G.R. No.

78909 June 30, 1989

MATERNITY CHILDREN'S HOSPITAL, represented by ANTERA L. DORADO, President, petitioner,
vs.
THE HONORABLE SECRETARY OF LABOR AND THE REGIONAL DlRECTOR OF LABOR, REGION
X,respondents.

MEDIALDEA, J.:
This is a petition for certiorari seeking the annulment of the Decision of the respondent Secretary of Labor dated
September 24, 1986, affirming with modification the Order of respondent Regional Director of Labor, Region X,
dated August 4, 1986, awarding salary differentials and emergency cost of living allowances (ECOLAS) to
employees of petitioner, and the Order denying petitioner's motion for reconsideration dated May 13, 1987, on the
ground of grave abuse of discretion.
Petitioner is a semi-government hospital, managed by the Board of Directors of the Cagayan de Oro Women's Club
and Puericulture Center, headed by Mrs. Antera Dorado, as holdover President. The hospital derives its finances
from the club itself as well as from paying patients, averaging 130 per month. It is also partly subsidized by the
Philippine Charity Sweepstakes Office and the Cagayan De Oro City government.
Petitioner has forty-one (41) employees. Aside from salary and living allowances, the employees are given food, but
the amount spent therefor is deducted from their respective salaries (pp. 77-78, Rollo).
On May 23, 1986, ten (10) employees of the petitioner employed in different capacities/positions filed a complaint
with the Office of the Regional Director of Labor and Employment, Region X, for underpayment of their salaries and
ECOLAS, which was docketed as ROX Case No. CW-71-86.
On June 16, 1986, the Regional Director directed two of his Labor Standard and Welfare Officers to inspect the
records of the petitioner to ascertain the truth of the allegations in the complaints (p. 98, Rollo). Payrolls covering the
periods of May, 1974, January, 1985, November, 1985 and May, 1986, were duly submitted for inspection.
On July 17, 1986, the Labor Standard and Welfare Officers submitted their report confirming that there was
underpayment of wages and ECOLAs of all the employees by the petitioner, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, deficiency on wage and ecola as verified and confirmed per review
of the respondent payrolls and interviews with the complainant workers and all other information
gathered by the team, it is respectfully recommended to the Honorable Regional Director, this office,
that Antera Dorado, President be ORDERED to pay the amount of SIX HUNDRED FIFTY FOUR
THOUSAND SEVEN HUNDRED FIFTY SIX & 01/100 (P654,756.01), representing underpayment of
wages and ecola to the THIRTY SIX (36) employees of the said hospital as appearing in the
attached Annex "F" worksheets and/or whatever action equitable under the premises. (p. 99, Rollo)
Based on this inspection report and recommendation, the Regional Director issued an Order dated August 4, 1986,
directing the payment of P723,888.58, representing underpayment of wages and ECOLAs to all the petitioner's
employees, the dispositive portion of which reads:
WHEREFORE, premises considered, respondent Maternity and Children Hospital is hereby ordered
to pay the above-listed complainants the total amount indicated opposite each name, thru this Office
within ten (10) days from receipt thereof. Thenceforth, the respondent hospital is also ordered to pay
its employees/workers the prevailing statutory minimum wage and allowance.
SO ORDERED. (p. 34, Rollo)

Petitioner appealed from this Order to the Minister of Labor and Employment, Hon. Augusto S. Sanchez, who
rendered a Decision on September 24, 1986, modifying the said Order in that deficiency wages and ECOLAs should
be computed only from May 23, 1983 to May 23, 1986, the dispositive portion of which reads:
WHEREFORE, the August 29, 1986 order is hereby MODIFIED in that the deficiency wages and
ECOLAs should only be computed from May 23, 1983 to May 23, 1986. The case is remanded to
the Regional Director, Region X, for recomputation specifying the amounts due each the
complainants under each of the applicable Presidential Decrees. (p. 40, Rollo)
On October 24, 1986, the petitioner filed a motion for reconsideration which was denied by the Secretary of Labor in
his Order dated May 13, 1987, for lack of merit (p. 43 Rollo).
The instant petition questions the all-embracing applicability of the award involving salary differentials and ECOLAS,
in that it covers not only the hospital employees who signed the complaints, but also those (a) who are not
signatories to the complaint, and (b) those who were no longer in the service of the hospital at the time the
complaints were filed.
Petitioner likewise maintains that the Order of the respondent Regional Director of Labor, as affirmed with
modifications by respondent Secretary of Labor, does not clearly and distinctly state the facts and the law on which
the award was based. In its "Rejoinder to Comment", petitioner further questions the authority of the Regional
Director to award salary differentials and ECOLAs to private respondents, (relying on the case of Encarnacion vs.
Baltazar, G.R. No. L-16883, March 27, 1961, 1 SCRA 860, as authority for raising the additional issue of lack of
jurisdiction at any stage of the proceedings, p. 52, Rollo), alleging that the original and exclusive jurisdiction over
money claims is properly lodged in the Labor Arbiter, based on Article 217, paragraph 3 of the Labor Code.
The primary issue here is whether or not the Regional Director had jurisdiction over the case and if so, the extent of
coverage of any award that should be forthcoming, arising from his visitorial and enforcement powers under Article
128 of the Labor Code. The matter of whether or not the decision states clearly and distinctly statement of facts as
well as the law upon which it is based, becomes relevant after the issue on jurisdiction has been resolved.
This is a labor standards case, and is governed by Art. 128-b of the Labor Code, as amended by E.O. No. 111.
Labor standards refer to the minimum requirements prescribed by existing laws, rules, and regulations relating to
wages, hours of work, cost of living allowance and other monetary and welfare benefits, including occupational,
safety, and health standards (Section 7, Rule I, Rules on the Disposition of Labor Standards Cases in the Regional
Office, dated September 16, 1987). 1 Under the present rules, a Regional Director exercises both visitorial and
enforcement power over labor standards cases, and is therefore empowered to adjudicate money claims, provided there
stillexists an employer-employee relationship, and the findings of the regional office is not contested by the employer
concerned.
Prior to the promulgation of E.O. No. 111 on December 24, 1986, the Regional Director's authority over money
claims was unclear. The complaint in the present case was filed on May 23, 1986 when E.O. No. 111 was not yet in
effect, and the prevailing view was that stated in the case of Antonio Ong, Sr. vs. Henry M. Parel, et al., G.R. No.
76710, dated December 21, 1987, thus:
. . . the Regional Director, in the exercise of his visitorial and enforcement powers under Article 128
of the Labor Code, has no authority to award money claims, properly falling within the jurisdiction of
the labor arbiter. . . .
. . . If the inspection results in a finding that the employer has violated certain labor standard laws,
then the regional director must order the necessary rectifications. However, this does not include
adjudication of money claims, clearly within the ambit of the labor arbiter's authority under Article 217
of the Code.
The Ong case relied on the ruling laid down in Zambales Base Metals Inc. vs. The Minister of Labor, et al., (G.R.
Nos. 73184-88, November 26, 1986, 146 SCRA 50) that the "Regional Director was not empowered to share in the
original and exclusive jurisdiction conferred on Labor Arbiters by Article 217."

We believe, however, that even in the absence of E. O. No. 111, Regional Directors already had enforcement
powers over money claims, effective under P.D. No. 850, issued on December 16, 1975, which transferred labor
standards cases from the arbitration system to the enforcement system.
To clarify matters, it is necessary to enumerate a series of rules and provisions of law on the disposition of labor
standards cases.
Prior to the promulgation of PD 850, labor standards cases were an exclusive function of labor arbiters, under Article
216 of the then Labor Code (PD No. 442, as amended by PD 570-a), which read in part:
Art. 216. Jurisdiction of the Commission. The Commission shall have exclusive appellate
jurisdiction over all cases decided by the Labor Arbiters and compulsory arbitrators.
The Labor Arbiters shall have exclusive jurisdiction to hear and decide the following cases involving
all workers whether agricultural or non-agricultural.
xxx xxx xxx
(c) All money claims of workers, involving non-payment or underpayment of wages,
overtime compensation, separation pay, maternity leave and other money claims
arising from employee-employer relations, except claims for workmen's
compensation, social security and medicare benefits;
(d) Violations of labor standard laws;
xxx xxx xxx
(Emphasis supplied)
The Regional Director exercised visitorial rights only under then Article 127 of the Code as follows:
ART. 127. Visitorial Powers. The Secretary of Labor or his duly authorized representatives,
including, but not restricted, to the labor inspectorate, shall have access to employers' records and
premises at any time of the day or night whenever work is being undertaken therein, and the right to
copy therefrom, to question any employee and investigate any fact, condition or matter which may
be necessary to determine violations or in aid in the enforcement of this Title and of any Wage Order
or regulation issued pursuant to this Code.
With the promulgation of PD 850, Regional Directors were given enforcement powers, in addition to visitorial
powers. Article 127, as amended, provided in part:
SEC. 10. Article 127 of the Code is hereby amended to read as follows:
Art. 127. Visitorial and enforcement powers.
xxx xxx xxx
(b) The Secretary of Labor or his duly authorized
representatives shall have the power to order and administer, after
due notice and hearing, compliance with the labor standards
provisions of this Code based on the findings of labor regulation
officers or industrial safety engineers made in the course of
inspection, and to issue writs of execution to the appropriate authority
for the enforcement of their order.
xxx xxx xxx

Labor Arbiters, on the other hand, lost jurisdiction over labor standards cases. Article 216, as then amended by PD
850, provided in part:
SEC. 22. Article 216 of the Code is hereby amended to read as follows:
Art. 216. Jurisdiction of Labor Arbiters and the Commission. (a) The Labor Arbiters
shall have exclusive jurisdiction to hear and decide the following cases involving all
workers, whether agricultural or non-agricultural:
xxx xxx xxx
(3) All money claims of workers involving non-payment or
underpayment of wages, overtime or premium compensation,
maternity or service incentive leave, separation pay and other money
claims arising from employer-employee relations, except claims for
employee's compensation, social security and medicare benefits and
as otherwise provided in Article 127 of this Code.
xxx xxx xxx
(Emphasis supplied)
Under the then Labor Code therefore (PD 442 as amended by PD 570-a, as further amended by PD 850), there
were three adjudicatory units: The Regional Director, the Bureau of Labor Relations and the Labor Arbiter. It became
necessary to clarify and consolidate all governing provisions on jurisdiction into one document. 2 On April 23, 1976,
MOLE Policy Instructions No. 6 was issued, and provides in part (on labor standards cases) as follows:
POLICY INSTRUCTIONS NO. 6
TO: All Concerned
SUBJECT: DISTRIBUTION OF JURISDICTION OVER LABOR CASES
xxx xxx xxx
1. The following cases are under the exclusive original jurisdiction of the Regional
Director.
a) Labor standards cases arising from violations of labor standard
lawsdiscovered in the course of inspection or complaints where
employer-employee relations still exist;
xxx xxx xxx
2. The following cases are under the exclusive original jurisdiction of the Conciliation
Section of the Regional Office:
a) Labor standards cases where employer-employee
relations no longer exist;
xxx xxx xxx
6. The following cases are certifiable to the Labor Arbiters:
a) Cases not settled by the Conciliation Section of the Regional
Office, namely:

1) labor standard cases where employer-employee relations no

longer exist;
xxx xxx xxx
(Emphasis supplied)
MOLE Policy Instructions No. 7 (undated) was likewise subsequently issued, enunciating the rationale for, and the
scope of, the enforcement power of the Regional Director, the first and second paragraphs of which provide as
follows:
POLICY INSTRUCTIONS NO. 7
TO: All Regional Directors
SUBJECT: LABOR STANDARDS CASES
Under PD 850, labor standards cases have been taken from the arbitration system and placed
under the enforcement system, except where a) questions of law are involved as determined by the
Regional Director, b) the amount involved exceeds P100,000.00 or over 40% of the equity of the
employer, whichever is lower, c) the case requires evidentiary matters not disclosed or verified in the
normal course of inspection, or d) there is no more employer-employee relationship.
The purpose is clear: to assure the worker the rights and benefits due to him under labor standards
laws without having to go through arbitration. The worker need not litigate to get what legally
belongs to him. The whole enforcement machinery of the Department of Labor exists to insure its
expeditious delivery to him free of charge. (Emphasis supplied)
Under the foregoing, a complaining employee who was denied his rights and benefits due him under labor
standards law need not litigate. The Regional Director, by virtue of his enforcement power, assured "expeditious
delivery to him of his rights and benefits free of charge", provided of course, he was still in the employ of the firm.
After PD 850, Article 216 underwent a series of amendments (aside from being re-numbered as Article 217) and
with it a corresponding change in the jurisdiction of, and supervision over, the Labor Arbiters:
1. PD 1367 (5-1-78) gave Labor Arbiters exclusive jurisdiction
over unresolved issues in collective bargaining, etc., and those cases arising from
employer-employee relationsduly indorsed by the Regional Directors. (It also
removed his jurisdiction over moral or other damages) In other words, the Labor
Arbiter entertained cases certified to him. (Article 228, 1978 Labor Code.)
2. PD 1391 (5-29-78) all regional units of the National Labor Relations
Commission (NLRC) were integrated into the Regional Offices Proper of the Ministry
of Labor; effectively transferring direct administrative control and supervision over the
Arbitration Branch to the Director of the Regional Office of the Ministry of Labor.
"Conciliable cases" which were thus previously under the jurisdiction of the defunct
Conciliation Section of the Regional Office for purposes of conciliation or amicable
settlement, became immediately assignable to the Arbitration Branch for
joint conciliation and compulsory arbitration. In addition, the Labor Arbiter had
jurisdiction even over termination and labor-standards cases that may be assigned to
them for compulsory arbitration by the Director of the Regional Office. PD 1391
merged conciliation and compulsory arbitration functions in the person of the Labor
Arbiter. The procedure governing the disposition of cases at the Arbitration Branch
paralleled those in the Special Task Force and Field Services Division, with one
major exception: the Labor Arbiter exercised full and untrammelled authority in the
disposition of the case, particularly in the substantive aspect, his decisions and
orders subject to review only on appeal to the NLRC. 3

3. MOLE Policy Instructions No. 37 Because of the seemingly overlapping

functions as a result of PD 1391, MOLE Policy Instructions No. 37 was issued on
October 7, 1978, and provided in part:
POLICY INSTRUCTIONS NO. 37
TO: All Concerned
SUBJECT: ASSIGNMENT OF CASES TO LABOR ARBITERS
Pursuant to the provisions of Presidential Decree No. 1391 and to insure speedy
disposition of labor cases, the following guidelines are hereby established for the
information and guidance of all concerned.
1. Conciliable Cases.
Cases which are conciliable per se i.e., (a) labor standards cases where employeremployee relationship no longer exists; (b) cases involving deadlock in collective
bargaining, except those falling under P.D. 823, as amended; (c) unfair labor practice
cases; and (d) overseas employment cases, except those involving overseas
seamen, shall be assigned by the Regional Director to the Labor Arbiter for
conciliation and arbitration without coursing them through the conciliation section of
the Regional Office.
2. Labor Standards Cases.
Cases involving violation of labor standards laws where employer- employee
relationshipstill exists shall be assigned to the Labor Arbiters where:
a) intricate questions of law are involved; or
b) evidentiary matters not disclosed or verified in the normal course
of inspection by labor regulations officers are required for their proper
disposition.
3. Disposition of Cases.
When a case is assigned to a Labor Arbiter, all issues raised therein shall be
resolved by him including those which are originally cognizable by the Regional
Director to avoid multiplicity of proceedings. In other words, the whole case, and not
merely issues involved therein, shall be assigned to and resolved by him.
xxx xxx xxx
(Emphasis supplied)
4. PD 1691(5-1-80) original and exclusive jurisdiction over unresolved issues in
collective bargaining and money claims, which includes moral or other damages.
Despite the original and exclusive jurisdiction of labor arbiters over money claims, however, the
Regional Director nonetheless retained his enforcement power, and remained empowered to
adjudicate uncontested money claims.
5. BP 130 (8-21-8l) strengthened voluntary arbitration. The decree also returned
the Labor Arbiters as part of the NLRC, operating as Arbitration Branch thereof.

6. BP 227(6-1- 82) original and exclusive jurisdiction over questions involving

legality of strikes and lock-outs.
The present petition questions the authority of the Regional Director to issue the Order, dated August 4, 1986, on
the basis of his visitorial and enforcement powers under Article 128 (formerly Article 127) of the present Labor Code.
It is contended that based on the rulings in the Ong vs. Parel (supra) and the Zambales Base Metals, Inc. vs.
The Minister of Labor (supra) cases, a Regional Director is precluded from adjudicating money claims on the ground
that this is an exclusive function of the Labor Arbiter under Article 217 of the present Code.
On August 4, 1986, when the order was issued, Article 128(b) 4 read as follows:
(b) The Minister of Labor or his duly authorized representatives shall have the power
to order and administer, after due notice and hearing, compliance with the labor
standards provisions of this Code based on the findings of labor regulation officers or
industrial safety engineers made in the course of inspection, and to issue writs of
execution to the appropriate authority for the enforcement of their order, except in
cases where the employer contests the findings of the labor regulations officer and
raises issues which cannot be resolved without considering evidentiary matters that
are not verifiable in the normal course of inspection. (Emphasis supplied)
On the other hand, Article 217 of the Labor Code as amended by P.D. 1691, effective May 1, 1980; Batas
Pambansa Blg. 130, effective August 21, 1981; and Batas Pambansa Blg. 227, effective June 1, 1982, inter alia,
provides:
ART. 217. Jurisdiction of Labor Arbiters and the Commission. (a) The Labor Arbiters shall have
theoriginal and exclusive jurisdiction to hear and decide within thirty (30) working days after
submission of the case by the parties for decision, the following cases involving all workers, whether
agricultural or non-agricultural:
1. Unfair labor practice cases;
2. Those that workers may file involving wages, hours of work and other terms and
conditions of employment;
3. All money claims of workers, including those based on non-payment or
underpayment of wages, overtime compensation, separation pay and other benefits
provided by law or appropriate agreement, except claims for employees'
compensation, social security, medicare and maternity benefits;
4. Cases involving household services; and
5. Cases arising from any violation of Article 265 of this Code, including questions
involving the legality of strikes and lock-outs. (Emphasis supplied)
The Ong and Zambales cases involved workers who were still connected with the company. However, in the Ong
case, the employer disputed the adequacy of the evidentiary foundation (employees' affidavits) of the findings of the
labor standards inspectors while in the Zambales case, the money claims which arose from alleged violations of
labor standards provisions were not discovered in the course of normal inspection. Thus, the provisions of MOLE
Policy Instructions Nos. 6, (Distribution of Jurisdiction Over Labor Cases) and 37 (Assignment of Cases to Labor
Arbiters) giving Regional Directors adjudicatory powers over uncontested money claims discovered in the course of
normal inspection, provided an employer-employee relationship still exists, are inapplicable.
In the present case, petitioner admitted the charge of underpayment of wages to workers still in its employ; in fact, it
pleaded for time to raise funds to satisfy its obligation. There was thus no contest against the findings of the labor
inspectors.

Barely less than a month after the promulgation on November 26, 1986 of the Zambales Base Metals case,
Executive Order No. 111 was issued on December 24, 1986, 5 amending Article 128(b) of the Labor Code, to read as
follows:
(b) THE PROVISIONS OF ARTICLE 217 OF THIS CODE TO THE CONTRARY
NOTWITHSTANDING AND IN CASES WHERE THE RELATIONSHIP OF
EMPLOYER-EMPLOYEE STILL EXISTS, the Minister of Labor and Employment or
his duly authorized representatives shall have the power to order and administer,
after due notice and hearing, compliance with the labor standards provisions of this
Code AND OTHER LABOR LEGISLATION based on the findings of labor regulation
officers or industrial safety engineers made in the course of inspection, and to issue
writs of execution to the appropriate authority for the enforcement of their orders,
except in cases where the employer contests the findings of the labor regulation
officer and raises issues which cannot be resolved without considering evidentiary
matters that are not verifiable in the normal course of inspection. (Emphasis
supplied)
As seen from the foregoing, EO 111 authorizes a Regional Director to order compliance by an employer with labor
standards provisions of the Labor Code and other legislation. It is Our considered opinion however, that the
inclusion of the phrase, " The provisions of Article 217 of this Code to the contrary notwithstanding and in cases
where the relationship of employer-employee still exists" ... in Article 128(b), as amended, above-cited,
merelyconfirms/reiterates the enforcement adjudication authority of the Regional Director over uncontested money
claimsin cases where an employer-employee relationship still exists. 6
Viewed in the light of PD 850 and read in coordination with MOLE Policy Instructions Nos. 6, 7 and 37, it is clear that
it has always been the intention of our labor authorities to provide our workers immediate access (when still feasible,
as where an employer-employee relationship still exists) to their rights and benefits, without being inconvenienced
by arbitration/litigation processes that prove to be not only nerve-wracking, but financially burdensome in the long
run.
Note further the second paragraph of Policy Instructions No. 7 indicating that the transfer of labor standards cases
from the arbitration system to the enforcement system is
. . to assure the workers the rights and benefits due to him under labor standard laws, without having
to go through arbitration. . .
so that
. . the workers would not litigate to get what legally belongs to him. .. ensuring delivery . . free of
charge.
Social justice legislation, to be truly meaningful and rewarding to our workers, must not be hampered in its
application by long-winded arbitration and litigation. Rights must be asserted and benefits received with the least
inconvenience. Labor laws are meant to promote, not defeat, social justice.
This view is in consonance with the present "Rules on the Disposition of Labor Standard Cases in the Regional
Offices " 7 issued by the Secretary of Labor, Franklin M. Drilon on September 16, 1987.
Thus, Sections 2 and 3 of Rule II on "Money Claims Arising from Complaint Routine Inspection", provide as follows:
Section 2. Complaint inspection. All such complaints shall immediately be forwarded to the
Regional Director who shall refer the case to the appropriate unit in the Regional Office for
assignment to a Labor Standards and Welfare Officer (LSWO) for field inspection. When the field
inspection does not produce the desired results, the Regional Director shall summon the parties for
summary investigation to expedite the disposition of the case. . . .

