CASTILLO, J.:
In cases of compulsory arbitration before the Secretary of Labor pursuant to Article 263(g) of
the Labor Code, the financial statements of the employer must be properly audited by an
external and independent auditor in order to be admissible in evidence for purposes of
determining the proper wage award.
This Petition for Review on Certiorari assails the Court of Appeal’s (CA) October 6, 2005
Decision1 and the February 17, 2006 Amended Decision2 in CA-G.R. SP Nos. 80839, and
83168 which modified the January 19, 2004 Decision3 of the Secretary of Labor in OS-AJ-
0042-2003.
Factual Antecedents
The antecedents are aptly summarized by the CA:
Respondent union Tunay Na Pagkakaisa ng mga Manggagawa sa Asia (TPMA) is a
legitimate labor organization, certified as the sole and exclusive bargaining agent of all
regular rank and file employees of petitioner corporation Asia Brewery, Incorporated (ABI).
The petitioner corporation, on the other hand, is a company engaged in the manufacture, sale
and distribution of beer, shandy, glass and bottled water products. It employs about 1,500
workers and has existing distributorship agreements with at least 13 companies.
Respondent union and petitioner corporation had been negotiating for a new collective
bargaining agreement (CBA) for the years 2003-2006 since the old CBA expired last July
2003. After about 18 sessions or negotiations, the parties were still unable to reconcile their
differences on their respective positions on most items, particularly on wages and other
economic benefits.
On October 21, 2003, the Respondent union declared a deadlock. On October 27, 2003,
Respondent union filed a notice of strike with the National Conciliation and Mediation Board
(NCMB), docketed as NCMB-RB-IV-LAG- NS-10-064-03. However, the parties did not come
to terms even before the NCMB.
On November 18, 2003, Respondent union conducted a strike vote. Out of the 840 union
members, 768 voted in favor of holding a strike.
On November 20, 2003, petitioner corporation then petitioned the Secretary of the
Department of Labor and Employment (DOLE) to assume jurisdiction over the parties’ labor
dispute, invoking Article 263 (g) of the Labor Code. In answer, Respondent union opposed
the assumption of jurisdiction, reasoning therein that the business of petitioner corporation is
not in dispensable to the national interest.
On December 2, 2003, Respondent union filed before the Court of Appeals a petition for
injunction, docketed as CA-G.R. SP No. 80839, which sought to enjoin the respondent
Secretary of Labor from assuming jurisdiction over the labor dispute, or in the alternative, to
issue a temporary restraining order, likewise to enjoin the former from assuming jurisdiction.
On December 19, 2003, the public respondent, through Undersecretary/Acting Secretary
Manuel G. Imson, issued an order assuming jurisdiction over the labor dispute between the
Respondent union and petitioner corporation. The pertinent portions of the said order read:
xxxx
"WHEREFORE, based on our considered determination that the current labor dispute is likely
to adversely affect national interest, this Office hereby ASSUMES JURISDICTION over the
labor dispute between the ASIA BREWERY, INCORPORATED and the TUNAY NA
PAGKAKAISA NGMANGGAGAWA SA ASIA pursuant to Article 263 (g) of the Labor Code,
as amended. Accordingly, any strike or lockout in the Company, whether actual or impending,
is hereby enjoined. Parties are hereby directed to cease and desist from taking any action
that might exacerbate the situation.
xxxx
"To expedite the resolution of this dispute, the parties are directed to submit in three (3)
First Year = ₱18.00
copies, their Position Papers within ten (10) days from receipt of this Order and another five
(5) days from receipt of the said position papers to submit their Reply.
Second Year = 15.00
"1. The Company shall be required to provide: Third Year = 12.00

"a. Complete Audited Financial Statements for the past five (5) years certified
as to its completeness by the Chief Financial Comptroller or Accountant; Total = ₱45.00

"b. Projected Financial Statements of the Company for the next three (3)
years; (2) HEALTH CARE (HMO)

"c. CBA history as to economic issues; and ₱1,300 premium to be shouldered by Asia Brewery, Inc., for each covered employee and
₱1,800 contribution for each Union member-dependent.
"d. The average monthly salary of the employees in this bargaining unit.
xxxx
"2. The Union is required to provide an itemized summary of their CBA demands with
financial costing and sample CBA’s (if any) in similarly situated or comparable The respondent union moved for a reconsideration of the decision on the ground that the
bargaining units. ruling lacks evidentiary proof to sufficiently justify the same. It also filed a "Paglilinaw o
Pagwawasto" of the Decision. Similarly, petitioner corporation also filed a motion for
clarification/reconsideration. The respondent Secretary of Labor resolved all three motions in
"In the interest of speedy labor justice, this Office will entertain no motion for extension or
a resolution dated January 29, 2004 x x x.
postponement.
xxxx
"The appropriate police authority is hereby deputized to enforce this Order in case of defiance
or the same is not forthwith obeyed.
Thereafter, on February 9, 2004, the parties executed and signed the Collective Bargaining
Agreement with a term from August 1, 2003 to July 31,2006.
"SO ORDERED."
Subsequently, on April 1, 2004, respondent union filed another petition for certiorari before
xxxx
the Court of Appeals, which was docketed as SP-83168, assailing the arbitral award and
imputing grave abuse of discretion upon the public respondent.
On January 19, 2004, respondent union filed another petition for certiorari with the Court of
Appeals, docketed as CA-G.R. SP No. 81639,imputing bad faith and grave abuse of
x x x x4
discretion to the Secretary of Labor. Respondent union prayed therein for the nullification of
the order of assumption of jurisdiction and the declaration that petitioner corporation is not an
industry indispensable to the national interest. Court of Appeal’s Ruling

In the meantime, in a decision dated January 19, 2004, Secretary of Labor Patricia Sto.
Tomas resolved the deadlock between the parties. As summarized in a later resolution, the
public respondent granted the following arbitral awards:
(1) WAGE INCREASES as follows:
On October 6, 2005, the CA rendered the first assailed Decision affirming with modification
the arbitral award of the Secretary of Labor, viz:
WHEREFORE, judgment is hereby rendered with the following rulings:
1) The assailed order dated December 19, 2003 of public respondent Secretary of
Labor is AFFIRMED . The petitions for injunction and certiorari in CA-G.R. SP Nos.
80839 and 81639 are denied and accordingly DISMISSED.
 2) In CA-G.R. SP No. 81368, the assailed decision dated January 19,2004 and the
order dated January 29, 2004 of the public respondent are hereby MODIFIED to read
as follows:
a) The present CBA is declared effective as of August 1, 2003;
b) Consequently, the employees are entitled to the arbitral awards or benefits
from August 1, 2003 on top of the ₱2,500.00 signing bonus;
c) The computation of the wage increase is REMANDED to the public
respondent; and
d) The health benefit of the employees shall be ₱1,390.00.
SO ORDERED.5
In modifying the arbitral award of the Secretary of Labor, the CA ruled that: (1)The effectivity
of the CBA should be August 1, 2003 because this is the date agreed upon by the parties and
not January 1, 2004 as decreed by the Secretary of Labor; (2) The computation of wage
increase should be remanded to the Secretary of Labor because the computation was based
on petitioner corporation’s unaudited financial statements, which have no probative value
pursuant to the ruling in Restaurante Las Conchas v. Llego,6 and was done in contravention
of DOLE Advisory No. 1, Series of 2004, which contained the guidelines in resolving
bargaining deadlocks; and (3) The health benefits should be ₱1,390.00 per covered
employee because petitioner corporation had already agreed to this amount and the same
cannot be altered or reduced by the Secretary of Labor.
Aggrieved, respondent union and petitioner corporation moved for reconsideration and partial
reconsideration, respectively. On February 17, 2006,the CA issued an Amended Decision, viz
:
WHEREFORE , the foregoing considered, the Motion for Reconsideration of respondent
union is DENIED and the Partial Motion for Reconsideration of petitioner corporation is
PARTIALLY GRANTED .Accordingly, Our Decision is MODIFIED and the signing bonus
previously awarded is hereby DELETED . The assailed Decision of the respondent Secretary
with respect to the issue on salary increases is REMANDED to her office for a definite
resolution within one month from the finality of this Court’s Decision using as basis the
externally audited financial statements to be submitted by petitioner corporation.
SO ORDERED.7
The CA partially modified its previous Decision by deleting the award of the signing bonus. It
ruled that, pursuant to the express provisions of the CBA, the signing bonus is over and
beyond what the parties agreed upon in the said CBA.
From this Amended Decision, only petitioner corporation appealed to this Court via this
Petition for Review on Certiorari.
Issues
Petitioner corporation raises the following issues for our resolution:
I. Whether the CA erred when it failed to dismiss CA-G.R. SP No.83168 despite the
lack of authority of those who instituted it.
II. Whether the CA erred when it remanded to the Secretary of Labor the issue on
wage increase.
III. Whether the CA erred when it awarded ₱1,390.00 as premium payment for each
covered employee.8
Our Ruling
The Petition lacks merit.
The authority of Rodrigo Perez (Perez)
to file the petition before the CA was not
sufficiently refuted.
Petitioner corporation claims that Perez, the person who verified the Petition in CA-G.R. SP
No. 83168 questioning the propriety of the arbitral award issued by the Secretary of Labor,
was without authority to represent respondent union. While there was a Secretary’s
Certificate attached to the aforesaid Petition purportedly authorizing Perez to file the Petition
on behalf of the union, there was no showing that the union president, Jose Manuel Miranda
(Miranda), called for and presided over the meeting when the said resolution was adopted as
required by the union’s constitution and by-laws. Moreover, the aforesaid resolution was
adopted on March 23, 2004 while the Petition was filed on April 1, 2004 or nine days from the
adoption of the resolution. Under the union’s constitution and by-laws, the decision of the
board of directors becomes effective only after two weeks from its issuance. Thus, at the time
of the filing of the aforesaid Petition, the resolution authorizing Perez to file the same was still
ineffective. Petitioner corporation also adverts to two labor cases allegedly divesting Perez of
authority to represent the union in the case before the appellate court.
We disagree.
The Secretary’s Certificate9 attached to the Petition in CA-G.R. SP No.83168 stated that the
union’s board of directors held a special meeting on March23, 2004 and unanimously passed
a resolution authorizing Perez to file a Petition before the CA to question the Secretary of
Labor’s arbitral award.10 While petitioner corporation claims that the proper procedure for
calling such a meeting was not followed, it presented no proof to establish the same.
Miranda, the union president who allegedly did not call for and preside over the said meeting,
did not come out to contest the validity of the aforesaid resolution or Secretary’s Certificate.
Similarly, petitioner corporation’s claim that the aforesaid resolution was still ineffective at the
time of the filing of the subject Petition is unsubstantiated. A fair reading of the provisions
which petitioner corporation cited in the union’s constitution and by-laws, particularly Article
VIII, Section 211 thereof, would show that the same refers to decisions of the board of
directors regarding the laws or rules that would govern the union, hence, the necessity of a
two-week prior notice to the affected parties before they become effective. These provisions
have not been shown to apply to resolutions granting authority to individuals to represent the
union in court cases. Besides, even if we assume that these provisions in the union’s
constitution and by-laws apply to the subject resolution, the continuing silence of the union,
from the time of its adoption to the filing of the Petition with the CA and up to this point in
these proceedings, would indicate that such defect, if at all present, in the authority of Perez
to file the subject Petition, was impliedly ratified by respondent union itself.
As to the two labor cases allegedly divesting Perez of the authority to file the subject Petition,
an examination of the same would show that they did not affect the legal capacity of Perez to
file the subject Petition. The first labor case (i.e., RO400-0407-AU-002,12 RO400-0409-AU-
006,13 and RO400-0412-AU-00114) involved the move of Perez and other union members to
amend the union’s Constitution and By-Laws in order to include a provision on recall elections
and to conduct a recall elections on June 26, 2004. In that case, the Med-Arbiter, in his
January 25, 2005 Order,15 ruled that the amendment sought to be introduced was not validly
ratified by the requisite two-thirds vote from the union membership. As a result, the recall
elections held on June 26, 2004 was annulled.16 The second labor case (
i.e. , NLRC NCR CC No. 000282-0417 and NLRC-RAB IV-12-20200-04-L18) involved the
strike staged by Perez and other union members on October 4, 2004. There, the National
Labor Relations Commission, in its March 2006Decision,19 ruled that the strike was illegal
and, as a consequence, Perez and the other union members were declared to have lost their
employment status.20
These two labor cases had no bearing on the legal capacity of Perez to represent the union in
CA-G.R. SP No. 83168 because (1) they did not nullify the authority granted to Perez in the
March 23, 2004 resolution of the union’s board of directors to file the subject Petition, and (2)
the material facts of these cases occurred and the Decisions thereon were rendered after the
subject Petition was already filed with the CA on April 1, 2004.
The remand of this case to the Secretary
of Labor as to the issue of wage increase
was proper.
Petitioner corporation admits that what it submitted to the Secretary of Labor were unaudited
financial statements which were then used as one of the bases in fixing the wage award.
However, petitioner corporation argues that these financial statements were duly signed and
certified by its chief financial officer. These statements have also been allegedly submitted to
various government agencies and should, thus, be considered official and public documents.
Moreover, respondent union did not object to the subject financial statements in the
proceedings before the Secretary of Labor and even used the same in formulating its (the
union’s) arguments in said proceedings. Thus, petitioner corporation contends that although
the subject financial statements were not audited by an external and independent auditor, the
same should be considered substantial compliance with the order of the Secretary of Labor to
produce the petitioner corporation’s complete audited financial statements for the past five
years. Furthermore, the Decision of the Secretary of Labor was not solely based on the
subject financial statements as the CBA history, costing of the proposals, and wages in other
similarly situated bargaining units were considered. Finally, petitioner corporation claims that
the demands of respondent union on wage increase are unrealistic and will cause the former
to close shop.
The contention is untenable.
In Restaurante Las Conchas v. Llego,21 several employees filed a case for illegal dismissal
after the employer closed its restaurant business. The employer sought to justify the closure
through unaudited financial statements showing the alleged losses of the business. We ruled
that such financial statements are mere self-serving declarations and inadmissible in
evidence even if the employees did not object to their presentation before the Labor
Arbiter.22 Similarly, in Uichico v. National Labor Relations Commission,23 the services of
several employees were terminated on the ground of retrenchment due to alleged serious
business losses suffered by the employer. We ruled that by submitting unaudited financial
statements, the employer failed to prove the alleged business losses, viz :
x x x It is true that administrative and quasi-judicial bodies like the NLRC are not bound by the
technical rules of procedure in the adjudication of cases. However, this procedural rule should
not be construed as a license to disregard certain fundamental evidentiary rules. While the
rules of evidence prevailing in the courts of law or equity are not controlling in proceedings
before the NLRC, the evidence presented before it must at least have a modicum of
admissibility for it to be given some probative value. The Statement of Profit and Losses
submitted by Crispa, Inc. to prove its alleged losses, without the accompanying signature of a
certified public accountant or audited by an independent auditor, are nothing but self-serving
documents which ought to be treated as a mere scrap of paper devoid of any probative value.
For sure, this is not the kind of sufficient and convincing evidence necessary to discharge the
burden of proof required of petitioners to establish the alleged losses suffered by Crispa, Inc.
in the years immediately preceding 1990 that would justify the retrenchment of respondent
employees. x x x24
While the above-cited cases involve proof necessary to establish losses in cases of business
closure or retrenchment, we see no reason why this rule should not equally apply to the
determination of the proper level of wage award in cases where the Secretary of Labor
assumes jurisdiction in a labor dispute pursuant to Article 263(g) 25 of the Labor Code.
In MERALCO v. Sec. Quisumbing,26 we had occasion to expound on the extent of our review
powers over the arbitral award of the Secretary of Labor, in general, and the factors that the
Secretary of Labor must consider in determining the proper wage award, in particular, viz:
The extent of judicial review over the Secretary of Labor's arbitral award is not limited to a
determination of grave abuse in the manner of the secretary's exercise of his statutory
powers. This Court is entitled to, and must — in the exercise of its judicial power — review
the substance of the Secretary's award when grave abuse of discretion is alleged to exist in
the award, i.e., in the appreciation of and the conclusions the Secretary drew from the
evidence presented.
xxxx
In this case we believe that the more appropriate and available standard — and one does not
require a constitutional interpretation — is simply the standard of reasonableness. In
layman's terms, reasonableness implies the absence of arbitrariness; in legal parlance, this
translates into the exercise of proper discretion and to the observance of due process. Thus,
the question we have to answer in deciding this case is whether the Secretary's actions have
been reasonable in light of the parties' positions and the evidence they presented.
xxxx
This Court has recognized the Secretary of Labor's distinct expertise in the study and
settlement of labor disputes falling under his power of compulsory arbitration. It is also well-
settled that factual findings of labor administrative officials, if supported by substantial
evidence, are entitled not only to great respect but even to finality. x x x
But at the same time, we also recognize the possibility that abuse of discretion may attend
the exercise of the Secretary's arbitral functions; his findings in an arbitration case are usually
based on position papers and their supporting documents (as they are in the present case),
and not on the thorough examination of the parties' contending claims that may be present in
a court trial and in the face-to-face adversarial process that better insures the proper
presentation and appreciation of evidence. There may also be grave abuse of discretion
where the board, tribunal or officer exercising judicial function fails to consider evidence
adduced by the parties. Given the parties' positions on the justiciability of the issues before
us, the question we have to answer is one that goes into the substance of the Secretary's
disputed orders: Did the Secretary properly consider and appreciate the evidence presented
before him?
xxxx
While We do not seek to enumerate in this decision the factors that should affect wage
determination, we must emphasize that a collective bargaining dispute such as this one
requires due consideration and proper balancing of the interests of the parties to the dispute
and of those who might be affected by the dispute. To our mind, the best way in approaching
this task holistically is to consider the available objective facts, including, where applicable,
factors such as the bargaining history of the company, the trends and amounts of arbitrated
and agreed wage awards and the company's previous CBAs, and industry trends in general.
As a rule, affordability or capacity to pay should be taken into account but cannot be the sole
yardstick in determining the wage award, especially in a public utility like
MERALCO.1âwphi1 In considering a public utility, the decision maker must always take into
account the "public interest" aspects of the case; MERALCO's income and the amount of
money available for operating expenses — including labor costs — are subject to State
regulation. We must also keep in mind that high operating costs will certainly and eventually
be passed on to the consuming public as MERALCO has bluntly warned in its pleadings.
We take note of the "middle ground" approach employed by the Secretary in this case which
we do not necessarily find to be the best method of resolving a wage dispute. Merely finding
the midway point between the demands of the company and the union, and "splitting the
difference" is a simplistic solution that fails to recognize that the parties may already be at the
limits of the wage levels they can afford. It may lead to the danger too that neither of the
parties will engage in principled bargaining; the company may keep its position artificially low
while the union presents an artificially high position, on the fear that a "Solomonic" solution
cannot be avoided. Thus, rather than encourage agreement, a "middle ground approach"
instead promotes a "play safe" attitude that leads to more deadlocks than to successfully
negotiated CBAs.27
Thus, we rule that the Secretary of Labor gravely abused her discretion when she relied on
the unaudited financial statements of petitioner corporation in determining the wage award
because such evidence is self-serving and inadmissible. Not only did this violate the
December 19, 2003 Order28 of the Secretary of Labor herself to petitioner corporation to
submit its complete audited financial statements, but this may have resulted to a wage award
that is based on an inaccurate and biased picture of petitioner corporation's capacity to pay
— one of the more significant factors in making a wage award. Petitioner corporation has
offered no reason why it failed and/or refused to submit its audited financial statements for
the past five years relevant to this case. This only further casts doubt as to the veracity and
accuracy of the unaudited financial statements it submitted to the Secretary of Labor. Verily,
we cannot countenance this procedure because this could unduly deprive labor of its right to
a just share in the fruits of production29 and provide employers with a means to understate
their profitability in order to defeat the right of labor to a just wage.
We also note with disapproval the manner by which the Secretary of Labor issued the wage
award in this case, effectively paying lip service to the guidelines we laid down in Meralco. To
elaborate, the Secretary of Labor held:
Based on such factors as BARGAINING HISTORY, TRENDS OFARBITRATED AND
AGREED AWARDS AND INDUSTRY TRENDS, in general, we hold that vis-à-vis the Union’s
demands and the Company’s offers, as follows:
 among others, the audited financial statements of petitioner corporation and state with
UNION[’S] DEMANDS COMPANY’S OFFERS
sufficient clarity the facts and law on which the wage award is based.
For the FIRST YEAR: ₱36 For the First 18 months: ₱18
The modification of the arbitral award
For the SECOND YEAR: 36 For the Second 18 months: 18 on health benefits from ₱1,300.00 to
₱1,390.00 was proper.
For the THIRD YEAR: 36
The CA held that the Secretary of Labor gravely abused her discretion when the latter
======= ======= awarded ₱1,300.00 as premium payment for each covered employee because the minutes of
TOTAL: ₱108 for ₱36 the October 17, 2003 collective bargaining negotiations between the parties showed that they
three (3) years for 36 months had previously agreed to a higher ₱1,390.00 premium payment for each covered employee.
However, petitioner corporation claims that it never agreed to this higher amount as borne out
by the same minutes. The final offer of petitioner corporation on this item was allegedly to
this Office awards the following wage increases: provide only ₱1,300.00 (not ₱1,390.00) as premium payment for each covered employee.

For the FIRST YEAR: ₱18
For the SECOND YEAR: 15
12P
For the THIRD YEAR: ===
=
45 for three (3) years30
As can be seen, the Secretary of Labor failed to indicate the actual data upon which the wage
award was based.1âwphi1 It even appears that she utilized the "middle ground" approach
which we precisely warned against in Meralco . Factors such as the actual and projected net
operating income, impact of the wage increase on net operating income, the company's
previous CBAs, and industry trends were not discussed in detail so that the precise bases of
the wage award are not discernible on the face of the Decision. The contending parties are
effectively precluded from seeking a review of the wage award, even if proper under our
ruling in Meralco , because of the general but unsubstantiated statement in the Decision that
the wage award was based on factors like the bargaining history, trends of arbitrated and
agreed awards, and industry trends. In fine, there is no way of determining if the Secretary of
Labor utilized the proper evidence, figures or data in arriving at the subject wage award as
well as the reasonableness thereof. This falls short of the requirement of administrative due
process obligating the decision-maker to adjudicate the rights of the parties in such a manner
that they can know the various issues involved and the reasons for the decision rendered. 31
Based on the foregoing, we hold that the Secretary of Labor gravely abused her discretion in
making the subject wage award. The appellate court, thus, correctly remanded this case to
the Secretary of Labor for the proper determination of the wage award which should utilize,
We have reviewed the minutes32 of the October 17, 2003 collective bargaining negotiations
adverted to by both parties. A fair reading thereof indicates that the issue of premium
payments underwent several proposals and counter-proposals from petitioner corporation
and respondent union, respectively. The last proposal of petitioner corporation relative thereto
was to allot ₱1,390.00 as premium payment per covered employee provided that it (petitioner
corporation) would not shoulder the premium payments of the employee’s dependents. For its
part, respondent union accepted the proposal provided that the premium payment would be
renegotiated on the second and third years of the CBA. Consequently, both parties agreed at
the minimum that the premium payment shall be ₱1,390.00 per covered employee and the
remaining point of contention was whether the premium payment could be renegotiated on
the second and third years of the CBA. It was, thus, grave abuse of discretion on the part of
the Secretary of Labor to reduce the award to ₱1,300.00 which is below the minimum of
₱1,390.00 previously agreed upon by the parties. We also note that in the proceedings before
the CA, respondent union only pleaded for the award of the ₱1,390.00 premium payment per
covered employee33 thereby effectively waiving its proposal on the renegotiation of the
premium payment on the second and third years of the CBA.
WHEREFORE, the Petition is DENIED. The February 17, 2006 Amended Decision of the
Court of Appeals in CA-G.R. SP Nos. 80839, 81639, and 83168 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 80587 February 8, 1989
WENPHIL CORPORATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND ROBERTO MALLARE, respondents.
GANCAYCO, J.:
Once again the dismissal of an employee without affording him due process is brought to the
attention of this Court by this petition.
Private respondent was hired by petitioner on January 18, 1984 as a crew member at its
Cubao Branch. He thereafter became the assistant head of the Backroom department of the
same branch. At about 2:30 P.M. on May 20, 1985 private respondent had an altercation with
a co-employee, Job Barrameda, as a result of which he and Barrameda were suspended on
the following morning and in the afternoon of the same day a memorandum was issued by
the Operations Manager advising private respondent of his dismissal from the service in
accordance with their Personnel Manual. The notice of dismissal was served on private
respondent on May 25, 1985.
Thus private respondent filed a complaint against petitioner for unfair labor practice, illegal
suspension and illegal dismissal. After submitting their respective position papers to the
Labor Arbiter and as the hearing could not be conducted due to repeated absence of counsel
for respondent, the case was submitted for resolution. Thereafter a decision was rendered by
the Labor Arbiter on December 3, 1986 dismissing the complaint for lack of merit.
Private respondent appealed to the National Labor Relations Commission (NLRC) wherein in
due course a decision was rendered on October 16, 1987 setting aside the appealed decision
and ordering the reinstatement of private respondent to his former position without loss of
seniority and other related benefits and one (1) year backwages without qualification and
deduction.
Hence the herein petition for certiorari with preliminary injunction and/or restraining order
wherein petitioner alleges that the public respondent NLRC committed a grave abuse of
discretion in rendering its decision contrary to the evidence on record.
On December 2, 1987, the court issued a restraining order as prayed for in the petition
enjoining the enforcement of the decision dated October 16, 1987 of public respondent NLRC
upon petitioner posting a bond of P20,000.00.
The theory of the petitioner is that on the aforesaid date, May 20, 1985, when private
respondent and Barrameda had a misunderstanding about tending the Salad Bar, private
respondent slapped Barrameda's cap, stepped on his foot and picked up the ice scooper and
brandished it against the latter. Marijo B. Kolimlim who was a management trainee tried to
pacify private respondent but he defied her so Kolimlim reported the incident to the assistant
manager, Delilah C. Hermosura, who immediately asked private respondent to see her.
Private respondent refused to see Hermosura and it took the security guard to bring him to
her. Private respondent then shouted and uttered profane words instead of making an
explanation before her. He stated the matter should be settled only by him and Barrameda.
The following day Kolimlim and Hermosura submitted a report on the incident and
recommended the imposition of the appropriate penalties on both. It was the store manager
who issued a report meting out the penalty of suspension on the two until further notice in the
following morning. Later that day the Operations Manager issued a memorandum advising
Barrameda of one (1) week suspension and the dismissal of private respondent from the
service.
The main thrust of the petition is that under the Personnel Manual of petitioner which had
been read and understood by private respondent, private respondent waived his right to the
investigation. It is provided therein that -
INVESTIGATION
If the offense is punishable with a penalty higher than suspension for fifteen
(15) days, upon the request of the erring employee, there shall be convened
an investigation board composed of the following
1. The Parlor Manager or Supervisor on duty when the incident occurred.
2. The General Manager or the Assistant Manager.
The investigation board shall discuss the merits of the case and shall issue a
ruling, which shall be final and conclusive. (p. 3, Personnel Manual:
Emphasis supplied).
From the foregoing it appears that an investigation shall only be conducted if the offense
committed by the employee is punishable with the penalty higher than suspension of fifteen
(15) days and the erring employee requests for an investigation of the incident. Petitioner
alleges that private respondent not having asked for an investigation he is thus deemed to
have waived his right to the same. Petitioner avers that immediately after the incident when
private respondent was asked to see Hermosura, he was defiant and showed that he was not
interested to avail of an investigation.
The contention of petitioner is untenable. The incident happened on May 20, 1985 and right
then and there as afore repeated on the following day private respondent was suspended in
the morning and was dismissed from the service in the afternoon. He received an official
notice of his termination four (4) days later.
The defiant attitude of private respondent immediately after the incident amounted to
insubordination. Nevertheless his refusal to explain his side under the circumstances cannot
be considered as a waiver of his right to an investigation.
Although in the Personnel Manual of the petitioner, it states that an erring employee must
request for an investigation it does not thereby mean that petitioner is thereby relieved of the
duty to conduct an investigation before dismissing private respondent. Indeed said provision
of the Personnel Manual of petitioner which may effectively deprive its employees of the right
to due process is clearly against the law and hence null and void. The security of tenure of a
laborer or employee is enshrined in the Constitution, the Labor Code and other related laws.
Under Section 1, Rule XIV of the Implementing Regulations of the Labor Code, it is provided
that "No worker shall be dismissed except for just or authorized cause provided by law and
after due process." Sections 2, 5, 6, and 7 of the same rules require that before an employer
may dismiss an employee the latter must be given a written notice stating the particular act or
omission constituting the grounds thereof; that the employee may answer the allegations
within a reasonable period; that the employer shall afford him ample opportunity to be heard
and to defend himself with the assistance of his representative, if he so desires; and that it is
only then that the employer may dismiss the employee by notifying him of the decision in
writing stating clearly the reasons therefor. Such dismissal is without prejudice to the right of
the employee to contest its validity in the Regional Branch of the NLRC.
Petitioner insists that private respondent was afforded due process but he refused to avail of
his right to the same; that when the matter was brought to the labor arbiter he was able to
submit his position papers although the hearing cannot proceed due to the non-appearance
of his counsel; and that the private respondent is guilty of serious misconduct in threatening
or coercing a co-employee which is a ground for dismissal under Article 283 of the Labor
Code.
The failure of petitioner to give private respondent the benefit of a hearing before he was
dismissed constitutes an infringement of his constitutional right to due process of law and
equal protection of the laws. 2 The standards of due process in judicial as well as
administrative proceedings have long been established. In its bare minimum due process of
law simply means giving notice and opportunity to be heard before judgment is rendered. 3
The claim of petitioner that a formal investigation was not necessary because the incident
which gave rise to the termination of private respondent was witnessed by his co- employees
and supervisors is without merit. The basic requirement of due process is that which hears
before it condemns, which proceeds upon inquiry and renders judgment only after trial. 4
However, it is a matter of fact that when the private respondent filed a complaint against
petitioner he was afforded the right to an investigation by the labor arbiter. He presented his
position paper as did the petitioner. If no hearing was had, it was the fault of private
respondent as his counsel failed to appear at the scheduled hearings. The labor arbiter
concluded that the dismissal of private respondent was for just cause. He was found guilty of
grave misconduct and insubordination. This is borne by the sworn statements of witnesses.
The Court is bound by this finding of the labor arbiter.
By the same token, the conclusion of the public respondent NLRC on appeal that private
respondent was not afforded due process before he was dismissed is binding on this Court.
Indeed, it is well taken and supported by the records. However, it can not justify a ruling that
private respondent should be reinstated with back wages as the public respondent NLRC so
decreed. Although belatedly, private respondent was afforded due process before the labor
arbiter wherein the just cause of his dismissal bad been established. With such finding, it
1 would be arbitrary and unfair to order his reinstatement with back wages.
The Court holds that the policy of ordering the reinstatement to the service of an employee
without loss of seniority and the payment of his wages during the period of his separation until
his actual reinstatement but not exceeding three (3) years without qualification or deduction,
when it appears he was not afforded due process, although his dismissal was found to be for
just and authorized cause in an appropriate proceeding in the Ministry of Labor and
Employment, should be re-examined. It will be highly prejudicial to the interests of the
employer to impose on him the services of an employee who has been shown to be guilty of
the charges that warranted his dismissal from employment. Indeed, it will demoralize the rank
and file if the undeserving, if not undesirable, remains in the service.
Thus in the present case, where the private respondent, who appears to be of violent temper,
caused trouble during office hours and even defied his superiors as they tried to pacify him,
should not be rewarded with re-employment and back wages. It may encourage him to do
even worse and will render a mockery of the rules of discipline that employees are required to
observe. Under the circumstances the dismissal of the private respondent for just cause
should be maintained. He has no right to return to his former employer.
However, the petitioner must nevertheless be held to account for failure to extend to private
respondent his right to an investigation before causing his dismissal. The rule is explicit as
above discussed. The dismissal of an employee must be for just or authorized cause and
after due process. 5 Petitioner committed an infraction of the second requirement. Thus, it
must be imposed a sanction for its failure to give a formal notice and conduct an investigation
as required by law before dismissing petitioner from employment. Considering the
circumstances of this case petitioner must indemnify the private respondent the amount of
P1,000.00. The measure of this award depends on the facts of each case and the gravity of
the omission committed by the employer.
WHEREFORE, the petition is GRANTED. The questioned decision of the public respondent
NLRC dated October 16, 1987 for the reinstatement with back wages of private respondent is
REVERSED AND SET ASIDE, and the decision of the labor arbiter dated December 3, 1986
dismissing the complaint is revived and affirmed, but with the modification that petitioner is
ordered to indemnify private respondent in the amount of P1,000.00. The restraining order
issued by this Court on December 2, 1987 is hereby made permanent and the bond posted
by petitioner is cancelled. This decision is immediately executory.
SO ORDERED.
G.R. No. 117040 January 27, 2000
RUBEN SERRANO, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and ISETANN DEPARTMENT
STORE, respondents.
MENDOZA, J.:
This is a Petition seeking review of the resolutions, dated March 30, 1994 and August 26,
1994, of the National Labor Relations Commission (NLRC) which reversed the decision of the
Labor Arbiter and dismissed petitioner Ruben Serrano's complaint for illegal dismissal and
denied his motion for reconsideration. The facts are as follows:
Petitioner was hired by private respondent Isetann Department Store as a security checker to
apprehend shoplifters and prevent pilferage of merchandise. 1 Initially hired on October 4,
1984 on contractual basis, petitioner eventually became a regular employee on April 4, 1985.
In 1988, he became head of the Security Checkers Section of private respondent. 2
Sometime in 1991, as a cost-cutting measure, private respondent decided to phase out its
entire security section and engage the services of an independent security agency. For this
reason, it wrote petitioner the following memorandum:3
October 11, 1991
MR. RUBEN SERRANO
PRESENT
Dear Mr. Seranno,
In view of the retrenchment program of the company, we hereby reiterate our verbal
notice to you of your termination as Security Section Head effective October 11,
1991.
Please secure your clearance from this office.
Very truly yours,
[Sgd.] TERESITA A. VILLANUEVA
Human Resources Division Manager
The loss of his employment prompted petitioner to file a complaint on December 3,
1991 for illegal dismissal, illegal layoff, unfair labor practice, underpayment of wages,
and nonpayment of salary and overtime pay.4
The parties were required to submit their position papers, on the basis of which the
Labor Arbiter defined the issues as follows:5
Whether or not there is a valid ground for the dismissal of the complainant.
Whether or not complainant is entitled to his monetary claims for underpayment of
wages, nonpayment of salaries, 13th month pay for 1991 and overtime pay.
Whether or not Respondent is guilty of unfair labor practice.
Thereafter, the case was heard. On April 30, 1993, the Labor Arbiter rendered a decision
finding petitioner to have been illegally dismissed. He ruled that private respondent failed to
establish that it had retrenched its security section to prevent or minimize losses to its
business; that private respondent failed to accord due process to petitioner; that private
respondent failed to use reasonable standards in selecting employees whose employment
would be terminated; that private respondent had not shown that petitioner and other
employees in the security section were so inefficient so as to justify their replacement by a
security agency, or that "cost-saving devices [such as] secret video cameras (to monitor and
prevent shoplifting) and secret code tags on the merchandise" could not have been
employed; instead, the day after petitioner's dismissal, private respondent employed a safety
and security supervisor with duties and functions similar to those of petitioner.1âwphi1.nêt
Accordingly, the Labor Arbiter ordered:6
WHEREFORE, above premises considered, judgment is hereby decreed:
(a) Finding the dismissal of the complainant to be illegal and concomitantly,
Respondent is ordered to pay complainant full backwages without qualification or
deduction in the amount of P74,740.00 from the time of his dismissal until
reinstatement. (computed till promulgation only) based on his monthly salary of
P4,040.00/month at the time of his termination but limited to (3) three years;
(b) Ordering the Respondent to immediately reinstate the complainant to his former
position as security section head or to a reasonably equivalent supervisorial position
in charges of security without loss of seniority rights, privileges and benefits. This
order is immediately executory even pending appeal;
(c) Ordering the Respondent to pay complainant unpaid wages in the amount
of P2,020.73 and proportionate 13th month pay in the amount of P3,198.30;
(d) Ordering the Respondent to pay complainant the amount of P7,995.91,
representing 10% attorney's fees based on the total judgment award of P79,959.12.
 All other claims of the complainant whether monetary or otherwise is hereby
dismissed for lack of merit.
SO ORDERED.
Private respondent appealed to the NLRC which, in its resolution of March 30, 1994; reversed
the decision of the Labor Arbiter and ordered petitioner to be given separation pay equivalent
to one month pay for every year of service, unpaid salary, and proportionate 13th month pay.
Petitioner filed a motion for reconsideration, but his motion was denied.
The NLRC held that the phase-out of private respondent's security section and the hiring of
an independent security agency constituted an exercise by private respondent of "[a]
legitimate business decision whose wisdom we do not intend to inquire into and for which we
cannot substitute our judgment"; that the distinction made by the Labor Arbiter between
"retrenchment" and the employment of cost-saving devices" under Art. 283 of the Labor Code
was insignificant because the company official who wrote the dismissal letter apparently used
the term "retrenchment" in its "plain and ordinary sense: to layoff or remove from one's job,
regardless of the reason therefor"; that the rule of "reasonable criteria" in the selection of the
employees to be retrenched did not apply because all positions in the security section had
been abolished; and that the appointment of a safety and security supervisor referred to by
petitioner to prove bad faith on private respondent's part was of no moment because the
position had long been in existence and was separate from petitioner's position as head of
the Security Checkers Section.
Hence this petition. Petitioner raises the following issue:
IS THE HIRING OF AN INDEPENDENT SECURITY AGENCY BY THE PRIVATE
RESPONDENT TO REPLACE ITS CURRENT SECURITY SECTION A VALID
GROUND FOR THE DISMISSAL OF THE EMPLOYEES CLASSED UNDER THE
LATTER?7
Petitioner contends that abolition of private respondent's Security Checkers Section and the
employment of an independent security agency do not fall under any of the authorized
causes for dismissal under Art. 283 of the Labor Code.
Petitioner Laid Off for Cause
Petitioner's contention has no merit. Art. 283 provides:
Closure of establishment and reduction of personnel. — The employer may also terminate
the employment of any employee due to the installation of labor-saving devices, redundancy,
retrenchment to prevent losses or the closing or cessation of operations of the establishment
or undertaking unless the closing is for the purpose of circumventing the provisions of this
Title, by serving a written notice on the, workers and the Department of Labor and
Employment at least one (1) month before the intended date thereof. In case of termination
due to the installation of labor-saving devices or redundancy, the worker affected thereby
shall be entitled to a separation pay equivalent to at least one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. In case of retrenchment to
prevent losses and in cases of closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, the separation pay shall
be equivalent to at least one (1) month pay or at least one-half (1/2) month pay for every year
of service, whichever is higher. A fraction of at least six (6) months shall be considered as
one (1) whole year.
In De Ocampo v. National Labor Relations Commission,8 this Court upheld the termination of
employment of three mechanics in a transportation company and their replacement by a
company rendering maintenance and repair services. It held:
In contracting the services of Gemac Machineries, as part of the company's cost-
saving program, the services rendered by the mechanics became redundant and
superfluous, and therefore properly terminable. The company merely exercised its
business judgment or management prerogative. And in the absence of any proof that
the management abused its discretion or acted in a malicious or arbitrary manner,
the court will not interfere with the exercise of such prerogative.9
In Asian Alcohol Corporation v. National Labor Relations Commission,10 the Court likewise
upheld the termination of employment of water pump tenders and their replacement by
independent contractors. It ruled that an employer's good faith in implementing a redundancy
program is not necessarily put in doubt by the availment of the services of an independent
contractor to replace the services of the terminated employees to promote economy and
efficiency.
Indeed, as we pointed out in another case, the "[management of a company] cannot be
denied the faculty of promoting efficiency and attaining economy by a study of what units are
essential for its operation. To it belongs the ultimate determination of whether services should
be performed by its personnel or contracted to outside agencies . . . [While there] should be
mutual consultation, eventually deference is to be paid to what management
decides."11 Consequently, absent proof that management acted in a malicious or arbitrary
manner, the Court will not interfere with the exercise of judgment by an employer. 12
In the case at bar, we have only the bare assertion of petitioner that, in abolishing the security
section, private respondent's real purpose was to avoid payment to the security checkers of
the wage increases provided in the collective bargaining agreement approved in 1990.13 Such
an assertion is not sufficient basis for concluding that the termination of petitioner's
employment was not a bona fide decision of management to obtain reasonable return from its
investment, which is a right guaranteed to employers under the Constitution.14 Indeed, that
the phase-out of the security section constituted a "legitimate business decision" is a factual
finding of an administrative agency which must be accorded respect and even finality by this
Court since nothing can be found in the record which fairly detracts from such finding.15
Accordingly, we hold that the termination of petitioner's services was for an authorized
cause, i.e., redundancy. Hence, pursuant to Art. 283 of the Labor Code, petitioner should be
given separation pay at the rate of one month pay for every year of service.
Sanctions for Violations of the Notice Requirement
Art. 283 also provides that to terminate the employment of an employee for any of the
authorized causes the employer must serve "a written notice on the workers and the
Department of Labor and Employment at least one (1) month before the intended date
thereof." In the case at bar, petitioner was given a notice of termination on October 11, 1991.
On the same day, his services were terminated. He was thus denied his right to be given
written notice before the termination of his employment, and the question is the appropriate
sanction for the violation of petitioner's right.
To be sure, this is not the first time this question has arisen. In Subuguero v. NLRC,16 workers
in a garment factory were temporarily laid off due to the cancellation of orders and a garment
embargo. The Labor Arbiter found that the workers had been illegally dismissed and ordered
the company to pay separation pay and backwages. The NLRC, on the other hand, found
that this was a case of retrenchment due to business losses and ordered the payment of
separation pay without backwages. This Court sustained the NLRC's finding. However, as the
company did not comply with the 30-day written notice in Art. 283 of the Labor Code, the
Court ordered the employer to pay the workers P2,000.00 each as indemnity.
The decision followed the ruling in several cases involving dismissals which, although based
on any of the just causes under Art. 282,17 were effected without notice and hearing to the
employee as required by the implementing rules.18 As this Court said: "It is now settled that
where the dismissal of one employee is in fact for a just and valid cause and is so proven to
be but he is not accorded his right to due process, i.e., he was not furnished the twin
requirements of notice and opportunity to be heard, the dismissal shall be upheld but the
employer must be sanctioned for non-compliance with the requirements of, or for failure to
observe, due process."19
The rule reversed a long standing policy theretofore followed that even though the dismissal
is based on a just cause or the termination of employment is for an authorized cause, the
dismissal or termination is illegal if effected without notice to the employee. The shift in
doctrine took place in 1989 in Wenphil Corp. v. NLRC.20 In announcing the change, this Court
said:21
The Court holds that the policy of ordering the reinstatement to the service of an
employee without loss of seniority and the payment of his wages during the period of
his separation until his actual reinstatement but not exceeding three (3) years without
qualification or deduction, when it appears he was not afforded due process,
although his dismissal was found to be for just and authorized cause in an
appropriate proceeding in the Ministry of Labor and Employment, should be re-
examined. It will be highly prejudicial to the interests of the employer to impose on
him the services of an employee who has been shown to be guilty of the charges that
warranted his dismissal from employment. Indeed, it will demoralize the rank and file
if the undeserving, if not undesirable, remains in the service.
xxx xxx xxx
However, the petitioner must nevertheless be held to account for failure to extend to
private respondent his right to an investigation before causing his dismissal. The rule
is explicit as above discussed. The dismissal of an employee must be for just or
authorized cause and after due process. Petitioner committed an infraction of the
second requirement. Thus, it must be imposed a sanction for its failure to give a
formal notice and conduct an investigation as required by law before dismissing
petitioner from employment. Considering the circumstances of this case petitioner
must indemnify the private respondent the amount of P1,000.00. The measure of this
award depends on the facts of each case and the gravity of the omission committed
by the employer.
The fines imposed for violations of the notice requirement have varied from P1,000.00 22 to
P2,000.0023 to P5,000.0024 to P10,000.00.25
Need for Reexamining the Wenphil Doctrine
Today, we once again consider the question of appropriate sanctions for violations of the
notice experience during the last decade or so with the Wenphil doctrine. The number of
cases involving dismissals without the requisite notice to the employee, although effected for
just or authorized causes, suggest that the imposition of fine for violation of the notice
requirement has not been effective in deterring violations of the notice requirement. Justice
Panganiban finds the monetary sanctions "too insignificant, too niggardly, and sometimes
even too late." On the other hand, Justice Puno says there has in effect been fostered a
policy of "dismiss now; pay later" which moneyed employers find more convenient to comply
with than the requirement to serve a 30-day written notice (in the case of termination of
employment for an authorized cause under Arts. 283-284) or to give notice and hearing (in
the case of dismissals for just causes under Art. 282).
For this reason, they regard any dismissal or layoff without the requisite notice to be null and
void even though there are just or authorized cause for such dismissal or layoff.
Consequently, in their view, the employee concerned should be reinstated and paid
backwages.
Validity of Petitioner's Layoff Not Affected by Lack of Notice
We agree with our esteemed colleagues, Justices Puno and Panganiban, that we should
rethink the sanction of fine for an employer's disregard of the notice requirement. We do not
agree, however, that disregard of this requirement by an employer renders the dismissal or
termination of employment null and void. Such a stance is actually a reversion to the
discredited pre-Wenphil rule of ordering an employee to be reinstated and paid backwages
when it is shown that he has not been given notice and hearing although his dismissal or
layoff is later found to be for a just or authorized cause. Such rule was abandoned in Wenphil
because it is really unjust to require an employer to keep in his service one who is guilty, for
example, of an attempt on the life of the employer or the latter's family, or when the employer
is precisely retrenching in order to prevent losses.
The need is for a rule which, while recognizing the employee's right to notice before he is
dismissed or laid off, at the same time acknowledges the right of the employer to dismiss for
any of the just causes enumerated in Art. 282 or to terminate employment for any of the
authorized causes mentioned in Arts. 283-284. If the Wenphil rule imposing a fine on an
employer who is found to have dismissed an employee for cause without prior notice is
deemed ineffective in deterring employer violations of the notice requirement, the remedy is
not to declare the dismissal void if there are just or valid grounds for such dismissal or if the
termination is for an authorized cause. That would be to uphold the right of the employee but
deny the right of the employer to dismiss for cause. Rather, the remedy is to order the
payment to the employee of full backwages from the time of his dismissal until the court finds
that the dismissal was for a just cause. But, otherwise, his dismissal must be upheld and he
should not be reinstated. This is because his dismissal is ineffectual.
For the same reason, if an employee is laid off for any of the causes in Arts. 283-284, i.e.,
installation of a labor-saving device, but the employer did not give him and the DOLE a 30-
day written notice of termination in advance, then the termination of his employment should
be considered ineffectual and he should be paid backwages. However, the termination of his
employment should not be considered void but he should simply be paid separation pay as
provided in Art. 283 in addition to backwages.
Justice Puno argues that an employer's failure to comply with the notice requirement
constitutes a denial of the employee's right to due process. Prescinding from this premise, he
quotes the statement of Chief Justice Concepcion Vda. de Cuaycong v. Vda. de
Sengbengco26 that "acts of Congress, as well as of the Executive, can deny due process only
under the pain of nullity, and judicial proceedings suffering from the same flaw are subject to
the same sanction, any statutory provision to the contrary notwithstanding." Justice Puno
concludes that the dismissal of an employee without notice and hearing, even if for a just
cause, as provided in Art. 282, or for an authorized cause, as provided in Arts. 283-284, is a
nullity. Hence, even if just or authorized cause exist, the employee should be reinstated with
full back pay. On the other hand, Justice Panganiban quotes from the statement in People v.
Bocar27 that "[w]here the denial of the fundamental right of due process is apparent, a
decision rendered in disregard of that right is void for lack of jurisdiction."
Violation of Notice Requirement Not a Denial of Due Process
The cases cited by both Justices Puno and Panganiban refer, however, to the denial of due
process by the State, which is not the case here. There are three reasons why, on the other
hand, violation by the employer of the notice requirement cannot be considered a denial of
due process resulting in the nullity of the employee's dismissal or layoff.