Section 3. Complaints where no employer-employee relationship actually exists. Where

employer-employee relationship no longer exists by reason of the fact that it has already been
severed, claims for payment of monetary benefits fall within the exclusive and original jurisdiction of
the labor arbiters. . . . (Emphasis supplied)
Likewise, it is also clear that the limitation embodied in MOLE Policy Instructions No. 7 to amounts not exceeding
P100,000.00 has been dispensed with, in view of the following provisions of pars. (b) and (c), Section 7 on
"Restitution", the same Rules, thus:
xxx xxx xxx
(b) Plant-level restitutions may be effected for money claims not exceeding Fifty
Thousand (P50,000.00). . . .
(c) Restitutions in excess of the aforementioned amount shall be effected at the
Regional Office or at the worksite subject to the prior approval of the Regional
Director.
which indicate the intention to empower the Regional Director to award money claims in excess of
P100,000.00;provided of course the employer does not contest the findings made, based on the provisions of
Section 8 thereof:
Section 8. Compromise agreement. Should the parties arrive at an agreement as to the whole or
part of the dispute, said agreement shall be reduced in writing and signed by the parties in the
presence of the Regional Director or his duly authorized representative.
E.O. No. 111 was issued on December 24, 1986 or three (3) months after the promulgation of the Secretary of
Labor's decision upholding private respondents' salary differentials and ECOLAs on September 24, 1986. The
amendment of the visitorial and enforcement powers of the Regional Director (Article 128-b) by said E.O. 111
reflects the intention enunciated in Policy Instructions Nos. 6 and 37 to empower the Regional Directors to
resolveuncontested money claims in cases where an employer-employee relationship still exists. This intention must
be given weight and entitled to great respect. As held in Progressive Workers' Union, et. al. vs. F.P. Aguas, et. al.
G.R. No. 59711-12, May 29, 1985, 150 SCRA 429:
. . The interpretation by officers of laws which are entrusted to their administration is entitled to great
respect. We see no reason to detract from this rudimentary rule in administrative law, particularly
when later events have proved said interpretation to be in accord with the legislative intent. ..
The proceedings before the Regional Director must, perforce, be upheld on the basis of Article 128(b) as amended
by E.O. No. 111, dated December 24, 1986, this executive order "to be considered in the nature of a curative statute
with retrospective application." (Progressive Workers' Union, et al. vs. Hon. F.P. Aguas, et al. (Supra); M. Garcia vs.
Judge A. Martinez, et al., G.R. No. L- 47629, May 28, 1979, 90 SCRA 331).
We now come to the question of whether or not the Regional Director erred in extending the award to all hospital
employees. We answer in the affirmative.
The Regional Director correctly applied the award with respect to those employees who signed the complaint, as
well as those who did not sign the complaint, but were still connected with the hospital at the time the complaint was
filed (See Order, p. 33 dated August 4, 1986 of the Regional Director, Pedrito de Susi, p. 33, Rollo).
The justification for the award to this group of employees who were not signatories to the complaint is that the
visitorial and enforcement powers given to the Secretary of Labor is relevant to, and exercisable over
establishments, not over the individual members/employees, because what is sought to be achieved by its exercise
is the observance of, and/or compliance by, such firm/establishment with the labor standards regulations.
Necessarily, in case of an award resulting from a violation of labor legislation by such establishment, the entire
members/employees should benefit therefrom. As aptly stated by then Minister of Labor Augusto S. Sanchez:

. . It would be highly derogatory to the rights of the workers, if after categorically finding the
respondent hospital guilty of underpayment of wages and ECOLAs, we limit the award to only those
who signed the complaint to the exclusion of the majority of the workers who are similarly situated.
Indeed, this would be not only render the enforcement power of the Minister of Labor and
Employment nugatory, but would be the pinnacle of injustice considering that it would not only
discriminate but also deprive them of legislated benefits.
. . . (pp. 38-39, Rollo).
This view is further bolstered by the provisions of Sec. 6, Rule II of the "Rules on the Disposition of Labor Standards
cases in the Regional Offices" (supra) presently enforced, viz:
SECTION 6. Coverage of complaint inspection. A complaint inspection shall not be limited to the
specific allegations or violations raised by the complainants/workers but shall be a thorough inquiry
into and verification of the compliance by employer with existing labor standards and shall cover all
workers similarly situated. (Emphasis supplied)
However, there is no legal justification for the award in favor of those employees who were no longer connectedwith
the hospital at the time the complaint was filed, having resigned therefrom in 1984, viz:
1. Jean (Joan) Venzon (See Order, p. 33, Rollo)
2. Rosario Paclijan
3. Adela Peralta
4. Mauricio Nagales
5. Consesa Bautista
6. Teresita Agcopra
7. Felix Monleon
8. Teresita Salvador
9. Edgar Cataluna; and
10. Raymond Manija ( p.7, Rollo)
The enforcement power of the Regional Director cannot legally be upheld in cases of separated employees. Article
129 of the Labor Code, cited by petitioner (p. 54, Rollo) is not applicable as said article is in aid of the enforcement
power of the Regional Director; hence, not applicable where the employee seeking to be paid underpayment of
wages is already separated from the service. His claim is purely a money claim that has to be the subject of
arbitration proceedings and therefore within the original and exclusive jurisdiction of the Labor Arbiter.
Petitioner has likewise questioned the order dated August 4, 1986 of the Regional Director in that it does not clearly
and distinctly state the facts and the law on which the award is based.
We invite attention to the Minister of Labor's ruling thereon, as follows:
Finally, the respondent hospital assails the order under appeal as null and void because it does not
clearly and distinctly state the facts and the law on which the awards were based. Contrary to the
pretensions of the respondent hospital, we have carefully reviewed the order on appeal and we
found that the same contains a brief statement of the (a) facts of the case; (b) issues involved; (c)

applicable laws; (d) conclusions and the reasons therefor; (e) specific remedy granted (amount
awarded). (p. 40, Rollo)
ACCORDINGLY, this petition should be dismissed, as it is hereby DISMISSED, as regards all persons still employed
in the Hospital at the time of the filing of the complaint, but GRANTED as regards those employees no longer
employed at that time.
SO ORDERED.
Fernan, C.J., Narvasa, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes, Grio-Aquino and
Regalado, JJ., concur.

Separate Opinions

SARMIENTO, J., concurring:

Subject to my opinion in G.R. Nos. 82805 and 83205.
MELENCIO-HERRERA, J., concurring:
I concur, with the observation that even as reconciled, it would seem inevitable to state that the conclusion in the
Zambales and Ong cases that, prior to Executive Order No. 111, Regional Directors were not empowered to share
the original and exclusive jurisdiction conferred on Labor Arbiters over money claims, is now deemed modified, if not
superseded.
It may not be amiss to state either that under Section 2, Republic Act No. 6715, which amends further the Labor
Code of the Philippines (PD No. 442), Regional Directors have also been granted adjudicative powers, albeit limited,
over monetary claims and benefits of workers, thereby settling any ambiguity on the matter. Thus:
SEC. 2. Article 129 of the Labor Code of the Philippines, as amended, is hereby further amended to
read as follows:
Art. 129. Recovery of wages, simple money claims and other benefits. Upon
complaint of any interested party, the Regional Director of the Department of Labor
and Employment or any of the duly authorized hearing officers of the Department is
empowered, through summary proceeding and after due notice, to hear and decide
any matter involving the recovery of wages and other monetary claims and benefits,
including legal interest, owing to an employee or person employed in domestic or
household service or househelper under this Code, arising from employer-employee
relations: Provided, That such complaint does not include a claim for reinstatement:
Provided, further, That the aggregate money claims of each employee or
househelper do not exceed five thousand pesos (P5,000.00). The Regional Director
or hearing officer shall decide or resolve the complaint within thirty (30) calendar
days from the date of the filing of the same. ...

Separate Opinions

SARMIENTO, J., concurring:

Subject to my opinion in G.R. Nos. 82805 and 83205.
MELENCIO-HERRERA, J., concurring:
I concur, with the observation that even as reconciled, it would seem inevitable to state that the conclusion in the
Zambales and Ong cases that, prior to Executive Order No. 111, Regional Directors were not empowered to share
the original and exclusive jurisdiction conferred on Labor Arbiters over money claims, is now deemed modified, if not
superseded.
It may not be amiss to state either that under Section 2, Republic Act No. 6715, which amends further the Labor
Code of the Philippines (PD No. 442), Regional Directors have also been granted adjudicative powers, albeit limited,
over monetary claims and benefits of workers, thereby settling any ambiguity on the matter. Thus:
SEC. 2. Article 129 of the Labor Code of the Philippines, as amended, is hereby further amended to
read as follows:
Art. 129. Recovery of wages, simple money claims and other benefits. Upon
complaint of any interested party, the Regional Director of the Department of Labor
and Employment or any of the duly authorized hearing officers of the Department is
empowered, through summary proceeding and after due notice, to hear and decide
any matter involving the recovery of wages and other monetary claims and benefits,
including legal interest, owing to an employee or person employed in domestic or
household service or househelper under this Code, arising from employer-employee
relations: Provided, That such complaint does not include a claim for reinstatement:
Provided, further, That the aggregate money claims of each employee or
househelper do not exceed five thousand pesos (P5,000.00). The Regional Director
or hearing officer shall decide or resolve the complaint within thirty (30) calendar
days from the date of the filing of the same. ...
Footnotes
1 Cited in J. Nolledo, Labor Code of the Philippines, Ann., 1988 Rev. Ed. p. 217.
2 (See Critical Areas in the Administration of Labor Justice) (Proceedings of the 16th Annual Institute
on Labor Relations Law 1979, U.P. Law Center, p. 5).
3 Ibid.
4 as amended by Section 2, PD 1691.
5 EO 111 expressly declared that its provisions would become effective fifteen (15) days after
publication in the Official Gazette. The executive order was published on February 16, 1987 (83 O.G.
No. 7, p. 5770) and therefore became effective on March 3, 1987.
6 A present exception may be found in Section 2 of RA 6715, effective March 20, 1989 which gives
Regional Director, "through summary proceeding, to hear and decide any matter involving the
recovery of wages and other monetary claims and benefits, ... to an employee or person employed
in domestic or household service or househelper ... arising from employee-employer relations:
Provided, That such complaint does not include a claim for reinstatement; Provided, further, That the
aggregate money claims of each employee or househelper do not exceed five thousand pesos
(P5,000.00) ....
7 Cited in J. Nolledo, Labor Code of the Philippines, Ann., 1988 Rev. Ed., p. 216.

693 Phil. 82

THIRD DIVISION
G.R. No. 175678, August 22, 2012
BANK OF THE PHILIPPINE ISLANDS, PETITIONER, VS. BANK OF THE
PHILIPPINE ISLANDS EMPLOYEES UNION- METRO MANILA, 22
AUGUST 2012 RESPONDENT.
DECISION

PERALTA, J.:
For resolution of this Court is the Petition for Review under Rule 45 of
the Revised Rules of Court, dated January 20, 2007, of petitioner Bank

of the Philippine Islands (BPI) which seeks to reverse and set aside
the Court of Appeals' (CA) Decision[1] and Resolution,[2] dated June 8,
2006 and November 29, 2006, respectively, in CA-G.R. SP No. 83387.
The antecedent facts follow.
Respondent Bank of the Philippine Islands Employees Union-Metro
Manila (BPIEU-MM), a legitimate labor organization and the sole and
exclusive bargaining representative of all the regular rank-and-file
employees of petitioner BPI in Metro Manila and petitioner BPI have
an existing Collective Bargaining Agreement (CBA)[3] which took effect
on April 1, 2001. The CBA provides for loan benefits and relatively low
interest rates. The said provisions state:
Article VIII - Fringe Benefits
xxxx
Section 14. Multi-Purpose Loan, Real Estate Secured Housing Loan
and Car Loan. - The Bank agrees to continue and maintain its present
policy and practice, embodied in its Collective Bargaining Agreement
with the Union which expired on 31 March 2001, extending to
qualified regular employees the multi-purpose and real estate secured
housing loans, subject to the increased limits and provisions
hereinbelow, to wit:
(a) Multi-Purpose Loan not exceeding FORTY THOUSAND PESOS
(P40,000.00), payable within the period not exceeding three (3) years
via semi-monthly salary deductions, with interest at the rate of eight
percent (8%) per annum computed on the diminishing balance.
(b) Real Estate-Secured Housing Loan not exceeding FOUR
HUNDRED FIFTY THOUSAND " PESOS (P450,000.00), payable over a
period not exceeding fifteen (15) years via semi-monthly salary
deductions, with interest at the rate of nine percent (9%) per annum
computed on the diminishing balance.
The rate of interest on real estate secured loans, however, may be
reduced to six percent (6%) per annum, subject to the following
conditions:

1. If the loan is accepted for coverage by the Home Insurance and

Guaranty Corporation (HIGC).
2. The HIGC premium shall be paid by the borrower.
3. The borrower procures a Mortgage Redemption Insurance
coverage from an insurance company selected by the BANK.
4. The BANK may increase the six percent (6%) interest if the HIGC or
the Government imposes new conditions or restrictions necessitating
a higher interest in order to maintain the BANK'S position before such
conditions or restrictions were imposed.
5. Such other terms or conditions imposed or which may be imposed
by the HIGC.
6. It is distinctly understood that the rate of interest shall
automatically revert to nine percent (9%) per annum upon
cancellation of the HIGC coverage for any cause.
The BANK shall make strong representations with the Bangko Sentral
ng Pilipinas for a second upgrade and/or availment under the Housing
Loan Program.
(c) Car Loan. - The BANK shall submit a revised plan for the approval
of the Bangko Sentral ng Pilipinas which shall incorporate a car loan
program in its existing Housing Loan Program. The said car loan shall
be a sub-limit under the program such that any availment thereof
shall operate to decrease the available housing loan limit. Therefore,
the combined amount of both housing and car loans that may be
availed of shall not exceed FOUR HUNDRED FIFTY THOUSAND
PESOS (P450,000.00). This supplemental revision of the loan program
shall be subject to the rules and regulations {e.g., amount of sub-limit,
credit ratio, type and age of vehicle, interest rate, etc.) which the
BANK may promulgate, and to the terms of the approval of the
Bangko Sentral ng Pilipinas.
The multi-purpose and housing loans stated in the next preceding
paragraphs, as well as the car loan which shall be incorporated in the
housing loan program, shall be subject further to the applicable
provisions, guidelines and restrictions set forth in the Central Bank

Circular No. 561, as amended by Central Bank Circular No. 689, and
to the rules, regulations and policies of the BANK on such loans
insofar as they do not violate the provisions, guidelines and
restrictions set forth in said Central Bank Circular No. 561, as
amended.
Section 15. Emergency Loans. - The BANK agrees to increase the
amount of emergency loans assistance, upon approval by the Central
Bank of the Philippines, from a maximum amount of Ten Thousand
Pesos (PI 0,000.00) to a maximum amount of Fifteen Thousand Pesos
(P15,000.00) to qualified employees intended to cover emergencies
only, i.e., expenses incurred but could not be foreseen such as those
arising from natural calamities, emergency medical treatment and/or
hospitalization of an employee and/or his immediate family and other
genuine emergency cases of serious hardship as the BANK may
determine. Hospital expenses for caesarian delivery of a female
employee or an employee's wife not covered by the Group
Hospitalization Insurance Plan shall qualify for the emergency loan.
Emergency loans shall be playable in twenty-four (24) months via
semi-monthly salary deductions and shall be charged interest at the
minimal rate of Seven percent (7%) per annum for the first
P10,000.00 and Nine percent (9%) for the additional P5.000.00
computed on the diminishing balance. The emergency loan assistance
program shall be governed by the rules, regulations and policies of
the BANK and such amendments or modifications thereof which the
BANK may issue from time to time.[4]
Thereafter, petitioner issued a "no negative data bank policy" [5] for the
implementation/availment of the manpower loans which the
respondent objected to, thus, resulting into labor-management
dialogues. Unsatisfied with the result of those dialogues, respondent
brought the matter to the grievance machinery and afterwards, the
issue, not having been resolved, the parties raised it to the Voluntary
Arbitrator.
In his decision, the Voluntary Arbitrator found merit in the
respondent's cause. Hence, the dispositive portion of the said decision
reads as follows:

WHEREFORE, viewed in the light of the foregoing circumstances, this

Arbitrator hereby rules:
1. That the imposition of the NO NEGATIVE DATA BANK as a new
condition for the implementation and availment of the manpower loan
benefits by the employees evidently violates the CBA;
2. That all employees who were not allowed or deprived of the
manpower loan benefits due to the NO NEGATIVE DATA BANK
POLICY be immediately granted in accordance with their respective
loan benefits applied for;
3. That the respondent herein is ordered likewise to pay ten percent
(10%) of the total amount of all loans to be granted to all employees
concerned as Attorney's Fees; and
4. That the parties herein are directed to report compliance with the
above directives within ten (10) days from receipt of this ORDER.
SO ORDERED.[6]
Aggrieved, petitioner appealed the case to the CA via Rule 43, but the
latter affirmed the decision of the Voluntary Arbitrator with the
modification that the award of attorney's fees be deleted. The
dispositive portion states:
WHEREFORE, premises considered, the Voluntary Arbitrator's
Decision dated April 5, 2004 is hereby AFFIRMED with the
MODIFICATION that the award of attorney's fees is hereby deleted.
SO ORDERED.[7]
Petitioner filed a motion for reconsideration, but it was denied in a
Resolution[8] dated November 29, 2006.
Hence, the present petition.
Petitioner raises the following arguments:
A. The "No NDB policy" is a valid and reasonable requirement that is
consistent with sound banking practice and is meant to inculcate
among officers and employees of the petitioner the need for fiscal

responsibility and discipline, especially in an industry where the

element of trust is paramount.
B. The "No NDB policy" does not violate the parties' Collective
Bargaining Agreement.
C. The "No NDB policy" conforms to existing BSP regulations and
circulars, and to safe and sound banking practices.[9]
Respondent, on the other hand, claims that the petition did not
comply with Section 4, Rule 45 of the Revised Rules of Court and must
be dismissed outright in accordance with Section 5 of the same rule;
that the CA did not commit any reversible error in the questioned
judgment to warrant the exercise of its discretionary appellate
jurisdiction; and that the Voluntary Arbitrator and the CA duly passed
upon the same issues raised in the instant petition and their decisions
are based on substantial evidence and are in accordance with law and
jurisprudence.[10]
Tn its Reply[11] dated September 21, 2007, petitioner reiterates the
issues it presented in its petition. It also argues that the present
petition must not be dismissed based on mere technicality.
Subsequently, the parties submitted their respective memoranda.
Petitioner's arguments are mere rehash of those it raised in the CA. It
insists that the rationale behind the use of the "no negative data bank
policy" aims to encourage employees of a banking institution to
exercise the highest standards of conduct, considering the bank's
fiduciary relationship with its depositors and clients. It likewise
contends that a scrutiny of the CBA reveals an express conformity to
petitioner's prerogative to issue policies that would guide the parties
in the availment of manpower loans under the CBA.
Furthermore, petitioner avers that the subject policy does not only
conform to the provisions of the parties' CBA, but it is also in harmony
with the circulars and regulations of the Bangko Sentral ng Pilipinas.
The petition lacks merit.
In a petition for review on certiorari, this Court's jurisdiction is limited

to reviewing errors of law in the absence of any showing that the

factual findings complained of are devoid of support in the records or
are glaringly erroneous.[13] Firm is the doctrine that this Court is not a
trier of facts, and this applies with greater force in labor cases. [14] The
issues presented by the petitioner are factual in nature. Nevertheless,
the CA committed no error in its questioned decision and resolution.
A CBA refers to the negotiated contract between a legitimate labor
organization and the employer concerning wages, hours of work and
all other terms and conditions of employment in a bargaining unit,
including mandatory provisions for grievances and arbitration
machineries.[15] As in all other contracts, there must be clear
indications that the parties reached a meeting of the minds.
[16]
Therefore, the terms and conditions of a CBA constitute the law
between the parties.[17]
The CBA in this case contains no provision on the "no negative data
bank policy" as a prerequisite in the entitlement of the benefits it set
forth for the employees. In fact, a close reading of the CBA would
show that the terms and conditions contained therein relative to the
availment of the loans are plain and clear, thus, all they need is the
proper implementation in order to reach their objective. The CA was,
therefore, correct when it ruled that, although it can be said that
petitioner is authorized to issue rules and regulations pertinent to the
availment and administration of the loans under the CBA, the
additional rules and regulations, however, must not impose new
conditions which are not contemplated in the CBA and should be
within the realm of reasonableness. The "no negative data bank
policy" is a new condition which is never contemplated in the CBA and
at some points, unreasonable to the employees because it provides
that before an employee or his/her spouse can avail of the loan
benefits under the CBA, the said employee or his/her spouse must not
be listed in the negative data bank, or if previously listed therein,
must obtain a clearance at least one year or six months as the case
may be, prior to a loan application.
It must be remembered that negotiations between an employer and a
union transpire before they agree on the terms and conditions
contained in the CBA. If the petitioner, indeed, intended to include a
"no negative data bank policy" in the CBA, it should have presented
such proposal to the union during the negotiations. To include such

policy after the effectivity of the CBA is deceptive and goes beyond
the original agreement between the contracting parties.
This Court also notes petitioner's argument that the "no negative data
bank policy" is intended to exact a high standard of conduct from its
employees. However, the terms and conditions of the CBA must
prevail. Petitioner can propose the inclusion of the said policy upon
the expiration of the CBA, during the negotiations for a new CBA, but
in the meantime, it has to honor the provisions of the existing CBA.
Article 1702 of the New Civil Code provides that, in case of doubt, all
labor legislation and all labor contracts shall be construed in favor of
the safety and decent living of the laborer. Thus, this Court has ruled
that any doubt or ambiguity in the contract between management and
the union members should be resolved in favor of the latter.
[18]
Therefore, there is no doubt, in this case, that the welfare of the
laborers stands supreme.
WHEREFORE, the Petition for Review under Rule 45 of the Revised
Rules of Court, dated January 20, 2007, of petitioner Bank of the
Philippine Islands, is hereby DENIED and the Court of Appeals'
Decision and Resolution, dated June 8, 2006 and November 29, 2006,
respectively, are hereby AFFIRMED.
SO ORDERED.
Velasco, Jr., (Chairperson), Abad, Mendoza, and Perlas-Bernabe, JJ.,
concur.

[1]

Penned by Associate Justice Mariflor P. Punzalan Castillo, with

Associate Justices Remedios A. Salazar-Fernando and Noel G.Tijam,
concurring; rollo, pp. 30-41.
[2]

Id at. 42-43.

[3]

Rollo, pp. at 84-105.

[4]

Id. at 96-98.