The first is that the Due Process Clause of the Constitution is a limitation on governmental
powers. It does not apply to the exercise of private power, such as the termination of
employment under the Labor Code. This is plain from the text of Art. III, §1 of the
Constitution, viz.: "No person shall be deprived of life, liberty, or property without due process
of law. . . ." The reason is simple: Only the State has authority to take the life, liberty, or
property of the individual. The purpose of the Due Process Clause is to ensure that the
exercise of this power is consistent with what are considered civilized methods.
The second reason is that notice and hearing are required under the Due Process Clause
before the power of organized society are brought to bear upon the individual. This is
obviously not the case of termination of employment under Art. 283. Here the employee is not
faced with an aspect of the adversary system. The purpose for requiring a 30-day written
notice before an employee is laid off is not to afford him an opportunity to be heard on any
charge against him, for there is none. The purpose rather is to give him time to prepare for
the eventual loss of his job and the DOLE an opportunity to determine whether economic
causes do exist justifying the termination of his employment.
Even in cases of dismissal under Art. 282, the purpose for the requirement of notice and
hearing is not to comply with Due Process Clause of the Constitution. The time for notice and
hearing is at the trial stage. Then that is the time we speak of notice and hearing as the
essence of procedural due process. Thus, compliance by the employer with the notice
requirement before he dismisses an employee does not foreclose the right of the latter to
question the legality of his dismissal. As Art. 277(b) provides, "Any decision taken by the
employer shall be without prejudice to the right of the worker to contest the validity or legality
of his dismissal by filing a complaint with the regional branch of the National Labor Relations
Commission."
Indeed, to contend that the notice requirement in the Labor Code is an aspect of due process
is to overlook the fact that Art. 283 had its origin in Art. 302 of the Spanish Code of
Commerce of 1882 which gave either party to the employer-employee relationship the right to
terminate their relationship by giving notice to the other one month in advance. In lieu of
notice, an employee could be laid off by paying him a mesada equivalent to his salary for one
month.28 This provision was repealed by Art. 2270 of the Civil Code, which took effect on
August 30, 1950. But on June 12, 1954, R.A. No. 1052, otherwise known as the Termination
Pay Law, was enacted reviving the mesada. On June 21, 1957, the law was amended by
R.A. No. 1787 providing for the giving of advance notice or the payment of compensation at
the rate of one-half month for every year of service.29
The Termination Pay Law was held not to be a substantive law but a regulatory measure, the
purpose of which was to give the employer the opportunity to find a replacement or substitute,
and the employee the equal opportunity to look for another job or source of employment.
Where the termination of employment was for a just cause, no notice was required to be
given to the, employee.30 It was only on September 4, 1981 that notice was required to be
given even where the dismissal or termination of an employee was for cause. This was made
in the rules issued by the then Minister of Labor and Employment to implement B.P. Blg. 130
which amended the Labor Code. And it was still much later when the notice requirement was
embodied in the law with the amendment of Art. 277(b) by R.A. No. 6715 on March 2, 1989. It
cannot be that the former regime denied due process to the employee. Otherwise, there
should now likewise be a rule that, in case an employee leaves his job without cause and
without prior notice to his employer, his act should be void instead of simply making him liable
for damages.
The third reason why the notice requirement under Art. 283 can not be considered a
requirement of the Due Process Clause is that the employer cannot really be expected to be
entirely an impartial judge of his own cause. This is also the case in termination of
employment for a just cause under Art. 282 (i.e., serious misconduct or willful disobedience
by the employee of the lawful orders of the employer, gross and habitual neglect of duties,
fraud or willful breach of trust of the employer, commission of crime against the employer or
the latter's immediate family or duly authorized representatives, or other analogous cases).
Justice Puno disputes this. He says that "statistics in the DOLE will prove that many cases
have been won by employees before the grievance committees manned by impartial judges
of the company." The grievance machinery is, however, different because it is established by
agreement of the employer and the employees and composed of representatives from both
sides. That is why, in Batangas Laguna Tayabas Bus Co. ·v. Court of Appeals,31 which
Justice Puno cites, it was held that "Since the right of [an employee] to his labor is in itself a
property and that the labor agreement between him and [his employer] is the law between the
parties, his summary and arbitrary dismissal amounted to deprivation of his property without
due process of law." But here we are dealing with dismissals and layoffs by employers alone,
without the intervention of any grievance machinery. Accordingly in Montemayor v. Araneta
University Foundation,32 although a professor was dismissed without a hearing by his
university, his dismissal for having made homosexual advances on a student was sustained,
it appearing that in the NLRC, the employee was fully heard in his defense.
Lack of Notice Only Makes Termination Ineffectual
Not all notice requirements are requirements of due process. Some are simply part of a
procedure to be followed before a right granted to a party can be exercised. Others are
simply an application of the Justinian precept, embodied in the Civil Code, 33 to act with
justice, give everyone his due, and observe honesty and good faith toward one's fellowmen.
Such is the notice requirement in Arts. 282-283. The consequence of the failure either of the
employer or the employee to live up to this precept is to make him liable in damages, not to
render his act (dismissal or resignation, as the case may be) void. The measure of damages
is the amount of wages the employee should have received were it not for the termination of
his employment without prior notice. If warranted, nominal and moral damages may also be
awarded.
We hold, therefore, that, with respect to Art. 283 of the Labor Code, the employer's failure to
comply with the notice requirement does not constitute a denial of due process but a mere
failure to observe a procedure for the termination of employment which makes the termination
of employment merely ineffectual. It is similar to the failure to observe the provisions of Art.
1592, in relation to Art. 1191, of the Civil Code34 in rescinding a contract for the sale of
immovable property. Under these provisions, while the power of a party to rescind a contract
is implied in reciprocal obligations, nonetheless, in cases involving the sale of immovable
property, the vendor cannot exercise this power even though the vendee defaults in the
payment of the price, except by bringing an action in court or giving notice of rescission by
means of a notarial demand.35 Consequently, a notice of rescission given in the letter of an
attorney has no legal effect, and the vendee can make payment even after the due date since
no valid notice of rescission has been given.36
Indeed, under the Labor Code, only the absence of a just cause for the termination of
employment can make the dismissal of an employee illegal. This is clear from Art. 279 which
provides:
Security of Tenure. — In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by
this Title. An employee who is unjustly dismissedfrom work shall be entitled to
reinstatement without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the
time of his actual reinstatement.37
Thus, only if the termination of employment is not for any of the causes provided by law is it
illegal and, therefore, the employee should be reinstated and paid backwages. To contend,
as Justices Puno and Panganiban do, that even if the termination is for a just or authorized
cause the employee concerned should be reinstated and paid backwages would be to amend
Art. 279 by adding another ground for considering a dismissal illegal. What is more, it would
ignore the fact that under Art. 285, if it is the employee who fails to give a written notice to the
employer that he is leaving the service of the latter, at least one month in advance, his failure
to comply with the legal requirement does not result in making his resignation void but only in
making him liable for damages.38 This disparity in legal treatment, which would result from the
adoption of the theory of the minority cannot simply be explained by invoking resident Ramon
Magsaysay's motto that "he who has less in life should have more in law." That would be a
misapplication of this noble phrase originally from Professor Thomas Reed Powell of the
Harvard Law School.
Justice Panganiban cites Pepsi-Cola Bottling Co. v. NLRC,39 in support of his view that an
illegal dismissal results not only from want of legal cause but also from the failure to observe
"due process." The Pepsi-Cola case actually involved a dismissal for an alleged loss of trust
and confidence which, as found by the Court, was not proven. The dismissal was, therefore,
illegal, not because there was a denial of due process, but because the dismissal was without
cause. The statement that the failure of management to comply with the notice requirement
"taints the dismissal with illegality" was merely a dictum thrown in as additional grounds for
holding the dismissal to be illegal.
Given the nature of the violation, therefore, the appropriate sanction for the failure to give
notice is the payment of backwages for the period when the employee is considered not to
have been effectively dismissed or his employment terminated. The sanction is not the
payment alone of nominal damages as Justice Vitug contends.
Unjust Results of Considering Dismissals/Layoffs Without Prior Notice As Illegal
The refusal to look beyond the validity of the initial action taken by the employer to terminate
employment either for an authorized or just cause can result in an injustice to the employer.
For not giving notice and hearing before dismissing an employee, who is otherwise guilty of,
say, theft, or even of an attempt against the life of the employer, an employer will be forced to
keep in his employ such guilty employee. This is unjust.
It is true the Constitution regards labor as "a primary social economic force."40 But so does it
declare that it "recognizes the indispensable role of the private sector, encourages private
enterprise, and provides incentives to needed investment."41 The Constitution bids the State
to "afford full protection to labor."42 But it is equally true that "the law, in protecting the right's
of the laborer, authorizes neither oppression nor self-destruction of the employer."43 And it is
oppression to compel the employer to continue in employment one who is guilty or to force
the employer to remain in operation when it is not economically in his interest to do so.
In sum, we hold that if in proceedings for reinstatement under Art. 283, it is shown that the
termination of employment was due to an authorized cause, then the employee concerned
should not be ordered reinstated even though there is failure to comply with the 30-day notice
requirement. Instead, he must be granted separation pay in accordance with Art. 283, to wit:
In case of termination due to the installation of labor-saving devices or redundancy,
the worker affected thereby shall be entitled to a separation pay equivalent to at least
his one (1) month pay or to at least one month for every year of service, whichever is
higher. In case of retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one (1) month
pay or at least one-half (1/2) month pay for every year of service, whichever is higher.
A fraction of at least six months shall be considered one (1) whole year.
If the employee's separation is without cause, instead of being given separation pay, he
should be reinstated. In either case, whether he is reinstated or only granted separation pay,
he should be paid full backwages if he has been laid off without written notice at least 30 days
in advance.
On the other hand, with respect to dismissals for cause under Art. 282, if it is shown that the
employee was dismissed for any of the just causes mentioned in said Art. 282, then, in
accordance with that article, he should not be reinstated. However, he must be paid
backwages from the time his employment was terminated until it is determined that the
termination of employment is for a just cause because the failure to hear him before he is
dismissed renders the termination of his employment without legal effect.
WHEREFORE, the petition is GRANTED and the resolution of the National Labor Relations
Commission is MODIFIED by ordering private respondent Isetann Department Store, Inc. to
pay petitioner separation pay equivalent to one (1) month pay for every year of service, his
unpaid salary, and his proportionate 13th month pay and, in addition, full backwages from the
time his employment was terminated on October 11, 1991 up to the time the decision herein
becomes final. For this purpose, this case is REMANDED to the Labor Arbiter for
computation of the separation pay, backwages, and other monetary awards to petitioner.
SO ORDERED.
G.R. No. 192571 July 23, 2013
ABBOTT LABORATORIES, PHILIPPINES, CECILLE A. TERRIBLE, EDWIN D. FEIST,
MARIA OLIVIA T. YABUTMISA, TERESITA C. BERNARDO, AND ALLAN G.
ALMAZAR, Petitioners,
vs.
PEARLIE ANN F. ALCARAZ, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated December 10,2009
and Resolution3 dated June 9, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 101045
which pronounced that the National Labor Relations Commission (NLRC) did not gravely
abuse its discretion when it ruled that respondent Pearlie Ann F. Alcaraz (Alcaraz) was
illegally dismissed from her employment.
The Facts
On June 27, 2004, petitioner Abbott Laboratories, Philippines (Abbott) caused the publication
in a major broadsheet newspaper of its need for a Medical and Regulatory Affairs Manager
(Regulatory Affairs Manager) who would: (a) be responsible for drug safety surveillance
operations, staffing, and budget; (b) lead the development and implementation of standard
operating procedures/policies for drug safety surveillance and vigilance; and (c) act as the
primary interface with internal and external customers regarding safety operations and
queries.4 Alcaraz - who was then a Regulatory Affairs and Information Manager at Aventis
Pasteur Philippines, Incorporated (another pharmaceutical company like Abbott) – showed
interest and submitted her application on October 4, 2004.5
On December 7, 2004, Abbott formally offered Alcaraz the abovementioned position which
was an item under the company’s Hospira Affiliate Local Surveillance Unit (ALSU)
department.6 In Abbott’s offer sheet.7 it was stated that Alcaraz was to be employed on a
probationary basis.8 Later that day, she accepted the said offer and received an electronic
mail (e-mail) from Abbott’s Recruitment Officer, petitioner Teresita C. Bernardo (Bernardo),
confirming the same. Attached to Bernardo’s e-mail were Abbott’s organizational chart and a
job description of Alcaraz’s work.9
On February 12, 2005, Alcaraz signed an employment contract which stated, inter alia, that
she was to be placed on probation for a period of six (6) months beginning February 15, 2005
to August 14, 2005. The said contract was also signed by Abbott’s General Manager,
petitioner Edwin Feist (Feist):10
PROBATIONARY EMPLOYMENT
Dear Pearl,
After having successfully passed the pre-employment requirements, you are hereby
appointed as follows:
Position Title : Regulatory Affairs Manager
Department : Hospira
The terms of your employment are:
Nature of Employment : Probationary
Effectivity : February 15, 2005 to August 14, 2005
Basic Salary : ₱110,000.00/ month
It is understood that you agree to abide by all existing policies, rules and regulations of the
company, as well as those, which may be hereinafter promulgated.
Unless renewed, probationary appointment expires on the date indicated subject to earlier
termination by the Company for any justifiable reason.
If you agree to the terms and conditions of your employment, please signify your conformity
below and return a copy to HRD.
Welcome to Abbott!
Very truly yours,
Sgd.
EDWIN D. FEIST
General Manager
CONFORME:
Sgd.
PEARLIE ANN FERRER-ALCARAZ
During Alcaraz’s pre-employment orientation, petitioner Allan G. Almazar (Almazar),
Hospira’s Country Transition Manager, briefed her on her duties and responsibilities as
Regulatory Affairs Manager, stating that: (a) she will handle the staff of Hospira ALSU and will
directly report to Almazar on matters regarding Hopira’s local operations, operational budget,
and performance evaluation of the Hospira ALSU Staff who are on probationary status; (b)
she must implement Abbott’s Code of Good Corporate Conduct (Code of Conduct), office
policies on human resources and finance, and ensure that Abbott will hire people who are fit
in the organizational discipline; (c) petitioner Kelly Walsh (Walsh), Manager of the Literature
Drug Surveillance Drug Safety of Hospira, will be her immediate supervisor; (d) she should
always coordinate with Abbott’s human resource officers in the management and discipline of
the staff; (e) Hospira ALSU will spin off from Abbott in early 2006 and will be officially
incorporated and known as Hospira, Philippines. In the interim, Hospira ALSU operations will
still be under Abbott’s management, excluding the technical aspects of the operations which
is under the control and supervision of Walsh; and (f) the processing of information and/or
raw material data subject of Hospira ALSU operations will be strictly confined and controlled
under the computer system and network being maintained and operated from the United
States. For this purpose, all those involved in Hospira ALSU are required to use two
identification cards: one, to identify them as Abbott’s employees and another, to identify them
as Hospira employees.11
On March 3, 2005, petitioner Maria Olivia T. Yabut-Misa (Misa), Abbott’s Human Resources
(HR) Director, sent Alcaraz an e-mail which contained an explanation of the procedure for
evaluating the performance of probationary employees and further indicated that Abbott had
only one evaluation system for all of its employees. Alcaraz was also given copies of Abbott’s
Code of Conduct and Probationary Performance Standards and Evaluation (PPSE) and
Performance Excellence Orientation Modules (Performance Modules) which she had to apply
in line with her task of evaluating the Hospira ALSU staff.12
Abbott’s PPSE procedure mandates that the job performance of a probationary employee
should be formally reviewed and discussed with the employee at least twice: first on the third
month and second on the fifth month from the date of employment. The necessary
Performance Improvement Plan should also be made during the third-month review in case of
a gap between the employee’s performance and the standards set. These performance
standards should be discussed in detail with the employee within the first two (2) weeks on
the job. It was equally required that a signed copy of the PPSE form must be submitted to
Abbott’s Human Resources Department (HRD) and shall serve as documentation of the
employee’s performance during his/her probationary period. This shall form the basis for
recommending the confirmation or termination of the probationary employment.13
During the course of her employment, Alcaraz noticed that some of the staff had disciplinary
problems. Thus, she would reprimand them for their unprofessional behavior such as non-
observance of the dress code, moonlighting, and disrespect of Abbott officers. However,
Alcaraz’s method of management was considered by Walsh to be "too strict." 14 Alcaraz
approached Misa to discuss these concerns and was told to "lie low" and let Walsh handle
the matter. Misa even assured her that Abbott’s HRD would support her in all her
management decisions.15
On April 12, 2005, Alcaraz received an e-mail from Misa requesting immediate action on the
staff’s performance evaluation as their probationary periods were about to end. This Alcaraz
eventually submitted.16
On April 20, 2005, Alcaraz had a meeting with petitioner Cecille Terrible (Terrible), Abbott’s
former HR Director, to discuss certain issues regarding staff performance standards. In the
course thereof, Alcaraz accidentally saw a printed copy of an e-mail sent by Walsh to some
staff members which essentially contained queries regarding the former’s job performance.
Alcaraz asked if Walsh’s action was the normal process of evaluation. Terrible said that it was
not.17
On May 16, 2005, Alcaraz was called to a meeting with Walsh and Terrible where she was
informed that she failed to meet the regularization standards for the position of Regulatory
Affairs Manager.18 Thereafter, Walsh and Terrible requested Alcaraz to tender her
resignation, else they be forced to terminate her services. She was also told that, regardless
of her choice, she should no longer report for work and was asked to surrender her office
identification cards. She requested to be given one week to decide on the same, but to no
avail.19
On May 17, 2005, Alcaraz told her administrative assistant, Claude Gonzales (Gonzales),
that she would be on leave for that day. However, Gonzales told her that Walsh and Terrible
already announced to the whole Hospira ALSU staff that Alcaraz already resigned due to
health reasons.20
On May 23, 2005, Walsh, Almazar, and Bernardo personally handed to Alcaraz a letter
stating that her services had been terminated effective May 19, 2005.21 The letter detailed the
reasons for Alcaraz’s termination – particularly, that Alcaraz: (a) did not manage her time
effectively; (b) failed to gain the trust of her staff and to build an effective rapport with them;
(c) failed to train her staff effectively; and (d) was not able to obtain the knowledge and ability
to make sound judgments on case processing and article review which were necessary for
the proper performance of her duties.22 On May 27, 2005, Alcaraz received another copy of
the said termination letter via registered mail.23
Alcaraz felt that she was unjustly terminated from her employment and thus, filed a complaint
for illegal dismissal and damages against Abbott and its officers, namely, Misa, Bernardo,
Almazar, Walsh, Terrible, and Feist.24 She claimed that she should have already been
considered as a regular and not a probationary employee given Abbott’s failure to inform her
of the reasonable standards for her regularization upon her engagement as required under
Article 29525 of the Labor Code. In this relation, she contended that while her employment
contract stated that she was to be engaged on a probationary status, the same did not
indicate the standards on which her regularization would be based.26 She further averred that
the individual petitioners maliciously connived to illegally dismiss her when: (a) they
threatened her with termination; (b) she was ordered not to enter company premises even if
she was still an employee thereof; and (c) they publicly announced that she already resigned
in order to humiliate her.27
On the contrary, petitioners maintained that Alcaraz was validly terminated from her
probationary employment given her failure to satisfy the prescribed standards for her
regularization which were made known to her at the time of her engagement.28
The LA Ruling
In a Decision dated March 30, 2006,29 the LA dismissed Alcaraz’s complaint for lack of merit.
The LA rejected Alcaraz’s argument that she was not informed of the reasonable standards to
qualify as a regular employee considering her admissions that she was briefed by Almazar on
her work during her pre-employment orientation meeting30 and that she received copies of
Abbott’s Code of Conduct and Performance Modules which were used for evaluating all types
of Abbott employees.31 As Alcaraz was unable to meet the standards set by Abbott as per her
performance evaluation, the LA ruled that the termination of her probationary employment
was justified.32 Lastly, the LA found that there was no evidence to conclude that Abbott’s
officers and employees acted in bad faith in terminating Alcaraz’s employment.33
Displeased with the LA’s ruling, Alcaraz filed an appeal with the National Labor Relations
Commission (NLRC).
The NLRC Ruling
On September 15, 2006, the NLRC rendered a Decision,34 annulling and setting aside the
LA’s ruling, the dispositive portion of which reads:
WHEREFORE, the Decision of the Labor Arbiter dated 31 March 2006 [sic] is hereby
reversed, annulled and set aside and judgment is hereby rendered:
1. Finding respondents Abbot [sic] and individual respondents to have committed
illegal dismissal;
 2. Respondents are ordered to immediately reinstate complainant to her former
position without loss of seniority rights immediately upon receipt hereof;
3. To jointly and severally pay complainant backwages computed from 16 May 2005
until finality of this decision. As of the date hereof the backwages is computed at
a. Backwages for 15 months - PhP 1,650,000.00
b. 13th month pay - 110,000.00
TOTAL PhP 1,760,000.00
4. Respondents are ordered to pay complainant moral damages of ₱50,000.00 and
exemplary damages of ₱50,000.00.
5. Respondents are also ordered to pay attorney’s fees of 10% of the total award.
6. All other claims are dismissed for lack of merit.
SO ORDERED.35
The NLRC reversed the findings of the LA and ruled that there was no evidence showing that
Alcaraz had been apprised of her probationary status and the requirements which she should
have complied with in order to be a regular employee.36 It held that Alcaraz’s receipt of her
job description and Abbott’s Code of Conduct and Performance Modules was not equivalent
to her being actually informed of the performance standards upon which she should have
been evaluated on.37 It further observed that Abbott did not comply with its own standard
operating procedure in evaluating probationary employees.38 The NLRC was also not
convinced that Alcaraz was terminated for a valid cause given that petitioners’ allegation of
Alcaraz’s "poor performance" remained unsubstantiated.39
Petitioners filed a motion for reconsideration which was denied by the NLRC in a Resolution
dated July 31, 2007.40
Aggrieved, petitioners filed with the CA a Petition for Certiorari with Prayer for Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction, docketed as CA G.R. SP
No. 101045 (First CA Petition), alleging grave abuse of discretion on the part of NLRC when it
ruled that Alcaraz was illegally dismissed.41
Pending resolution of the First CA Petition, Alcaraz moved for the execution of the NLRC’s
Decision before the LA, which petitioners strongly opposed. The LA denied the said motion in
an Order dated July 8, 2008 which was, however, eventually reversed on appeal by the
NLRC.42 Due to the foregoing, petitioners filed another Petition for Certiorari with the CA,
docketed as CA G.R. SP No. 111318 (Second CA Petition), assailing the propriety of the
execution of the NLRC decision.43
The CA Ruling
With regard to the First CA Petition, the CA, in a Decision44 dated December 10, 2009,
affirmed the ruling of the NLRC and held that the latter did not commit any grave abuse of
discretion in finding that Alcaraz was illegally dismissed.
It observed that Alcaraz was not apprised at the start of her employment of the reasonable
standards under which she could qualify as a regular employee. 45 This was based on its
examination of the employment contract which showed that the same did not contain any
standard of performance or any stipulation that Alcaraz shall undergo a performance
evaluation before she could qualify as a regular employee.46 It also found that Abbott was
unable to prove that there was any reasonable ground to terminate Alcaraz’s
employment.47 Abbott moved for the reconsideration of the aforementioned ruling which was,
however, denied by the CA in a Resolution48 dated June 9, 2010.
The CA likewise denied the Second CA Petition in a Resolution dated May 18, 2010 (May 18,
2010 Resolution) and ruled that the NLRC was correct in upholding the execution of the
NLRC Decision.49 Thus, petitioners filed a motion for reconsideration.
While the petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution was
pending, Alcaraz again moved for the issuance of a writ of execution before the LA. On June
7, 2010, petitioners received the LA’s order granting Alcaraz’s motion for execution which
they in turn appealed to the NLRC – through a Memorandum of Appeal dated June 16, 2010
(June 16, 2010 Memorandum of Appeal ) – on the ground that the implementation of the LA’s
order would render its motion for reconsideration moot and academic.50
Meanwhile, petitioners’ motion for reconsideration of the CA’s May 18, 2010 Resolution in the
Second CA Petition was denied via a Resolution dated October 4, 2010.51 This attained
finality on January 10, 2011 for petitioners’ failure to timely appeal the same.52 Hence, as it
stands, only the issues in the First CA petition are left to be resolved.
Incidentally, in her Comment dated November 15, 2010, Alcaraz also alleges that petitioners
were guilty of forum shopping when they filed the Second CA Petition pending the resolution
of their motion for reconsideration of the CA’s December 10, 2009 Decision i.e., the decision
in the First CA Petition.53 She also contends that petitioners have not complied with the
certification requirement under Section 5, Rule 7 of the Rules of Court when they failed to
disclose in the instant petition the filing of the June 16, 2010 Memorandum of Appeal filed
before the NLRC.54
The Issues Before the Court
The following issues have been raised for the Court’s resolution: (a) whether or not
petitioners are guilty of forum shopping and have violated the certification requirement under
Section 5, Rule 7 of the Rules of Court; (b) whether or not Alcaraz was sufficiently informed of
the reasonable standards to qualify her as a regular employee; (c) whether or not Alcaraz
was validly terminated from her employment; and (d) whether or not the individual petitioners
herein are liable.
The Court’s Ruling
A. Forum Shopping and
Violation of Section 5, Rule 7
of the Rules of Court.
At the outset, it is noteworthy to mention that the prohibition against forum shopping is
different from a violation of the certification requirement under Section 5, Rule 7 of the Rules
of Court. In Sps. Ong v. CA,55 the Court explained that:
x x x The distinction between the prohibition against forum shopping and the certification
requirement should by now be too elementary to be misunderstood. To reiterate, compliance
with the certification against forum shopping is separate from and independent of the
avoidance of the act of forum shopping itself. There is a difference in the treatment between
failure to comply with the certification requirement and violation of the prohibition against
forum shopping not only in terms of imposable sanctions but also in the manner of enforcing
them. The former constitutes sufficient cause for the dismissal without prejudice to the filing of
the complaint or initiatory pleading upon motion and after hearing, while the latter is a ground
for summary dismissal thereof and for direct contempt. x x x. 56
As to the first, forum shopping takes place when a litigant files multiple suits involving the
same parties, either simultaneously or successively, to secure a favorable judgment. It exists
where the elements of litis pendentia are present, namely: (a) identity of parties, or at least
such parties who represent the same interests in both actions; (b) identity of rights asserted
and relief prayed for, the relief being founded on the same facts; and (c) the identity with
respect to the two preceding particulars in the two (2) cases is such that any judgment that
may be rendered in the pending case, regardless of which party is successful, would amount
to res judicata in the other case.57
In this case, records show that, except for the element of identity of parties, the elements of
forum shopping do not exist. Evidently, the First CA Petition was instituted to question the
ruling of the NLRC that Alcaraz was illegally dismissed. On the other hand, the Second CA
Petition pertains to the propriety of the enforcement of the judgment award pending the
resolution of the First CA Petition and the finality of the decision in the labor dispute between
Alcaraz and the petitioners. Based on the foregoing, a judgment in the Second CA Petition
will not constitute res judicata insofar as the First CA Petition is concerned. Thus, considering
that the two petitions clearly cover different subject matters and causes of action, there exists
no forum shopping.
As to the second, Alcaraz further imputes that the petitioners violated the certification
requirement under Section 5, Rule 7 of the Rules of Court58 by not disclosing the fact that it
filed the June 16, 2010 Memorandum of Appeal before the NLRC in the instant petition.
In this regard, Section 5(b), Rule 7 of the Rules of Court requires that a plaintiff who files a
case should provide a complete statement of the present status of any pending case if the
latter involves the same issues as the one that was filed. If there is no such similar pending
case, Section 5(a) of the same rule provides that the plaintiff is obliged to declare under oath
that to the best of his knowledge, no such other action or claim is pending.
Records show that the issues raised in the instant petition and those in the June 16, 2010
Memorandum of Appeal filed with the NLRC likewise cover different subject matters and
causes of action. In this case, the validity of Alcaraz’s dismissal is at issue whereas in the
said Memorandum of Appeal, the propriety of the issuance of a writ of execution was in
question.
Thus, given the dissimilar issues, petitioners did not have to disclose in the present petition
the filing of their June 16, 2010 Memorandum of Appeal with the NLRC. In any event,
considering that the issue on the propriety of the issuance of a writ of execution had been
resolved in the Second CA Petition – which in fact had already attained finality – the matter of
disclosing the June 16, 2010 Memorandum of Appeal is now moot and academic.
Having settled the foregoing procedural matter, the Court now proceeds to resolve the
substantive issues.
B. Probationary employment;
grounds for termination.
A probationary employee, like a regular employee, enjoys security of tenure. However, in
cases of probationary employment, aside from just or authorized causes of termination, an
additional ground is provided under Article 295 of the Labor Code, i.e., the probationary
employee may also be terminated for failure to qualify as a regular employee in accordance
with the reasonable standards made known by the employer to the employee at the time of
the engagement.59 Thus, the services of an employee who has been engaged on
probationary basis may be terminated for any of the following: (a) a just or (b) an authorized
cause; and (c) when he fails to qualify as a regular employee in accordance with reasonable
standards prescribed by the employer.60
Corollary thereto, Section 6(d), Rule I, Book VI of the Implementing Rules of the Labor Code
provides that if the employer fails to inform the probationary employee of the reasonable
standards upon which the regularization would be based on at the time of the engagement,
then the said employee shall be deemed a regular employee, viz.:
(d) In all cases of probationary employment, the employer shall make known to the employee
the standards under which he will qualify as a regular employee at the time of his
engagement. Where no standards are made known to the employee at that time, he shall be
deemed a regular employee.
In other words, the employer is made to comply with two (2) requirements when dealing with
a probationary employee: first, the employer must communicate the regularization standards
to the probationary employee; and second, the employer must make such communication at
the time of the probationary employee’s engagement. If the employer fails to comply with
either, the employee is deemed as a regular and not a probationary employee.
Keeping with these rules, an employer is deemed to have made known the standards that
would qualify a probationary employee to be a regular employee when it has exerted
reasonable efforts to apprise the employee of what he is expected to do or accomplish during
the trial period of probation. This goes without saying that the employee is sufficiently made
aware of his probationary status as well as the length of time of the probation.
The exception to the foregoing is when the job is self-descriptive in nature, for instance, in the
case of maids, cooks, drivers, or messengers.61 Also, in Aberdeen Court, Inc. v. Agustin,62 it
has been held that the rule on notifying a probationary employee of the standards of
regularization should not be used to exculpate an employee who acts in a manner contrary to
basic knowledge and common sense in regard to which there is no need to spell out a policy
or standard to be met. In the same light, an employee’s failure to perform the duties and
responsibilities which have been clearly made known to him constitutes a justifiable basis for
a probationary employee’s non-regularization.
In this case, petitioners contend that Alcaraz was terminated because she failed to qualify as
a regular employee according to Abbott’s standards which were made known to her at the
time of her engagement. Contrarily, Alcaraz claims that Abbott never apprised her of these
standards and thus, maintains that she is a regular and not a mere probationary employee.
The Court finds petitioners’ assertions to be well-taken.
A punctilious examination of the records reveals that Abbott had indeed complied with the
above-stated requirements. This conclusion is largely impelled by the fact that Abbott clearly
conveyed to Alcaraz her duties and responsibilities as Regulatory Affairs Manager prior to,
during the time of her engagement, and the incipient stages of her employment. On this
score, the Court finds it apt to detail not only the incidents which point out to the efforts made
by Abbott but also those circumstances which would show that Alcaraz was well-apprised of
her employer’s expectations that would, in turn, determine her regularization:
(a) On June 27, 2004, Abbott caused the publication in a major broadsheet
newspaper of its need for a Regulatory Affairs Manager, indicating therein the job
description for as well as the duties and responsibilities attendant to the aforesaid
position; this prompted Alcaraz to submit her application to Abbott on October 4,
2004;
(b) In Abbott’s December 7, 2004 offer sheet, it was stated that Alcaraz was to be
employed on a probationary status;
(c) On February 12, 2005, Alcaraz signed an employment contract which specifically
stated, inter alia, that she was to be placed on probation for a period of six (6) months
beginning February 15, 2005 to August 14, 2005;
(d) On the day Alcaraz accepted Abbott’s employment offer, Bernardo sent her
copies of Abbott’s organizational structure and her job description through e-mail;
(e) Alcaraz was made to undergo a pre-employment orientation where Almazar
informed her that she had to implement Abbott’s Code of Conduct and office policies
on human resources and finance and that she would be reporting directly to Walsh;
(f) Alcaraz was also required to undergo a training program as part of her orientation;
(g) Alcaraz received copies of Abbott’s Code of Conduct and Performance Modules
from Misa who explained to her the procedure for evaluating the performance of
probationary employees; she was further notified that Abbott had only one evaluation
system for all of its employees; and
(h) Moreover, Alcaraz had previously worked for another pharmaceutical company
and had admitted to have an "extensive training and background" to acquire the
necessary skills for her job.63
Considering the totality of the above-stated circumstances, it cannot, therefore, be doubted
that Alcaraz was well-aware that her regularization would depend on her ability and capacity
to fulfill the requirements of her position as Regulatory Affairs Manager and that her failure to
perform such would give Abbott a valid cause to terminate her probationary employment.
Verily, basic knowledge and common sense dictate that the adequate performance of one’s
duties is, by and of itself, an inherent and implied standard for a probationary employee to be
regularized; such is a regularization standard which need not be literally spelled out or
mapped into technical indicators in every case. In this regard, it must be observed that the
assessment of adequate duty performance is in the nature of a management prerogative
which when reasonably exercised – as Abbott did in this case – should be respected. This is
especially true of a managerial employee like Alcaraz who was tasked with the vital
responsibility of handling the personnel and important matters of her department.
In fine, the Court rules that Alcaraz’s status as a probationary employee and her consequent
dismissal must stand. Consequently, in holding that Alcaraz was illegally dismissed due to
her status as a regular and not a probationary employee, the Court finds that the NLRC
committed a grave abuse of discretion.
To elucidate, records show that the NLRC based its decision on the premise that Alcaraz’s
receipt of her job description and Abbott’s Code of Conduct and Performance Modules was
not equivalent to being actually informed of the performance standards upon which she
should have been evaluated on.64 It, however, overlooked the legal implication of the other
attendant circumstances as detailed herein which should have warranted a contrary finding
that Alcaraz was indeed a probationary and not a regular employee – more particularly the
fact that she was well-aware of her duties and responsibilities and that her failure to
adequately perform the same would lead to her non-regularization and eventually, her
termination.
Accordingly, by affirming the NLRC’s pronouncement which is tainted with grave abuse of
discretion, the CA committed a reversible error which, perforce, necessitates the reversal of
its decision.
C. Probationary employment;
termination procedure.
A different procedure is applied when terminating a probationary employee; the usual two-
notice rule does not govern.65 Section 2, Rule I, Book VI of the Implementing Rules of the
Labor Code states that "if the termination is brought about by the x x x failure of an employee
to meet the standards of the employer in case of probationary employment, it shall be
sufficient that a written notice is served the employee, within a reasonable time from the
effective date of termination."
As the records show, Alcaraz's dismissal was effected through a letter dated May 19, 2005
which she received on May 23, 2005 and again on May 27, 2005. Stated therein were the
reasons for her termination, i.e., that after proper evaluation, Abbott determined that she
failed to meet the reasonable standards for her regularization considering her lack of time and
people management and decision-making skills, which are necessary in the performance of
her functions as Regulatory Affairs Manager.66 Undeniably, this written notice sufficiently
meets the criteria set forth above, thereby legitimizing the cause and manner of Alcaraz’s
dismissal as a probationary employee under the parameters set by the Labor Code.67
D. Employer’s violation of
company policy and
procedure.
Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz’s employment
and Abbott’s compliance with the Labor Code termination procedure, it is readily apparent
that Abbott breached its contractual obligation to Alcaraz when it failed to abide by its own
procedure in evaluating the performance of a probationary employee.
Veritably, a company policy partakes of the nature of an implied contract between the
employer and employee. In Parts Depot, Inc. v. Beiswenger,68 it has been held that:
Employer statements of policy . . . can give rise to contractual rights in employees without
evidence that the parties mutually agreed that the policy statements would create contractual
rights in the employee, and, hence, although the statement of policy is signed by neither
party, can be unilaterally amended by the employer without notice to the employee, and
contains no reference to a specific employee, his job description or compensation, and
although no reference was made to the policy statement in pre-employment interviews and
the employee does not learn of its existence until after his hiring. Toussaint, 292 N.W .2d at
892. The principle is akin to estoppel. Once an employer establishes an express personnel
policy and the employee continues to work while the policy remains in effect, the policy is
deemed an implied contract for so long as it remains in effect. If the employer unilaterally
changes the policy, the terms of the implied contract are also thereby
changed.1âwphi1 (Emphasis and underscoring supplied.)
Hence, given such nature, company personnel policies create an obligation on the part of
both the employee and the employer to abide by the same.
Records show that Abbott’s PPSE procedure mandates, inter alia, that the job performance of
a probationary employee should be formally reviewed and discussed with the employee at
least twice: first on the third month and second on the fifth month from the date of
employment. Abbott is also required to come up with a Performance Improvement Plan
during the third month review to bridge the gap between the employee’s performance and the
standards set, if any.69 In addition, a signed copy of the PPSE form should be submitted to
Abbott’s HRD as the same would serve as basis for recommending the confirmation or
termination of the probationary employment.70
In this case, it is apparent that Abbott failed to follow the above-stated procedure in
evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy of Alcaraz’s
PPSE form was submitted to the HRD. It was not even shown that a PPSE form was
completed to formally assess her performance. Neither was the performance evaluation
discussed with her during the third and fifth months of her employment. Nor did Abbott come
up with the necessary Performance Improvement Plan to properly gauge Alcaraz’s
performance with the set company standards.
While it is Abbott’s management prerogative to promulgate its own company rules and even
subsequently amend them, this right equally demands that when it does create its own
policies and thereafter notify its employee of the same, it accords upon itself the obligation to
faithfully implement them. Indeed, a contrary interpretation would entail a disharmonious
relationship in the work place for the laborer should never be mired by the uncertainty of
flimsy rules in which the latter’s labor rights and duties would, to some extent, depend.
In this light, while there lies due cause to terminate Alcaraz’s probationary employment for
her failure to meet the standards required for her regularization, and while it must be further
pointed out that Abbott had satisfied its statutory duty to serve a written notice of termination,
the fact that it violated its own company procedure renders the termination of Alcaraz’s
employment procedurally infirm, warranting the payment of nominal damages. A further
exposition is apropos.
Case law has settled that an employer who terminates an employee for a valid cause but
does so through invalid procedure is liable to pay the latter nominal damages.
In Agabon v. NLRC (Agabon),71 the Court pronounced that where the dismissal is for a just
cause, the lack of statutory due process should not nullify the dismissal, or render it illegal, or
ineffectual. However, the employer should indemnify the employee for the violation of his
statutory rights.72 Thus, in Agabon, the employer was ordered to pay the employee nominal
damages in the amount of ₱30,000.00.73
Proceeding from the same ratio, the Court modified Agabon in the case of Jaka Food
Processing Corporation v. Pacot (Jaka)74 where it created a distinction between procedurally
defective dismissals due to a just cause, on one hand, and those due to an authorized cause,
on the other.
It was explained that if the dismissal is based on a just cause under Article 282 of the Labor
Code (now Article 296) but the employer failed to comply with the notice requirement, the
sanction to be imposed upon him should be tempered because the dismissal process was, in
effect, initiated by an act imputable to the employee; if the dismissal is based on an
authorized cause under Article 283 (now Article 297) but the employer failed to comply with
the notice requirement, the sanction should be stiffer because the dismissal process was
initiated by the employer’s exercise of his management prerogative. 75 Hence, in Jaka, where
the employee was dismissed for an authorized cause of retrenchment76 – as
contradistinguished from the employee in Agabon who was dismissed for a just cause of
neglect of duty77 – the Court ordered the employer to pay the employee nominal damages at
the higher amount of ₱50,000.00.
Evidently, the sanctions imposed in both Agabon and Jaka proceed from the necessity to
deter employers from future violations of the statutory due process rights of employees. 78 In
similar regard, the Court deems it proper to apply the same principle to the case at bar for the
reason that an employer’s contractual breach of its own company procedure – albeit not
statutory in source – has the parallel effect of violating the laborer’s rights. Suffice it to state,
the contract is the law between the parties and thus, breaches of the same impel recompense
to vindicate a right that has been violated. Consequently, while the Court is wont to uphold
the dismissal of Alcaraz because a valid cause exists, the payment of nominal damages on
account of Abbott’s contractual breach is warranted in accordance with Article 2221 of the
Civil Code.79
Anent the proper amount of damages to be awarded, the Court observes that Alcaraz’s
dismissal proceeded from her failure to comply with the standards required for her
regularization. As such, it is undeniable that the dismissal process was, in effect, initiated by
an act imputable to the employee, akin to dismissals due to just causes under Article 296 of
the Labor Code. Therefore, the Court deems it appropriate to fix the amount of nominal
damages at the amount of ₱30,000.00, consistent with its rulings in both Agabon and Jaka.
E. Liability of individual
petitioners as corporate
officers.
It is hornbook principle that personal liability of corporate directors, trustees or officers
attaches only when: (a) they assent to a patently unlawful act of the corporation, or when they
are guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or other persons; (b) they
consent to the issuance of watered down stocks or when, having knowledge of such
issuance, do not forthwith file with the corporate secretary their written objection; (c) they
agree to hold themselves personally and solidarily liable with the corporation; or (d) they are
made by specific provision of law personally answerable for their corporate action. 80
In this case, Alcaraz alleges that the individual petitioners acted in bad faith with regard to the
supposed crude manner by which her probationary employment was terminated and thus,
should be held liable together with Abbott. In the same vein, she further attributes the loss of
some of her remaining belongings to them.81
Alcaraz’s contention fails to persuade.
A judicious perusal of the records show that other than her unfounded assertions on the
matter, there is no evidence to support the fact that the individual petitioners herein, in their
capacity as Abbott’s officers and employees, acted in bad faith or were motivated by ill will in
terminating
Alcaraz’s services. The fact that Alcaraz was made to resign and not allowed to enter the
workplace does not necessarily indicate bad faith on Abbott’s part since a sufficient ground
existed for the latter to actually proceed with her termination. On the alleged loss of her
personal belongings, records are bereft of any showing that the same could be attributed to
Abbott or any of its officers. It is a well-settled rule that bad faith cannot be presumed and he
who alleges bad faith has the onus of proving it. All told, since Alcaraz failed to prove any
malicious act on the part of Abbott or any of its officers, the Court finds the award of moral or
exemplary damages unwarranted.
WHEREFORE, the petition is GRANTED. The Decision dated December 10, 2009 and
Resolution dated June 9, 2010 of the Court of Appeals in CA-G.R. SP No. 101045 are hereby
REVERSED and SET ASIDE. Accordingly, the Decision dated March 30, 2006 of the Labor
Arbiter is REINSTATED with the MODIFICATION that petitioner Abbott Laboratories,
Philippines be ORDERED to pay respondent Pearlie Ann F. Alcaraz nominal damages in the
amount of ₱30,000.00 on account of its breach of its own company procedure.
SO ORDERED.
G.R. No. 168081 October 17, 2008
ARMANDO G. YRASUEGUI, petitioners,
vs.
PHILIPPINE AIRLINES, INC., respondents.
DECISION
REYES, R.T., J.:
THIS case portrays the peculiar story of an international flight steward who was dismissed
because of his failure to adhere to the weight standards of the airline company.
He is now before this Court via a petition for review on certiorari claiming that he was illegally
dismissed. To buttress his stance, he argues that (1) his dismissal does not fall under 282(e)
of the Labor Code; (2) continuing adherence to the weight standards of the company is not a
bona fide occupational qualification; and (3) he was discriminated against because other
overweight employees were promoted instead of being disciplined.
After a meticulous consideration of all arguments pro and con, We uphold the legality of
dismissal. Separation pay, however, should be awarded in favor of the employee as an act of
social justice or based on equity. This is so because his dismissal is not for serious
misconduct. Neither is it reflective of his moral character.
The Facts
Petitioner Armando G. Yrasuegui was a former international flight steward of Philippine
Airlines, Inc. (PAL). He stands five feet and eight inches (5’8") with a large body frame. The
proper weight for a man of his height and body structure is from 147 to 166 pounds, the ideal
weight being 166 pounds, as mandated by the Cabin and Crew Administration Manual1 of
PAL.
The weight problem of petitioner dates back to 1984. Back then, PAL advised him to go on an
extended vacation leave from December 29, 1984 to March 4, 1985 to address his weight
concerns. Apparently, petitioner failed to meet the company’s weight standards, prompting
another leave without pay from March 5, 1985 to November 1985.
After meeting the required weight, petitioner was allowed to return to work. But petitioner’s
weight problem recurred. He again went on leave without pay from October 17, 1988 to
February 1989.
On April 26, 1989, petitioner weighed 209 pounds, 43 pounds over his ideal weight. In line
with company policy, he was removed from flight duty effective May 6, 1989 to July 3, 1989.
He was formally requested to trim down to his ideal weight and report for weight checks on
several dates. He was also told that he may avail of the services of the company physician
should he wish to do so. He was advised that his case will be evaluated on July 3, 1989.2
On February 25, 1989, petitioner underwent weight check. It was discovered that he gained,
instead of losing, weight. He was overweight at 215 pounds, which is 49 pounds beyond the
limit. Consequently, his off-duty status was retained.
On October 17, 1989, PAL Line Administrator Gloria Dizon personally visited petitioner at his
residence to check on the progress of his effort to lose weight. Petitioner weighed 217
pounds, gaining 2 pounds from his previous weight. After the visit, petitioner made a
commitment3 to reduce weight in a letter addressed to Cabin Crew Group Manager Augusto
Barrios. The letter, in full, reads:
Dear Sir:
I would like to guaranty my commitment towards a weight loss from 217 pounds to 200
pounds from today until 31 Dec. 1989.
From thereon, I promise to continue reducing at a reasonable percentage until such time that
my ideal weight is achieved.
Likewise, I promise to personally report to your office at the designated time schedule you will
set for my weight check.
Respectfully Yours,
F/S Armando Yrasuegui4
Despite the lapse of a ninety-day period given him to reach his ideal weight, petitioner
remained overweight. On January 3, 1990, he was informed of the PAL decision for him to
remain grounded until such time that he satisfactorily complies with the weight standards.
Again, he was directed to report every two weeks for weight checks.
Petitioner failed to report for weight checks. Despite that, he was given one more month to
comply with the weight requirement. As usual, he was asked to report for weight check on
different dates. He was reminded that his grounding would continue pending satisfactory
compliance with the weight standards.5
Again, petitioner failed to report for weight checks, although he was seen submitting his
passport for processing at the PAL Staff Service Division.
On April 17, 1990, petitioner was formally warned that a repeated refusal to report for weight
check would be dealt with accordingly. He was given another set of weight check
dates.6 Again, petitioner ignored the directive and did not report for weight checks. On June
26, 1990, petitioner was required to explain his refusal to undergo weight checks. 7
When petitioner tipped the scale on July 30, 1990, he weighed at 212 pounds. Clearly, he
was still way over his ideal weight of 166 pounds.
From then on, nothing was heard from petitioner until he followed up his case requesting for
leniency on the latter part of 1992. He weighed at 219 pounds on August 20, 1992 and 205
pounds on November 5, 1992.
On November 13, 1992, PAL finally served petitioner a Notice of Administrative Charge for
violation of company standards on weight requirements. He was given ten (10) days from
receipt of the charge within which to file his answer and submit controverting evidence. 8
On December 7, 1992, petitioner submitted his Answer.9 Notably, he did not deny being
overweight. What he claimed, instead, is that his violation, if any, had already been condoned
by PAL since "no action has been taken by the company" regarding his case "since 1988."
He also claimed that PAL discriminated against him because "the company has not been fair
in treating the cabin crew members who are similarly situated."
On December 8, 1992, a clarificatory hearing was held where petitioner manifested that he
was undergoing a weight reduction program to lose at least two (2) pounds per week so as to
attain his ideal weight.10
On June 15, 1993, petitioner was formally informed by PAL that due to his inability to attain
his ideal weight, "and considering the utmost leniency" extended to him "which spanned a
period covering a total of almost five (5) years," his services were considered terminated
"effective immediately."11
His motion for reconsideration having been denied,12 petitioner filed a complaint for illegal
dismissal against PAL.