[5]

As bank employees, one is expected to practice the highest

standards of financial prudence and sensitivity to basic rules of credit
and management of his/her financial resources and needs, it is for this
reason that Management deemed fit that reference to the Negative
Data Bank (NDB) and other sources of financial data handling shall be
made for purposes of evaluation of manpower loans.
xxx These procedures apply to all employees, whether officer or staff,
regardless of loan type (multi-purpose, emergency, car, housing).
NDB (whether record is in his own name or spouse's)
1. Outstanding obligation should be fully paid at least one year prior
to loan application.
- even if cleared/fully paid, but within the one-year penalty box, the
application wili not be considered.
2. Clearance certification should be obtained from the card
company/lending company/bank/court:
- if card or lending company, the date of full payment should be clearly
indicated in the certification.
- if closed account due to mishandling, date of account closure.
- f court case, date of dismissal of case.
3. Employees will be asked to explain in writing the
reason/circumstances for being in the NDB.
4. Final approval of the loan will be with the HR Head, SVP Jess
Razon.
- if provincial Business Center account, the employee to submit 2 and
3 to BC with his/her loan application; BC to send to HR for evaluation
and approval prior to implementation of the loan.
Suspended/Past Due (not vet in NDB) Accounts within the Unibank.
1. Outstanding obligation should be fully paid at least six months prior
to the loan application.

- even if cleared/fully paid, but within the 6-month penalty box.

2. Clearance certification from BCC or other Unibank unit where the
obligation occurred.
Other Past Due Obligation
Management reserves the right to evaluate an employee's creditworthiness based on his handling of other obligations, outside of NDB
or Unibank units, as basis for granting manpower loans. This is
particularly considered in the case of housing ioan take-out, if the
employee-applicant has been grossly delinquent in his payments to
the previous financing company. (Id. at 49-50).
[6]

Id. at 60-61.

[7]

Id. at 40.

[8]

Id. at 42-43.

[9]

Id. at 16.

[10]

Comment dated June 7, 2007, id. at 118-129.

[11]

Rollo, pp. 134-138.

[12]

Id. at 143-181.

[13]

Reluya v. Dumarpa, G.R. No. 148848, August 5, 2003, 408 SCRA

315, 326.
[14]

Gerlach v. Reuters Limited, Phils., G.R. No. 148542, January 17,

2005, 448 SCRA 535, 545.
[15]

University of the Immaculate Conception, Inc. v. Secretary of Labor

and Employment, et al., G.R. No. 146291, January 23, 2002, 374 SCRA
471, 480, citing Manila Fashions v. National Labor Relations
Commission, 111 Phil. 121 (1996).
[16]

Id. at 480-481.

[17]

Mactan Workers Union v. Aboitiz, G.R. No. L-30241, June 30, 1972,
45 SCRA 577, 581.
[18]

Holy Cross- of Davao College, Inc. v. Holy Cross of Davao Faculty

Union-KAMAPI, G.R. No. 156098, June 27, 2005, 461 SCRA 319,
Babcock-Hitachi (Phils.) Inc. v. Babcock Hitachi (Phils.) Inc., Makati
Employees Union, G.R. No. 156260, March 10, 2005, 453 SCRA 156,
161; Mindanao Steel Corporation v. Minsteel-Free Workers
Organization Cagayan de Oro, G.R. No. 130693. March 4, 2004, 424
SCRA 614, 618 and Plastic Town Center Corporation v. National Labor
Relations Commission, G.R. No. 81176, April 19, 1989, 172 SCRA 580,
587.

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.
Gutierrez & Alo Law Offices for petitioner.

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 15 does 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. 27The 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 fairehas 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.
Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes and GrioAquino, JJ., concur.
Gutierrez, Jr. and Medialdea, JJ., are on leave.

Footnotes
1 Rollo, 3.
2 Id., 12.
3 Id., 13.

4 CONST., Art XIII, Sec. 3.

* Per reports, on June 14, 1988, the Government is said to have lifted the ban on five more
countries: New Zealand Australia, Sweden, Spain, and West Germany. ("Maid export ban lifted in 5
states," The Manila Chronicle, June 14, 1988, p. 17, col. 2.)
5 Edu v. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 487.
6 Supra, 488.
7 TRIBE, AMERICAN CONSTITUTIONAL LAW, 323 (1978).
8 Id.
9 Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708 (1919).
10 Edu v. Ericta, supra.
11 Rubi v. Provincial Board of Mindoro, supra, 704.
12 It is generally presumed, notwithstanding the plenary character of the lawmaking power, that the
legislature must act for public purposes. In Pascual v. Secretary of Public Works [110 Phil. 331
(1960)], the Court nullified an act of Congress appropriating funds for a private purpose. The
prohibition was not embodied in the Constitution then in force, however, it was presumed that
Congress could not do it.
13 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, No. L-24693,
July 31, 1967, 20 SCRA 849.
14 Dept. Order No. 1 (DOLE), February 10, 1988.
15 CONST., supra, Art. III, Sec. 1.
16 People v. Cayat, 68 Phil. 12 (1939).
17 Dept. Order No. 1, supra.
18 Supra.
19 Supra.
20 Rollo, Id., 13.
21 See TRIBE, Id., citing Calder v. Bull, 3 U.S. 386 (1798).
22 Id.
23 FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 549-550 (1977).
24 Dept. Order No. 1, supra.

25 CONST., supra, Art. Ill, Sec. 6.

26 Pres. Decree No. 442, Art. 3.
27 Supra, Art. 5.
28 Supra.
29 CONST., supra, Art. XIII, Sec. 3.
30 Supra.
31 Heirs of Juancho Ardona v. Reyes, Nos. L-60549, 60553-60555, October 26, 1983, 125 SCRA
220.

SOLIDBANK CORPORATION,
Petitioner,
- versus NATIONAL LABOR RELATIONS
COMMISSION;
RODOLFO
N.
BOMBITA, DANILO J. MEDRANO,
DONALD F. MAGLEO, RONALD M.
PASIMIO, JOSE R. PACHECO,
ALFREDO
TAN,
JUSTICE
Z.
DEMERRE,
SOFIA
G.
YAP,
NICHOLAS DEL ROSARIO, RAMON
R. ABASTA, LUIS S. MASTRILL,
REYNALDO E. ALLADO, DANILO
NERY,
GRACIANO
M.
DEL
ROSARIO, GEALDINO M. PARAM,
LUCINA D. DE CASTRO, GLORIA
MARAYAG,
ROLANDO
A.
ARIO,BEDELL F.
FERRANCULO,
MA. BELLA A. PERALTA, DIONILO
M.
MARFIL,
TERESITA
E.
ANGELES, ZENAIDA Q. CAETE,
CHERRY KRISTIN C. BAUTISTA,
CECILIA S. ABELLA, MARIE
ABIGAIL
TONGSON,
MADEMIOSETTE
PRINSIPE,
RICARDO APOLINAR, BENJAMIN
O. CASTAEDA, JR., LUIS DEL
MORAL, JR., JOSE G. RICAFORTE,
JR., PATRICIA LEE, ENRIQUE T.
CASTELLVI, RENATO P. MALLARI,
ESTRELLA
LOPEZ,
MOISES
ANGELES,
ROLANDO
CUNDANGAN, CONRADO GALANG,
CLARO
I.
NEPOMUCENO,
FLORESITA
GOCE,
ALBERTO
CABALLERO, LEONARDO SANGA,
WINIFREDO
MARTINEZ,
MA.
VICTORIA LABORTE, ROBERTO F.
MADRID, EVELYN S. SERVIETO,
MILAGROS MUJER, GIL CABAAS,
LILIA CUAN, NORMA V. GO, IRMA

G.R. No. 165951

M. MANAOIS, WILFREDO B.
REYES,
TESSIE
MATEO,
RESURECCION
SANTOS,
BIENVENIDO
M.
SILANGIL,
GODOFREDO
F. DE
LEON,
NORMAN R. REYES, ALFONSO S.
MORALES,
JR.,
MERCEDITA I. MAGSUMBOL,
ROSARIO G. UMALI, VICENTA
LOPEZ, PRISCILLA F. CRUZ, MA.
CARMEN A.
YAZON,
MARIE
EMILLE C. DELA CRUZ, DOROTEA
YAP, RUCIA T. PO, ROMEO C.
ROSARIO, RUBEN A. FELEBRICO,
RUBY ROSA M. CARZA, ROBERTO
S. DE GUZMAN, LEONORA T.
COMIA, RAMON L. YU, ERLINDA T.
CALUMAG, JANE CUA, FILINO G.
MARQUEZ, JAIME C. CHAM,
FELOMINO V. LEGARDA, JUANITO
B. ARCEO, MANUEL B. MANZANO,
ROBERTO T. TUALE, SAMUEL Z.
ARCILLA,
CLEMENTE
N.
AGCAMARAN,
BENJAMINA
D.
MONCADA,
ILDEFENSO
F.
TAGAYON, CARMELO INAMAC,
MARICEL D. SALIRE, RICARDO M.
BONDOC, ROLANDO M. HALLIG,
ROMEO C. BONDOC, HENRY F. LEE
LEONG, FRANCISCA S. ZABALA,
RENE G. ALBANA, EDUARDO T.
JUAN, MERLIN L. VILLASIS,
EDWIN O. CACHO, NICOLAS S.
DIAZ, EDUARDO M. LIMBAGA,
JESUS P. TREYES, MAXIMO S.
MUOZ,
JR.,
MAYNARDO
B.
DYTUCO, AIDA J. PALAFOX,
EVANGELINE S. YANZON, DARIO V.
ABOGA, MODESTO V. BALTAZAR,
ROBERTO L. MAPA, ISAURO A.
ARELLANO, MAXIMO D. SUNER,
NOMER A. VIDAL, EDUARDO V.
ILAGAN, ROMEO D. MENDOZA,
FLORO A. BUSTO, FREDDIE L.

UYACO, JOE M. LICAYU, YODEL C.

MORALES,
ALEXANDER
V.
CABALLERO,
HERMIN
A.
DOLORITO, EDWARD C. YOUNG,
MA. TERESA R. LEGASPI, ELMER F.
CIERVA,
ROMEO
MERCADO,
Present:
HUMBERTO
S.
RANCO,
CONCEPCION S. YADAO, CARLO C.
DELA RIARTE, EDWIN R. ERMITA,
CORONA, J., Chairperson,
RAYMUND NIETES, JENNIFER T.
VELASCO, JR.,
ABESAMIS, ARNULFO ALVARES,
NACHURA,
LUISITO J. ESTEBAN, CONCHITINA
PERALTA, and
C. MESINA, PING CHAN C. YAO,
MENDOZA, JJ.
LARIZA V. LLANES, LEONARDO S.
AVELINO,
JR.,
JAIME
T.
ESMERALDA,
EDUARDO
S.
Promulgated:
BUENVENTURA,
JOSEFINA
M.
NIEVES, ERMENILDA P. IGNACIO,
MA. VICTORIA G. CAPULONG, March 30, 2010
TERESA C. ANDRES, EVELYN
C.DEL ROSARIO,
and
CONSOLACION AUREA M. SAURA,
Respondents.
x--------------------------------------------------x
DECISION
PERALTA, J.:
Before this Court is a Petition for Review on certiorari,[1] under Rule 45 of the Rules of Court,
seeking to set aside the May 28, 2004 Decision [2] and October 28, 2004 Resolution[3] of the
Court of Appeals (CA), in CA-G.R. SP No. 76879. The CA awarded financial assistance to
respondents Rodolfo Bombita et al. out of compassionate justice despite the fact that petitioner
Solidbank Corporation had already paid the respondents their separation pay in accordance with
Article 283 of the Labor Code.
The facts of the case are as follows:

Sometime in May 2000, petitioner decided to cease its commercial banking operations and
forthwith surrendered to the Bangko Central ng Pilipinas its expanded banking license. As a
result of petitioners decision to cease its operations, 1,867 of its employees would be
terminated.
On July 25, 2000, petitioner sent individual letters to its employees, including respondents,
advising them of its decision to cease operations and informing them that their employment
would be terminated. The pertinent portions of said letter are hereunder reproduced, to wit:
With the cessation of the banking operations of Solidbank Corporation and the surrender
of its banking license to the Bangko Sentral ng Pilipinas (BSP), the employment of all
Solidbankers will have to be terminated.
We regret that your services as an employee of Solidbank are hereby terminated, effective
the close of business hours on 31 August 2000. Your separation package will be in accordance
with the implementing guidelines issued to all officers and staff in President/CEO D.N. Vistans
Memorandum of 14 July 2000. You will receive your separation pay only upon release of your
clearance, but not later than the effectivity date of your termination from the Bank.
We wish you success in your future endeavors.[4]

On July 31, 2000, petitioner sent to the Department of Labor and Employment a
letter[5] dated July 28, 2000, informing said office of the termination of its employees, the
pertinent portions of which read:
In compliance with the provisions of Article 283 of the Labor Code, we would like to inform the
Department of Labor and Employment that Solidbank Corporation will cease operations and
surrender its banking license to the Bangko Sentral ng Pilipinas effective 31 August 2000.
Due to the cessation of the Banks operations, the employment of all officers and staff of
Solidbank will be terminated effective the close of business hours on 31 August 2000. As a
result, the Bank will implement a separation program in accordance with the attached
guidelines. The separation package offered to Solidbankers is more than what is required
by law.[6]

Petitioner granted to its employees separation pay equivalent to 150% of gross monthly pay per
year of service, and cash equivalent of earned and accrued vacation and sick leaves as a result
of their dismissal. Upon receipt of their separation pay, the employees of petitioner, including
respondents, individually signed a Release, Waiver, and Quitclaim.[7]
On September 27, 2000, respondents filed with the Labor Arbiter (LA) complaints for illegal
dismissal, underpayment of separation pay, plus damages and attorneys fees, and these were

docketed as NLRC NCR Case Nos. 30-09-03843-00, 30-1004350-00, 30-10-03928-00, 30-1004200-00, and 30-10-04036-00.
On July 22, 2002, the LA rendered a Decision [8] ruling that respondents were validly terminated
from employment as a result of petitioners decision to cease its banking operations. The LA,
however, inspired by compassionate justice, awarded financial assistance of one months salary
to respondents. The dispositive portion of the Decision reads:
WHEREFORE, the Complaints for illegal dismissal filed by the complainants under the
above-stated case numbers are hereby dismissed for lack of merit. However, inspired by
compassionate justice, this Office hereby orders the respondent Solidbank Corporation to
provide each complainant a financial assistance of one months salary.
Metrobanks motion to dismiss the claim against it for want of jurisdiction is DENIED for
lack of merit.

Complainants motion to admit annexes dated March 12, 2001, together with their motions to
amend affidavits/complaints dated January 22, 2001 are hereby GRANTED for being
meritorious.
Solidbanks counterclaim is dismissed for lack of merit.
SO ORDERED.[9]

Both parties appealed the LAs Decision to the National Labor Relations Commission (NLRC).
On October 29, 2002, the NLRC rendered a Decision[10] affirming the findings of the LA that
respondents were validly terminated. The NLRC ruled that the closure of a business is an
authorized cause sanctioned under Article 283 of the Labor Code and one that is ultimately a
management prerogative. The NLRC, however, modified the LAs Decision by increasing the
amount of financial assistance to two months salary out of compassionate justice. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, the Decision appealed from is affirmed with
modification as to the award of the financial assistance.
SO ORDERED.[11]

Aggrieved by the NLRC Decision, petitioner then appealed to the CA, specifically questioning
the grant of financial assistance to respondents.

On May 28, 2004, the CA rendered a Decision reversing the Decision of the NLRC. The CA
shared the view of the LA that respondents should only be awarded one months salary as
financial assistance and not two months salary as previously decreed by the NLRC. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, the assailed Decision is hereby REVERSED, and
the 22 July 2002 Decision of the Labor Arbiter is hereby REINSTATED.
SO ORDERED.[12]

Petitioner then filed a motion for reconsideration, which was, however, denied by the CA in a
Resolution dated October 28, 2004.
Hence, herein petition, with petitioner raising the following assignment of errors, to wit:
THERE IS NO LEGAL BASIS FOR THE COURT OF APPEALS AWARD OF
FINANCIAL ASSISTANCE EQUIVALENT TO ONE-MONTHS SALARY TO THE
RESPONDENTS AFTER ITS FINDING THAT SOLIDBANK HAS MORE THAN
COMPLIED WITH THE MANDATE OF THE LAW ON PAYMENT OF SEPARATION
PAY.[13]
THE AWARD OF FINANCIAL ASSISTANCE CANNOT BE JUSTIFIED ON THE BASIS
OF COMPASSIONATE JUSTICE AND AS A FORM OF EQUITABLE RELIEF.[14]
TO SUSTAIN THE COURT OF APPEALS AWARD OF FINANCIAL ASSISTANCE TO
THE 140 VALIDLY-DISMISSED RESPONDENTS WOULD RESULT IN A HIGHLY
ANOMALOUS SITUATION WHERE THE SAID RESPONDENTS WOULD BE
ACCORDED BETTER BENEFITS THAN OTHER FORMER SOLIDBANK
EMPLOYEES WHO WERE SIMILARLY SITUATED.[15]

The petition is meritorious. The errors being interrelated, this Court shall discuss the
same seriatim.
Before anything else, this Court shall first address the allegations raised by respondents in their
Comment,[16] which deal with the issue of the validity of their termination. Respondents, in the
main, claim that their termination was unlawful as petitioner did not really cease its operations.
[17]
Thus, notwithstanding their admission that the LA, the NLRC, and the CA all ruled in unison
that their termination was in accordance with law, respondents seek this Courts discretion to
reverse such findings.
On this note, it is well settled that this Court is not a trier of facts. To begin with, the
question of whether respondents were dismissed for authorized cause is a question of fact which
is beyond the province of a petition for review on certiorari. It is fundamental that the scope of

the Supreme Courts judicial review under Rule 45 of the Rules of Court is confined only to
errors of law. It does not extend to questions of fact; more so, in labor cases where the doctrine
applies with greater force.[18]
The LA and the NLRC have already determined the factual issues, and these were
affirmed by the CA. Thus, they are accorded not only great respect but also finality, and are
deemed binding upon this Court so long as they are supported by substantial evidence. A heavy
burden rests upon respondents to convince the Court that it should take exception from such a
settled rule.[19]
Moreover, what is damning to the cause of the respondents is the fact that the issue of the
validity of their dismissal is now already final. As correctly manifested by petitioner,
respondents had earlier filed with this Court a petition for review[20] dated December 28, 2004,
docketed as G.R. No. 165985, entitled Rodolfo Bombita, et al. v. Solidbank Corporation, et al.,
which questioned the validity of their termination. A perusal of said petition shows that the
issues raised therein are the very same issues respondents now raise in their
Comment. On February 21, 2005, this Courts Second Division issued a Resolution [21] denying
respondents petition for review. On September 20, 2005, an Entry of Judgment [22] was
rendered. Based on the foregoing, the validity of the termination of respondents is an issue that
this Court must no longer look into as a necessary consequence of the denial of their petition for
review before this Court.
Now, going to the issues raised by petitioner, this Court finds the same to be impressed
with merit.
Article 283 of the Labor Code provides:
ARTICLE 283. Closure of establishment and reduction of personnel. - The employer
may also terminate the employment of any employee due to the installation of labor-saving
devices, redundancy, retrenchment to prevent losses or the closing or cessation of operation of
the establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry 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 his one (1) month pay or to at least one (1)
month pay for every year of service, whichever is higher. In case of retrenchment to prevent
losses and in cases of closures or cessation of operations of establishment or undertaking
not due to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall be considered one (1)
whole year. [23]

Based on Article 283, in case of cessation of operations, the employer is only required to
pay his employees a separation pay of one month pay or at least one-half month pay for every
year of service, whichever is higher. That is all that the law requires.
In the case at bar, petitioner paid respondents the following: (a) separation pay computed
at 150% of their gross monthly pay per year of service; and (b) cash equivalent of earned and
accrued vacation and sick leaves. Clearly, petitioner had gone over and above the requirements
of the law. Despite this, however, petitioner has been ordered to pay respondents an additional
amount, equivalent to one months salary, as a form of financial assistance.
The LA awarded the financial assistance out of compassionate justice. The CA affirmed
such grant also out of compassionate justice and as a form of equitable relief for the employees
who were suddenly dismissed due to exigencies of business.[24]
After a thorough consideration of the circumstances at bar, this Court finds that the award
of financial assistance is bereft of legal basis and serves to penalize petitioner who has complied
with the requirements of the law.
It behooves this Court as to why the CA affirmed the grant of financial assistance
notwithstanding its pronouncement that it would be inequitable to allow respondents to receive
benefits than those prescribed by law and jurisprudence, to wit:
In the instant case, both the Labor Arbiter and the NLRC upheld the validity of the
dismissal of the employees and of the quitclaim agreements between the affected employees and
employer Solidbank. However, it was a strange occurrence when the NLRC granted an
additional award of separation pay in an amount equivalent to two months salary to each
employee. This means that Solidbank now has the obligation to pay the employees not only their
wages, benefits and other privileges under the law, and separation pay in an amount equivalent to
150% of their one months pay, but also financial assistance equivalent to two months pay to each
employee. Such a situation cannot be upheld by this Court. As discussed above, all that the law
requires in cases of dismissal due to an authorized cause is that the employer must pay
financial assistance or separation pay in an amount equivalent to one months pay or onehalf months for every year of service, whichever is higher.Solidbank has complied with the
mandate of the law. Hence, it would be unjust and inequitable to allow the employees to
receive higher benefits than those prescribed by the Labor Code and jurisprudence.[25]

Moreover, a review of jurisprudence relating to the application of compassionate and social

justice in granting financial assistance in labor cases shows that the same has been generally
used in instances when an employee has been dismissed for a just cause under Article 282 of
the Labor Code and not when an employee has been dismissed for anauthorized cause under
Article 283.