Labor Arbiter, NLRC and CA Dispositions
On November 18, 1998, Labor Arbiter Valentin C. Reyes ruled13 that petitioner was illegally
dismissed. The dispositive part of the Arbiter ruling runs as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered, declaring the
complainant’s dismissal illegal, and ordering the respondent to reinstate him to his former
position or substantially equivalent one, and to pay him:
a. Backwages of Php10,500.00 per month from his dismissal on June 15, 1993 until
reinstated, which for purposes of appeal is hereby set from June 15, 1993 up to August 15,
1998 at ₱651,000.00;
b. Attorney’s fees of five percent (5%) of the total award.
SO ORDERED.14
The Labor Arbiter held that the weight standards of PAL are reasonable in view of the nature
of the job of petitioner.15 However, the weight standards need not be complied with under
pain of dismissal since his weight did not hamper the performance of his duties. 16 Assuming
that it did, petitioner could be transferred to other positions where his weight would not be a
negative factor.17 Notably, other overweight employees, i.e., Mr. Palacios, Mr. Cui, and Mr.
Barrios, were promoted instead of being disciplined.18
Both parties appealed to the National Labor Relations Commission (NLRC).19
On October 8, 1999, the Labor Arbiter issued a writ of execution directing the reinstatement
of petitioner without loss of seniority rights and other benefits.20
On February 1, 2000, the Labor Arbiter denied21 the Motion to Quash Writ of Execution22 of
PAL.
On March 6, 2000, PAL appealed the denial of its motion to quash to the NLRC. 23
On June 23, 2000, the NLRC rendered judgment24 in the following tenor:
WHEREFORE, premises considered[,] the Decision of the Arbiter dated 18 November 1998
as modified by our findings herein, is hereby AFFIRMED and that part of the dispositive
portion of said decision concerning complainant’s entitlement to backwages shall be deemed
to refer to complainant’s entitlement to his full backwages, inclusive of allowances and to his
other benefits or their monetary equivalent instead of simply backwages, from date of
dismissal until his actual reinstatement or finality hereof. Respondent is enjoined to manifests
(sic) its choice of the form of the reinstatement of complainant, whether physical or through
payroll within ten (10) days from notice failing which, the same shall be deemed as
complainant’s reinstatement through payroll and execution in case of non-payment shall
accordingly be issued by the Arbiter. Both appeals of respondent thus, are DISMISSED for
utter lack of merit.25
According to the NLRC, "obesity, or the tendency to gain weight uncontrollably regardless of
the amount of food intake, is a disease in itself."26 As a consequence, there can be no
intentional defiance or serious misconduct by petitioner to the lawful order of PAL for him to
lose weight.27
Like the Labor Arbiter, the NLRC found the weight standards of PAL to be reasonable.
However, it found as unnecessary the Labor Arbiter holding that petitioner was not remiss in
the performance of his duties as flight steward despite being overweight. According to the
NLRC, the Labor Arbiter should have limited himself to the issue of whether the failure of
petitioner to attain his ideal weight constituted willful defiance of the weight standards of
PAL.28
PAL moved for reconsideration to no avail.29 Thus, PAL elevated the matter to the Court of
Appeals (CA) via a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure.30
By Decision dated August 31, 2004, the CA reversed31 the NLRC:
WHEREFORE, premises considered, we hereby GRANT the petition. The assailed NLRC
decision is declared NULL and VOID and is hereby SET ASIDE. The private respondent’s
complaint is hereby DISMISSED. No costs.
SO ORDERED.32
The CA opined that there was grave abuse of discretion on the part of the NLRC because it
"looked at wrong and irrelevant considerations"33 in evaluating the evidence of the parties.
Contrary to the NLRC ruling, the weight standards of PAL are meant to be a continuing
qualification for an employee’s position.34 The failure to adhere to the weight standards is
an analogous cause for the dismissal of an employee under Article 282(e) of the Labor Code
in relation to Article 282(a). It is not willful disobedience as the NLRC seemed to
suggest.35 Said the CA, "the element of willfulness that the NLRC decision cites is an
irrelevant consideration in arriving at a conclusion on whether the dismissal is legally
proper."36 In other words, "the relevant question to ask is not one of willfulness but one of
reasonableness of the standard and whether or not the employee qualifies or continues to
qualify under this standard."37
Just like the Labor Arbiter and the NLRC, the CA held that the weight standards of PAL are
reasonable.38 Thus, petitioner was legally dismissed because he repeatedly failed to meet the
prescribed weight standards.39 It is obvious that the issue of discrimination was only invoked
by petitioner for purposes of escaping the result of his dismissal for being overweight.40
On May 10, 2005, the CA denied petitioner’s motion for reconsideration. 41 Elaborating on its
earlier ruling, the CA held that the weight standards of PAL are a bona fide occupational
qualification which, in case of violation, "justifies an employee’s separation from the
service."42
Issues
In this Rule 45 petition for review, the following issues are posed for resolution:
I.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER’S OBESITY CAN BE A GROUND FOR DISMISSAL UNDER
PARAGRAPH (e) OF ARTICLE 282 OF THE LABOR CODE OF THE PHILIPPINES;
II.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER’S DISMISSAL FOR OBESITY CAN BE PREDICATED ON THE "BONA
FIDE OCCUPATIONAL QUALIFICATION (BFOQ) DEFENSE";
III.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT PETITIONER WAS NOT UNDULY DISCRIMINATED AGAINST WHEN HE WAS
DISMISSED WHILE OTHER OVERWEIGHT CABIN ATTENDANTS WERE EITHER GIVEN
FLYING DUTIES OR PROMOTED;
IV.
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED WHEN IT BRUSHED
ASIDE PETITIONER’S CLAIMS FOR REINSTATEMENT [AND] WAGES ALLEGEDLY FOR
BEING MOOT AND ACADEMIC.43 (Underscoring supplied)
Our Ruling
I. The obesity of petitioner is a ground for dismissal under Article 282(e) 44 of the Labor
Code.
A reading of the weight standards of PAL would lead to no other conclusion than that they
constitute a continuing qualification of an employee in order to keep the job. Tersely put, an
employee may be dismissed the moment he is unable to comply with his ideal weight as
prescribed by the weight standards. The dismissal of the employee would thus fall under
Article 282(e) of the Labor Code. As explained by the CA:
x x x [T]he standards violated in this case were not mere "orders" of the employer; they were
the "prescribed weights" that a cabin crew must maintain in order to qualify for and keep
his or her position in the company. In other words, they were standards that
establish continuing qualifications for an employee’s position. In this sense, the failure to
maintain these standards does not fall under Article 282(a) whose express terms require the
element of willfulness in order to be a ground for dismissal. The failure to meet the
employer’s qualifying standards is in fact a ground that does not squarely fall under
grounds (a) to (d) and is therefore one that falls under Article 282(e) – the "other causes
analogous to the foregoing."
By its nature, these "qualifying standards" are norms that apply prior to and after an
employee is hired. They apply prior to employment because these are the standards a job
applicant must initially meet in order to be hired. They apply after hiring because an
employee must continue to meet these standards while on the job in order to keep his job.
Under this perspective, a violation is not one of the faults for which an employee can be
dismissed pursuant to pars. (a) to (d) of Article 282; the employee can be dismissed simply
because he no longer "qualifies" for his job irrespective of whether or not the failure to qualify
was willful or intentional. x x x45
Petitioner, though, advances a very interesting argument. He claims that obesity is a
"physical abnormality and/or illness."46 Relying on Nadura v. Benguet Consolidated, Inc.,47 he
says his dismissal is illegal:
Conscious of the fact that Nadura’s case cannot be made to fall squarely within the specific
causes enumerated in subparagraphs 1(a) to (e), Benguet invokes the provisions of
subparagraph 1(f) and says that Nadura’s illness – occasional attacks of asthma – is a cause
analogous to them.
Even a cursory reading of the legal provision under consideration is sufficient to convince
anyone that, as the trial court said, "illness cannot be included as an analogous cause by any
stretch of imagination."
It is clear that, except the just cause mentioned in sub-paragraph 1(a), all the others
expressly enumerated in the law are due to the voluntary and/or willful act of the employee.
How Nadura’s illness could be considered as "analogous" to any of them is beyond our
understanding, there being no claim or pretense that the same was contracted through his
own voluntary act.48
The reliance on Nadura is off-tangent. The factual milieu in Nadura is substantially different
from the case at bar. First, Nadura was not decided under the Labor Code. The law applied in
that case was Republic Act (RA) No. 1787. Second, the issue of flight safety is absent
in Nadura, thus, the rationale there cannot apply here. Third, in Nadura, the employee who
was a miner, was laid off from work because of illness, i.e., asthma. Here, petitioner was
dismissed for his failure to meet the weight standards of PAL. He was not dismissed due to
illness. Fourth, the issue in Nadura is whether or not the dismissed employee is entitled to
separation pay and damages. Here, the issue centers on the propriety of the dismissal of
petitioner for his failure to meet the weight standards of PAL. Fifth, in Nadura, the employee
was not accorded due process. Here, petitioner was accorded utmost leniency. He was given
more than four (4) years to comply with the weight standards of PAL.
In the case at bar, the evidence on record militates against petitioner’s claims that obesity is a
disease. That he was able to reduce his weight from 1984 to 1992 clearly shows that it is
possible for him to lose weight given the proper attitude, determination, and self-discipline.
Indeed, during the clarificatory hearing on December 8, 1992, petitioner himself claimed that
"[t]he issue is could I bring my weight down to ideal weight which is 172, then the answer is
yes. I can do it now."49
True, petitioner claims that reducing weight is costing him "a lot of expenses." 50 However,
petitioner has only himself to blame. He could have easily availed the assistance of the
company physician, per the advice of PAL.51 He chose to ignore the suggestion. In fact, he
repeatedly failed to report when required to undergo weight checks, without offering a valid
explanation. Thus, his fluctuating weight indicates absence of willpower rather than an illness.
Petitioner cites Bonnie Cook v. State of Rhode Island, Department of Mental Health,
Retardation and Hospitals,52decided by the United States Court of Appeals (First Circuit). In
that case, Cook worked from 1978 to 1980 and from 1981 to 1986 as an institutional
attendant for the mentally retarded at the Ladd Center that was being operated by
respondent. She twice resigned voluntarily with an unblemished record. Even respondent
admitted that her performance met the Center’s legitimate expectations. In 1988, Cook re-
applied for a similar position. At that time, "she stood 5’2" tall and weighed over 320 pounds."
Respondent claimed that the morbid obesity of plaintiff compromised her ability to evacuate
patients in case of emergency and it also put her at greater risk of serious diseases.
Cook contended that the action of respondent amounted to discrimination on the basis of a
handicap. This was in direct violation of Section 504(a) of the Rehabilitation Act of
1973,53 which incorporates the remedies contained in Title VI of the Civil Rights Act of 1964.
Respondent claimed, however, that morbid obesity could never constitute a handicap within
the purview of the Rehabilitation Act. Among others, obesity is a mutable condition, thus
plaintiff could simply lose weight and rid herself of concomitant disability.
The appellate Court disagreed and held that morbid obesity is a disability under the
Rehabilitation Act and that respondent discriminated against Cook based on "perceived"
disability. The evidence included expert testimony that morbid obesity is a physiological
disorder. It involves a dysfunction of both the metabolic system and the neurological appetite
– suppressing signal system, which is capable of causing adverse effects within the
musculoskeletal, respiratory, and cardiovascular systems. Notably, the Court stated that
"mutability is relevant only in determining the substantiality of the limitation flowing from a
given impairment," thus "mutability only precludes those conditions that an individual can
easily and quickly reverse by behavioral alteration."
Unlike Cook, however, petitioner is not morbidly obese. In the words of the District Court for
the District of Rhode Island, Cook was sometime before 1978 "at least one hundred pounds
more than what is considered appropriate of her height." According to the Circuit Judge, Cook
weighed "over 320 pounds" in 1988. Clearly, that is not the case here. At his heaviest,
petitioner was only less than 50 pounds over his ideal weight.
In fine, We hold that the obesity of petitioner, when placed in the context of his work as flight
attendant, becomes an analogous cause under Article 282(e) of the Labor Code that justifies
his dismissal from the service. His obesity may not be unintended, but is nonetheless
voluntary. As the CA correctly puts it, "[v]oluntariness basically means that the just cause is
solely attributable to the employee without any external force influencing or controlling his
actions. This element runs through all just causes under Article 282, whether they be in the
nature of a wrongful action or omission. Gross and habitual neglect, a recognized just cause,
is considered voluntary although it lacks the element of intent found in Article 282(a), (c), and
(d)."54
II. The dismissal of petitioner can be predicated on the bona fide occupational qualification
defense.
Employment in particular jobs may not be limited to persons of a particular sex, religion, or
national origin unless the employer can show that sex, religion, or national origin is an actual
qualification for performing the job. The qualification is called a bona fide occupational
qualification (BFOQ).55 In the United States, there are a few federal and many state job
discrimination laws that contain an exception allowing an employer to engage in an otherwise
unlawful form of prohibited discrimination when the action is based on a BFOQ necessary to
the normal operation of a business or enterprise.56
Petitioner contends that BFOQ is a statutory defense. It does not exist if there is no statute
providing for it.57 Further, there is no existing BFOQ statute that could justify his dismissal. 58
Both arguments must fail.
First, the Constitution,59 the Labor Code,60 and RA No. 727761 or the Magna Carta for
Disabled Persons62 contain provisions similar to BFOQ.
Second, in British Columbia Public Service Employee Commission (BSPSERC) v. The British
Columbia Government and Service Employee’s Union (BCGSEU),63 the Supreme Court of
Canada adopted the so-called "Meiorin Test" in determining whether an employment policy is
justified. Under this test, (1) the employer must show that it adopted the standard for a
purpose rationally connected to the performance of the job;64 (2) the employer must establish
that the standard is reasonably necessary65 to the accomplishment of that work-related
purpose; and (3) the employer must establish that the standard is reasonably necessary in
order to accomplish the legitimate work-related purpose. Similarly, in Star Paper Corporation
v. Simbol,66 this Court held that in order to justify a BFOQ, the employer must prove that (1)
the employment qualification is reasonably related to the essential operation of the job
involved; and (2) that there is factual basis for believing that all or substantially all persons
meeting the qualification would be unable to properly perform the duties of the job. 67
In short, the test of reasonableness of the company policy is used because it is parallel to
BFOQ.68 BFOQ is valid "provided it reflects an inherent quality reasonably necessary for
satisfactory job performance."69
In Duncan Association of Detailman-PTGWTO v. Glaxo Wellcome Philippines, Inc.,70 the
Court did not hesitate to pass upon the validity of a company policy which prohibits its
employees from marrying employees of a rival company. It was held that the company policy
is reasonable considering that its purpose is the protection of the interests of the company
against possible competitor infiltration on its trade secrets and procedures.
Verily, there is no merit to the argument that BFOQ cannot be applied if it has no supporting
statute. Too, the Labor Arbiter,71 NLRC,72 and CA73 are one in holding that the weight
standards of PAL are reasonable. A common carrier, from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence for the safety of the
passengers it transports.74 It is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with due regard for
all the circumstances.75
The law leaves no room for mistake or oversight on the part of a common carrier. Thus, it is
only logical to hold that the weight standards of PAL show its effort to comply with the
exacting obligations imposed upon it by law by virtue of being a common carrier.
The business of PAL is air transportation. As such, it has committed itself to safely transport
its passengers. In order to achieve this, it must necessarily rely on its employees, most
particularly the cabin flight deck crew who are on board the aircraft. The weight standards of
PAL should be viewed as imposing strict norms of discipline upon its employees.
In other words, the primary objective of PAL in the imposition of the weight standards for
cabin crew is flight safety. It cannot be gainsaid that cabin attendants must maintain agility at
all times in order to inspire passenger confidence on their ability to care for the passengers
when something goes wrong. It is not farfetched to say that airline companies, just like all
common carriers, thrive due to public confidence on their safety records. People, especially
the riding public, expect no less than that airline companies transport their passengers to their
respective destinations safely and soundly. A lesser performance is unacceptable.
The task of a cabin crew or flight attendant is not limited to serving meals or attending to the
whims and caprices of the passengers. The most important activity of the cabin crew is to
care for the safety of passengers and the evacuation of the aircraft when an emergency
occurs. Passenger safety goes to the core of the job of a cabin attendant. Truly, airlines need
cabin attendants who have the necessary strength to open emergency doors, the agility to
attend to passengers in cramped working conditions, and the stamina to withstand grueling
flight schedules.
On board an aircraft, the body weight and size of a cabin attendant are important factors to
consider in case of emergency. Aircrafts have constricted cabin space, and narrow aisles and
exit doors. Thus, the arguments of respondent that "[w]hether the airline’s flight attendants
are overweight or not has no direct relation to its mission of transporting passengers to their
destination"; and that the weight standards "has nothing to do with airworthiness of
respondent’s airlines," must fail.
The rationale in Western Air Lines v. Criswell76 relied upon by petitioner cannot apply to his
case. What was involved there were two (2) airline pilots who were denied reassignment as
flight engineers upon reaching the age of 60, and a flight engineer who was forced to retire at
age 60. They sued the airline company, alleging that the age-60 retirement for flight
engineers violated the Age Discrimination in Employment Act of 1967. Age-based BFOQ and
being overweight are not the same. The case of overweight cabin attendants is another
matter. Given the cramped cabin space and narrow aisles and emergency exit doors of the
airplane, any overweight cabin attendant would certainly have difficulty navigating the
cramped cabin area.
In short, there is no need to individually evaluate their ability to perform their task. That an
obese cabin attendant occupies more space than a slim one is an unquestionable fact which
courts can judicially recognize without introduction of evidence. 77 It would also be absurd to
require airline companies to reconfigure the aircraft in order to widen the aisles and exit doors
just to accommodate overweight cabin attendants like petitioner.
The biggest problem with an overweight cabin attendant is the possibility of impeding
passengers from evacuating the aircraft, should the occasion call for it. The job of a cabin
attendant during emergencies is to speedily get the passengers out of the aircraft
safely. Being overweight necessarily impedes mobility. Indeed, in an emergency situation,
seconds are what cabin attendants are dealing with, not minutes. Three lost seconds can
translate into three lost lives. Evacuation might slow down just because a wide-bodied cabin
attendant is blocking the narrow aisles. These possibilities are not remote.
Petitioner is also in estoppel. He does not dispute that the weight standards of PAL were
made known to him prior to his employment. He is presumed to know the weight limit that he
must maintain at all times.78 In fact, never did he question the authority of PAL when he was
repeatedly asked to trim down his weight. Bona fides exigit ut quod convenit fiat. Good faith
demands that what is agreed upon shall be done. Kung ang tao ay tapat kanyang
tutuparin ang napagkasunduan.
Too, the weight standards of PAL provide for separate weight limitations based on height and
body frame for both male and female cabin attendants. A progressive discipline is imposed to
allow non-compliant cabin attendants sufficient opportunity to meet the weight standards.
Thus, the clear-cut rules obviate any possibility for the commission of abuse or arbitrary
action on the part of PAL.
III. Petitioner failed to substantiate his claim that he was discriminated against by PAL.
Petitioner next claims that PAL is using passenger safety as a convenient excuse to
discriminate against him.79 We are constrained, however, to hold otherwise. We agree with
the CA that "[t]he element of discrimination came into play in this case as a secondary
position for the private respondent in order to escape the consequence of dismissal that
being overweight entailed. It is a confession-and-avoidance position that impliedly admitted
the cause of dismissal, including the reasonableness of the applicable standard and the
private respondent’s failure to comply."80It is a basic rule in evidence that each party must
prove his affirmative allegation.81
Since the burden of evidence lies with the party who asserts an affirmative allegation,
petitioner has to prove his allegation with particularity. There is nothing on the records which
could support the finding of discriminatory treatment. Petitioner cannot establish
discrimination by simply naming the supposed cabin attendants who are allegedly similarly
situated with him. Substantial proof must be shown as to how and why they are similarly
situated and the differential treatment petitioner got from PAL despite the similarity of his
situation with other employees.
Indeed, except for pointing out the names of the supposed overweight cabin attendants,
petitioner miserably failed to indicate their respective ideal weights; weights over their ideal
weights; the periods they were allowed to fly despite their being overweight; the particular
flights assigned to them; the discriminating treatment they got from PAL; and other relevant
data that could have adequately established a case of discriminatory treatment by PAL. In the
words of the CA, "PAL really had no substantial case of discrimination to meet."82
We are not unmindful that findings of facts of administrative agencies, like the Labor Arbiter
and the NLRC, are accorded respect, even finality.83 The reason is simple: administrative
agencies are experts in matters within their specific and specialized jurisdiction. 84 But the
principle is not a hard and fast rule. It only applies if the findings of facts are duly supported
by substantial evidence. If it can be shown that administrative bodies grossly misappreciated
evidence of such nature so as to compel a conclusion to the contrary, their findings of facts
must necessarily be reversed. Factual findings of administrative agencies do not have
infallibility and must be set aside when they fail the test of arbitrariness.85
Here, the Labor Arbiter and the NLRC inexplicably misappreciated evidence. We thus annul
their findings.
To make his claim more believable, petitioner invokes the equal protection clause
guaranty86 of the Constitution. However, in the absence of governmental interference, the
liberties guaranteed by the Constitution cannot be invoked.87 Put differently, the Bill of Rights
is not meant to be invoked against acts of private individuals.88 Indeed, the United States
Supreme Court, in interpreting the Fourteenth Amendment,89 which is the source of our equal
protection guarantee, is consistent in saying that the equal protection erects no shield against
private conduct, however discriminatory or wrongful.90 Private actions, no matter how
egregious, cannot violate the equal protection guarantee.91
IV. The claims of petitioner for reinstatement and wages are moot.
As his last contention, petitioner avers that his claims for reinstatement and wages have not
been mooted. He is entitled to reinstatement and his full backwages, "from the time he was
illegally dismissed" up to the time that the NLRC was reversed by the CA.92
At this point, Article 223 of the Labor Code finds relevance:
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee,
insofar as the reinstatement aspect is concerned, shall immediately be executory, even
pending appeal. The employee shall either be admitted back to work under the same terms
and conditions prevailing prior to his dismissal or separation or, at the option of the employer,
merely reinstated in the payroll. The posting of a bond by the employer shall not stay the
execution for reinstatement provided herein.
The law is very clear. Although an award or order of reinstatement is self-executory and does
not require a writ of execution,93 the option to exercise actual reinstatement or payroll
reinstatement belongs to the employer. It does not belong to the employee, to the labor
tribunals, or even to the courts.
Contrary to the allegation of petitioner that PAL "did everything under the sun" to frustrate his
"immediate return to his previous position,"94 there is evidence that PAL opted to physically
reinstate him to a substantially equivalent position in accordance with the order of the Labor
Arbiter.95 In fact, petitioner duly received the return to work notice on February 23, 2001, as
shown by his signature.96
Petitioner cannot take refuge in the pronouncements of the Court in a case97 that "[t]he
unjustified refusal of the employer to reinstate the dismissed employee entitles him to
payment of his salaries effective from the time the employer failed to reinstate him despite the
issuance of a writ of execution"98 and ""even if the order of reinstatement of the Labor Arbiter
is reversed on appeal, it is obligatory on the part of the employer to reinstate and pay the
wages of the employee during the period of appeal until reversal by the higher court."99 He
failed to prove that he complied with the return to work order of PAL. Neither does it appear
on record that he actually rendered services for PAL from the moment he was dismissed, in
order to insist on the payment of his full backwages.
In insisting that he be reinstated to his actual position despite being overweight, petitioner in
effect wants to render the issues in the present case moot. He asks PAL to comply with the
impossible. Time and again, the Court ruled that the law does not exact compliance with the
impossible.100
V. Petitioner is entitled to separation pay.
Be that as it may, all is not lost for petitioner.
Normally, a legally dismissed employee is not entitled to separation pay. This may be
deduced from the language of Article 279 of the Labor Code that "[a]n employee who
is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority
rights and other privileges and to his full backwages, inclusive of allowances, and to his other
benefits or their monetary equivalent computed from the time his compensation was withheld
from him up to the time of his actual reinstatement." Luckily for petitioner, this is not an
ironclad rule.
Exceptionally, separation pay is granted to a legally dismissed employee as an act "social
justice,"101 or based on "equity."102 In both instances, it is required that the dismissal (1) was
not for serious misconduct; and (2) does not reflect on the moral character of the
employee.103
Here, We grant petitioner separation pay equivalent to one-half (1/2) month’s pay for every
year of service.104 It should include regular allowances which he might have been
receiving.105 We are not blind to the fact that he was not dismissed for any serious
misconduct or to any act which would reflect on his moral character. We also recognize that
his employment with PAL lasted for more or less a decade.
WHEREFORE, the appealed Decision of the Court of Appeals
is AFFIRMED but MODIFIED in that petitioner Armando G. Yrasuegui is entitled to separation
pay in an amount equivalent to one-half (1/2) month’s pay for every year of service, which
should include his regular allowances.
SO ORDERED.
G.R. No. 118978 May 23, 1997
PHILIPPINE TELEGRAPH AND TELEPHONE COMPANY, * petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and GRACE DE GUZMAN, respondents.
REGALADO, J.:
Seeking relief through the extraordinary writ of certiorari, petitioner Philippine Telegraph and
Telephone Company (hereafter, PT & T) invokes the alleged concealment of civil status and
defalcation of company funds as grounds to terminate the services of an employee. That
employee, herein private respondent Grace de Guzman, contrarily argues that what really
motivated PT & T to terminate her services was her having contracted marriage during her
employment, which is prohibited by petitioner in its company policies. She thus claims that
she was discriminated against in gross violation of law, such a proscription by an employer
being outlawed by Article 136 of the Labor Code.
Grace de Guzman was initially hired by petitioner as a reliever, specifically as a
"Supernumerary Project Worker," for a fixed period from November 21, 1990 until April 20,
1991 vice one C.F. Tenorio who went on maternity leave.1Under the Reliever Agreement
which she signed with petitioner company, her employment was to be immediately terminated
upon expiration of the agreed period. Thereafter, from June 10, 1991 to July 1, 1991, and
from July 19, 1991 to August 8, 1991, private respondent's services as reliever were again
engaged by petitioner, this time in replacement of one Erlinda F. Dizon who went on leave
during both periods.2 After August 8, 1991, and pursuant to their Reliever Agreement, her
services were terminated.
On September 2, 1991, private respondent was once more asked to join petitioner company
as a probationary employee, the probationary period to cover 150 days. In the job application
form that was furnished her to be filled up for the purpose, she indicated in the portion for civil
status therein that she was single although she had contracted marriage a few months
earlier, that is, on May 26, 1991.3
It now appears that private respondent had made the same representation in the two
successive reliever agreements which she signed on June 10, 1991 and July 8, 1991. When
petitioner supposedly learned about the same later, its branch supervisor in Baguio City,
Delia M. Oficial, sent to private respondent a memorandum dated January 15, 1992 requiring
her to explain the discrepancy. In that memorandum, she was reminded about the company's
policy of not accepting married women for employment.4
In her reply letter dated January 17, 1992, private respondent stated that she was not aware
of PT&T's policy regarding married women at the time, and that all along she had not
deliberately hidden her true civil status.5Petitioner nonetheless remained unconvinced by her
explanations. Private respondent was dismissed from the company effective January 29,
1992,6 which she readily contested by initiating a complaint for illegal dismissal, coupled with
a claim for non-payment of cost of living allowances (COLA), before the Regional Arbitration
Branch of the National Labor Relations Commission in Baguio City.
At the preliminary conference conducted in connection therewith, private respondent
volunteered the information, and this was incorporated in the stipulation of facts between the
parties, that she had failed to remit the amount of P2,380.75 of her collections. She then
executed a promissory note for that amount in favor of petitioner7. All of these took place in a
formal proceeding and with the agreement of the parties and/or their counsel.
On November 23, 1993, Labor Arbiter Irenarco R. Rimando handed down a decision
declaring that private respondent, who had already gained the status of a regular employee,
was illegally dismissed by petitioner. Her reinstatement, plus payment of the corresponding
back wages and COLA, was correspondingly ordered, the labor arbiter being of the firmly
expressed view that the ground relied upon by petitioner in dismissing private respondent
was clearly insufficient, and that it was apparent that she had been discriminated against on
account of her having contracted marriage in violation of company rules.
On appeal to the National Labor Relations Commission (NLRC), said public respondent
upheld the labor arbiter and, in its decision dated April 29, 1994, it ruled that private
respondent had indeed been the subject of an unjust and unlawful discrimination by her
employer, PT & T. However, the decision of the labor arbiter was modified with the
qualification that Grace de Guzman deserved to be suspended for three months in view of the
dishonest nature of her acts which should not be condoned. In all other respects, the NLRC
affirmed the decision of the labor arbiter, including the order for the reinstatement of private
respondent in her employment with PT & T.
The subsequent motion for reconsideration filed by petitioner was rebuffed by respondent
NLRC in its resolution of November 9, 1994, hence this special civil action assailing the
aforestated decisions of the labor arbiter and respondent NLRC, as well as the denial
resolution of the latter.
1. Decreed in the Bible itself is the universal norm that women should be regarded with love
and respect but, through the ages, men have responded to that injunction with indifference,
on the hubristic conceit that women constitute the inferior sex. Nowhere has that prejudice
against womankind been so pervasive as in the field of labor, especially on the matter of
equal employment opportunities and standards. In the Philippine setting, women have
traditionally been considered as falling within the vulnerable groups or types of workers who
must be safeguarded with preventive and remedial social legislation against discriminatory
and exploitative practices in hiring, training, benefits, promotion and retention.
The Constitution, cognizant of the disparity in rights between men and women in almost all
phases of social and political life, provides a gamut of protective provisions. To cite a few of
the primordial ones, Section 14, Article II8 on the Declaration of Principles and State Policies,
expressly recognizes the role of women in nation-building and commands the State to
ensure, at all times, the fundamental equality before the law of women and men. Corollary
thereto, Section 3 of Article XIII9 (the progenitor whereof dates back to both the 1935 and
1973 Constitution) pointedly requires the State to afford full protection to labor and to promote
full employment and equality of employment opportunities for all, including an assurance of
entitlement to tenurial security of all workers. Similarly, Section 14 of Article XIII 10 mandates
that the State shall protect working women through provisions for opportunities that would
enable them to reach their full potential.
2. Corrective labor and social laws on gender inequality have emerged with more frequency
in the years since the Labor Code was enacted on May 1, 1974 as Presidential Decree No.
442, largely due to our country's commitment as a signatory to the United Nations Convention
on the Elimination of All Forms of Discrimination Against Women (CEDAW). 11
Principal among these laws are Republic Act No. 6727 12 which explicitly prohibits
discrimination against women with respect to terms and conditions of employment,
promotion, and training opportunities; Republic Act No. 6955 13which bans the "mail-order-
bride" practice for a fee and the export of female labor to countries that cannot guarantee
protection to the rights of women workers; Republic Act No. 7192 14 also known as the
"Women in Development and Nation Building Act," which affords women equal opportunities
with men to act and to enter into contracts, and for appointment, admission, training,
graduation, and commissioning in all military or similar schools of the Armed Forces of the
Philippines and the Philippine National Police; Republic Act No. 7322 15 increasing the
maternity benefits granted to women in the private sector; Republic Act No. 7877 16 which
outlaws and punishes sexual harassment in the workplace and in the education and training
environment; and Republic Act No. 8042, 17 or the "Migrant Workers and Overseas Filipinos
Act of 1995," which prescribes as a matter of policy, inter alia, the deployment of migrant
workers, with emphasis on women, only in countries where their rights are secure. Likewise,
it would not be amiss to point out that in the Family Code, 18 women's rights in the field of civil
law have been greatly enhanced and expanded.
In the Labor Code, provisions governing the rights of women workers are found in Articles
130 to 138 thereof. Article 130 involves the right against particular kinds of night work while
Article 132 ensures the right of women to be provided with facilities and standards which the
Secretary of Labor may establish to ensure their health and safety. For purposes of labor and
social legislation, a woman working in a nightclub, cocktail lounge, massage clinic, bar or
other similar establishments shall be considered as an employee under Article 138. Article
135, on the other hand, recognizes a woman's right against discrimination with respect to
terms and conditions of employment on account simply of sex. Finally, and this brings us to
the issue at hand, Article 136 explicitly prohibits discrimination merely by reason of the
marriage of a female employee.
3. Acknowledged as paramount in the due process scheme is the constitutional guarantee of
protection to labor and security of tenure. Thus, an employer is required, as a condition sine
qua non prior to severance of the employment ties of an individual under his employ, to
convincingly establish, through substantial evidence, the existence of a valid and just cause
in dispensing with the services of such employee, one's labor being regarded as
constitutionally protected property.
On the other hand, it is recognized that regulation of manpower by the company falls within
the so-called management prerogatives, which prescriptions encompass the matter of hiring,
supervision of workers, work assignments, working methods and assignments, as well as
regulations on the transfer of employees, lay-off of workers, and the discipline, dismissal, and
recall of employees. 19 As put in a case, an employer is free to regulate, according to his
discretion and best business judgment, all aspects of employment, "from hiring to firing,"
except in cases of unlawful discrimination or those which may be provided by law. 20
In the case at bar, petitioner's policy of not accepting or considering as disqualified from work
any woman worker who contracts marriage runs afoul of the test of, and the right against,
discrimination, afforded all women workers by our labor laws and by no less than the
Constitution. Contrary to petitioner's assertion that it dismissed private respondent from
employment on account of her dishonesty, the record discloses clearly that her ties with the
company were dissolved principally because of the company's policy that married women are
not qualified for employment in PT & T, and not merely because of her supposed acts of
dishonesty.
That it was so can easily be seen from the memorandum sent to private respondent by Delia
M. Oficial, the branch supervisor of the company, with the reminder, in the words of the latter,
that "you're fully aware that the company is not accepting married women employee (sic), as
it was verbally instructed to you." 21 Again, in the termination notice sent to her by the same
branch supervisor, private respondent was made to understand that her severance from the
service was not only by reason of her concealment of her married status but, over and on top
of that, was her violation of the company's policy against marriage ("and even told you that
married women employees are not applicable [sic] or accepted in our
company.") 22 Parenthetically, this seems to be the curious reason why it was made to appear
in the initiatory pleadings that petitioner was represented in this case only by its said
supervisor and not by its highest ranking officers who would otherwise be solidarily liable with
the corporation. 23
Verily, private respondent's act of concealing the true nature of her status from PT & T could
not be properly characterized as willful or in bad faith as she was moved to act the way she
did mainly because she wanted to retain a permanent job in a stable company. In other
words, she was practically forced by that very same illegal company policy into
misrepresenting her civil status for fear of being disqualified from work. While loss of
confidence is a just cause for termination of employment, it should not be simulated. 24 It must
rest on an actual breach of duty committed by the employee and not on the employer's
caprices. 25 Furthermore, it should never be used as a subterfuge for causes which are
improper, illegal, or unjustified. 26
In the present controversy, petitioner's expostulations that it dismissed private respondent,
not because the latter got married but because she concealed that fact, does have a hollow
ring. Her concealment, so it is claimed, bespeaks dishonesty hence the consequent loss of
confidence in her which justified her dismissal.
Petitioner would asseverate, therefore, that while it has nothing against marriage, it
nonetheless takes umbrage over the concealment of that fact. This improbable reasoning,
with interstitial distinctions, perturbs the Court since private respondent may well be minded
to claim that the imputation of dishonesty should be the other way around.
Petitioner would have the Court believe that although private respondent defied its policy
against its female employees contracting marriage, what could be an act of insubordination
was inconsequential. What it submits as unforgivable is her concealment of that marriage yet,
at the same time, declaring that marriage as a trivial matter to which it supposedly has no
objection. In other words, PT & T says it gives its blessings to its female employees
contracting marriage, despite the maternity leaves and other benefits it would consequently
respond for and which obviously it would have wanted to avoid. If that employee confesses
such fact of marriage, there will be no sanction; but if such employee conceals the same
instead of proceeding to the confessional, she will be dismissed. This line of reasoning does
not impress us as reflecting its true management policy or that we are being regaled with
responsible advocacy.
This Court should be spared the ennui of strained reasoning and the tedium of propositions
which confuse through less than candid arguments. Indeed, petitioner glosses over the fact
that it was its unlawful policy against married women, both on the aspects of qualification and
retention, which compelled private respondent to conceal her supervenient marriage. It was,
however, that very policy alone which was the cause of private respondent's secretive
conduct now complained of. It is then apropos to recall the familiar saying that he who is the
cause of the cause is the cause of the evil caused.
Finally, petitioner's collateral insistence on the admission of private respondent that she
supposedly misappropriated company funds, as an additional ground to dismiss her from
employment, is somewhat insincere and self-serving. Concededly, private respondent
admitted in the course of the proceedings that she failed to remit some of her collections, but
that is an altogether different story. The fact is that she was dismissed solely because of her
concealment of her marital status, and not on the basis of that supposed defalcation of
company funds. That the labor arbiter would thus consider petitioner's submissions on this
supposed dishonesty as a mere afterthought, just to bolster its case for dismissal, is a
perceptive conclusion born of experience in labor cases. For, there was no showing that
private respondent deliberately misappropriated the amount or whether her failure to remit the
same was through negligence and, if so, whether the negligence was in nature simple or
grave. In fact, it was merely agreed that private respondent execute a promissory note to
refund the same, which she did, and the matter was deemed settled as a peripheral issue in
the labor case.
Private respondent, it must be observed, had gained regular status at the time of her
dismissal. When she was served her walking papers on January 29, 1992, she was about to
complete the probationary period of 150 days as she was contracted as a probationary
employee on September 2, 1991. That her dismissal would be effected just when her
probationary period was winding down clearly raises the plausible conclusion that it was done
in order to prevent her from earning security of tenure. 27 On the other hand, her earlier stints
with the company as reliever were undoubtedly those of a regular employee, even if the same
were for fixed periods, as she performed activities which were essential or necessary in the
usual trade and business of PT & T. 28 The primary standard of determining regular
employment is the reasonable connection between the activity performed by the employee in
relation to the business or trade of the employer. 29
As an employee who had therefore gained regular status, and as she had been dismissed
without just cause, she is entitled to reinstatement without loss of seniority rights and other
privileges and to full back wages, inclusive of allowances and other benefits or their monetary
equivalent. 30 However, as she had undeniably committed an act of dishonesty in concealing
her status, albeit under the compulsion of an unlawful imposition of petitioner, the three-
month suspension imposed by respondent NLRC must be upheld to obviate the impression
or inference that such act should be condoned. It would be unfair to the employer if she were
to return to its fold without any sanction whatsoever for her act which was not totally justified.
Thus, her entitlement to back wages, which shall be computed from the time her
compensation was withheld up to the time of her actual reinstatement, shall be reduced by
deducting therefrom the amount corresponding to her three months suspension.
4. The government, to repeat, abhors any stipulation or policy in the nature of that adopted by
petitioner PT & T. The Labor Code state, in no uncertain terms, as follows:
Art. 136. Stipulation against marriage. — It shall be unlawful for an employer
to require as a condition of employment or continuation of employment that a
woman 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 marriage.
This provision had a studied history for its origin can be traced to Section 8 of Presidential
Decree No. 148, 31 better known as the "Women and
Child Labor Law," which amended paragraph (c), Section 12 of Republic Act No.
679, 32 entitled "An Act to Regulate the Employment of Women and Children, to Provide
Penalties for Violations Thereof, and for Other Purposes." The forerunner to Republic Act No.
679, on the other hand, was Act No. 3071 which became law on March 16, 1923 and which
regulated the employment of women and children in shops, factories, industrial, agricultural,
and mercantile establishments and other places of labor in the then Philippine Islands.
It would be worthwhile to reflect upon and adopt here the rationalization in Zialcita, et
al. vs. Philippine Air Lines, 33 a decision that emanated from the Office of the President.
There, a policy of Philippine Air Lines requiring that prospective flight attendants must be
single and that they will be automatically separated from the service once they marry was
declared void, it being violative of the clear mandate in Article 136 of the Labor Code with
regard to discrimination against married women. Thus:
Of first impression is the incompatibility of the respondent's policy or
regulation with the codal provision of law. Respondent is resolute in its
contention that Article 136 of the Labor Code applies only to women
employed in ordinary occupations and that the prohibition against marriage of
women engaged in extraordinary occupations, like flight attendants, is fair
and reasonable, considering the pecularities of their chosen profession.
We cannot subscribe to the line of reasoning pursued by respondent. All
along, it knew that the controverted policy has already met its doom as early
as March 13, 1973 when Presidential Decree No. 148, otherwise known as
the Women and Child Labor Law, was promulgated. But for the timidity of
those affected or their labor unions in challenging the validity of the policy,
the same was able to obtain a momentary reprieve. A close look at Section 8
of said decree, which amended paragraph (c) of Section 12 of Republic Act
No. 679, reveals that it is exactly the same provision reproduced verbatim in
Article 136 of the Labor Code, which was promulgated on May 1, 1974 to
take effect six (6) months later, or on November 1, 1974.
It cannot be gainsaid that, with the reiteration of the same provision in the
new Labor Code, all policies and acts against it are deemed illegal and
therefore abrogated. True, Article 132 enjoins the Secretary of Labor to
establish standards that will ensure the safety and health of women
employees and in appropriate cases shall by regulation require employers to
determine appropriate minimum standards for termination in special
occupations, such as those of flight attendants, but that is precisely the factor
that militates against the policy of respondent. The standards have not yet
been established as set forth in the first paragraph, nor has the Secretary of
Labor issued any regulation affecting flight attendants.
It is logical to presume that, in the absence of said standards or regulations
which are as yet to be established, the policy of respondent against marriage
is patently illegal. This finds support in Section 9 of the New Constitution,
which provides:
Sec. 9. The State shall afford protection to labor, promote full employment
and equality in employment, ensure equal work opportunities regardless of
sex, race, or creed, and regulate the relations between workers and
employees. The State shall assure the rights of workers to self-organization,
collective bargaining, security of tenure, and just and humane conditions of
work . . . .
Moreover, we cannot agree to the respondent's proposition that termination
from employment of flight attendants on account of marriage is a fair and
reasonable standard designed for their own health, safety, protection and
welfare, as no basis has been laid therefor. Actually, respondent claims that
its concern is not so much against the continued employment of the flight
attendant merely by reason of marriage as observed by the Secretary of
Labor, but rather on the consequence of marriage-pregnancy. Respondent
discussed at length in the instant appeal the supposed ill effects of
pregnancy on flight attendants in the course of their employment. We feel
that this needs no further discussion as it had been adequately explained by
the Secretary of Labor in his decision of May 2, 1976.
In a vain attempt to give meaning to its position, respondent went as far as
invoking the provisions of Articles 52 and 216 of the New Civil Code on the
preservation of marriage as an inviolable social institution and the family as a
basic social institution, respectively, as bases for its policy of non-marriage.
In both instances, respondent predicates absence of a flight attendant from
her home for long periods of time as contributory to an unhappy married life.
This is pure conjecture not based on actual conditions, considering that, in
this modern world, sophisticated technology has narrowed the distance from
one place to another. Moreover, respondent overlooked the fact that married
flight attendants can program their lives to adapt to prevailing circumstances
and events.
Article 136 is not intended to apply only to women employed in ordinary
occupations, or it should have categorically expressed so. The sweeping
intendment of the law, be it on special or ordinary occupations, is reflected in
the whole text and supported by Article 135 that speaks of non-discrimination
on the employment of women.
The judgment of the Court of Appeals in Gualberto, et al. vs. Marinduque Mining & Industrial
Corporation 34considered as void a policy of the same nature. In said case, respondent, in
dismissing from the service the complainant, invoked a policy of the firm to consider female
employees in the project it was undertaking as separated the moment they get married due to
lack of facilities for married women. Respondent further claimed that complainant was
employed in the project with an oral understanding that her services would be terminated
when she gets married. Branding the policy of the employer as an example of "discriminatory
chauvinism" tantamount to denying equal employment opportunities to women simply on
account of their sex, the appellate court struck down said employer policy as unlawful in view
of its repugnance to the Civil Code, Presidential Decree No. 148 and the Constitution.
Under American jurisprudence, job requirements which establish employer preference or
conditions relating to the marital status of an employee are categorized as a "sex-plus"
discrimination where it is imposed on one sex and not on the other. Further, the same should
be evenly applied and must not inflict adverse effects on a racial or sexual group which is
protected by federal job discrimination laws. Employment rules that forbid or restrict the
employment of married women, but do not apply to married men, have been held to violate
Title VII of the United States Civil Rights Act of 1964, the main federal statute prohibiting job
discrimination against employees and applicants on the basis of, among other things, sex. 35
Further, it is not relevant that the rule is not directed against all women but just against
married women. And, where the employer discriminates against married women, but not
against married men, the variable is sex and the discrimination is unlawful. 36 Upon the other
hand, 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. Thus, in
one case, a no-marriage rule applicable to both male and female flight attendants, was
regarded as unlawful since the restriction was not related to the job performance of the flight
attendants. 37
5. Petitioner's policy is not only in derogation of the provisions of Article 136 of the Labor
Code on the right of a woman to be free from any kind of stipulation against marriage in
connection with her employment, but it likewise assaults good morals and public policy,
tending as it does to deprive a woman of the freedom to choose her status, a privilege that by
all accounts inheres in the individual as an intangible and inalienable right. 38 Hence, while it
is true that the parties to a contract may establish any agreements, terms, and conditions that
they may deem convenient, the same should not be contrary to law, morals, good customs,
public order, or public policy. 39 Carried to its logical consequences, it may even be said that
petitioner's policy against legitimate marital bonds would encourage illicit or common-law
relations and subvert the sacrament of marriage.
Parenthetically, the Civil Code provisions on the contract of labor state that the relations
between the parties, that is, of capital and labor, are not merely contractual, impressed as
they are with so much public interest that the same should yield to the common good. 40 It
goes on to intone that neither capital nor labor should visit acts of oppression against the
other, nor impair the interest or convenience of the public. 41 In the final reckoning, the danger
of just such a policy against marriage followed by petitioner PT & T is that it strikes at the very
essence, ideals and purpose of marriage as an inviolable social institution and, ultimately, of
the family as the foundation of the nation. 42 That it must be effectively interdicted here in all
its indirect, disguised or dissembled forms as discriminatory conduct derogatory of the laws of
the land is not only in order but imperatively required.
ON THE FOREGOING PREMISES, the petition of Philippine Telegraph and Telephone
Company is hereby DISMISSED for lack of merit, with double costs against petitioner.
SO ORDERED.
A.M. No. 02-2-10-SC December 14, 2005
RE: REQUEST OF MUSLIM EMPLOYEES IN THE DIFFERENT COURTS IN ILIGAN CITY
(RE: OFFICE HOURS)
RESOLUTION
CALLEJO, SR., J.:
In their Letter dated November 19, 2001 addressed to Executive Judge Valerio M. Salazar,
Regional Trial Court of Iligan City, several Muslim employees in the different courts in the
said city request that they be allowed to enjoy the following privileges:
1. to hold office hours from 7:30 a.m. to 3:30 p.m. without lunch break or coffee breaks during
the month of Ramadan;
2. to be excused from work from 10:00 a.m. to 2:00 p.m. every Friday (Muslim Prayer Day)
during the entire calendar year.
Judge Salazar forwarded the said letter-request to the Office of the Court Administrator
(OCA). Judge Salazar expressed his conformity with the first request, i.e., allowing them to
hold office from 7:30 a.m. to 3:30 p.m. without any break during the month of Ramadan.
However, he expressed some misgivings about the second request, i.e., excusing them from
work from 10:00 a.m. to 2:00 p.m. every Friday during the entire calendar year.
In support of their requests, the Muslim employees invoke Presidential Decree (P.D.) No.
2911 as amended by P.D. No. 3222 enacted by then President Ferdinand E. Marcos. The
avowed purpose of P.D. No. 291 was to reinforce national unity by recognizing Muslim
holidays and making them part of our national holidays. Section 2 thereof, as amended by
P.D. No. 322, provides that the following are recognized Muslim holidays:
a. Eid-ul-Fitr (Hariraya Puasa) - which falls on the 1st day of the lunar month of Shawwal
commemorating the end of the fasting season;
b. Eid-ul-Adha (Hariraya Haj) - which falls on the 10th day of the 12th Lunar month of Zul
Hajj;
c. Mauledan Nabi - Birthday of Prophet Mohammad (P.B.U.H), which falls on the 12th day of
the 3rd Lunar month of Rabbiol-Awwal;
d. Lailatul Isra Wal Miraj - (Ascension) which falls on the 27th day of the 8th Lunar month of
Rajjab;
e. Muharram (Ashura) - which falls on the 10th Lunar month of Muharram; and
f. Amon Jaded (New Year) - which falls on the 1st day of the 1st Lunar month of Muharram.