As a general rule, an employee who has been dismissed for any of the just causes
enumerated under Article 282[26] of the Labor Code is not entitled to separation pay.[27]Although
by way of exception, the grant of separation pay or some other financial assistance may be
allowed to an employee dismissed for just causes on the basis of equity.[28]
The reason that the law does not statutorily grant separation pay or financial assistance in
instances of termination due to a just cause is precisely because the cause for termination is due
to the acts of the employee. In such instances, however, this Court, inspired by compassionate
and social justice, has in the past awarded financial assistance to dismissed employees when
circumstances warranted such an award.
In Central Philippines Bandag Retreaders, Inc. v. Diasnes,[29] this Court discussed the
parameters of awarding separation pay to dismissed employees as a measure of financial
assistance, viz:
To reiterate our ruling in Toyota, labor adjudicatory officials and the CA must demur the
award of separation pay based on social justice when an employees dismissal is based on serious
misconduct or willful disobedience; gross and habitual neglect of duty; fraud or willful breach of
trust; or commission of a crime against the person of the employer or his immediate family
- grounds under Art. 282 of the Labor Code that sanction dismissals of employees. They
must be most judicious and circumspect in awarding separation pay or financial assistance as the
constitutional policy to provide full protection to labor is not meant to be an instrument to
oppress the employers. The commitment of the Court to the cause of labor should not embarrass
us from sustaining the employers when they are right, as here. In fine, we should be more
cautious in awarding financial assistance to the undeserving and those who are unworthy of the
liberality of the law.[30]

Thus, in Philippine Commercial International Bank v. Abad,[31] this Court, having considered
the circumstances present therein and as a measure of social justice, awarded separation pay to a
dismissed employee for a just cause under Article 282. The same concession was given by this
Court in Aparente, Sr. v. National Labor Relations Commission[32] and Tanala v. National Labor
Relations Commission.[33]
Looking now at Article 283, this Court holds that the same was drafted by the legislature, taking
the best interest of laborers in mind. It is clear that the causes of the termination of an employee
under Article 283 are due to circumstances beyond their control, such as when management
decides to reduce personnel based on valid grounds, or when the employer decides to cease
operations. Thus, the bias towards labor is very apparent, as the employer is statutorily required
to pay separation pay, the amount of which is also statutorily prescribed.
While the CA should not be faulted for sympathizing with the plight of respondents as
they suddenly lost their means of livelihood, this Court holds that it is precisely because of the

sudden loss of employment one that is beyond the control of labor that the law statutorily
grants separation pay and dictates how the same should be computed. Thus, any business
establishment that decides to cease its operations has the burden of complying with the
law. This Court should refrain from adding more than what the law requires, as the same is
within the realm of the legislature.
It bears to stress, however, that petitioner may, as it has done, grant on a voluntary and ex
gratia basis, any amount more than what is required by the law, but to insist that more financial
assistance be given is certainly something that this Court cannot countenance, as the same
serves to penalize petitioner, which has already given more than what the law requires.
Moreover, any award of additional financial assistance to respondents would put them at an
advantage and in a better position than the rest of their co-employees who similarly lost their
employment because of petitioners decision to cease its operations.
Withal, the law, in protecting the rights of the laborers, authorizes neither oppression nor selfdestruction of the employer. While the Constitution is committed to the policy of social justice
and the protection of the working class, it should not be supposed that every labor dispute will
be automatically decided in favor of labor. The management also has its own rights, as such, are
entitled to respect and enforcement in the interest of simple fair play. Out of its concern for
those with less privileges in life, the Supreme Court has inclined more often than not toward the
worker and upheld his cause in his conflicts with the employer. Such favoritism, however, has
not blinded the Court to the rule that justice is in every case for the deserving, to be dispensed in
the light of the established facts and applicable law and doctrine.[34]
WHEREFORE, premises considered, the petition is GRANTED. The May 28, 2004 Decision
and October 28, 2004 Resolution of the Court of Appeals, in CA-G.R SP No. 76879,
are REVERSED and SET ASIDE.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

RENATO C. CORONA
Associate Justice

Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Associate Justice
Third Division, Chairperson

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

ANTONIO T. CARPIO
Acting Chief Justice

[1]

Rollo, pp. 10-33.

Penned by Associate Justice Mariano C. del Castillo (now a member of this Court), with Associate Justices Roberto A. Barrios
and Magdangal M. de Leon, concurring; id. at 37-47.
[3]
Id. at 49.
[4]
See rollo, pp. 123-259.
[5]
Rollo, p. 260.
[6]
Id. (Emphasis supplied.)
[7]
See rollo, pp. 405-683.
[8]
Rollo, pp. 764-776.
[9]
Id. (Emphasis supplied.)
[10]
Id. at 853-864.
[11]
Id. at 863.
[12]
Id. at 46.
[13]
Id. at 19.
[14]
Id. at 26.
[15]
Id. at 27.
[16]
Id. at 935-952.
[17]
Id at 939.
[18]
Skippers United Pacific, Inc. v. National Labor Relations Commission, G.R. No. 148893, July 12, 2006, 494 SCRA 661, 667.
[19]
Id.
[20]
Rollo, pp. 962-985.
[21]
Id. at 986- 987. The pertinent portions read:
In accordance with Rule 45 and other related provisions of the 1997 Rules of Civil Procedure, as amended, governing appeals
by certiorari to the Supreme Court, only petitions which are accompanied by, or comply strictly with, the requirements specified
therein shall be entertained. On the basis thereof, the Court Resolves to DENY the petition for review on certiorari dated 28
December 2004 assailing the decision of the Court of Appeals for petitioners failure to properly verify the petition in accordance with
Section 1, Rule 45, in relation to Section 4, Rule 7, and to submit a valid certification of non-forum shopping in accordance with
Section 4 (e), Rule 45, in relation to Section 5, Rule 7, Section 2, Rule 42, and Sections 4 and 5 (d), Rule 56, the attached verification
and certification of non-forum shopping having been signed by petitioner Rodolfo N. Bombita only without proof of authority to sign
for his co-petitioners. Moreover, the certification on non-forum shopping/verification and affidavit of service of the petition did not
indicate affiants community tax certificate numbers or any competent evidence of affiants identities, and counsel for petitioners failed
to indicate his Attorneys Roll number.
[22]
Rollo, pp. 988-989.
[23]
Emphasis supplied.
[24]
Rollo, pp. 45-46.
[25]
Id. at 44-45. (Emphasis and underscoring supplied.)
[26]
ART. 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
a. Serious misconduct or willful disobedience by the employee of the lawful orders of his employer or representative in connection
with his 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 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.
[27]
Section 7, Rule I, Book VI of the Omnibus Rules Implementing the Labor Code provides:
Sec. 7. Termination of employment by employer. The just causes for terminating the services of an employee shall be those
provided in Article 282 of the Code. The separation from work of an employee for a just cause does not entitle him to the termination
pay provided in the Code, without prejudice, however, to whatever rights, benefits and privileges he may have under the applicable
individual or collective bargaining agreement with the employer or voluntary employer policy or practice.
[28]
Philippine Commercial International Bank v. Abad, 492 Phil. 657, 663-664 (2005).
[29]
G.R. No. 163607, July 14, 2008, 558 SCRA 194.
[30]
Id. at 207.
[31]
Supra note 28.
[32]
387 Phil. 96 (2000).
[33]
322 Phil. 343 (1996).
[34]
Mercury Drug Corporation v. National Labor Relations Commission, G.R. No. 75662, September 15, 1989, 177 SCRA 580, 586587.
[2]

PHILIPPINE RURAL
RECONSTRUCTION
MOVEMENT (PRRM),
Petitioner,
-

versus -

VIRGILIO E. PULGAR,
Respondent. -

G.R. No. 169227

Present:
CARPIO MORALES, J., Chairperson,
BRION,
BERSAMIN,

ABAD, and
VILLARAMA, JR., JJ.

Promulgated:
July 5, 2010
x-----------------------------------------------------------------------------------------x
DECISION
BRION, J.:
Before us is the petition for review on certiorari[1] filed by the Philippine Rural
Reconstruction Movement (PRRM) to assail the Court of Appeals (CA) decision, dated May 25,
2005,[2] and its resolution, dated August 5, 2005, [3] in CA-G.R. SP No. 62036. The appellate
court set aside the National Labor Relations Commissions (NLRC)January 28, 2000 decision,
and held that PRRM illegally dismissed respondent Virgilio Pulgar (Pulgar) from employment.

BACKGROUND FACTS
PRRM is a non-stock, non-profit, non-governmental organization. Pulgar was the manager of
PRRMs branch office the Tayabas Bay Field Office (TBFO) in Quezon Province. When Pulgar
was reassigned to PRRMs central office, PRRM, through Goyena Solis (Solis), conducted an
investigation into alleged financial anomalies committed at the TBFO.
In her investigation report, Solis stated that part of the funds allotted to the TBFO was
missing or not properly accounted for. The report also stated that some of the receipts that the
TBFO submitted to liquidate the organizations financial transactions were fictitious and
manufactured.[4]
The PRRM management sent Pulgar a copy of the report, together with a memorandum,
asking him to explain these findings.[5]
In a letter dated February 24, 1997, Pulgar admitted that TBFOs reported expenses did
not reflect its actual expenses. He explained that as field manager, he presumed he had the
discretion to determine when and how the funds would be used, as long as the use was devoted
to the implementation of TBFO projects. Thus, there were instances whenhe used the funds
intended for one project to sustain the activities of other projects. Pulgar further admitted
that some of the receipts he submitted to liquidate TBFOs expenses were not genuine; he
claimed that he had to produce fake receipts to comply with the central offices requirements and
deadlines, otherwise the release of TBFOs subsequent funds would be delayed. Pulgar also
disclosed that he had, on his own initiative, opened a separate bank account at the Capitol
Bank[6] for TBFOs savings; the account had a remaining balance of P206,958.50. Lastly, Pulgar
manifested his willingness to attend a meeting with the senior officers, scheduled on February
28, 1997, to further explain his side.[7]
On March 4, 1997, Pulgar met with PRRM representatives to discuss the findings of the
investigation report. During the meeting, Pulgar furnished these representatives with a
photocopy of a savings account passbook with Account Number 1103508 under Pulgars
name at the Cooperative Bank of Quezon. The passbook showed that the account had a
balance of P207,693.10. According to Pulgar, this balance represented the TBFO savings he
mentioned in his response. At this point, two versions of the story develop.
PRRM maintains that while the investigation was ongoing, Pulgar went on leave on March 310, March 20-25, and April 1-15, 1997. After the lapse of his last leave on April 15, 1997,
Pulgar no longer reported to work, leading PRRM to believe that Pulgar had abandoned his
work to evade any liability arising from the investigation. PRRM was therefore surprised to
learn that Pulgar had filed an illegal dismissal case on April 3, 1997.

Pulgar tells another tale. According to him, on March 17, 1997, he submitted a letter to PRRM
to complain that he was not given the right to confront and question Solis, [8] but his letter went
unanswered. Thereafter, on March 31, 1997, he was not allowed to enter the premises of the
organization. Pulgar also alleges that PRRMs representatives removed his personal properties
and records from his office, placed them in boxes and kept them in storage.
Believing he was constructively dismissed by PRRMs actions, Pulgar filed a complaint against
PRRM on April 3, 1997 for illegal dismissal, illegal suspension, and nonpayment of service
incentive leave pay and 13th month pay. Pulgar also asked for actual damages, moral damages,
and attorneys fees. At the mandatory conferences before Labor Arbiter Pablo Espiritu, Jr.
(Labor Arbiter), Pulgar dropped the illegal suspension charge, as well as his claim for payment
of service incentive leave with pay.[9]
On March 31, 1999, the Labor Arbiter found in his decision[10] that Pulgar had been illegally
dismissed and ordered PRRM to pay Pulgar P319,387.50 as full backwages. However, the
Labor Arbiter chose not to award Pulgar moral or exemplary damages after finding that PRRM
had legitimate grounds to investigate Pulgar. Due to the strained relations between PRRM and
Pulgar, the Labor Arbiter opted to award Pulgar separation pay instead of ordering his
reinstatement.
On appeal, the NLRC reversed the Labor Arbiter in its January 28, 2000 decision and dismissed
Pulgars complaint,[11] giving more weight to PRRMs allegation that Pulgar abandoned his work.
This prompted Pulgar to bring the matter to the CA via a petition for review
on certiorari (should be petition for certiorari) under Rule 65 of the 1997 Rules on Civil
Procedure.[12]
On May 25, 2005, the CA rendered the assailed decision, [13] granting Pulgars petition and
reinstating the Labor Arbiters decision. The appellate court noted that PRRM never rebutted
Pulgars contentions that he had been prevented from entering the premises and that his personal
effects were taken from his office and placed in storage. The CA further observed that PRRM
presented no evidence to prove that Pulgar abandoned his job. Reasoning that filing an illegal
dismissal complaint is inconsistent with the charge of abandonment, the appellate court
concluded that Pulgar had been illegally dismissed.
In the present petition, filed after the appellate court denied PRRMs Motion for
Reconsideration, PRRM raises the issue of whether Pulgar was illegally dismissed from
employment.

PRRM posits that it did not dismiss Pulgar from employment. Rather, Pulgar chose not to return
to work, after his leave of absence, to evade any criminal liability that might arise from the
ongoing investigation PRRM was conducting regarding the alleged financial anomalies Pulgar
committed when he was the field manager of the TBFO. PRRM opines that Pulgar filed the
present illegal dismissal case as a diversionary tactic to avoid having to submit himself to
PRRMs ongoing investigation. Lastly, PRRM asks this Court to order Pulgar to return the
PRRM funds still in his custody amounting to P207,693.10.
On the other hand, Pulgar claims that this Court should respect the Labor Arbiters factual
finding that he was illegally dismissed since the Labor Arbiter had the opportunity to observe
the actuations, behavior and demeanor of the parties. Pulgar further alleges that PRRM can no
longer claim the PRRM funds in his possession since the Labor Arbiter had already ruled that
PRRM failed to raise the award of these funds as a relief in its Position Paper. Since PRRM
never appealed this part of the Labor Arbiters decision, it is now bound by these findings.
THE COURTS RULING
We grant the petition.
Procedural issue
Under the Rules of Court and settled doctrine, a petition for review on certiorari under
Rule 45 of the Rules of Court is limited to questions of law. As a rule, the findings of fact of the
CA are final and conclusive, and this Court will not review them on appeal. [14] This rule,
however, is not absolute and admits of several exceptions.[15]
To resolve the issue of whether PRRM is guilty of illegal dismissal, we necessarily have
to determine the veracity of the parties' allegations, a function we are ordinarily barred from
performing when deciding a Rule 45 petition. However, due to the conflicting factual findings
of the NLRC and the CA, as well as the presence of some relevant facts that, had they been
considered by the CA, would have justified a different conclusion, we find the review of the
evidence on record compelling and proper.
The illegal dismissal issue
In concluding that Pulgar was constructively dismissed from employment, the CA relied
on two main factors: (a) Pulgars claim that he was barred from entering the premises on March
31, 1997; and (b) the fact that Pulgar immediately filed a complaint for illegal dismissal against

PRRM. At first glance, the CAs decision appears correct. But the facts are not as simple as they
appear to be.
Primarily, we underscore the fact that when Pulgar filed an illegal dismissal complaint on
April 3, 1997, he was still on leave from the organization. In other words, from PRRMs
standpoint, Pulgar was still its employee when he filed the illegal dismissal case against the
organization.
Pulgar claims that he was forced to file an illegal dismissal complaint against PRRM
while he was on leave because he was not allowed to enter the office premises on March 31,
1997. But aside from making this allegation, Pulgar failed to provide any other details
on how he was prevented from entering the premises. Was he physically prevented from
entering the premises by a security guard? Did the senior officers of PRRM refuse to let him
into the office when he reported to work? We are left to guess the particulars of how PRRM
prevented Pulgar from entering the premises, leaving us to doubt the veracity of this allegation.
To bolster his contention that he was constructively dismissed, Pulgar asserts that his
personal things were taken from his office, placed in boxes and put in storage. To support this
allegation, he attached three photographs.[16] But the only thing seen in these photographs is a
storage room with sealed boxes on the floor. Taken at face value, there is nothing in the
photographs that proves that the boxes in the storage room even contain Pulgars personal
things. Absent such proof, we cannot use these pictures to prove that Pulgar was constructively
dismissed from employment.
We further note that at the time PRRM was conducting an investigation into the alleged
anomalies committed in the liquidation and use of PRRM funds at the TBFO during Pulgars
management, Pulgar went on a number of leaves, specifically on March 3-10, 1997, then on
March 20-25, 1997, and finally on April 1-15, 1997. The timing and frequency of these leaves,
while not indicative of Pulgars intention to sever his employment, at the very least, imply
Pulgars active efforts to evade the organizations ongoing investigation.
Significantly, while Pulgar claims he was constructively dismissed when he was barred
from the premises on March 31, 1997, he still filed his application for leave forApril 1-15,
1997. The fact alone that Pulgar was able to return to the office to file his application for leave
for April 1-15, 1997 raises doubt as to his purported ban from the premises. More importantly, if
Pulgar truly believed that he had already been constructively dismissed on March 31, 1997,
reason dictates that he would no longer bother to apply for a leave of absence from PRRM
for April 1-15, 1997. The fact that he did belies his contention that he believed he had already
been constructively dismissed on March 31, 1997.

Also worth mentioning is the fact that Pulgar continued to receive his salary from PRRM
even after March 31, 1997, or the date of his alleged constructive dismissal. In fact, Pulgar
received his salary up until April 15, 1997, when his vacation and sick leaves had been
consumed.
These circumstances, taken together, lead us to conclude that PRRM did not terminate
Pulgars employment. On the contrary, what appears from the evidence is that it was Pulgar
himself who terminated his employment with PRRM when he filed an illegal dismissal
complaint against the organization while he was on leave.
The key to understanding Pulgars motive in severing his employment with PRRM lies in
Pulgars letter dated February 24, 1997, written in response to the investigation report that
implicated him in these financial anomalies. He wrote:
Noticing that even at the Central Office, project funds allotted for one field office or branch were
used to sustain the operation of other on-going activities of another field office/branch or even of
the Central Office, I presumed that the same is also applicable in the field office. That is, as field
manager, it was to my discretion as to where and how the fund should be used so long as its
utilization concerns the implementation of the project. With this in mind, I made some major
decisions at the field office which I believe could be of great help make the operations smooth
sailing.
For instance, there were cases when funds for the FSP were used to finance the
operations of the Community-based Mangrove and Community based Reforestation
projects and other side activities (e.g. Rapid Site Assessment, election campaign) in order to
accomplish the project/activity on time. Likewise, cost savings measures were undertaken so that
funds could be made available to the office when the immediate need for the fund arises
particularly during situations when the release from the Central Office were delayed. And since
the implementing guidelines from the CO was silent on the maintenance of another account for
savings made by the field office, I took the initiative to open a separate account for the field
offices savings. By doing this, possible disruption of work at the field and the delay in the salary
of the staff were prevented.
As for the inconsistencies of the liquidation documents submitted, this was necessary
in order to comply with the requirements and deadlines set by the Central Office, otherwise,
the release for the succeeding quarter or period in questions will be put on hold. Given the
situation and with the continuity of the field offices operation still in mind, I was forced to
adjust the documents submitted just to meet the deadlines and avoid disruption of work.
However, never had I intentionally done this with malicious intent of, as Ms. Solis puts it, using
the fund for personal gain. As I will explain later, funds were used to finance activities that were
related to the operations of the field office and whatever savings were made remains in
safekeeping for possible use of the offices operation. x x x
With regard to the case of the AECI project, its account has been required to be closed
and cash advances liquidated (with accompanying Official Receipts) by November 1996 or
exactly by the end of its six months of implementation. This being the case, and with the slight
delay met in the implementation of the project, adjustment in the documents became a
necessary evil in order to comply with the requirements of the CO.[17] [Emphasis supplied.]

In the same letter, Pulgar manifested that the TBFO had savings in the amount
of P206,958.50, which he deposited with Capitol Bank under Account No. 2-042-00188-9. [18] At
the meeting with PRRM senior officers on March 4, 1997, Pulgar also admitted that the TBFOs
savings in the amount of P207,693.10 were actually deposited with the Cooperative Bank of
Quezon in an account under his name.
From Pulgars own admissions, we consider the following facts to be established:
First, Pulgar took funds intended for one activity or project and applied them to other
activities/projects.
Second, Pulgar took the savings from the TBFO and placed them in a bank
account under his own name. To date, Pulgar has not turned over these funds to the PRRM.
Third, Pulgar submitted manufactured and fake receipts to PRRM to liquidate TBFOs
expenses.
Noticeably, from Pulgars disclosures alone, a prima facie case for estafa can already be
made out against Pulgar. With the danger of criminal prosecution hanging over his head,
Pulgars abrupt decision to terminate his employment with PRRM becomes easily
understandable.
While we recognize the rule that in illegal dismissal cases, the employer bears the burden
of proving that the termination was for a valid or authorized cause, in the present case, however,
the facts and the evidence do not establish a prima facie case that the employee was dismissed
from employment. Before the employer must bear the burden of proving that the dismissal
was legal, the employee must first establish by substantial evidence the fact of his
dismissal from service. Logically, if there is no dismissal, then there can be no question as to
its legality or illegality.[19] Bare allegations of constructive dismissal, when uncorroborated by
the evidence on record, cannot be given credence.[20]
As we said in Machica v. Roosevelt Services Center, Inc.:[21]
The rule is that one who alleges a fact has the burden of proving it; thus, petitioners were
burdened to prove their allegation that respondents dismissed them from their employment. It
must be stressed that the evidence to prove this fact must be clear, positive and convincing. The
rule that the employer bears the burden of proof in illegal dismissal cases finds no
application here because the respondents deny having dismissed the petitioners.
[22]
[Emphasis supplied.]

Although under normal circumstances, an employees act of filing an illegal dismissal

complaint against his employer is inconsistent with abandonment; in the present case,we simply
cannot use that one act to conclude that Pulgar did not terminate his employment with
PRRM, and in the process ignore the clear, substantial evidence presented by PRRM that
proves otherwise. Our ruling on this point in Leopard Integrated Services, Inc. v. Macalinao is
very relevant. We said: [23]
The fact that respondent filed a complaint for illegal dismissal, as noted by the CA, is not
by itself sufficient indicator that respondent had no intention of deserting his employment since
the totality of respondent's antecedent acts palpably display the contrary. In Abad v. Roselle
Cinema, the Court ruled that:
The filing of a complaint for illegal dismissal should be taken into account
together with the surrounding circumstances of a certain case. In Arc-Men Food
Industries Inc. v. NLRC, the Court ruled that the substantial evidence proffered
by the employer that it had not, in the first place, terminated the employee,
should not simply be ignored on the pretext that the employee would not
have filed the complaint for illegal dismissal if he had not really been
dismissed. This is clearly a non-sequitur reasoning that can never validly take the
place of the evidence of both the employer and the employee. [24] [Emphasis
supplied.]