Muslims employees in the government are excused from reporting to office during these
holidays in order that they may be able to properly observe them.
Section 3 of the same law, as amended by P.D. No. 322, further provides that:
Sec. 3. (a) During the fasting season on the month of Ramadan, all Muslim employees in the
national government, government-owned or controlled corporations, provinces, cities,
municipalities and other instrumentalities shall observe office hours from seven-thirty in the
morning (7:30 a.m.) to three-thirty in the afternoon (3:30 p.m.) without lunch break or coffee
breaks, and that there shall be no diminution of salary or wages, provided, that the employee
who is not fasting is not entitled to the benefit of this provision.
(b) Regulations for the implementation of this section shall be issued together with the
implementing directives on Muslim holidays.
Pursuant thereto, the Civil Service Commission (CSC) promulgated Resolution No. 81-1277
dated November 13, 1981 which states in part:
2. During "Ramadan" the Fasting month (30 days) of the Muslims, the Civil Service official
time of 8 o’clock to 12 o’clock and 1 o’clock to 5 o’clock is hereby modified to 7:30 A.M. to
3:30 P.M. without noon break and the difference of 2 hours is not counted as undertime;
3. During Friday, the Muslim pray day, Muslims are excused from work from 10 o’clock in the
morning to 2 o’clock in the afternoon.
Moreover, in its Resolution No. 00-0227 dated January 26, 2000, the CSC clarified that the
term "Friday" in the above resolution is not limited to the Fridays during the month
of Ramadan, but refers to "all Fridays of the
calendar year." However, in order not to run afoul of Section 5,3 Rule XVII of the Omnibus
Rules Implementing Book V of Executive Order (E.O.) No. 2924 which enjoins civil servants to
render public service not less than eight hours a day or forty (40) hours a week, the CSC
prescribes the adoption of a flexible working schedule to accommodate the Muslims’ Friday
Prayer Day subject to certain conditions, e.g., the flexible working hours shall not start earlier
than 7:00 a.m. and end not later than 7:00 p.m.5
In the Resolution dated October 1, 2002, the Court required the Court Administrator to study
the matter. In compliance therewith, Court Administrator Presbitero J. Velasco, Jr.
recommends that the Muslim employees in the Judiciary be allowed to hold flexible office
hours from 7:30 a.m. to 3:30 p.m. without break during the month of Ramadan. Further, that
they be excused from work from 10:00 a.m. to 2:00 p.m. every Friday to allow them to attend
the Muslim Prayer Day. However, to compensate for the lost hours, they should be required
to observe flexible working schedule which should start from 7:00 a.m. to 10:00 a.m. and from
2:00 p.m. to 7:00 p.m. every Friday. In that way, the working hours mandated by the civil
service rules is complied with.
The recommendation of the Court Administrator with respect to the matter of allowing the
Muslim employees in the Judiciary to hold flexible office hours from 7:30 a.m. to 3:30 p.m.
without break during the month of Ramadan is well taken. The same has statutory basis in
Section 3 (a) of P.D. No. 291, as amended by P.D. No. 322, which categorically states that
"[d]uring the fasting season in the month of Ramadan, all Muslim employees in the national
government, government-owned or controlled corporations, provinces, cities, municipalities
and other instrumentalities shall observe office hours from seven-thirty in the morning (7:30
a.m.) to three-thirty in the afternoon (3:30 p.m.) without lunch break or coffee breaks, and that
there shall be no diminution of salary or wages ..."
The Court, however, is constrained to deny for lack of statutory basis the request of the
Muslim employees to be excused from work from 10:00 a.m. to 2:00 p.m. every Friday to
allow them to attend the Muslim Prayer Day. As correctly observed by Atty. Edna Diño, Chief,
Office of the Court Attorney, in her Report dated May 13, 2005, the CSC exceeded its
authority insofar as it declared in Resolution No. 81-1277 and Resolution No. 00-0227 that
Muslim employees are excused from work from 10:00 a.m. to 2:00 p.m.
every Friday subject to certain conditions. CSC Resolution No. 81-1277 was purportedly
issued pursuant to Sections 2 and 5 of P.D. No. 291, as amended by P.D. No 322, but neither
of the two decrees mention "Friday, the Muslim Prayer Day" as one of the recognized
holidays.
The Court is not unmindful that the subject requests are grounded on Section 5, Article III of
the Constitution:
No law shall be made respecting an establishment of religion, or prohibiting the free exercise
thereof. The exercise and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No religious test shall be required for
the exercise of civil and political rights.
This provision contains two aspects: (1) the non-establishment clause; and (2) the free
exercise clause. The subject requests are based on the latter and in interpreting this clause
(the free exercise clause) embodied in the Constitution, the Court has consistently adhered to
the doctrine that:
The right to religious profession and worship has a two-fold aspect, viz., freedom to believe
and freedom to act on one’s beliefs. The first is absolute as long as the belief is confined
within the realm of thought. The second is subject to regulation where the belief is translated
into external acts that affect the public welfare.6
Justice Isagani A. Cruz explained these two concepts in this wise:
(1) Freedom to Believe
The individual is free to believe (or disbelieve) as he pleases concerning the hereafter. He
may indulge his own theories about life and death; worship any god he chooses, or none at
all; embrace or reject any religion; acknowledge the divinity of God or of any being that
appeals to his reverence; recognize or deny the immortality of his soul – in fact, cherish any
religious conviction as he and he alone sees fit. However absurd his beliefs may be to others,
even if they be hostile and heretical to the majority, he has full freedom to believe as he
pleases. He may not be required to prove his beliefs. He may not be punished for his inability
to do so. Religion, after all, is a matter of faith. "Men may believe what they cannot prove."
Every one has a right to his beliefs and he may not be called to account because he cannot
prove what he believes.
(2) Freedom to Act on One’s Beliefs
But where the individual externalizes his beliefs in acts or omissions that affect the public, his
freedom to do so becomes subject to the authority of the State. As great as this liberty may
be, religious freedom, like all other rights guaranteed in the Constitution, can be enjoyed only
with a proper regard for the rights of others. It is error to think that the mere invocation of
religious freedom will stalemate the State and render it impotent in protecting the general
welfare. The inherent police power can be exercised to prevent religious practices inimical to
society. And this is true even if such practices are pursued out of sincere religious conviction
and not merely for the purpose of evading the reasonable requirements or prohibitions of the
law.
Justice Frankfurter put it succinctly: The constitutional provision on religious freedom
terminated disabilities, it did not create new privileges. It gave religious liberty, not civil
immunity. Its essence is freedom from conformity to religious dogma, not freedom from
conformity to law because of religious dogma.7
The Court recognizes that the observance of Ramadan and the Friday Muslim Prayer Day is
integral to the Islamic faith. However, while the observance of Ramadan and allowing the
Muslim employees in the Judiciary to hold flexible office hours from 7:30 a.m. to 3:30 p.m.
without any break during the month of Ramadan finds support in Section 3 (a) of P.D. No.
291, as amended by P.D. No. 322, there is no such basis to excuse them from work from
10:00 a.m. to 2:00 p.m. every Friday, the Muslim Prayer Day, during the entire calendar year.
On the other hand, the need of the State to prescribe government office hours as well as to
enforce them uniformly to all civil servants, Christians and Muslims alike, cannot be
disregarded. Underlying Section 5,8 Rule XVII of the Omnibus Rules Implementing Book V of
E.O. No. 292 is the interest of the general public to be assured of continuous government
service during office hours every Monday through Friday. The said rule enjoins all civil
servants, of whatever religious denomination, to render public service of no less than eight
hours a day or forty (40) hours a week.
To allow the Muslim employees in the Judiciary to be excused from work from 10:00 a.m. to
2:00 p.m. every Friday (Muslim Prayer Day) during the entire calendar year would mean a
diminution of the prescribed government working hours. For then, they would be rendering
service twelve (12) hours less than that required by the civil service rules for each month.
Further, this would encourage other religious denominations to request for similar treatment.
The performance of religious practices, whether by the Muslim employees or those belonging
to other religious denominations, should not prejudice the courts and the public. Indeed, the
exercise of religious freedom does not exempt anyone from compliance with reasonable
requirements of the law, including civil service laws.
In fine, the remedy of the Muslim employees, with respect to their request to be excused from
work from 10:00 a.m. to 2:00 p.m. every Friday during the entire calendar year, is legislative,
which is to ask Congress to enact a legislation expressly exempting them from compliance
with the prescribed government working hours.
ACCORDINGLY, the Court resolved to:
1. GRANT the request to allow the Muslim employees in the Judiciary to hold office hours
from 7:30 a.m. to 3:30 p.m. without break during the month of Ramadan pursuant to Section
3 (a) of Presidential Decree No. 291, as amended by Presidential Decree No. 322; and
2. DENY for lack of legal basis the request that the Muslim employees in the Judiciary be
excused from work from 10:00 a.m. to 2:00 p.m. every Friday, the Muslim Prayer Day, during
the entire calendar year.
SO ORDERED.
G.R. No. 128845 June 1, 2000
INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS (ISAE), petitioner,
vs.
HON. LEONARDO A. QUISUMBING in his capacity as the Secretary of Labor and
Employment; HON. CRESENCIANO B. TRAJANO in his capacity as the Acting
Secretary of Labor and Employment; DR. BRIAN MACCAULEY in his capacity as the
Superintendent of International School-Manila; and INTERNATIONAL SCHOOL,
INC., respondents.
KAPUNAN, J.:
Receiving salaries less than their counterparts hired abroad, the local-hires of private
respondent School, mostly Filipinos, cry discrimination. We agree. That the local-hires are
paid more than their colleagues in other schools is, of course, beside the point. The point is
that employees should be given equal pay for work of equal value. That is a principle long
honored in this jurisdiction. That is a principle that rests on fundamental notions of justice.
That is the principle we uphold today.1âwphi1.nêt
Private respondent International School, Inc. (the School, for short), pursuant to Presidential
Decree 732, is a domestic educational institution established primarily for dependents of
foreign diplomatic personnel and other temporary residents.1 To enable the School to
continue carrying out its educational program and improve its standard of instruction, Section
2(c) of the same decree authorizes the School to employ its own teaching and management
personnel selected by it either locally or abroad, from Philippine or other nationalities, such
personnel being exempt from otherwise applicable laws and regulations attending their
employment, except laws that have been or will be enacted for the protection of employees.
Accordingly, the School hires both foreign and local teachers as members of its faculty,
classifying the same into two: (1) foreign-hires and (2) local-hires. The School employs four
tests to determine whether a faculty member should be classified as a foreign-hire or a local
hire:
a. What is one's domicile?
b. Where is one's home economy?
c. To which country does one owe economic allegiance?
d. Was the individual hired abroad specifically to work in the School and was the
School responsible for bringing that individual to the Philippines? 2
Should the answer to any of these queries point to the Philippines, the faculty member is
classified as a local hire; otherwise, he or she is deemed a foreign-hire.
The School grants foreign-hires certain benefits not accorded local-hires.1avvphi1 These
include housing, transportation, shipping costs, taxes, and home leave travel allowance.
Foreign-hires are also paid a salary rate twenty-five percent (25%) more than local-hires. The
School justifies the difference on two "significant economic disadvantages" foreign-hires have
to endure, namely: (a) the "dislocation factor" and (b) limited tenure. The School explains:
A foreign-hire would necessarily have to uproot himself from his home country, leave
his family and friends, and take the risk of deviating from a promising career path —
all for the purpose of pursuing his profession as an educator, but this time in a foreign
land. The new foreign hire is faced with economic realities: decent abode for oneself
and/or for one's family, effective means of transportation, allowance for the education
of one's children, adequate insurance against illness and death, and of course the
primary benefit of a basic salary/retirement compensation.
Because of a limited tenure, the foreign hire is confronted again with the same
economic reality after his term: that he will eventually and inevitably return to his
home country where he will have to confront the uncertainty of obtaining suitable
employment after along period in a foreign land.
The compensation scheme is simply the School's adaptive measure to remain
competitive on an international level in terms of attracting competent professionals in
the field of international education.3
When negotiations for a new collective bargaining agreement were held on June 1995,
petitioner International School Alliance of Educators, "a legitimate labor union and the
collective bargaining representative of all faculty members"4 of the School, contested the
difference in salary rates between foreign and local-hires. This issue, as well as the question
of whether foreign-hires should be included in the appropriate bargaining unit, eventually
caused a deadlock between the parties.
On September 7, 1995, petitioner filed a notice of strike. The failure of the National
Conciliation and Mediation Board to bring the parties to a compromise prompted the
Department of Labor and Employment (DOLE) to assume jurisdiction over the dispute. On
June 10, 1996, the DOLE Acting Secretary, Crescenciano B. Trajano, issued an Order
resolving the parity and representation issues in favor of the School. Then DOLE Secretary
Leonardo A. Quisumbing subsequently denied petitioner's motion for reconsideration in an
Order dated March 19, 1997. Petitioner now seeks relief in this Court.
Petitioner claims that the point-of-hire classification employed by the School is discriminatory
to Filipinos and that the grant of higher salaries to foreign-hires constitutes racial
discrimination.
The School disputes these claims and gives a breakdown of its faculty members, numbering
38 in all, with nationalities other than Filipino, who have been hired locally and classified as
local hires.5 The Acting Secretary of Labor found that these non-Filipino local-hires received
the same benefits as the Filipino local-hires.
The compensation package given to local-hires has been shown to apply to all,
regardless of race. Truth to tell, there are foreigners who have been hired locally and
who are paid equally as Filipino local hires.6
The Acting secretary upheld the point-of-hire classification for the distinction in salary rates:
The Principle "equal pay for equal work" does not find applications in the present
case. The international character of the School requires the hiring of foreign
personnel to deal with different nationalities and different cultures, among the student
population.
We also take cognizance of the existence of a system of salaries and benefits
accorded to foreign hired personnel which system is universally recognized. We
agree that certain amenities have to be provided to these people in order to entice
them to render their services in the Philippines and in the process remain competitive
in the international market.
Furthermore, we took note of the fact that foreign hires have limited contract of
employment unlike the local hires who enjoy security of tenure. To apply parity
therefore, in wages and other benefits would also require parity in other terms and
conditions of employment which include the employment which include the
employment contract.
A perusal of the parties' 1992-1995 CBA points us to the conditions and provisions
for salary and professional compensation wherein the parties agree as follows:
All members of the bargaining unit shall be compensated only in accordance
with Appendix C hereof provided that the Superintendent of the School has
the discretion to recruit and hire expatriate teachers from abroad, under
terms and conditions that are consistent with accepted international practice.
Appendix C of said CBA further provides:
The new salary schedule is deemed at equity with the Overseas Recruited
Staff (OSRS) salary schedule. The 25% differential is reflective of the agreed
value of system displacement and contracted status of the OSRS as
differentiated from the tenured status of Locally Recruited Staff (LRS).
 To our mind, these provisions demonstrate the parties' recognition of the difference in
the status of two types of employees, hence, the difference in their salaries.
The Union cannot also invoke the equal protection clause to justify its claim of parity.
It is an established principle of constitutional law that the guarantee of equal
protection of the laws is not violated by legislation or private covenants based on
reasonable classification. A classification is reasonable if it is based on substantial
distinctions and apply to all members of the same class. Verily, there is a substantial
distinction between foreign hires and local hires, the former enjoying only a limited
tenure, having no amenities of their own in the Philippines and have to be given a
good compensation package in order to attract them to join the teaching faculty of the
School.7
We cannot agree.
That public policy abhors inequality and discrimination is beyond contention. Our Constitution
and laws reflect the policy against these evils. The Constitution 8 in the Article on Social
Justice and Human Rights exhorts Congress to "give highest priority to the enactment of
measures that protect and enhance the right of all people to human dignity, reduce social,
economic, and political inequalities." The very broad Article 19 of the Civil Code requires
every person, "in the exercise of his rights and in the performance of his duties, [to] act with
justice, give everyone his due, and observe honesty and good faith.
International law, which springs from general principles of law,9 likewise proscribes
discrimination. General principles of law include principles of equity, 10 i.e., the general
principles of fairness and justice, based on the test of what is reasonable. 11 The Universal
Declaration of Human Rights, 12 the International Covenant on Economic, Social, and Cultural
Rights, 13 the International Convention on the Elimination of All Forms of Racial
Discrimination, 14 the Convention against Discrimination in Education, 15 the Convention (No.
111) Concerning Discrimination in Respect of Employment and Occupation 16 — all embody
the general principle against discrimination, the very antithesis of fairness and justice. The
Philippines, through its Constitution, has incorporated this principle as part of its national
laws.
In the workplace, where the relations between capital and labor are often skewed in favor of
capital, inequality and discrimination by the employer are all the more reprehensible.
The Constitution 17 specifically provides that labor is entitled to "humane conditions of work."
These conditions are not restricted to the physical workplace — the factory, the office or the
field — but include as well the manner by which employers treat their employees.
The Constitution 18 also directs the State to promote "equality of employment opportunities for
all." Similarly, the Labor Code 19 provides that the State shall "ensure equal work
opportunities regardless of sex, race or creed." It would be an affront to both the spirit and
letter of these provisions if the State, in spite of its primordial obligation to promote and
ensure equal employment opportunities, closes its eyes to unequal and discriminatory terms
and conditions of employment. 20
Discrimination, particularly in terms of wages, is frowned upon by the Labor Code. Article
135, for example, prohibits and penalizes 21 the payment of lesser compensation to a female
employee as against a male employee for work of equal value. Article 248 declares it an
unfair labor practice for an employer to discriminate in regard to wages in order to encourage
or discourage membership in any labor organization.
Notably, the International Covenant on Economic, Social, and Cultural Rights, supra, in
Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right of everyone to the
enjoyment of just and favourable conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
(i) Fair wages and equal remuneration for work of equal value
without distinction of any kind, in particular women being guaranteed
conditions of work not inferior to those enjoyed by men, with equal
pay for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this jurisdiction the long honored legal
truism of "equal pay for equal work." Persons who work with substantially equal qualifications,
skill, effort and responsibility, under similar conditions, should be paid similar salaries. 22 This
rule applies to the School, its "international character" notwithstanding.
The School contends that petitioner has not adduced evidence that local-hires perform work
equal to that of foreign-hires. 23 The Court finds this argument a little cavalier. If an employer
accords employees the same position and rank, the presumption is that these employees
perform equal work. This presumption is borne by logic and human experience. If the
employer pays one employee less than the rest, it is not for that employee to explain why he
receives less or why the others receive more. That would be adding insult to injury. The
employer has discriminated against that employee; it is for the employer to explain why the
employee is treated unfairly.
The employer in this case has failed to discharge this burden. There is no evidence here that
foreign-hires perform 25% more efficiently or effectively than the local-hires. Both groups
have similar functions and responsibilities, which they perform under similar working
conditions.
The School cannot invoke the need to entice foreign-hires to leave their domicile to
rationalize the distinction in salary rates without violating the principle of equal work for equal
pay.
"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or recompense for
services performed." Similarly, the Philippine Legal Encyclopedia states that "salary" is the
"[c]onsideration paid at regular intervals for the rendering of services." In Songco v. National
Labor Relations Commission, 24 we said that:
"salary" means a recompense or consideration made to a person for his pains or
industry in another man's business. Whether it be derived from "salarium," or more
fancifully from "sal," the pay of the Roman soldier, it carries with it the fundamental
idea of compensation for services rendered. (Emphasis supplied.)
While we recognize the need of the School to attract foreign-hires, salaries should not be
used as an enticement to the prejudice of local-hires. The local-hires perform the same
services as foreign-hires and they ought to be paid the same salaries as the latter. For the
same reason, the "dislocation factor" and the foreign-hires' limited tenure also cannot serve
as valid bases for the distinction in salary rates. The dislocation factor and limited tenure
affecting foreign-hires are adequately compensated by certain benefits accorded them which
are not enjoyed by local-hires, such as housing, transportation, shipping costs, taxes and
home leave travel allowances.
The Constitution enjoins the State to "protect the rights of workers and promote their
welfare," 25 "to afford labor full protection." 26 The State, therefore, has the right and duty to
regulate the relations between labor and capital. 27 These relations are not merely contractual
but are so impressed with public interest that labor contracts, collective bargaining
agreements included, must yield to the common good. 28 Should such contracts contain
stipulations that are contrary to public policy, courts will not hesitate to strike down these
stipulations.
In this case, we find the point-of-hire classification employed by respondent School to justify
the distinction in the salary rates of foreign-hires and local hires to be an invalid classification.
There is no reasonable distinction between the services rendered by foreign-hires and local-
hires. The practice of the School of according higher salaries to foreign-hires contravenes
public policy and, certainly, does not deserve the sympathy of this Court.1avvphi1
We agree, however, that foreign-hires do not belong to the same bargaining unit as the local-
hires.
A bargaining unit is "a group of employees of a given employer, comprised of all or less than
all of the entire body of employees, consistent with equity to the employer, indicate to be the
best suited to serve the reciprocal rights and duties of the parties under the collective
bargaining provisions of the law." 29 The factors in determining the appropriate collective
bargaining unit are (1) the will of the employees (Globe Doctrine); (2) affinity and unity of the
employees' interest, such as substantial similarity of work and duties, or similarity of
compensation and working conditions (Substantial Mutual Interests Rule); (3) prior collective
bargaining history; and (4) similarity of employment status. 30 The basic test of an asserted
bargaining unit's acceptability is whether or not it is fundamentally the combination which will
best assure to all employees the exercise of their collective bargaining rights. 31
It does not appear that foreign-hires have indicated their intention to be grouped together with
local-hires for purposes of collective bargaining. The collective bargaining history in the
School also shows that these groups were always treated separately. Foreign-hires have
limited tenure; local-hires enjoy security of tenure. Although foreign-hires perform similar
functions under the same working conditions as the local-hires, foreign-hires are accorded
certain benefits not granted to local-hires. These benefits, such as housing, transportation,
shipping costs, taxes, and home leave travel allowance, are reasonably related to their status
as foreign-hires, and justify the exclusion of the former from the latter. To include foreign-
hires in a bargaining unit with local-hires would not assure either group the exercise of their
respective collective bargaining rights.
WHEREFORE, the petition is GIVEN DUE COURSE. The petition is hereby GRANTED IN
PART. The Orders of the Secretary of Labor and Employment dated June 10, 1996 and
March 19, 1997, are hereby REVERSED and SET ASIDE insofar as they uphold the practice
of respondent School of according foreign-hires higher salaries than local-hires.
SO ORDERED.
G.R. No. L-87672 October 13, 1989
WISE AND CO., INC., petitioner,
vs.
WISE & CO., INC. EMPLOYEES UNION-NATU AND HONORABLE BIENVENIDO G.
LAGUESMA, in his capacity as voluntary Arbitrator, respondents.
GANCAYCO, J.:
The center of controversy in this petition is whether the grant by management of profit sharing
benefits to its non-union member employees is discriminatory against its workers who are
union members.
The facts are undisputed. On April 3,1987 the management issued a memorandum circular
introducing a profit sharing scheme for its managers and supervisors the initial distribution of
which was to take effect March 31, 1988.
On July 3,1987 the respondent union wrote petitioner through its president asking for
participation in this scheme. This was denied by petitioner on the ground that it had to adhere
strictly to the Collective Bargaining Agreement (CBA).
In the meantime, talks were underway for early negotiation by the parties of the CBA which
was due to expire on April 30, 1988. The negotiation thus begun earlier than the freedom
period. On November 11, 1987 petitioner wrote respondent union advising the latter that they
were prepared to consider including the employees covered by the CBA in the profit sharing
scheme beginning the year 1987 provided that the ongoing negotiations were concluded prior
to December 1987. However, the collective bargaining negotiations reached a deadlock on
the issue of the scope of the bargaining unit. Conciliation efforts to settle the dispute on 29
March 1988 were made but no settlement was reached.
On March 30, 1988, petitioner distributed the profit sharing benefit not only to managers and
supervisors but also to all other rank and file employees not covered by the CBA. This
caused the respondent union to file a notice of strike alleging that petitioner was guilty of
unfair labor practice because the union members were discriminated against in the grant of
the profit sharing benefits. Consequently, management refused to proceed with the CBA
negotiations unless the last notice of strike was first resolved. The union agreed to postpone
discussions on the profit sharing demand until a new CBA was concluded. After a series of
conciliation conferences, the parties agreed to settle the dispute through voluntary arbitration.