While the Constitution is committed to the policy of social justice and the protection of the
working class, it should not be supposed that every labor dispute will be automatically decided
in favor of labor. Management also has its rights which are entitled to respect and enforcement
in the interest of simple fair play. Out of its concern for those with less privileges in life, the
Supreme Court has inclined, more often than not, toward the worker and upheld his cause in his
conflicts with the employer. Such favoritism, however, has not blinded the Court to the rule that
justice is in every case for the deserving, to be dispensed in the light of the established facts and
the applicable law and doctrine.[25]
PRRMS monetary claim is belatedly raised
Examining the records of the case, it appears that Pulgar has not yet returned the money
he took from the TBFO and deposited in his name to PRRM.
We have previously ruled on the Labor Arbiters jurisdiction to rule on all money claims,
including those of the employer, arising out of the employer-employee relationship.
[26]
Unfortunately for PRRM, it never raised as an issue the money allegedly still in Pulgars
custody in the proceedings before the Labor Arbiter, or even before the NLRC. As the Labor
Arbiter held:

One final note. The Labor Code allows for claims made by employers against employees
arising from employer-employee relations. In this case, the records show that Pulgar holds the
amount ofP207,693.10 as alleged savings as manager of TBFO. PRRM attached Annex 11,
which is a savings passbook of Pulgar with Cooperative Bank of Quezon Province, the existence
of which was not denied by Pulgar before this Arbitration Branch. There is nothing on record
which would show that this amount has been returned to PRRM. x x x However, a perusal of
PRRMs pleadings would reveal that the latter does not raise as a relief an award for the
return of the P207,693.10. [A]s it were, we cannot act on the same in view of PRRMs failure
(for reasons known only to it) to pray for such award. [Emphasis supplied.][27]

As a factual matter, this issue should have been raised at the earliest opportunity before
the Labor Arbiter, to allow both parties to present their evidence. The rule is well-settled that
points of law, theories, issues and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be considered by a reviewing court as they cannot be
raised for the first time on appeal [28] because this would be offensive to the basic rules of fair
play, justice and due process.[29]
WHEREFORE, premises considered, we GRANT the petition. The May 25, 2005
Decision and the August 5, 2005 Resolution of the Court of Appeals in CA-G.R. SP No. 62036
are REVERSED and SET ASIDE. The January 28, 2000 Decision of the National Labor
Relations Commission in NLRC NCR CA No. 019914-99 isREINSTATED.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

LUCAS P. BERSAMIN
Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

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

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

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

RENATO C. CORONA
Chief Justice

Designated additional Member of the Third Division, in view of the retirement of former Chief Justice Reynato S. Puno, per Special
Order No. 843 dated May 17, 2010.
[1]
Under Rule 45 of the RULES OF COURT; rollo, pp. 9-45.
[2]
Penned by Associate Justice Salvador Valdez, Jr., with the concurrence of Associate Justices Mariano del Castillo (now a member of
this Court) and Magdangal de Leon; id. at 46-53.
[3]
Id. at 54-55.
[4]
Dated February 13, 1997; id. at 165-174.
[5]
Dated February 20, 1997; id. at 175.
[6]
Account Number 2-042-00188-9.
[7]
Rollo, pp. 176-182.
[8]
Id. at 118.
[9]
Per the Labor Arbiters decision; id. at 67.
[10]
Id. at 66-76.
[11]
Id. at 56-63.

[12]

Id. at 77-98.
Supra note 2.
[14]
Amigo v. Teves, 96 Phil. 252 (1954).
[15]
(1) When the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a
misappreciation of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondents; and
(10) when the findings of fact of the CA are premised on the supposed absence of evidence and contradicted by the evidence on
record. Campos v. Pastrana, et al., G.R. No. 175994, December 8, 2009.
[16]
Rollo, p. 117.
[17]
Id. at 177-178.
[18]
Id. at 182.
[19]
Ledesma, Jr. v. NLRC, G.R. No. 174585, October 19, 2007, 537 SCRA 358.
[20]
Go v. Court of Appeals, G.R. No. 158922, May 28, 2004, 430 SCRA 358.
[21]
G.R. No. 168664, May 4, 2006, 489 SCRA 534.
[22]
Id. at 544-545.
[23]
G.R. No. 159808, September 30, 2008, 567 SCRA 192.
[24]
Id. at 201-202.
[25]
Enriquez v. Bank of Philippine Islands, G.R. No. 172812, February 12, 2008, 544 SCRA 590, citing Sosito v. Aguinaldo
Development Corporation, 156 SCRA 392 (1987).
[26]
See Baez v. Valdevilla, 387 Phil. 601 (2000).
[27]
Rollo, p. 75.
[28]
Tay Chun Suy v. Court of Appeals, G.R. No. 93640, January 7, 1994, 229 SCRA 151; Santos v. Intermediate Appellate Court, 229
Phil. 588 (1986); Berin v. Court of Appeals, G.R. No. 57490, February 27, 1991, 194 SCRA 508 (1991).
[29]
Cruz v. Court of Appeals, G.R. No. 108738, June 17, 1994, 233 SCRA 301; National Power Corporation v. Gutierrez, G.R. No.
60077, January 18, 1991, 193 SCRA 1.
[13]

FIRST DIVISION
MARIBAGO BLUEWATER BEACH
G.R. No. 180660
RESORT, INC.
Present:
Petitioner,

- versus -

NITO DUAL,
Respondent.

CORONA, C. J.,
Chairperson,
BRION,*
DEL CASTILLO,**
ABAD, *** and
PEREZ, JJ.
Promulgated:
July 20, 2010

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

DECISION
PEREZ, J.:
Before this Court is the petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision[1] dated 7 March 2007 and Resolution[2] dated 30 July 2007 of the
Court of Appeals in CA-G.R. SP No. 02062. The Decision ordered petitioner Maribago
Bluewater Beach Resort, Inc. (Maribago for brevity) to pay respondent Nito Dual (Dual for
brevity) full backwages and separation pay for his illegal dismissal. It is a reversal of the
National Labor Relations Commission (NLRC for brevity) decision vacating the decision of the
Labor Arbiter.
The undisputed facts of the case are as follows:

Petitioner Maribago is a corporation operating a resort hotel and restaurant in Barangay

Maribago, Lapu-Lapu City. On 18 October 1995[3], it hired respondent Dual as waiter and
promoted him later as outlet cashier of its Poolbar/Allegro Restaurant.[4]
On 9 January 2005, around 6:30 p.m., a group of Japanese guests and their companions
dined at Allegro.[5] Captain waiter Alvin Hiyas (Hiyas for brevity) took their dinner orders
comprising of six (6) sets of lamb and six (6) sets of fish. As per company procedure, Hiyas
forwarded one copy of the order slip to the kitchen and another copy to respondent. [6] Pursuant
to the order slip, fourteen (14) sets of dinner were prepared by the chef. Hiyas and waiter
Genaro Mission, Jr. (Mission for brevity) served twelve (12) set dinners to the guests, and
another two (2) sets to their guides[7] free of charge
(total of 14 sets of dinner).
After dinner, at around 9:00 p.m., the guests asked for their bill. Since Hiyas was
attending to other guests, he gave a signal to Mission to give the bill. Mission asked respondent
Dual for the sales transaction receipt and presented this to the guests. The guests paid the
amount indicated on the receipt and thereafter left in a hurry.[8]
The receipt printed at 10:40 p.m. shows that only P3,036.00 was remitted by cashier Dual
corresponding to six (6) sets of dinner. The receipt reads:
xxxx
NITO 01/09/2005 22:40 xxx
1 3 SET LAMB 1,560.00
1 3 SET FISH 1,200.00
10% Service Charge 276.00
NET TOTAL 3,036.00
CASH/CHEQUE TENDER 3,036.00
CHANGE 0.00
x x x x [9]

In view of the discrepancy between the order slip and the receipt issued, petitioner
Maribago, through its Human Resource Development (HRD) manager, issued memoranda, all
dated 12 January 2005, requiring respondent Dual, Alvin Hiyas, Ernesto Avenido and Basilio
Alcoseba to explain why they should not be penalized for violating House Rule 4.1 (dishonesty
in any nature). [10]
On 14 January 2005, the concerned employees were requested to attend a clarificatory
hearing to be conducted on 15 January 2005. The hearing was attended by respondent Dual,
Human Resource Manager Ignacio Hermias, Jr., Chief Security Officer Roland Cubillan,
Captain Waiter Hiyas, Chef Arman, Bartender Avenido, Room Service Waiter Alcoseba,
Butcher Ryan Alegrado, John Marollana, and union officials. This was followed by another

clarificatory hearing conducted on 16 January 2005. It was in the 16 January 2005 hearing that
waiter Mission gave his testimony.
During the clarificatory hearing, butcher Alegrado testified that waiter Alcoseba went to
the butchery looking for the order slip for table no. 113. At around 9:45 p.m., waiter Alcoseba
caused the alteration of the order slip to reflect that six (6) orders were cancelled. Alegrado
allegedly asked Alcoseba if the cook was already aware of the cancellation, to which the latter
answered oo, kahibaw na (yes, he is already aware).
In his written explanation, Alcoseba stated that he was not privy to the cancellation of
orders since he was busy attending to his room service duty. He claims that he saw the cancelled
food orders at the waiters station but insists that he did not have any part in the alteration of the
order slip. During the clarificatory hearing, however, he admitted that he altered the order slip
by cancelling six (6) set dinners.
After the investigation, respondent Dual was found guilty of dishonesty for his fabricated
statements and for asking one of the waiters (Mission) to corroborate his allegations. He was
terminated per memorandum dated 22 January 2005. Alcoseba was also terminated for
dishonesty based on his admission that he altered the order slip.[11]
CASE FOR RESPONDENT
Respondent Dual confirms that the orders were for six (6) sets of lamb dinner and six (6)
sets of fish dinner. He, however, alleges that four (4) sets were cancelled and two (2) sets were
given to the guides for free. He was able to confirm the cancellation with Alcoseba and
Hiyas. Hence, he received the payment for the six (6) sets only.[12]
He avers that when he noticed the alteration in the order slip, he verified this
with Mission. The latter allegedly told him that the order slip was handed by
Alcoseba.Respondent further avers that he went to see Alcoseba who, in turn, told him that
some orders were cancelled because some of the companions of the Japanese guests did not
take their dinner. Upon verification from chief waiter Hiyas, he was allegedly told that the sets
of dinner were indeed cancelled and placed in the utensil station. According to respondent, he
checked the utensil station and found the dinner sets there. Satisfied, he issued the transaction
receipt corresponding to the order slip.
Respondent argues that when Mission received the printed receipt in the amount of
P3,036.00 for six (6) sets of dinner, the latter did not complain that the entry was incorrect,
particularly, the amount reflected in the computer printed receipt.
He alleges that Mission presented the receipt to the guests and came back with the
payment in the amount of P3,100.00. Dual admits that he accepted the payment and
gaveMission a change of P64.00. He claims that he thereafter issued the corresponding official
receipt.

CASE FOR THE PETITIONER

Petitioner Maribago submits that the transaction receipt handed to Mission by respondent Dual
amounted to P10,100.00 (more or less). The guests allegedly gave Mission P10,500.00 with the
instruction to return only P200.00. The rest can be kept by the waiter as tip.
Mission then handed Dual the P10,500.00 and relayed the guests instruction. Dual
handed Mission the P200.00 which the latter gave to the guests.
It was discovered later that only P3,036.00 was entered by Dual in the cash register. The rest of
the payment was missing. The original transaction receipt for P10,100.00 was likewise missing
and in its place, only a transaction receipt for P3.036.00 was registered. Upon verification, it
was also found out that the order slip was tampered by Alcoseba to make it appear that only six
(6) set dinners were ordered.
According to petitioner, on 14 January 2005, Dual and Alcoseba tried to convince Mission to
say that he altered the order slip from twelve (12) sets of dinner to six (6) sets. [13]Mission did not
report for work and did not attend the 15 January 2005 clarificatory hearing since he could not
in conscience tell a lie.[14] At past 11:00 p.m. of 15 January 2005, Dual met Mission and tried
again to convince him to say that only six (6) sets of dinner were ordered. [15] Mission reported
on 16 January 2005 and attended the hearing that day.Dual was not present.[16]

RULING OF THE LABOR ARBITER/NLRC/CA

On 3 February 2005, Dual filed a complaint [17] for unfair labor practice, illegal dismissal,
non-payment of 13th month and separation pay, and damages before the NLRC, Regional
Arbitration Branch No. VII, Cebu City.
The Labor Arbiter found that respondents termination was without valid cause and ruled
that respondent is entitled to separation pay, to wit:
WHEREFORE, VIEWED FROM THE FOREGOING, judgment is hereby rendered
declaring the absence of valid cause in the termination of complainant from the
service. Complainant is thus, entitled to reinstatement but without backwages considering that
respondents are in good faith. However, since reinstatement is no longer feasible,
respondents MARIBAGO BLUE WATER BEACH RESORT/ARCADIO ALEGRADO are
hereby ordered to pay jointly and severally, complainant NITO DUAL the total amount
of THIRTY-FIVE THOUSAND PESOS (P35,000.00), Philippine currency, representing
Separation Pay, within ten (10) days from receipt hereof, through the Cashier of this Arbitration
Branch.

Other claims are DISMISSED for lack of merit.[18]

The NLRC set aside the Labor Arbiters decision and dismissed the complaint, to wit:
WHEREFORE, premises considered, the decision of the Labor Arbiter dated 03 August
2005 is VACATED and SET ASIDE and the complainants complaint is DISMISSED for lack
of merit.[19]

The NLRC also denied respondents motion for reconsideration.[20]

It ruled that complainants act of depriving respondent of its lawful revenue is tantamount
to fraud against the company which warrants dismissal from the service. [21]Falsification of
commercial documents as a means to malverse company funds constitutes fraud against the
company.[22]
The Court of Appeals reversed the decision and resolution of the NLRC. Finding no
sufficient valid cause to justify respondents dismissal, the Court of Appeals ordered petitioner to
pay respondent full backwages and separation pay, as follows:
WHEREFORE, the instant petition is GRANTED. The Decision, dated March 31,
2006, and Resolution, dated June 28, 2006, of the NLRC, in NLRC Case No. V-000590-2005
areREVERSED. A new judgment is hereby rendered, directing private respondent [herein
petitioner Maribago Bluewater Beach Resort, Inc.] to pay petitioner [herein respondent Nito
Dual] full backwages from the time he was illegally dismissed, up to the finality of this decision
and a separation pay of one month salary for every year of service.[23]

The Court of Appeals denied petitioners motion for reconsideration.

OUR RULING
The petition before this Court prays for the resolution of a sole issue:
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A GRAVE AND
REVERSIBLE ERROR IN REVERSING THE NATIONAL LABOR RELATIONS
COMMISSION AND DIRECTING PETITIONER TO PAY RESPONDENT FULL
BACKWAGES FROM THE TIME HE WAS ILLEGALLY DISMISSED, UP TO THE
FINALITY OF [ITS] DECISION AND SEPARATION PAY OF ONE MONTH SALARY FOR
EVERY YEAR OF SERVICE.[24]

In essence, the issue is whether the Court of Appeals erred in ruling that respondent was
illegally dismissed.
Petitioner places the crux of the controversy on the proven tampering of the transaction
receipt which happened in respondents workstation. Thus, petitioner seeks a review of the

findings of the Court of Appeals for being speculative[25] and prays that its decision and
resolution be reversed.[26] Petitioner submits that while this Court is not a trier of facts and its
jurisdiction under Rule 45 of the Rules of Court is confined to a review of questions of law, the
contradictory findings of the NLRC and Court of Appeals provide sufficient justification for the
review of the facts.[27]
Respondent, on the other hand, reiterates his story that the order slip was already altered
when Mission gave it to him; that he was able to confirm the cancellation of some orders from
Alcoseba and Hiyas; that the receipt he printed was based on the order slip for six (6) sets of
dinner; that Mission gave him P3,100.00 as payment and he returnedP64.00 as change.
[28]
Respondent also contends that a review of the findings of fact of the Court of Appeals is not
proper in a petition for review on certiorari. The findings of the Court of Appeals were
supported by the evidence on record and consistent with the findings of the Labor
Arbiter. Hence, the decision of the Court of Appeals is conclusive and must be accorded finality.
[29]

As a rule, a petition for review under Rule 45 [30] of the Rules of Court must raise only
questions of law. However, the rule has exceptions such as when the findings of the Labor
Arbiter, NLRC and Court of Appeals vary,[31] as in this case.
After a full review of the case, we are constrained to reverse the Court of Appeals.
The law requires that an employer shall not terminate the services of an employee except
for a just or authorized cause. Otherwise, an employee unjustly dismissed from work is entitled
to reinstatement and full backwages.[32] The law also requires the employer to observe due
process in termination cases.[33] In Agabon v. National Labor Relations Commission,[34] we ruled
that violation of the employees statutory right to due process makes the employer liable to pay
indemnity in the form of nominal damages.The law further requires that the burden of proving
the cause for termination rests with the employer.[35]
In this case, we are in agreement that petitioners evidence proved that respondent is
guilty of dishonesty and of stealing money entrusted to him as cashier. Instead of
reporting P10,100.00 as payment by the guests for their dinner, respondent cashier only
reported P3,036.00 as shown by the receipt which he admitted to have issued. The receipt which
bears his name NITO was printed at 22:40 (10:40 p.m.) or 1 hour and 40 minutes after the
guests had left at 9:00 p.m. Two other receipts were issued for the same amount at 22:39:55 and
22:40:01. Moreover, respondents claim that he received P3,100.00 only and gave
Mission P64.00 as change is not shown by the receipt that he issued. The issued receipt does not
show that change was given. In addition, the amount indicated in the receipt does not coincide
with Duals contention that only four (4) dishes were cancelled and two (2) dishes were given
free of charge. If such were the case, then the amount charged to the guests should have been
for eight (8) sets of dinner and not six (6) sets. As established during the clarificatory hearing,
twelve (12) sets of dinner were served to guests and two (2) dinner sets were given to the tour

guides free of charge. It is clearly indicated in the altered order slip that six (6) out of the twelve
(12) sets of dinner were cancelled.
The allegation of Dual that six (6) dinner sets were indeed cancelled as evidenced by the
dishes he allegedly saw in the utensil station is negated by the testimonies of the kitchen staff
(Chef Armand Galica, Butcher Alegrado and Dessert-in-charge John Marollano) that twelve
(12) set meals were served and consumed. These testimonies coincide with the claim of waiters
Hiyas and Mission that fourteen (14) sets of dinner were served. The serving of food eliminates
the argument of cancellation.
The alibi of cancellation has no leg to stand on. The standard operating procedure of
Maribago dictates that in cases of cancellation, the order slip has to be countersigned by the
attending waiter (which in this case should have been Chief Waiter Hiyas) but such was not so
in this case.
The foregoing facts explain why Dual and Alcoseba tried twice to convince Mission to
cover up their crime. They even asked Mission to take the fall by asking him to admit that he
altered the order slip from twelve (12) sets of dinner to six (6) sets.
In fine, what is damning to the cause of Dual is the receipt which he admittedly
issued. The receipt was issued long after the guests had left (9:00 p.m.) and after the alteration
of the order slip (9:45 p.m.) was done. Such fact led us to the conclusion that he consented to
and participated in the anomaly.
Respondents acts constitute serious misconduct which is a just cause for termination
under the law.[36] Theft committed by an employee is a valid reason for his dismissal by the
employer. Although as a rule this Court leans over backwards to help workers and employees
continue with their employment or to mitigate the penalties imposed on them, acts of dishonesty
in the handling of company property, petitioners income in this case, are a different matter.[37]
Withal, the law, in protecting the rights of the laborers, authorizes neither oppression nor
self-destruction of the employer. While the Constitution is committed to the policy of social
justice and the protection of the working class, it should not be supposed that every labor
dispute will be automatically decided in favor of labor. The management also has its own rights,
as such, are entitled to respect and enforcement in the interest of simple fair play. Out of its
concern for those with less privileges in life, the Supreme Court has inclined more often than
not toward the worker and upheld his cause in his conflicts with the employer. Such favoritism,
however, has not blinded the Court to the rule that justice is in every case for the deserving, to
be dispensed in the light of the established facts and applicable law and doctrine.[38]
Regarding the due process requirement, petitioner had complied with it as clearly shown
by the facts.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated
7 March 2007 and 30 July 2007, respectively, of the Court of Appeals in CA-G.R. SP No. 02062
are REVERSED and SET ASIDE. The complaint of respondent Nito Dual is DISMISSED.
No pronouncement as to costs.
SO ORDERED.