After the parties submitted their position papers, a rejoinder and reply, on March 20,1989 the
voluntary arbitrator issued an award ordering petitioner to likewise extend the benefits of the
1987 profit sharing scheme to the members of respondent union.1 Hence, this petition
wherein petitioner alleged the following grounds in support thereof —
I There can be no discrimination committed by petitioner thereby as the situation of the union
THE HONORABLE VOLUNTARY ARBITRATOR ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN HE ORDERED THE EXTENSION OF PROFIT
SHARING BENEFITS TO THOSE EMPLOYEES COVERED BY THE CBA
DESPITE PATENT LACK OF FACTUAL AND LEGAL BASIS THEREFOR IN
THAT-
1. DISCRIMINATION PER SE IS NOT UNLAWFUL
ESPECIALLY WHEN THE EMPLOYEES ARE NOT
SIMILARLY SITUATED.
2. THE TERMS AND CONDITIONS STIPULATED IN THE
CBA HAVE THE FORCE AND EFFECT OF A LAW
BETWEEN THE PARTIES. PRIVATE RESPONDENT,
THEREFORE CANNOT DEMAND, AS A MATTER OF
RIGHT, WHAT IS NOT STIPULATED IN THE CBA.
3. THE ACT OF THE UNION IN NEGOTIATING FOR THE
INCLUSION OF THE PROFIT SHARING BENEFIT IN THE
PRESENT CBA IS AN IMPLIED ADMISSION THAT THEY
WERE NOT ENTITLED TO IT IN 1987.
II
THE HONORABLE VOLUNTARY ARBITRATOR COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN HE MADE THE CLEARLY BASELESS
CONCLUSION THAT THE PETITIONER WAS MOTIVATED BY ITS DESIRE
TO DEFEAT OR OTHERWISE PREJUDICE THE BASIC RIGHTS OF ITS
EMPLOYEES. 2
The petition is impressed with merit.
Under the CBA between the parties that was in force and effect from May 1, 1985 to April
30,1988 it was agreed that the "bargaining unit" covered by the CBA "consists of all regular or
permanent employees, below the rank of assistant supervisor, 3 Also expressly excluded from
the term "appropriate bargaining unit" are all regular rank and file employees in the office of
the president, vice-president, and the other offices of the company — personnel office,
security office, corporate affairs office, accounting and treasurer department . 4
It is to this class of employees who were excluded in the "bargaining unit" and who do not
derive benefits from the CBA that the profit sharing privilege was extended by petitioner.
employees are different and distinct from the non-union employees. 5 Indeed, discrimination
per se is not unlawful. There can be no discrimination where the employees concerned are
not similarly situated.
Respondent union can not claim that there is grave abuse of discretion by the petitioner in
extending the benefits of profit sharing to the non-union employees as they are two (2)
groups not similarly situated. These non-union employees are not covered by the CBA. They
do not derive and enjoy the benefits under the CBA.
The contention of the respondent union that the grant to the non-union employees of the
profit sharing benefits was made at a time when there was a deadlock in the CBA negotiation
so that apparently the motive thereby was to discourage such non-union employees from
joining the union is not borne by the record. Petitioner denies this accusation and instead
points out that inspite of this benefit extended to them, some non-union workers actually
joined the respondent union thereafter.
Respondent union also decries that no less than the president of the petitioner agreed to
include its members in the coverage of the 1987 profit sharing benefit provided that they
would agree to an earlier negotiation for the renewal of the CBA which expired in 1988. Be
this as it may, since there was actually a deadlock in the negotiation and it was not resolved
and consummated on the period expected, private respondent can not now claim that
petitioner has a duty to extend the profit sharing benefit to the union members.
The Court holds that it is the prerogative of management to regulate, according to its
discretion and judgment, all aspects of employment. This flows from the established rule that
labor law does not authorize the of the employer in the conduct of its business. 6 such
management prerogative may be availed of without fear of any liability so long as it is
exercised in good faith for the advancement of the employers' interest and not for the
purpose of defeating or circumventing the rights of employees under special laws or valid
agreement and are not exercised in a malicious, harsh, oppressive, vindictive or wanton
manner or out of malice or spite.7
The grant by petitioner of profit sharing benefits to the employees outside the "bargaining
unit" falls under the ambit of its managerial prerogative. It appears to have been done in good
faith and without ulterior motive. More so when as in this case there is a clause in the CBA
where the employees are classified into those who are members of the union and those who
are not. In the case of the union members, they derive their benefits from the terms and
conditions of the CBA contract which constitute the law between the contracting
parties.8 Both the employer and the union members are bound by such agreement.
However, the court serves notice that it will not hesitate to strike down any act of the
employer that tends to be discriminatory against union members. It is only because of the
peculiar circumstances of this case showing there is no such intention that this court ruled
otherwise.
WHEREFORE, the petition is GRANTED and the award of respondent Voluntary Arbitrator
dated March 20,1989 is hereby REVERSED AND SET ASIDE being null and void, without
pronouncement as to costs.
SO ORDERED.
G.R. No. 163512 February 28, 2007
DAISY B. TIU, Petitioner
vs.
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 ₱100,000 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 ₱100,000 as compensatory damages; ₱200,000 as moral
damages; ₱100,000 as exemplary damages; and 25% of the total amount due plus ₱1,000
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:
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
UNCONSCIONABLE7
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.
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.1awphi1.net
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 ₱100,000 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.
G.R. No. 164774 April 12, 2006
STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN
CHUA, Petitioners,
vs.
RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E. ESTRELLA, Respondents.
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
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 Zuñiga (Zuñiga), also a co-worker.
Petitioners stated that Zuñiga, 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 Zuñiga 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 attorney’s 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
Respondents filed a Motion for Reconsideration but was denied by the NLRC in a
Resolution11 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 attorney’s 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 voluntary.14
We affirm.
The 1987 Constitution15 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.
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
Unlike in our jurisdiction where there is no express prohibition on marital
discrimination,19 there are twenty state statutes20 in the United States prohibiting marital
discrimination. Some state courts21 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 narrowly25 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 broadly26 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 qualification29 invalidates a rule denying 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 employee’s 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 employer’s
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 Pedro Tecson v. Glaxo Wellcome Philippines, Inc.,34 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 Glaxo has 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 Glaxo’s
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 petitioner’s 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.)
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
rule39 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 employee’s 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 employee’s 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 legislature’s 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 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 Estrella’s contention 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
immoral43 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, Estrella’s
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.1avvphil.net
SO ORDERED.
G.R. No. 136051 June 8, 2006
ALFREDO P. ROSETE, OSCAR P. MAPALO and CHITO P. ROSETE, Petitioners,
vs.
JULIANO LIM and LILIA LIM, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which seeks to set aside the Decision 1 of the
Court of Appeals in CA-G.R. SP No. 45400 dated 24 August 1998 which upheld the Orders of
Branch 77 of the Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-95-25803
dated 22 July 19972 and 27 August 1997,3 allowing the taking of deposition upon oral
examination of petitioners Oscar P. Mapalo and Chito P. Rosete, and its Resolution4 dated 19
October 1998 denying petitioners’ Motion for Reconsideration.
Relevant to the petition are the following antecedents:
On 5 December 1995, respondents Juliano Lim and Lilia Lim filed before Branch 77 of the
RTC of Quezon City a Complaint for Annulment, Specific Performance with Damages against
AFP Retirement and Separation Benefits System (AFP-RSBS), Espreme Realty and
Development Corporation (Espreme Realty), Alfredo P. Rosete, Maj. Oscar Mapalo, Chito P.
Rosete, Bank of the Philippine Islands (BPI), and Register of Deeds of the Province of
Mindoro Occidental, docketed as Civil Case No. Q-95-25803.5 It asked, among other things,
that the Deed of Sale executed by AFP-RSBS covering certain parcels of lands in favor of
Espreme Realty and the titles thereof under the name of the latter be annulled; and that the
AFP-RSBS and Espreme Realty be ordered to execute the necessary documents to restore
ownership and title of said lands to respondents, and that the Register of Deeds be ordered
to cancel the titles of said land under the name of Espreme Realty and to transfer the same in
the names of respondents.
On 18 January 1996, petitioners filed a Motion to Dismiss on the grounds that the court has
no jurisdiction over the subject matter of the action or suit and that venue has been
improperly laid.6 A Supplemental Motion to Dismiss was filed by petitioner Alfredo P. Rosete
on 23 January 1996.7 Respondents opposed the Motion to Dismiss filed by petitioners 8 to
which petitioners filed their Reply.9 Respondents filed a Comment on the Reply.10 AFP-
RSBS,11Espreme Realty,12 and, BPI13 filed their respective Motions to Dismiss which
respondents opposed.
In an Order dated 12 March 1996, the Motions to Dismiss filed by all the defendants were
denied.14 The Motions for Reconsideration filed by petitioners 15 and BPI,16 which respondents
opposed,17 were also denied in an Order dated 24 May 1996.18
On 6 June 1996, BPI filed its Answer with Compulsory Counterclaim and Cross-claim19 to
which respondents filed their Reply and Answer to Counterclaim.20 Respondents also filed a
Motion21 to Serve Supplemental Allegation against BPI and petitioner Chito Rosete which the
trial court granted in an order dated 28 July 1996.22
On 7 June 1996, petitioners manifested that on 5 June 1996, they filed a Petition23 for
Certiorari and Prohibition in the Court of Appeals, docketed as CA-G.R. SP No. 40837,
challenging the trial court’s Orders dated 12 March 1996 and 24 May 1996 that denied their
Motions to Dismiss and Reconsideration, respectively. 24 They likewise informed the trial court
that on 6 June 1996, they filed an Ex-Parte Motion25 to Admit Answers Ex Abudanti
Cautela.26lavvphi1.net
On 7 August 1996, petitioner Chito Rosete filed a motion asking that the order granting the
Motion to Serve Supplemental Allegation against BPI and him be reconsidered and set aside,
and that respondents be ordered to reduce their supplemental allegations in the form and
manner required by the Rules of Court.27 Same was denied in an order dated 12 August
1996.28 This denial was appealed to the Court of Appeals on 26 August 1996, which was
docketed as CA-G.R. SP No. 41821.29
Petitioner Chito Rosete filed his Supplemental Answer (Ex Abudanti Cautela) on 9 September
1996.30
On 28 May 1997, respondents filed a Notice to Take Deposition Upon Oral Examination
giving notice that on June 18 and 20, 1997 at 9:00 a.m., they will cause the deposition of
petitioners Oscar Mapalo and Chito Rosete.31
On 13 June 1997, petitioners filed an Urgent Ex-Parte Motion and Objection to Take
Deposition Upon Oral Examination.32 They argued that the deposition may not be taken
without leave of court as no answer has yet been served and the issues have not yet been
joined since their Answer was filed ex abudanti cautela, pending resolution of the Petition for
Certiorari challenging the orders dated 12 March 1996 and 24 May 1996 that denied their
Motions to Dismiss and for Reconsideration, respectively. This is in addition to the fact that
they challenged via a Petition for Certiorari before the Court of Appeals the lower court’s
Orders dated 23 July 1996 and 12 August 1996 which, respectively, granted respondents’
Motion to Serve Supplemental Allegation Against Defendants BPI and Chito Rosete, and for
the latter to plead thereto, and denied Chito Rosete’s Motion for Reconsideration of the order
dated 23 July 1996. Moreover, they contend that since there are two criminal cases pending
before the City Prosecutors of Mandaluyong City and Pasig City involving the same set of
facts as in the present case wherein respondent Juliano Lim is the private complainant and
petitioners are the respondents, to permit the taking of the deposition would be violative of
their right against self-incrimination because by means of the oral deposition, respondents
would seek to establish the allegations of fact in the complaint which are also the allegations
of fact in the complaint-affidavits in the said criminal cases.
Respondents filed their Comment on the Objection to Deposition Taking33 to which petitioners
filed their Reply.34
In an Order dated 22 July 1997, the lower court denied petitioners’ motion and objection to
take deposition upon oral examination, and scheduled the taking thereof. 35 On 7 August
1997, petitioners filed a Motion for Reconsideration.36 They filed a Supplemental Motion for
Reconsideration on 11 August 1997.37
On 13 August 1997, petitioners filed an Urgent Ex-parte Motion to Cancel or Suspend the
Taking of the Deposition Upon Oral Examination.38
In an Order dated 27 August 1997, the lower court denied petitioners’ Motion for
Reconsideration and Supplemental Motion for Reconsideration, and scheduled the taking of
the Deposition Upon Oral Examination.39
On 22 September1997, respondents filed an Omnibus Motion: (1) To Strike Out Answer of
Defendants Mapalo and Chito Rosete; (2) to Declare Defendants Mapalo and Chito Rosete In
Default; and (3) For Reception of Plaintiffs’ Evidence Ex-parte,40 which petitioners opposed.41
On 29 September 1997, petitioners filed with the Court of Appeals a Petition for Certiorari and
Prohibition (CA-G.R. SP No. 45400) assailing the Orders of the lower court dated 22 July
1997 and 27 August 1997.42
In an Order dated 29 October 1997, the lower court: (1) ordered the striking out from the
record of the Answer ex abudanti cautela filed by petitioners Mapalo and Chito Rosete for
their continued unjustified refusal to be sworn pursuant to Rule 29 of the 1997 Rules of Civil
Procedure; (2) declared defendants Mapalo and Chito Rosete in default; and I allowed
plaintiffs to present their evidence ex-parte as regards the latter.43 On 25 November 1997,
petitioners filed an Urgent Ex-parte Omnibus Motion (1) For Reconsideration; (2) To Lift
Order of Default; and (3) To Hold In Abeyance Presentation of Plaintiffs’ Evidence Ex-
parte.44 The day after, petitioners filed an Amended Omnibus Motion.45
On 28 November 1997, respondents filed a Motion to Set Case for Ex-parte Presentation of
Evidence46 which the lower court set for 11 December 1997.47
In an Order dated 11 December 1997, the lower court denied petitioners’ urgent ex-parte
omnibus motion.48 On even date, the ex-parte presentation of evidence against petitioners
Mapalo and Chito Rosete was terminated.49
On 10 February 1998, petitioners filed a Petition50 for Certiorari and Prohibition before the
Court of Appeals (CA-G.R. SP No. 46774) questioning the lower court’s Orders dated 29
October 1997 and 11 December 1997.51
On 24 August 1998, the Court of Appeals dismissed the Petition for Certiorari and Prohibition,
and upheld the Orders of the lower court dated 22 July 1997 and 27 August 1997 (CA-G.R.
SP No. 45400).52 The Motion for Reconsideration53 which was opposed54 by respondents was
denied on 19 October 1998.55
Petitioners assail the ruling of the Court of Appeals via a Petition for Review on Certiorari.
They anchor their petition on the following grounds:
I.
THE TRIAL COURT ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN DECLARING IN ITS
ORDER DATED AUGUST 27, 1997 THAT THE CONSTITUTIONAL RIGHT AGAINST SELF
INCRIMINATION OF OSCAR MAPALO AND CHITO ROSETE WOULD NOT BE VIOLATED
BY THE TAKING OF THEIR DEPOSITION IN THE CIVIL CASE FILED IN THE LOWER
COURT ALTHOUGH THEY ARE ALSO RESPONDENTS OR DEFENDANTS IN THE
AFOREMENTIONED CRIMINAL CASES FILED BY HEREIN PRIVATE RESPONDENT
JULIANO LIM INVOLVING THE SAME OR IDENTICAL SET OF FACTS; AND
II.
THE TRIAL COURT ERRED AND ACTED IN GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN DECLARING IN ITS
ORDER DATED JULY 22, 1997 THAT (A) THE NOTICE TO TAKE DEPOSITION UPON
ORAL EXAMINATION NEED NOT BE WITH LEAVE OF COURT BECAUSE AN ANSWER
EX ABUDANTE CAUTELA HAS BEEN FILED; AND (B) JOINDER OF ISSUES IS NOT
REQUIRED IN ORDER THAT THE SECTION 1, RULE 2356 OF THE RULES OF CIVIL
PROCEDURE MAY BE AVAILED OF.
Petitioners argue that the Court of Appeals gravely erred when it found that the trial court did
not abuse its discretion when it refused to recognize petitioners Oscar Mapalo and Chito
Rosete’s constitutional right against self-incrimination when, through its Orders dated 22 July
1997 and 27 August 1997, it allowed and scheduled the taking of their depositions by way of
oral examination. They explain they refuse to give their depositions due to the pendency of
two criminal cases against them, namely, Batasan Pambansa Blg. 22 and Estafa, because
their answers would expose them to criminal action or liability since they would be furnishing
evidence against themselves in said criminal cases. They allege there can be no doubt that
the questions to be asked during the taking of the deposition would revolve around the
allegations in the complaint in the civil case which are identical to the allegations in the
complaint-affidavits in the two criminal cases, thus, there is a tendency to incriminate both
Oscar Mapalo and Chito Rosete. Moreover, they explain that while an ordinary witness may
be compelled to take the witness stand and claim the privilege against self-incrimination as
each question requiring an incriminating answer is shot at him, an accused may altogether
refuse to answer any and all questions because the right against self-incrimination includes
the right to refuse to testify.
In short, petitioners Mapalo and Chito Rosete refuse to have their depositions taken in the
civil case because they allegedly would be incriminating themselves in the criminal cases
because the testimony that would be elicited from them may be used in the criminal cases.
As defendants in the civil case, it is their claim that to allow their depositions to be taken
would violate their constitutional right against self-incrimination because said right includes
the right to refuse to take the witness stand.
In order to resolve this issue, we must determine the extent of a person’s right against self-
incrimination. A person’s right against self-incrimination is enshrined in Section 17, Article III
of the 1987 Constitution which reads: "No person shall be compelled to be a witness against
himself."
The right against self-incrimination is accorded to every person who gives evidence, whether
voluntary or under compulsion of subpoena, in any civil, criminal or administrative
proceeding. The right is not to be compelled to be a witness against himself. It secures to a
witness, whether he be a party or not, the right to refuse to answer any particular
incriminatory question, i.e., one the answer to which has a tendency to incriminate him for
some crime. However, the right can be claimed only when the specific question, incriminatory
in character, is actually put to the witness. It cannot be claimed at any other time. It does not
give a witness the right to disregard a subpoena, decline to appear before the court at the
time appointed, or to refuse to testify altogether. The witness receiving a subpoena must
obey it, appear as required, take the stand, be sworn and answer questions. It is only when a
particular question is addressed to which may incriminate himself for some offense that he
may refuse to answer on the strength of the constitutional guaranty.57
As to an accused in a criminal case, it is settled that he can refuse outright to take the stand
as a witness. In People v. Ayson,58 this Court clarified the rights of an accused in the matter
of giving testimony or refusing to do so. We said:
An accused "occupies a different tier of protection from an ordinary witness." Under the Rules
of Court, in all criminal prosecutions the defendant is entitled among others—
1) to be exempt from being a witness against himself, and
2) to testify as witness in his own behalf; but if he offers himself as a witness he may
be cross-examined as any other witness; however, his neglect or refusal to be a
witness shall not in any manner prejudice or be used against him.
The right of the defendant in a criminal case "to be exempt from being a witness against
himself" signifies that he cannot be compelled to testify or produce evidence in the criminal
case in which he is the accused, or one of the accused. He cannot be compelled to do so
even by subpoena or other process or order of the Court. He cannot be required to be a
witness either for the prosecution, or for a co-accused, or even for himself. In other words –
unlike an ordinary witness (or a party in a civil action) who may be compelled to testify by
subpoena, having only the right to refuse to answer a particular incriminatory question at the
time it is put to him – the defendant in a criminal action can refuse to testify altogether. He
can refuse to take the witness stand, be sworn, answer any question. X x x (Underscoring
supplied.)
It is clear, therefore, that only an accused in a criminal case can refuse to take the witness
stand. The right to refuse to take the stand does not generally apply to parties in
administrative cases or proceedings. The parties thereto can only refuse to answer if
incriminating questions are propounded. This Court applied the exception – a party who is not
an accused in a criminal case is allowed not to take the witness stand – in administrative
cases/proceedings that partook of the nature of a criminal proceeding or analogous to a
criminal proceeding.59 It is likewise the opinion of the Court that said exception applies to
parties in civil actions which are criminal in nature. As long as the suit is criminal in nature,
the party thereto can altogether decline to take the witness stand. It is not the character of the
suit involved but the nature of the proceedings that controls.60
In the Ayson case, it is evident that the Court treats a party in a civil case as an ordinary
witness, who can invoke the right against self-incrimination only when the incriminating
question is propounded. Thus, for a party in a civil case to possess the right to refuse to take
the witness stand, the civil case must also partake of the nature of a criminal proceeding.
In the present controversy, the case is civil it being a suit for Annulment, Specific
Performance with Damages. In order for petitioners to exercise the right to refuse to take the
witness stand and to give their depositions, the case must partake of the nature of a criminal
proceeding. The case on hand certainly cannot be categorized as such. The fact that there
are two criminal cases pending which are allegedly based on the same set of facts as that of
the civil case will not give them the right to refuse to take the witness stand and to give their
depositions. They are not facing criminal charges in the civil case. Like an ordinary witness,
they can invoke the right against self-incrimination only when the incriminating question is
actually asked of them. Only if and when incriminating questions are thrown their way can
they refuse to answer on the ground of their right against self-incrimination.
On the second assigned error, petitioners contend that the taking of their oral depositions
should not be allowed without leave of court as no answer has yet been served and the
issues have not yet been joined because their answers were filed ex abudanti cautela
pending final resolution of the petition for certiorari challenging the trial court’s Orders dated
12 March 1996 and 24 May 1996 that denied their motions to dismiss and for reconsideration,
respectively.
contain their respective defenses. An answer is a pleading in which a defending party sets
forth his defenses63 and the failure to file one within the time allowed herefore may cause a
defending party to be declared in default.64 Thus, petitioners, knowing fully well the effect of
the non-filing of an answer, filed their answers despite the pendency of their appeal with the
Court of Appeals on the denial of their motion to dismiss.
Petitioners’ argument that the issues of the case have not yet been joined must necessarily
fail in light of our ruling that petitioners have filed their answers although the same were made
ex abudanti cautela. Issues are joined when all the parties have pleaded their respective
theories and the terms of the dispute are plain before the court.65 In the present case, the
issues have, indeed, been joined when petitioners, as well as the other defendants, filed their
answers. The respective claims and defenses of the parties have been defined and the
issues to be decided by the trial court have been laid down.
We cannot also sustain petitioners’ contention that the lower court erred when it said that the
joinder of issues is not required in order that Section 1, Rule 23 of the 1997 Rules of Civil
Procedure may be availed of. Under said section, a deposition pending action may be availed
of: (1) with leave of court when an answer has not yet been filed but after jurisdiction has
been obtained over any defendant or property subject of the action, or (2) without leave of
court after an answer to the complaint has been served. In the instant case, the taking of the
deposition may be availed of even without leave of court because petitioners have already
served their answers to the complaint.

Section 1 of Rule 2461 of the Revised Rules of Court reads: WHEREFORE, all the foregoing considered, the instant petition is dismissed for lack of merit.

Section 1. Depositions pending action, when may be taken. – By leave of court after SO ORDERED.
jurisdiction has been obtained over any defendant or over property which is the subject of the
action, or without such leave after an answer has been served, the testimony of any person,
whether a party or not, may be taken, at the instance of any party, by deposition upon oral
examination or written interrogatories. The attendance of witnesses may be compelled by the
use of a subpoena as provided in Rule 23. Depositions shall be taken only in accordance with
these rules. The deposition of a person confined in prison may be taken only by leave of court
on such terms as the court prescribes.

From the quoted section, it is evident that once an answer has been served, the testimony of
a person, whether a party or not, may be taken by deposition upon oral examination or written
interrogatories. In the case before us, petitioners contend they have not yet served an answer
to respondents because the answers that they have filed with the trial court were made ex
abudanti cautela. In other words, they do not consider the answers they filed in court and
served on respondents as answers contemplated by the Rules of Court on the ground that
same were filed ex abudanti cautela.

We find petitioners’ contention to be untenable. Ex abudanti cautela means "out of abundant

caution" or "to be on the safe side."62 An answer ex abudanti cautela does not make their
answer less of an answer. A cursory look at the answers filed by petitioners shows that they