OSE PORTUGAL PEREZ Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

C E R T I F I C AT I O N

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

RENATO C. CORONA
Chief Justice

Designated as an additional member in lieu of Associate Justice Teresita J. Leonardo-De Castro per Special Order No. 856 dated 1
July 2010.
** Designated as Acting Working Chairperson in lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 853 dated 1
July 2010.
*** Designated as an additional member in lieu of Associate Justice Antonio Eduardo B. Nachura per Special Order No. 869 dated 5
July 2010.
[1]
Penned by Associate Justice Pampio A. Abarintos with Associate Justices Priscilla Baltazar-Padilla and Stephen C. Cruz,
concurring. Rollo, pp. 29-37.
[2]
Id. at 39-40.
[3]
Id. at 101.
[4]
Id. at 69, 101.
[5]
Id. at 69-70.
[6]
Id. at 139,144.
[7]
Id.
[8]
Id. at 91.
[9]
Id. at 126.
[10]
Id. at 82-85.
[11]
Id. at 92-93.
[12]
Id. at 86.
[13]
Id. at 96.
[14]
Id. at 99.
[15]
Id. at 96, 99.
[16]
Id. at 97, 99.
[17]
Id. at 65. Named as respondents in the complaint were the petitioner and Arcadio Alegrado. In the Court of Appeals, however, the
private respondent impleaded is only the petitioner herein (Id. at 29).
[18]
Id. at 63.
[19]
Id. at 52.
[20]
Id. at 55.
[21]
Philippine Airlines, Inc. v. NLRC, G.R. No. 126805, 16 March, 2000.
[22]
Pepsi Cola Bottling Company of the Philippines v. Guanson, G.R. No. 81162, 19 April 1989, 172 SCRA 571.
[23]
Rollo, pp 36-37.
[24]
Id. at 211.
[25]
Id. at 216-217.
[26]
Id. at 218.
[27]
Id. at 212-213.
[28]
Id. at 190-191.
[29]
Id. at 202.
[30]
RULE 45

APPEAL TO THE SUPREME COURT

SECTION 1. Filing of petition with Supreme Court A party desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth. (see also A.M. No. 07-7-12-SC, took effect on 27 December 2007.)
[31]
Suldao v. Cimech System Construction, Inc., G.R. No. 171392, 30 October 2006, 506 SCRA 256, 260.
[32]
LABOR CODE, ART. 279.
[33]
LABOR CODE, ART. 277(b) Subject to the constitutional right of workers to security of tenure and their right to be protected
against dismissal except for a just and authorized cause and without prejudice to the requirement of notice under Article 283
of this Code, the employer shall furnish 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 or legality of his dismissal 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. x x x x
[34]
G.R. No. 158693, 17 November 2004, 442 SCRA 573, 617.
[35]
LABOR CODE, ART. 277(b)
[36]
LABOR CODE, ART. 282(a).
[37]
Firestone Tire and Rubber Co. of the Phils. v. Lariosa, 232 Phil. 201, 206 (1987).
[38]
Mercury Drug Corporation v. National Labor Relations Commission, G.R. No. 75662, 15
September 1989, 177 SCRA 580, 587.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION
CENTURY
CANNING
CORPORATION, RICARDO T. PO,
JR.
and
AMANCIO
C.
RONQUILLO,
Petitioners,
- versus -

G.R. No. 171630

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.
Promulgated:

VICENTE RANDY R. RAMIL,

August 8, 2010
Respondent.
x--------------------------------------------------x
DECISION

PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision[1] and Resolution[2] of the Court of Appeals (CA) in CA-G.R.
SP. No. 86939, dated December 1, 2005 and February 17, 2006, respectively.
The antecedents are as follows:
Petitioner Century Canning Corporation, a company engaged in canned food manufacturing,
employed respondent Vicente Randy Ramil in August 1993 as technical specialist. Prior to his
dismissal on May 20, 1999, his job included, among others, the preparation of the purchase
requisition (PR) forms and capital expenditure (CAPEX) forms, as well as the coordination with
the purchasing department regarding technical inquiries on needed products and services of
petitioner's different departments.
On March 3, 1999, respondent prepared a CAPEX form for external fax modems and terminal
server, per order of Technical Operations Manager Jaime Garcia, Jr. and endorsed it to Marivic

Villanueva, Secretary of Executive Vice-President Ricardo T. Po, for the latter's signature. The
CAPEX form, however, did not have the complete details[3] and some required signatures.[4] The
following day, March 4, 1999, with the form apparently signed by Po, respondent transmitted it
to Purchasing Officer Lorena Paz in Taguig Main Office. Paz processed the paper and found
that some details in the CAPEX form were left blank. She also doubted the genuineness of the
signature of Po, as appearing in the form. Paz then transmitted the CAPEX form to Purchasing
Manager Virgie Garcia and informed her of the questionable signature of Po. Consequently, the
request for the equipment was put on hold due to Po's forged signature. However, due to the
urgency of purchasing badly needed equipment, respondent was ordered to make another
CAPEX form, which was immediately transmitted to the Purchasing Department.
Suspecting him to have committed forgery, respondent was asked to explain in writing the
events surrounding the incident. He vehemently denied any participation in the alleged forgery.
Respondent was, thereafter, suspended on April 21, 1999. Subsequently, he received a Notice of
Termination from Armando C. Ronquillo, on May 20, 1999, for loss of trust and confidence.
Due to the foregoing, respondent, on May 24, 1999, filed a Complaint for illegal dismissal, nonpayment of overtime pay, separation pay, moral and exemplary damages and attorney's fees
against petitioner and its officers before the Labor Arbiter (LA), and was docketed as NLRCNCR Case No. 00-05-05894-99.[5]
LA Potenciano S. Canizares rendered a Decision[6] dated December 6, 1999 dismissing the
complaint for lack of merit. Aggrieved by the LA's finding, respondent appealed to the National
Labor Relations Commission (NLRC). Upon recommendation of LA Cristeta D. Tamayo, who
reviewed the case, the NLRC First Division, in its Decision [7] dated August 26, 2002, set aside
the ruling of LA Canizares. The NLRC declared respondent's dismissal to be illegal and
directed petitioner to reinstate respondent with full backwages and seniority rights and
privileges. It found that petitioner failed to show clear and convincing evidence that respondent
was responsible for the forgery of the signature of Po in the CAPEX form.
Petitioner filed a motion for reconsideration. To respondent's surprise and dismay, the NLRC
reversed itself and rendered a new Decision[8] dated October 20, 2003, upholding LA Canizares'
dismissal of his complaint. Respondent filed a motion for reconsideration, which was denied by
the NLRC.
Frustrated by this turn of events, respondent filed a petition for certiorari with the CA. The CA,
in its Decision dated December 1, 2005, rendered judgment in favor of respondent
and reinstated the earlier decision of the NLRC, dated August 26, 2002. It ordered petitioner to

reinstate respondent, without loss of seniority rights and privileges, and to pay respondent full
backwages from the time his employment was terminated on May 20, 1999 up to the time of the
finality of its decision. The CA, likewise, remanded the case to the LA for the computation of
backwages of the respondent.
Petitioner filed a motion for reconsideration, which the CA denied in a Resolution dated
February 17, 2006. Hence, the instant petition assigning the following errors:
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE
UNANIMOUS FINDINGS OF THE LABOR ARBITER AND THE NATIONAL LABOR
RELATIONS COMMISSION SUSTAINING THE LEGALITY OF PRIVATE RESPONDENT'S
TERMINATION FROM HIS EMPLOYMENT.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
PETITIONER CORPORATION FAILED TO SATISFY THE BURDEN OF PROVING THAT
THE DISMISSAL OF PRIVATE RESPONDENT WAS FOR A VALID OR AUTHORIZED
CAUSE.
III
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING THAT FOR
LOSS OF TRUST AND CONFIDENCE TO BE A VALID GROUND FOR AN EMPLOYEE'S
DISMISSAL, IT MUST BE SUBSTANTIAL AND NOT ARBITRARY, AND MUST BE
FOUNDED ON CLEARLY ESTABLISHED FACTS, OVERLOOKING THE RULE THAT
THE MERE EXISTENCE OF A BASIS FOR BELIEVING THAT SUCH EMPLOYEE HAS
BREACHED THE TRUST AND CONFIDENCE OF HIS EMPLOYER SUFFICES FOR HIS
DISMISSAL.
IV
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
ASIDE FROM HIS INVOLVEMENT IN THE FORGERY OF THE CAPITAL EXPENDITURE
(CAPEX) FORMS, PRIVATE RESPONDENT'S PAST VIOLATIONS OR ADMITTED
INFRACTIONS OF COMPANY RULES AND REGULATIONS ARE MORE THAN
SUFFICIENT GROUNDS TO JUSTIFY THE TERMINATION OF HIS EMPLOYMENT WITH
PETITIONER CORPORATION.

Petitioner's main allegation is that there are factual and legal grounds constituting substantial
proof that respondent was clearly involved in the forgery of the CAPEX form, i.e., respondent is
the forger of the signature of Po, as he is the custodian and the one who prepared the CAPEX
form; the forged signature was already existing when he submitted the same for processing; he
has the motive to forge the signature; respondent has the propensity to deviate from the
Standard Operating Procedure as shown by the fact that the CAPEX form, with the forged
signature of Po, is not complete in details and lacks the required signatures; also, in February
1999, respondent ordered 8 units of External Fax Modem without the required CAPEX form
and a PR form.
Petitioner insists that the mere existence of a basis for believing that respondent employee has
breached the trust and confidence of his employer suffices for his dismissal. Finally, petitioner
maintains that aside from respondent's involvement in the forgery of the CAPEX form, his past
violations of company rules and regulations are more than sufficient grounds to justify his
termination from employment.
In his Comment, respondent alleged that petitioner failed to present clear and convincing
evidence to prove his participation in the charge of forgery nor any damage to the petitioner.
Anent the first issue raised, petitioner faults the CA in disregarding the unanimous findings of
the LA and the NLRC sustaining the legality of respondent's termination from his employment.
The rule is that high respect is accorded to the findings of fact of quasi-judicial agencies, more
so in the case at bar where both the LA and the NLRC share the same findings. The rule is not,
however, without exceptions one of which is when the findings of fact of the labor officials on
which the conclusion was based are not supported by substantial evidence. The same holds true
when it is perceived that far too much is concluded, inferred or deduced from bare facts
adduced in evidence.[9]
In the case at bar, the NLRC's findings of fact upon which its conclusion was based are not
supported by substantial evidence, that is, the amount of relevant evidence, which a reasonable
mind might accept as adequate to justify a conclusion.[10]
As correctly found by the CA:
x x x The record of the case is bereft of evidence that would clearly establish Ramil's
involvement in the forgery. They did not even submit any affidavit of witness [11] or present any
during the hearing to substantiate their claim against Ramil.[12]

Respondent alleged in his position paper that after preparing the CAPEX form on March 3,
1999, he endorsed it to Marivic Villanueva for the signature of the Executive Vice-President
Ricardo T. Po. The next day, March 4, 1999, respondent received the CAPEX form containing
the signature of Po. Petitioner never controverted these allegations in the proceedings before the
NLRC and the CA despite its opportunity to do so. Petitioner's belated allegations in its reply
filed before this Court that Marivic Villanueva denied having seen the CAPEX form cannot be
given credit. Points of law, theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body need not be considered by a reviewing
court, as they cannot be raised for the first time at that late stage. [13] When a party deliberately
adopts a certain theory and the case is decided upon that theory in the court below, he will not
be permitted to change the same on appeal, because to permit him to do so would be unfair to
the adverse party.[14]
Thus, if respondent retrieved the form on March 4, 1999 with the signature of Po, it can be
correctly inferred that he is not the forger. Had the CAPEX form been returned to respondent
without Po's signature, Villanueva or any officer of the petitioner's company could have readily
noticed the lack of signature, and could have easily attested that the form was unsigned when it
was released to respondent.
Further, as correctly found by the NLRC in its original decision dated August 26, 2002, if
respondent was the one who forged the signature of Po in the CAPEX form, there was no need
for him to endorse the same to Villanueva and transmit it the next day. He could have easily
forged the signature of Po on the same day that he prepared the CAPEX form and submitted it
on the very same day to petitioner's main office without passing through any officer of
petitioner.
Accordingly, for want of substantial basis, in fact or in law, factual findings of
an administrative agency, such as the NLRC, cannot be given the stamp of finality
andconclusiveness normally accorded to it, as even decisions of administrative agencies which
are declared final by law are not exempt from judicial review when so warranted. [15]Contrary to
petitioners assertion, therefore, this Court sees no error on the part of the CA when it made a
new determination of the case and, upon this, reversed the ruling of theNLRC.
As to the second issue, the law mandates that the burden of proving the validity of the
termination of employment rests with the employer. Failure to discharge this evidentiary burden
would necessarily mean that the dismissal was not justified and, therefore, illegal.

Unsubstantiated suspicions, accusations, and conclusions of employers do not provide for legal
justification for dismissing employees. In case of doubt, such cases should be resolved in favor
of labor, pursuant to the social justice policy of labor laws and the Constitution.[16]
The termination letter[17] addressed to respondent, dated May 20, 1999, provides that:
We also conducted inquiries from persons concerned to get more information in (sic) this
forgery. Some of your statements do not jibe with theirs. x x x

However, this information which petitioner allegedly obtained from the persons concerned was
not backed-up by any affidavit or proof. Petitioner did not even bother to name these resource
persons.
Petitioner based respondent's dismissal on its unsubstantiated suspicions and conclusion that
since respondent was the custodian and the one who prepared the CAPEX forms, he had the
motive to commit the forgery. However, as correctly found by the NLRC in its original
Decision, respondent would not be benefited by the purchase of the subject equipment. The
equipment would be for the use of petitioner company.
With respect to the third issue, while We have previously held that employers are allowed a
wider latitude of discretion in terminating the services of employees who perform functions
which by their nature require the employers' full trust and confidence and the mere existence
of basis for believing that the employee has breached the trust of the employer is sufficient,
[18]
this does not mean that the said basis may be arbitrary and unfounded.
The right of an employer to dismiss an employee on the ground that it has lost its trust and
confidence in him must not be exercised arbitrarily and without just cause.
[19]
Loss oftrust and confidence, to be a valid cause for dismissal, must be based on a willful
breach of trust[20] and founded on clearly established facts. The basis for the dismissal must be
clearly and convincingly established, but proof beyond reasonable doubt is not necessary.[21] It
must rest on substantial grounds and not on the employers arbitrariness, whim, caprice or
suspicion; otherwise, the employee would eternally remain at the mercy of the employer.[22]
The case of Philippine Airlines, Inc. v. Tongson,[23] cited by the petitioner, is not applicable to
the present case. In that case, PAL dismissed Tongson from service on the ground of corruption,
extortion and bribery in the processing of PAL's passengers' travel documents. We upheld the
validity of Tongson's dismissal because PAL's overwhelming documentary evidence reflects an
unbroken chain which naturally leads to one fair and reasonable conclusion, that at the very

least, respondent was involved in extorting money from PAL's passengers. We further said that
even if there is no direct evidence to prove that the employees actually committed the offense,
substantial proof based on documentary evidence is sufficient to warrant their dismissal from
employment.
In the case at bar, there is neither direct evidence nor substantial documentary evidence pointing
to respondent as the one liable for the forgery of the signature of Po.
The cited case of Deles Jr. v. National Labor Relations Commission [24] is also inapplicable.
Therein dismissed employee, Deles Jr., himself admitted during the company investigation that
he tampered with the company's sensitive equipment (the JTF Gravitometer No. 5). Thus, there
existed sufficient basis for the finding that therein employee breached the trust and confidence
of his employer.
As for the final issue raised, petitioner's reliance on respondent's previous tardiness in reporting
for work as a ground for his dismissal is likewise not meritorious. The correct rule has always
been that such previous offense may be used as valid justification for dismissal from work only
if the infractions are related to the subsequent offense upon which the basis of termination is
decreed.[25] His previous offenses were entirely separate and distinct from his latest alleged
infraction of forgery. Hence, the same could no longer be utilized as an added justification for
his dismissal.
Besides, respondent had already been sanctioned for his prior infractions. To consider these
offenses as justification for his dismissal would be penalizing respondent twice for the same
offense.[26]
Respondent's illegal dismissal carries the legal consequences defined under Article 279 of the
Labor Code, that is, an employee who is unjustly dismissed from work shall be entitled
to reinstatement without loss of seniority rights and other privileges, and to the payment of 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.[27]

However, the Court finds that it would be best to award separation pay instead of
reinstatement, in view of the strained relations between petitioner and respondent. Respondent

was dismissed due to loss of trust and confidence and it would be impractical to reinstate an
employee whom the employer does not trust, and whose task is tohandle and prepare delicate
documents.

Under the doctrine of strained relations, the payment of separation pay has been considered an
acceptable alternative to reinstatement when the latter option is no longer desirable or viable.
On the one hand, such payment liberates the employee from what could be a highly oppressive
work environment. On the other hand, the payment releases the employer from the grossly
unpalatable obligation of maintaining in its employ a worker it could no longer trust.[28]

In view of the foregoing, respondent is entitled to the payment of full backwages,

inclusive of allowances, and other benefits or their monetary equivalent, computed from the
date of his dismissal on May 20, 1999 up to the finality of this decision, and separation pay in
lieu of reinstatement equivalent to one month salary for every year of service, computed from
the time of his engagement by petitioner on August 1993 up to the finality of the decision.[29]
The awards of separation pay and backwages are not mutually exclusive and both may be given
to the respondent. In Nissan North Edsa Balintawak, Quezon City v. Serrano, Jr.,[30] the Court
held that:
The normal consequences of a finding that an employee has been illegally dismissed are, firstly,
that the employee becomes entitled to reinstatement to his former position without loss of
seniority rights and, secondly, the payment of backwages corresponding to the period from
his illegal dismissal up to actual reinstatement. The statutory intent on this matter is clearly
discernible. Reinstatement restores the employee who was unjustly dismissed to the position
from which he was removed, that is, to his status quo ante dismissal, while the grant
of backwages allows the same employee to recover from the employer that which he had lost by
way of wages as a result of his dismissal. These twin remedies reinstatement and payment
of backwages make the dismissed employee whole who can then look forward to continued
employment. Thus, do these two remedies give meaning and substance to the constitutional right
of labor to security of tenure. The two forms of relief are distinct and separate, one from the
other. Though the grant of reinstatement commonly carries with it an award of backwages, the
inappropriateness or non-availability of one does not carry with it the inappropriateness or nonavailability of the other. x x x As the term suggests, separation pay is the amount that an
employee receives at the time of his severance from the service and x x x is designed to provide
the employee with the wherewithal during the period that he is looking for another employment.
In the instant case, the grant of separation pay was a substitute for immediate and continued reemployment with the private respondent Bank. The grant of separation pay did not redress the
injury that is intended to be relieved by the second remedy of backwages, that is, the loss of
earnings that would have accrued to the dismissed employee during the period between dismissal

and reinstatement. Put a little differently, payment of backwages is a form of relief that
restores the income that was lost by reason of unlawful dismissal;separation pay, in
contrast, is oriented towards the immediate future, the transitional period the dismissed
employee must undergo before locating a replacement job. x x x The grant ofseparation pay
was a proper substitute only for reinstatement; it could not be an adequate substitute both
for reinstatement and for backwages. (Emphasis supplied.)[31]

The case is, therefore, remanded to the Labor Arbiter for the purpose of computing the
proper monetary award due to the respondent.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals
in CA-G.R. SP No. 86939, dated December 1, 2005 and February 17, 2006,
respectively, are AFFIRMED with MODIFICATION that the order of reinstatement is
deleted, and in lieu thereof, Petitioner Century Canning Corporation is DIRECTED to pay
respondent separation pay.
The case is REMANDED to the Labor Arbiter for the purpose of computing respondent's full
backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed
from the date of his dismissal on May 20, 1999 up to the finality of the decision, and separation
pay in lieu of reinstatement equivalent to one month salary for every year of service, computed
from the time of his engagement by petitioner on August 1993 up to the finality of this decision.
SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ANTONIO EDUARDO B. NACHURA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

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

ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]

Penned by Associate Justice Santiago Javier Ranada (now retired), with Associate Justice Roberto A. Barrios (now deceased) and
Associate Justice Mario L. Guaria III, concurring; rollo, pp. 34-40.
[2]
Id. at 41.
[3]
Starting Date, Estimated Completion Date, Budgeted CAPEX amount, Managers/Functional Unit Head's Comment and Justification
Summary.
[4]
Cost and Budget Manager/Functional Unit Head, Management Information Service Manager and Recommending Approving
Officer.
[5]
Records, p. 2.
[6]
Id. at 64-68.
[7]
Id. at 78-89.
[8]
Id. at 96-105.
[9]
Felix v. National Labor Relations Commission, 485 Phil. 140, 153 (2004).
[10]
Revised Rules on Evidence, Rule 133, Sec. 5.
[11]
Like Purchasing Officer Lorena Paz, Exec. VP Mr. Ricardo T. Po, his secretary Marivic Villanueva, and a certain technician named
Boyet mentioned in the private respondents pleadings (the petitioner in this case).
[12]
Rollo, p. 38.
[13]
Jacot v. Dal, G.R. No.179848, November 27, 2008, 572 SCRA 295, 311.
[14]
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.), G.R. No. 159593,
October 12, 2006, 504 SCRA 484, 495, citing Carantes v. Court of Appeals, 76 SCRA 514, 521 (1977).
[15]
Vicente v. Court of Appeals, G.R. No. 175988, August 24, 2007, 531 SCRA 240, 247-248.
[16]
Times Transportation Co., Inc. v. National Labor Relations Commission, G.R. Nos. 148500-01, November 29, 2006, 508 SCRA
435, 443.
[17]
Records, pp. 29-30.
[18]
Atlas Fertilizer Corporation v. National Labor Relations Commission, G.R. No. 120030, June 17, 1997, 273 SCRA 549, 558.
[19]
Pepsi-Cola Products Phils., Inc. v. NLRC, 374 Phil. 196, 205 (1999).
[20]

Labor Code, Article 282. Termination by employer. - An employer may terminate an employment for any of the following causes:
xxxx
c) Fraud or willful breach by the employee of the trust reposed in him by his employer or his duly authorized
representative.
[21]
Abel v. Philex Mining Corporation, G.R. No. 178976, July 31, 2009, 594 SCRA 683, 684.
[22]
Felix v. National Labor Relations Commission, supra note 9, at 160.
[23]
459 Phil. 742. (2003).
[24]
384 Phil. 271 (2000).
[25]
Salas v. Aboitiz One, Inc., G.R. No. 178236, June 27, 2008, 556 SCRA 374, 390.
[26]
Id.
[27]
Coca-Cola Bottlers Phils. Inc. v. Agito, G.R. No. 179546, February 13, 2009, 579 SCRA 445, 471.
[28]
Coca-Cola Bottlers Phils. Inc. v. Daniel, G.R. No. 156893, June 21, 2005, 460 SCRA 494, 512.
[29]
Eastern Telecommunications Phils., Inc. v. Diamse, G.R. No. 169299, June 16, 2006, 491 SCRA 239, 251.
[30]
G.R. No. 162538, June 4, 2009, 588 SCRA 238, 247-248.
[31]
Id. at 247-248, citing Santos v. NLRC, 154 SCRA 166, 171-173.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

G.R. No. 171231

PNCC
SKYWAY
TRAFFIC
MANAGEMENT
AND
SECURITY
DIVISION
WORKERS
ORGANIZATION
(PSTMSDWO), represented
by
its
President,
RENE
SORIANO,
Petitioner,

Present:

CORONA, J., Chairperson

,
VELASCO, JR.,
NACHURA,
PERALTA, and

- versus -

PNCC
CORPORATION,
Respondent.

MENDOZA, JJ.

SKYWAY

Promulgated:

February 17, 2010

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

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision [1] and the Resolution[2] of the
Court of Appeals (CA) in CA-G.R. SP. No. 87069, which annulled and set
aside the Decision and Order of the Voluntary Arbitrator dated July 12, 2004
and August 11, 2004, respectively.

The factual antecedents are as follows:

Petitioner PNCC Skyway Corporation Traffic Management and Security
Division Workers' Organization (PSTMSDWO) is a labor union duly registered
with the Department of Labor and Employment (DOLE). Respondent PNCC
Skyway Corporation is a corporation duly organized and operating under
and by virtue of the laws of the Philippines.

On November 15, 2002, petitioner and respondent entered into a Collective

Bargaining Agreement (CBA) incorporating the terms and conditions of their
agreement which included vacation leave and expenses for security license
provisions.

The pertinent provisions of the CBA relative to vacation leave and sick leave
are as follows:
ARTICLE VIII
VACATION LEAVE AND SICK LEAVE

Section 1. Vacation Leave.

[a] Regular Employees covered by the bargaining unit who have completed at least one [1]
year of continuous service shall be entitled to vacation leave with pay depending on the
length of service as follows:

1-9 years of service - 15 working days

10-15 years of service - 16 working days

16-20 years of service - 17 working days

21-25 years of service - 18 working days
26 and above years of service - 19 working days.

[b] The company shall schedule the vacation leave of employees during the year
taking into consideration the request of preference of the employees.(emphasis
supplied)

[c] Any unused vacation leave shall be converted to cash and shall be paid to
the employees on the first week of December each year.

ARTICLE XXI

Section 6. Security License All covered employees must possess a valid

License [Security Guard License] issued by the Chief, Philippine National Police or
his duly authorized representative, to perform his duties as security guard. All
expenses of security guard in securing/renewing their licenses shall be for their
personal account. Guards, securing/renewing their license must apply for a leave of
absence and/or a change of schedule. Any guard who fails to renew his security
guard license should be placed on forced leave until such time that he can present a
renewed security license.

In a Memorandum dated December 29, 2003, [3] respondent's Head of the

Traffic Management and Security Department (TMSD) published the
scheduled vacation leave of its TMSD personnel for the year 2004.
Thereafter, the Head of the TMSD issued a Memorandum [4] dated January 9,
2004 to all TMSD personnel. In the said memorandum, it was provided that:
SCHEDULED VACATION LEAVE WITH PAY.

The 17 days (15 days SVL plus 2-day-off) scheduled vacation leave (SVL) with
pay for the year 2004 had been published for everyone to take a vacation with pay
which will be our opportunity to enjoy quality time with our families and perform our
other activities requiring our personal attention and supervision. Swapping of SVL

schedule is allowed on a one-on-one basis by submitting a written request at least

30 days before the actual schedule of SVL duly signed by the concerned parties.
However, the undersigned may consider the re-scheduling of the SVL upon the
written request of concerned TMSD personnel at least 30 days before the scheduled
SVL. Re-scheduling will be evaluated taking into consideration the TMSDs
operational requirement.

Petitioner objected to the implementation of the said memorandum. It

insisted that the individual members of the union have the right to schedule
their vacation leave. It opined that the unilateral scheduling of the
employees' vacation leave was done to avoid the monetization of their
vacation leave in December 2004. This was allegedly apparent in the
memorandum issued by the Head HRD, [5] addressed to all department
heads, which provides:
FOR : All Dept. Heads
FROM : Head, HRD
SUBJECT : Leave Balances as of January 01, 2004
DATE : January 9, 2004
We are furnishing all the departments the leave balances of their respective
staff as of January 01, 2004, so as to have them monitor and program the schedule
of such leave.

Please consider the leave credit they earned each month [1-2-0], one day and
two hours in anticipation of the later schedule. As we are targeting the zero
conversion comes December 2004, it is suggested that the leave balances as of to
date be given preferential scheduling.

x x x.

Petitioner also demanded that the expenses for the required in-service
training of its member security guards, as a requirement for the renewal of
their license, be shouldered by the respondent. However, the respondent
did not accede to petitioner's demands and stood firm on its decision to
schedule all the vacation leave of petitioner's members.

Due to the disagreement between the parties, petitioner elevated the

matter to the DOLE-NCMB for preventive mediation. For failure to settle the
issue amicably, the parties agreed to submit the issue before the voluntary
arbitrator.

The voluntary arbitrator issued a Decision dated July 12, 2004, the
dispositive portion of which reads:

WHEREFORE, premises all considered, declaring that:

a) The scheduling of all vacation leaves under Article VIII, Section 6, thereof, shall be
under the discretion of the union members entitled thereto, and the management to
convert them into cash all the leaves which the management compelled them to
use.

b) To pay the expenses for the in-service-training of the company security guards,
as a requirement for renewal of licenses, shall not be their personal account but that
of the company.

All other claims are dismissed for lack of merit.

SO ORDERED.[6]

Respondent filed a motion for reconsideration, which the voluntary

arbitrator denied in the Order[7] dated August 11, 2004.

Aggrieved, on October 22, 2004, respondent filed a Petition

for Certiorari with Prayer for Temporary Restraining Order and/or Writ of
Preliminary Injunction with the CA, and the CA rendered a Decision dated
October 4, 2005,[8] annulling and setting aside the decision and order of the
voluntary arbitrator. The CA ruled that since the provisions of the CBA were

clear, the voluntary arbitrator has no authority to interpret the same beyond
what was expressly written.

Petitioner filed a motion for reconsideration, which the CA denied through a

Resolution dated January 23, 2006. [9] Hence, the instant petition assigning
the following errors:

I
WITH ALL DUE RESPECT, THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS
[THIRTEENTH DIVISION] ERRED IN HOLDING THAT:
A) THE MANAGEMENT HAS THE SOLE DISCRETION TO SCHEDULE THE VACATION
LEAVE OF HEREIN PETITIONER.
B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-SERVICE-TRAINING OF THE
SECURITY GUARDS.

II
THE HONORABLE PUBLIC RESPONDENT ERRED IN OVERSEEING THE CONVERSION
ASPECT OF THE UNUSED LEAVE.

Before considering the merits of the petition, We shall first address the
objection based on technicality raised by respondent.
Respondent alleged that the petition was fatally defective due to the lack of
authority of its union president, Rene Soriano, to sign the certification and
verification against forum shopping on petitioner's behalf. It alleged that the
authority of Rene Soriano to represent the union was only conferred on June
30, 2006 by virtue of a board resolution, [10] while the Petition for Review had
long been filed on February 27, 2006. Thus, Rene Soriano did not possess
the required authority at the time the petition was filed on February 27,
2006.

The petitioner countered that the Board Resolution [11] dated June 30, 2006
merely reiterated the authority given to the union president to represent the
union, which was conferred as early as October 2005. The resolution
provides in part that:

WHEREAS, in a meeting duly called for October 2005, the Union decided to
file a Motion for Reconsideration and if the said motion be denied, to file a petition
before the Supreme Court. (Emphasis supplied)

Thus, the union president, representing the union, was clothed with
authority to file the petition on February 27, 2006.
The purpose of requiring verification is to secure an assurance that the
allegations in the petition have been made in good faith; or are true and
correct, not merely speculative. This requirement is simply a condition
affecting the form of pleadings, and non-compliance therewith does not
necessarily render it fatally defective. Truly, verification is only a formal, not
a jurisdictional, requirement.
With respect to the certification of non-forum shopping, it has been held
that the certification requirement is rooted in the principle that a partylitigant shall not be allowed to pursue simultaneous remedies in
different fora, as this practice is detrimental to an orderly judicial procedure.
However, this Court has relaxed, under justifiable circumstances, the rule
requiring the submission of such certification considering that, although it is
obligatory, it is not jurisdictional. Not being jurisdictional, it can be relaxed
under the rule of substantial compliance. [12]

In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue,

[13]
We said that:

In a slew of cases, however, we have recognized the authority of some

corporate officers to sign the verification and certification against forum shopping.

In Mactan-Cebu International AirportAuthority v. CA, we recognized the authority of

a general manager or acting general manager to sign the verification and certificate
against forum shopping; in Pfizer v. Galan, we upheld the validity of averification
signed by an employment specialist who had not even presented any proof of
her authority to represent the company; in Novelty Philippines, Inc., v. CA, we ruled
that a personnel officer who signed the petition but did not attach the authority
from the company is authorized to sign the verification and non-forum shopping
certificate; and in Lepanto Consolidated Mining Company v. WMC Resources
International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and
President of the Company can sign the verification and certificate against non-forum
shopping even without the submission of the boards authorization.

In sum, we have held that the following officials or employees of the company
can sign the verification and certification without need of a board resolution: (1) the
Chairperson of the Board of Directors, (2) the President of a corporation, (3) the
General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized

signatories to the verification and certification required by the rules, the
determination of the sufficiency of the authority was done on a case to case basis.
The rationale applied in the foregoing cases is to justify the authority of corporate
officers or representatives of the corporation to sign the verification or certificate
against forum shopping, being in a position to verify the truthfulness and
correctness of the allegations in the petition.

In the case at bar, We rule that Rene Soriano has sufficient authority to sign
the verification and certification against forum shopping for the following
reasons: First, the resolution dated June 30, 2006 was merely a reiteration
of the authority given to the Union President to file a case before this Court
assailing the CBA violations committed by the management, which was
previously conferred during a meeting held on October 5, 2005. Thus, it can
be inferred that even prior to the filing of the petition before Us on February
27, 2006, the president of the union was duly authorized to represent the
union and to file a case on its behalf. Second, being the president of the
union, Rene Soriano is in a position to verify the truthfulness and
correctness of the allegations in the petition. Third, assuming that Mr.
Soriano has no authority to file the petition on February 27, 2006, the
passing on June 30, 2006 of a Board Resolution authorizing him to represent

the union is deemed a ratification of his prior execution, on February 27,

2006, of the verification and certificate of non-forum shopping, thus curing
any defects thereof. Ratification in agency is the adoption or confirmation by
one person of an act performed on his behalf by another without authority.
[14]

We now go to the merits of the case.

Petitioner insisted that their union members have the preference

in scheduling their vacation leave. On the other hand, respondent argued
that Article VIII, Section 1 (b) gives the management the final say regarding
the vacation leave schedule of its employees. Respondent may take into
consideration the employees' preferred schedule, but the same is not
controlling.
Petitioner also requested the respondent to provide and/or shoulder the
expenses for the in-service training of their members as a requirement for
the renewal of the security guards' license. Respondent did not accede to
the union's request invoking the CBA provision which states that all
expenses of security guards in securing /renewing their license shall be for
their personal account. The petitioner further argued that any doubts or
ambiguity in the interpretation of the CBA should be resolved in favor of the
laborer.

As to the issue on vacation leaves, the same has no merit.

The rule is that where the language of a contract is plain and unambiguous,
its meaning should be determined without reference to extrinsic facts or
aids. The intention of the parties must be gathered from that language, and
from that language alone. Stated differently, where the language of a
written contract is clear and unambiguous, the contract must be taken to
mean that which, on its face, it purports to mean, unless some good reason
can be assigned to show that the words used should be understood in a
different sense.[15]

In the case at bar, the contested provision of the CBA is clear and
unequivocal. Article VIII, Section 1 (b) of the CBA categorically provides that
the scheduling of vacation leaveshall be under the option of the employer.
The preference requested by the employees is not controlling because
respondent retains its power and prerogative to consider or to ignore said
request.
Thus, if the terms of a CBA are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall prevail.
[16]
In fine, the CBA must be strictly adhered to and respected if its ends have
to be achieved, being the law between the parties. In Faculty Association of
Mapua Institute of Technology (FAMIT) v. Court of Appeals, [17] this Court held
that the CBA during its lifetime binds all the parties. The provisions of the
CBA must be respected since its terms and conditions constitute the law
between the parties. The parties cannot be allowed to change the terms
they agreed upon on the ground that the same are not favorable to them.

As correctly found by the CA:

The words of the CBA were unequivocal when it provided that The company
shall schedule the vacation leave of employees during the year taking into
consideration the request of preference of the employees. The word shall in this
instance connotes an imperative command, there being nothing to show a different
intention. The only concession given under the subject clause was that the company
should take into consideration the preferences of the employees in scheduling the
vacations; but certainly, the concession never diminished the positive right of
management to schedule the vacation leaves in accordance with what had been
agreed and stipulated upon in the CBA.
There is, thus, no basis for the Voluntary Arbitrator to interpret the subject
provision relating to the schedule of vacation leaves as being subject to the
discretion of the union members. There is simply nothing in the CBA which grants
the union members this right.
It must be noted the grant to management of the right to schedule vacation
leaves is not without good reason. Indeed, if union members were given the
unilateral discretion to schedule their vacation leaves, the same may result in
significantly crippling the number of key employees of the petitioner manning the
toll ways on holidays and other peak seasons, where union members may wittingly
or unwittingly choose to have a vacation. Put another way, the grant to

management of the right to schedule vacation leaves ensures that there would
always be enough people manning and servicing the toll ways, which in turn assures
the public plying the same orderly and efficient toll way service.

Indeed, the multitude or scarcity of personnel manning the tollways should

not rest upon the option of the employees, as the public using the skyway
system should be assured of its safety, security and convenience.
Although the preferred vacation leave schedule of petitioner's members
should be given priority, they cannot demand, as a matter of right, that
their request be automatically granted by the respondent. If the petitioners
were given the exclusive right to schedule their vacation leave then said
right should have been incorporated in the CBA. In the absence of such right
and in view of the mandatory provision in the CBA giving respondent the
right to schedule the vacation leave of its employees, compliance therewith
is mandated by law.
In the grant of vacation leave privileges to an employee, the employer is
given the leeway to impose conditions on the entitlement to and
commutation of the same, as the grant ofvacation leave is not a standard of
law, but a prerogative of management. [18] It is a mere concession or act of
grace of the employer and not a matter of right on the part of the
employee.[19] Thus, it is well within the power and authority of an employer
to impose certain conditions, as it deems fit, on the grant of vacation
leaves, such as having the option to schedule the same.

Along that line, since the grant of vacation leave is a prerogative of the
employer, the latter can compel its employees to exhaust all their vacation
leave credits. Of course, any vacation leave credits left unscheduled by the
employer, or any scheduled vacation leave that was not enjoyed by the
employee upon the employer's directive, due to exigencies of the service,
must be converted to cash, as provided in the CBA. However, it is incorrect
to award payment of the cash equivalent of vacation leaves that were
already used and enjoyed by the employees. By directing the conversion to
cash of all utilized and paid vacation leaves, the voluntary arbitrator has
licensed unjust enrichment in favor of the petitioner and caused undue
financial burden on the respondent. Evidently, the Court cannot tolerate
this.

It would seem that petitioner's goal in relentlessly arguing that its members
preferred vacation leave schedule should be given preference is not allowed
to them to avail themselves of their respective vacation leave credits at all
but, instead, to convert these into cash.

In Cuajo v. Chua Lo Tan,[20] We said that the purpose of a vacation leave is to

afford a laborer a chance to get a much-needed rest to replenish his wornout energy and acquire a new vitality to enable him to efficiently perform
his duties, and not merely to give him additional salary and bounty.

This purpose is manifest in the Memorandum dated

2004[21] addressed to all TMSD Personnel which provides that:

January

9,

SCHEDULED VACATION LEAVE WITH PAY

The 17 days (15 days SVL plus 2-Day-Off) scheduled vacation leave (SVL) with
pay for the year 2004 had been published for everyone to take a vacation with pay
which will be our opportunity to enjoy quality time with our families and
perform our other activities requiring our personal attention and
supervision.(Emphasis ours.)

Accordingly, the vacation leave privilege was not intended to serve as

additional salary, but as a non-monetary benefit. To give the employees the
option not to consume it with the aim of converting it to cash at the end of
the year would defeat the very purpose of vacation leave.
Petitioner's contention that labor contracts should be construed in favor of
the laborer is without basis and, therefore, inapplicable to the present
case. This rule of construction does not benefit petitioners because, as

stated, there is here no room for interpretation. Since the CBA is clear
and unambiguous, its terms should be implemented as they are written.

This brings Us to the issue of who is accountable for the in-service training
of the security guards. On this point, We find the petition meritorious.

Although it is a rule that a contract freely entered into between the parties
should be respected, since a contract is the law between the parties, there
are, however, certain exceptions to the rule, specifically Article 1306 of the
Civil Code, which provides:

The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

Moreover, the relations between capital and labor are not merely
contractual. They are so impressed with public interest that labor contracts
must yield to the common good x x x. [22] The supremacy of the law over
contracts is explained by the fact that labor contracts are not ordinary
contracts; they are imbued with public interest and therefore are subject to
the police power of the state. [23] However, it should not be taken to mean
that provisions agreed upon in the CBA are absolutely beyond the ambit of
judicial review and nullification. If the provisions in the CBA run contrary to
law, public morals, or public policy, such provisions may very well be
voided.
In the present case, Article XXI, Section 6 of the CBA provides that All
expenses of security guards in securing /renewing their licenses shall be for
their personal account. A reading of the provision would reveal that it
encompasses all possible expenses a security guard would pay or incur in
order to secure or renew his license. In-service training is a requirement for

the renewal of a security guards license. [24] Hence, following the

aforementioned CBA provision, the expenses for the same must be on the
personal account of the employee. However, the 1994 Revised Rules and
Regulations Implementing Republic Act No. 5487 provides the following:

Section 17. Responsibility for Training and Progressive Development. It is the

primary responsibility of all operators private security agency and company security
forces to maintain and upgrade the standards of efficiency, discipline, performance
and competence of their personnel. To attain this end, each duly licensed private
security agency and company security force shall establish a staff position for
training and appoint a training officer whose primary functions are to determine the
training needs of the agency/guards in relation to the needs of the client/ market/
industry, and to supervise and conduct appropriate training requirements. All
private security personnel shall be re-trained at least once very two years.

Section 12. In service training. - a. To maintain and/or upgrade the

standard of efficiency, discipline and competence of security guards and detectives,
company security force and private security agencies upon prior authority shall
conduct-in-service training at least two (2) weeks duration for their organic
members by increments of at least two percent (2%) of their total strength. Where
the quality of training is better served by centralization, the CSFD
Directors may activate a training staff from local talents to assist. The cost
of training shall be pro-rated among the participating agencies/private
companies. All security officer must undergo in-service training at least once every
two (2) years preferably two months before his or her birth month.

Since it is the primary responsibility of operators of company security forces

to maintain and upgrade the standards of efficiency, discipline, performance
and competence of their personnel, it follows that the expenses to be
incurred therein shall be for the personal account of the company. Further,
the intent of the law to impose upon the employer the obligation to pay for
the cost of its employees training is manifested in the aforementioned laws
provision that Where the quality of training is better served by
centralization, the CFSD Directors may activate a training staff from local
talents to assist. The cost of training shall be pro-rated among the
participating agencies/private companies. It can be gleaned from the said

provision that cost of training shall be pro-rated among participating

agencies and companies if the training is best served by centralization. The
law mandates pro-rating of expenses because it would be impracticable and
unfair to impose the burden of expenses suffered by all participants on only
one participating agency or company. Thus, it follows that if there is no
centralization, there can be no pro-rating, and the company that has its own
security forces shall shoulder the entire cost for such training. If the intent
of the law were to impose upon individual employees the cost of training,
the provision on the pro-rating of expenses would not have found print in
the law.

Further, petitioner alleged that prior to the inking of the CBA, it was the
respondent company providing for the in-service training of the guards.
[25]
Respondent never controverted the said allegation and is thus deemed to
have admitted the same.[26] Implicit from respondent's actuations was its
acknowledgment of its legally mandated responsibility to shoulder the
expenses for in-service training.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and

Resolution of the Court of Appeals, dated October 4, 2005 and January 23,
2006, respectively, in CA-G.R. SP. No. 87069 is MODIFIED. The cost of inservice training of the respondent company's security guards shall be at the
expense of the respondent company. This case is remanded to the voluntary
arbitrator for the computation of the expenses incurred by the security
guards for their in-service training, and respondent company is directed to
reimburse its security guards for the expenses incurred.
SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

RENATO C. CORONA
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR.

ANTONIO EDUARDO B. NACHURA

Associate Justice

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

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

RENATO C. CORONA
Associate Justice
Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby

certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Penned by Associate Justice Andres B. Reyes, Jr., with Associate Justices Rosmari D. Carandang and Monina Arevalo-Zenarosa,
concurring; rollo, pp. 32-43.
[2]

Id. at 45.

[3]

Records, pp.4-9.

[4]

Supra note 1, at 76-77.

[5]

Supra note 3, at 3.

[6]

Supra note 1, at 113-118.

[7]

Supra note 1, 120-124.

[8]

Id. 32-43.

[9]

Id. 45.

[10]

Supra note 1, at 154-155.

[11]

Id. at 172-173.

[12]

People of the Philippines v. Joven de Grano, Armando de Grano, Domingo Landicho and Estanislao Lacaba, G.R. No. 167710,
June 5, 2009.
[13]

G.R. No. 151413, February 13, 2008, 545 SCRA 10, 17-19.

[14]

Filipinas Life Assurance Company v. Pedroso, G.R. No. 159489, February 4, 2008, 543 SCRA 542, 547.

[15]

Bautista v. Court of Appeals, 379 Phil. 386, 399 (2000), citing 17A Am. Jur. 2D 348-349.

[16]

RFM Corporation-Flour Division and SFI Feeds Division v. Kasapian ng Manggagawang Pinagkaisa-RFM (KAMPI-NAFLUKMU) and Sandigan at Ugnayan ng Manggagawang Pinagkaisa-SFI (SUMAPI-NAFLU-KMU) G.R. No. 162324, February 4, 2009,
578 SCRA 37.
[17]

G.R. No. 164060, June 15, 2007, 524 SCRA 709, 716.

[18]

Sobrepea, Jr. v. Court of Appeals, 345 Phil. 714, 728 (1997).

[19]

Virginia A. Sugue and the Heirs of Renato S. Valderrama v. Triumph International (Phils.), Inc., G.R. No. 164804, January 30,
2009; Triumph International (Phils.), Inc., v. Virginia A. Sugue and the Heirs of Renato S. Valderrama, G.R. No. 164784, January 30,
2009, 577 SCRA 339.
[20]

No. L-16298, September 29, 1962, 6 SCRA 136, 138.

[21]

Supra note 1, at 76-77.

[22]

Article 1700, New Civil Code.

[23]

Villa v. National Labor Relations Commission, G.R. No. 117043, January 14, 1998, 284 SCRA 105, 127,128.

[24]

Revised Rules and Regulations Implementing Republic Act No. 5487, Rule X, Section 12(b). The certificate of in-service training
issued by company security force/private security agency shall be a pre-requisite for the renewal of license to exercise profession.
[25]

Petition for Review, supra note 1, at 21; Petitioner's Memorandum, id. at 220; Petitioner's Motion for Reconsideration with the CA,
CA records, pp. 181.
[26]

Sec. 32, Rule 130 of the Rules of Court - Admission by silence. - An act or declaration made in the
presence and within the hearing or observation of a party who does or says nothing when the act or
declaration is such as naturally to call for action or comment if not true, and when proper and possible for
him to do so, may be given in evidence against him.

Republic of the Philippines

Supreme Court
Manila

EN BANC

BANK
OF
THE
PHILIPPINE ISLANDS,
Petitioner,

- versus -

G.R. No. 164301

Present:

CORONA, C.J.,
CARPIO,
CARPIO MORALES,
VELASCO, JR.,*
NACHURA,
LEONARDO-DE CASTRO,
BRION,
PERALTA,
BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ, and
MENDOZA, JJ.

Promulgated:

August 10, 2010

BPI EMPLOYEES UNIONDAVAO
CHAPTERFEDERATION OF UNIONS
IN BPI UNIBANK,
Respondent.
x------------------------------------------------x

DECISION

LEONARDO-DE CASTRO, J.:

May a corporation invoke its merger with another corporation as a valid

ground to exempt its absorbed employees from the coverage of a union
shop clause contained in its existing Collective Bargaining Agreement (CBA)
with its own certified labor union? That is the question we shall endeavor to
answer in this petition for review filed by an employer after the Court of
Appeals decided in favor of respondent union, which is the employees
recognized collective bargaining representative.
At the outset, we should call to mind the spirit and the letter of the
Labor Code provisions on union security clauses, specifically Article 248 (e),
which states, x x xNothing in this Code or in any other law shall stop
the parties from requiring membership in a recognized collective
bargaining agent as a condition for employment, except those
employees who are already members of another union at the time of the
signing of the collective bargaining agreement. [1] This case which involves
the application of a collective bargaining agreement with a union shop
clause should be resolved principally from the standpoint of the clear
provisions of our labor laws, and the express terms of the CBA in question,
and not by inference from the general consequence of the merger of
corporations under the Corporation Code, which obviously does not deal
with and, therefore, is silent on the terms and conditions of employment in
corporations or juridical entities.
This issue must be resolved NOW, instead of postponing it to a future
time when the CBA is renegotiated as suggested by the Honorable Justice
Arturo D. Brion because the same issue may still be resurrected in the
renegotiation if the absorbed employees insist on their privileged status of
being exempt from any union shop clause or any variant thereof.

We find it significant to note that it is only the employer, Bank of the

Philippine Islands (BPI), that brought the case up to this Court via the instant
petition for review; while the employees actually involved in the case did
not pursue the same relief, but had instead chosen in effect to acquiesce to
the decision of the Court of Appeals which effectively required them to
comply with the union shop clause under the existing CBA at the time of the
merger of BPI with Far East Bank and Trust Company (FEBTC), which
decision had already become final and executory as to the
aforesaid employees. By not appealing the decision of the Court of
Appeals, the aforesaid employees are bound by the said Court of Appeals
decision to join BPIs duly certified labor union. In view of the apparent
acquiescence of the affected FEBTC employees in the Court of Appeals
decision, BPI should not have pursued this petition for review. However,
even assuming that BPI may do so, the same still cannot prosper.
What is before us now is a petition for review under Rule 45 of the Rules of
Court of the Decision[2] dated September 30, 2003 of the Court of Appeals,
as reiterated in its Resolution [3] of June 9, 2004, reversing and setting aside
the Decision[4] dated November 23, 2001 of Voluntary Arbitrator Rosalina
Letrondo-Montejo, in CA-G.R. SP No. 70445, entitled BPI Employees UnionDavao Chapter-Federation of Unions in BPI Unibank v. Bank of the Philippine
Islands, et al.
The antecedent facts are as follows:

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

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

Respondent BPI Employees Union-Davao Chapter - Federation of Unions in

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

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

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

Section 2. Exclusions

Section 3. Additional Exclusions

Section 4. Copy of Contract

ARTICLE II

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

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

After the meeting called by the Union, some of the former FEBTC
employees joined the Union, while others refused. Later, however, some
of those who initially joined retracted their membership. [9]
Respondent Union then sent notices to the former FEBTC employees
who refused to join, as well as those who retracted their membership, and
called them to a hearing regarding the matter. When these former FEBTC
employees refused to attend the hearing, the president of the Union
requested BPI to implement the Union Shop Clause of the CBA and to
terminate their employment pursuant thereto. [10]

After two months of management inaction on the request, respondent

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

Voluntary Arbitrator Rosalina Letrondo-Montejo, in a Decision [12] dated

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

Respondent Union filed a Motion for Reconsideration, but the Voluntary

Arbitrator denied the same in an Order dated March 25, 2002. [13]

Dissatisfied, respondent then appealed the Voluntary Arbitrators

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

The Court of Appeals pertinently ruled in its Decision:

A union-shop clause has been defined as a form of union security provision

wherein non-members may be hired, but to retain employment must become union
members after a certain period.

There is no question as to the existence of the union-shop clause in the CBA

between the petitioner-union and the company. The controversy lies in its
application to the absorbed employees.

This Court agrees with the voluntary arbitrator that the ABSORBED
employees are distinct and different from NEW employees BUT only in so far as their
employment service is concerned. The distinction ends there. In the case at bar, the
absorbed employees length of service from its former employer is tacked with their
employment with BPI. Otherwise stated, the absorbed employees service is
continuous and there is no gap in their service record.

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

To rule otherwise would definitely result to a very awkward and unfair

situation wherein the absorbed employees shall be in a different if not, better
situation than the existing BPI employees. The existing BPI employees by virtue of
the union-shop clause are required to pay the monthly union dues, remain as
members in good standing of the union otherwise, they shall be terminated from
the company, and other union-related obligations. On the other hand, the absorbed
employees shall enjoy the fruits of labor of the petitioner-union and its members for

nothing in exchange. Certainly, this would disturb industrial peace in the company
which is the paramount reason for the existence of the CBA and the union.

The voluntary arbitrators interpretation of the provisions of the CBA

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

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

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

A closed-shop agreement is an agreement whereby an employer

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

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

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

Hence, petitioners present recourse, raising the following issues:

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

II

WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

THE VOLUNTARY ARBITRATORS INTERPRETATION OF THE COVERAGE OF THE
UNION SHOP CLAUSE IS AT WAR WITH THE SPIRIT AND THE RATIONALE WHY THE
LABOR CODE ITSELF ALLOWS THE EXISTENCE OF SUCH PROVISION [16]

In essence, the sole issue in this case is whether or not the former
FEBTC employees that were absorbed by petitioner upon the merger
between FEBTC and BPI should be covered by the Union Shop Clause found
in the existing CBA between petitioner and respondent Union.

Petitioner is of the position that the former FEBTC employees are not new
employees of BPI for purposes of applying the Union Shop Clause of the
CBA, on this note, petitioner points to Section 2, Article II of the CBA, which
provides:

New employees falling within the bargaining unit as defined in Article I

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

Petitioner argues that the term new employees in the Union Shop
Clause of the CBA is qualified by the phrases who may hereafter be
regularly employed and after they become regular employees which led
petitioner to conclude that the new employees referred to in, and

contemplated by, the Union Shop Clause of the CBA were only those
employees who were new to BPI, on account of having been hired initially on
a temporary or probationary status for possible regular employment at
some future date. BPI argues that the FEBTC employees absorbed by BPI
cannot be considered as new employees of BPI for purposes of applying the
Union Shop Clause of the CBA.[18]

According to petitioner, the contrary interpretation made by the Court

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

We do not agree.

Section 2, Article II of the CBA is silent as to how one becomes a

regular employee of the BPI for the first time. There is nothing in the
said provision which requires that a new regular employee first
undergo a temporary or probationary status before being deemed
as such under the union shop clause of the CBA.

Union security is a generic term which is applied to and comprehends closed

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

[20]

In the case of Liberty Flour Mills Employees v. Liberty Flour Mills, Inc.,
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 coemployees in planning collective action and presenting a united front when they sit
down to bargain with their employers. It is for this reason that the law has
sanctioned stipulations for the union shop and the closed shop as a means of
encouraging the workers to join and support the labor union of their own choice as
their representative in the negotiation of their demands and the protection of their
interest vis--vis the employer. (Emphasis ours.)

In other words, the purpose of a union shop or other union security

arrangement is to guarantee the continued existence of the union through
enforced membership for the benefit of the workers.

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

When certain employees are obliged to join a particular union as a

requisite for continued employment, as in the case of Union Security
Clauses, this condition is a valid restriction of the freedom or right not to
join any labor organization because it is in favor of unionism. This Court, on
occasion, has even held that a union security clause in a CBA is not a

restriction of the right of freedom of association guaranteed by the

Constitution.[24]
Moreover, a closed shop agreement is an agreement whereby an employer
binds himself to hire only members of the contracting union who must
continue to remain members in good standing to keep their jobs. It is the
most prized achievement of unionism. It adds membership and
compulsory dues. By holding out to loyal members a promise of
employment in the closed shop, it wields group solidarity.[25]
Indeed, the situation of the former FEBTC employees in this case clearly
does not fall within the first three exceptions to the application of the Union
Shop Clause discussed earlier. No allegation or evidence of religious
exemption or prior membership in another union or engagement as a
confidential employee was presented by both parties. The sole category
therefore in which petitioner may prove its claim is the fourth recognized
exception or whether the former FEBTC employees are excluded by the
express terms of the existing CBA between petitioner and respondent.

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

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

the BANK OF THE PHILIPPINE ISLANDS x x x (underlining supplied). [26] In

sum, the Voluntary Arbiter upheld the reasoning of petitioner that the FEBTC
employees became BPI employees by operation of law because they are
included in the term assets and liabilities.

Absorbed FEBTC Employees

Assets nor Liabilities

are

Neither

In legal parlance, however, human beings are never embraced in the

term assets and liabilities. Moreover, BPIs absorption of former FEBTC
employees was neither by operation of law nor by legal consequence of
contract. There was no government regulation or law that compelled the
merger of the two banks or the absorption of the employees of the dissolved
corporation by the surviving corporation. Had there been such law or
regulation, the absorption of employees of the non-surviving entities of the
merger would have been mandatory on the surviving corporation. [27] In the
present case, the merger was voluntarily entered into by both banks
presumably for some mutually acceptable consideration. In fact, the
Corporation Code does not also mandate the absorption of the
employees of the non-surviving corporation by the surviving
corporation in the case of a merger. Section 80 of the Corporation Code
provides:

SEC. 80. Effects of merger or consolidation. The merger or consolidation, as

provided in the preceding sections shall have the following effects:

1. The constituent corporations shall become a single corporation which, in case of

merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan
of consolidation;

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

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

4. The surviving or the consolidated corporation shall thereupon and thereafter

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

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

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

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

Furthermore, this Court believes that it is contrary to public policy to

declare the former FEBTC employees as forming part of the assets or
liabilities of FEBTC that were transferred and absorbed by BPI in the Articles
of Merger. Assets and liabilities, in this instance, should be deemed to refer
only to property rights and obligations of FEBTC and do not include the
employment contracts of its personnel. A corporation cannot unilaterally
transfer its employees to another employer like chattel. Certainly, if BPI as
an employer had the right to choose who to retain among FEBTCs
employees, FEBTC employees had the concomitant right to choose not to be
absorbed by BPI. Even though FEBTC employees had no choice or control
over the merger of their employer with BPI, they had a choice whether or
not they would allow themselves to be absorbed by BPI.Certainly nothing
prevented the FEBTCs employees from resigning or retiring and seeking
employment elsewhere instead of going along with the proposed
absorption.

Employment is a personal consensual contract and absorption by BPI

of a former FEBTC employee without the consent of the employee is in
violation of an individuals freedom to contract. It would have been a
different matter if there was an express provision in the articles of merger
that as a condition for the merger, BPI was being required to assume all the
employment contracts of all existing FEBTC employees with the conformity
of the employees. In the absence of such a provision in the articles of
merger, then BPI clearly had the business management decision as to
whether or not employ FEBTCs employees. FEBTC employees likewise
retained the prerogative to allow themselves to be absorbed or not;
otherwise, that would be tantamount to involuntary servitude.

There appears to be no dispute that with respect to FEBTC employees

that BPI chose not to employ or FEBTC employees who chose to retire or be
separated from employment instead of being absorbed, BPIs assumed
liability to these employees pursuant to the merger is FEBTCs liability to
them in terms of separation pay,[29] retirement pay[30] or other benefits that
may be due them depending on the circumstances.
Legal Consequences of Mergers
Although not binding on this Court, American jurisprudence on the
consequences of voluntary mergers on the right to employment and
seniority rights is persuasive and illuminating. We quote the following
pertinent discussion from the American Law Reports:

Several cases have involved the situation where as a result of mergers,

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

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

Where the provisions of a labor contract provided that in the event that a
trucker absorbed the business of another private contractor or common carrier, or
was a party to a merger of lines, the seniority of the employees absorbed or
affected thereby should be determined by mutual agreement between the trucker
and the unions involved, it was held in Moore v International Brotherhood of
Teamsters, etc. (1962, Ky) 356 SW2d 241, that the trucker was not required to
absorb the affected employees as well as the business, the court saying that they
could find no such meaning in the above clause, stating that it dealt only with
seniority, and not with initial employment. Unless and until the absorbing company
agreed to take the employees of the company whose business was
being absorbed, no seniority problem was created, said the court, hence the

provision of the contract could have no application. Furthermore, said the court, it
did not require that the absorbing company take these employees, but only that if it
did
take
them the
question
of
seniority
between
the
old
and new employees would be worked out by agreement or else be submitted to
the grievance procedure.[31] (Emphasis ours.)

Indeed, from the tenor of local and foreign authorities, in voluntary

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

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

However, there are instances where an employer can validly discontinue or

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

Moreover, assuming for the sake of argument that there is an obligation to

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

The Corporation Code and the Subject

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

The lack of a provision in the plan of merger regarding the transfer of

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

Even assuming we accept Justice Brions theory that in a merger situation

the surviving corporation should be compelled to absorb the dissolved
corporations employees as a legal consequence of the merger and as a
social justice consideration, it bears to emphasize his dissent also
recognizes that the employee may choose to end his employment at any
time by voluntarily resigning. For the employee to be absorbed by BPI, it
requires the employees implied or express consent. It is because of this
human element in employment contracts and the personal, consensual
nature thereof that we cannot agree that, in a merger situation,

employment contracts are automatically transferable from one entity to

another in the same manner that a contract pertaining to purely proprietary
rights such as a promissory note or a deed of sale of property is perfectly
and automatically transferable to the surviving corporation.

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

Likewise, with respect to FEBTC employees that BPI chose to employ

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

As the Union likewise pointed out in its pleadings, there were benefits
under the CBA that the former FEBTC employees did not enjoy with
their previous employer. As BPI employees, they will enjoy all these CBA

benefits upon their absorption. Thus, although in a sense BPI is continuing

FEBTCs employment of these absorbed employees, BPIs employment of
these absorbed employees was not under exactly the same terms and
conditions as stated in the latters employment contracts with FEBTC. This
further strengthens the view that BPI and the former FEBTC employees
voluntarily contracted with each other for their employment in the surviving
corporation.
Proper Appreciation of
Employees Under the CBA

the

Term

New

In any event, it is of no moment that the former FEBTC employees

retained the regular status that they possessed while working for their
former employer upon their absorption by petitioner. This fact would not
remove them from the scope of the phrase new employees as contemplated
in the Union Shop Clause of the CBA, contrary to petitioners insistence that
the term new employees only refers to those who are initially hired as nonregular employees for possible regular employment.

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

The dissenting opinion of Justice Brion dovetails with Justice Carpios

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

should be treated as a special class of employees and be excluded from the

union shop clause.

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

Significantly, petitioner BPI never stretches its arguments so far as to

state that the absorbed employees should be deemed old employees who
are not covered by the Union Shop Clause. This is not surprising.

By law and jurisprudence, a merger only becomes effective upon

approval by the Securities and Exchange Commission (SEC) of the articles of
merger. In Associated Bank v. Court of Appeals,[33] we held:

The procedure to be followed is prescribed under the Corporation Code. Section 79

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

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

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

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

Petitioner limited itself to the argument that its absorbed employees

do not fall within the term new employees contemplated under the Union
Shop Clause with the apparent objective of excluding all, and not just some,
of the former FEBTC employees from the application of the Union Shop
Clause.

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

No Substantial Distinction Under the CBA

Between Regular Employees Hired After
Probationary Status and Regular Employees
Hired After the Merger

Verily, we agree with the Court of Appeals that there are no substantial
differences between a newly hired non-regular employee who was
regularized weeks or months after his hiring and a new employee who was
absorbed from another bank as a regular employee pursuant to a merger,
for purposes of applying the Union Shop Clause. Both employees were
hired/employed only after the CBA was signed. At the time they are being
required to join the Union, they are both already regular rank and file
employees of BPI.They belong to the same bargaining unit being
represented by the Union. They both enjoy benefits that the Union was able
to secure for them under the CBA. When they both entered the employ of
BPI, the CBA and the Union Shop Clause therein were already in effect and
neither of them had the opportunity to express their preference for unionism
or not. We see no cogent reason why the Union Shop Clause should not be
applied equally to these two types of new employees, for they are
undeniably similarly situated.

The effect or consequence of BPIs so-called absorption of former FEBTC

employees should be limited to what they actually agreed
to, i.e. recognition of the FEBTC employees years of service, salary rate and
other benefits with their previous employer. The effect should not be
stretched so far as to exempt former FEBTC employees from the existing
CBA terms, company policies and rules which apply to employees similarly
situated. If the Union Shop Clause is valid as to other new regular BPI
employees, there is no reason why the same clause would be a violation of
the absorbed employees freedom of association.

Non-Application of Union Shop Clause

Contrary to the Policy of the Labor Code and
Inimical to Industrial Peace

It is but fair that similarly situated employees who enjoy the same
privileges of a CBA should be likewise subject to the same obligations the
CBA imposes upon them. A contrary interpretation of the Union Shop Clause
will be inimical to industrial peace and workers solidarity. This unfavorable
situation will not be sufficiently addressed by asking the former FEBTC
employees to simply pay agency fees to the Union in lieu of union
membership, as the dissent of Justice Carpio suggests. The fact remains
that other new regular employees, to whom the absorbed employees should
be compared, do not have the option to simply pay the agency fees and
they must join the Union or face termination.
Petitioners restrictive reading of the Union Shop Clause could also
inadvertently open an avenue, which an employer could readily use, in
order to dilute the membership base of the certified union in the collective
bargaining unit (CBU). By entering into a voluntary merger with a nonunionized company that employs more workers, an employer could get rid
of its existing union by the simple expedient of arguing that the absorbed
employees are not new employees, as are commonly understood to be
covered by a CBAs union security clause. This could then lead to a new
majority within the CBU that could potentially threaten the majority status
of the existing union and, ultimately, spell its demise as the CBUs
bargaining representative. Such a dreaded but not entirely far-fetched
scenario is no different from the ingenious and creative union-busting
schemes that corporations have fomented throughout the years, which this

Court has foiled time and again in order to preserve and protect the valued
place of labor in this jurisdiction consistent with the Constitutions mandate
of insuring social justice.

There is nothing in the Labor Code and other applicable laws or the
CBA provision at issue that requires that a new employee has to be of
probationary or non-regular status at the beginning of the employment
relationship. An employer may confer upon a new employee the status of
regular employment even at the onset of his engagement.Moreover, no law
prohibits an employer from voluntarily recognizing the length of service of a
new employee with a previous employer in relation to computation of
benefits or seniority but it should not unduly be interpreted to exclude them
from the coverage of the CBA which is a binding contractual obligation of
the employer and employees.

Indeed, a union security clause in a CBA should be interpreted to give

meaning and effect to its purpose, which is to afford protection to the
certified bargaining agent and ensure that the employer is dealing with a
union that represents the interests of the legally mandated percentage of
the members of the bargaining unit.

The union shop clause offers protection to the certified bargaining

agent by ensuring that future regular employees who (a) enter the employ
of the company during the life of the CBA; (b) are deemed part of the
collective bargaining unit; and (c) whose number will affect the number of
members of the collective bargaining unit will be compelled to join the
union. Such compulsion has legal effect, precisely because the employer by
voluntarily entering in to a union shop clause in a CBA with the certified
bargaining agent takes on the responsibility of dismissing the new regular
employee who does not join the union.

Without the union shop clause or with the restrictive interpretation thereof
as proposed in the dissenting opinions, the company can jeopardize the
majority status of the certified union by excluding from union membership
all new regular employees whom the Company will absorb in future mergers
and all new regular employees whom the Company hires as regular from the
beginning of their employment without undergoing a probationary period. In
this manner, the Company can increase the number of members of the
collective bargaining unit and if this increase is not accompanied by a

corresponding increase in union membership, the certified union may lose

its majority status and render it vulnerable to attack by another union who
wishes to represent the same bargaining unit. [35]

Or worse, a certified union whose membership falls below twenty percent

(20%) of the total members of the collective bargaining unit may lose its
status as a legitimate labor organization altogether, even in a situation
where there is no competing union. [36] In such a case, an interested party
may file for the cancellation of the unions certificate of registration with the
Bureau of Labor Relations.[37]

Plainly, the restrictive interpretation of the union shop clause would place
the certified unions very existence at the mercy and control of the
employer. Relevantly, only BPI, the employer appears to be
interested in pursuing this case. The former FEBTC employees have not
joined BPI in this appeal.

For the foregoing reasons, Justice Carpios proposal to simply require the
former FEBTC to pay agency fees is wholly inadequate to compensate the
certified union for the loss of additional membership supposedly guaranteed
by compliance with the union shop clause. This is apart from the fact that
treating these absorbed employees as a special class of new employees
does not encourage worker solidarity in the company since another class of
new employees (i.e. those whose were hired as probationary and later
regularized during the life of the CBA) would not have the option of
substituting union membership with payment of agency fees.

Justice Brion, on the other hand, appears to recognize the inherent

unfairness of perpetually excluding the absorbed employees from the ambit
of the union shop clause. He proposes that this matter be left to negotiation
by the parties in the next CBA. To our mind, however, this proposal does not
sufficiently address the issue. With BPI already taking the position that
employees absorbed pursuant to its voluntary mergers with other banks are
exempt from the union shop clause, the chances of the said bank ever
agreeing to the inclusion of such employees in a future CBA is next to nil

more so, if BPIs narrow interpretation of the union shop clause is sustained
by this Court.

Right of an Employee not to Join a Union is

not Absolute and Must Give Way to the
Collective Good of All Members of the
Bargaining Unit

The dissenting opinions place a premium on the fact that even if the
former FEBTC employees are not old employees, they nonetheless were
employed as regular and permanent employees without a gap in their
service. However, an employees permanent and regular employment status
in itself does not necessarily exempt him from the coverage of a union shop
clause.

In the past this Court has upheld even the more stringent type of union
security clause, i.e., the closed shop provision, and held that it can be made
applicable to old employees who are already regular and permanent but
have chosen not to join a union. In the early case of Juat v. Court of
Industrial Relations,[38] the Court held that an old employee who had no
union may be compelled to join the union even if the collective bargaining
agreement (CBA) imposing the closed shop provision was only entered
into seven years after of the hiring of the said employee. To quote from that
decision:

A closed-shop agreement has been considered as one form of union security whereby only union
members can be hired and workers must remain union members as a condition of continued
employment.The requirement for employees or workers to become members of a union as a
condition for employment redounds to the benefit and advantage of said employees because
by holding out to loyal members a promise of employment in the closed-shop the union wields
group solidarity. In fact, it is said that "the closed-shop contract is the most prized achievement
of unionism."
xxxx
This Court had categorically held in the case of Freeman Shirt Manufacturing Co.,
Inc., et al. vs. Court of Industrial Relations, et al., G.R. No. L-16561, Jan. 28, 1961,
that the closed-shop provisoof 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 closedshop, said employee or worker cannot be obliged to become a member of that
union which had entered into a collective bargaining agreement with the employer
as a condition for his continued employment. (Emphasis and underscoring
supplied.)

Although the present case does not involve a closed shop provision that
included even old employees, the Juat example is but one of the cases that
laid down the doctrine that the right not to join a union is not
absolute. Theoretically, there is nothing in law or jurisprudence to prevent
an employer and a union from stipulating that existing employees (who
already attained regular and permanent status but who are not members of
any union) are to be included in the coverage of a union security
clause. Even Article 248(e) of the Labor Code only expressly exempts old
employees who already have a union from inclusion in a union security
clause.[39]

Contrary to the assertion in the dissent of Justice Carpio, Juat has not been
overturned by Victoriano v. Elizalde Rope Workers Union[40] nor by Reyes v.
Trajano.[41] The factual milieus of these three cases are vastly different.

In Victoriano, the issue that confronted the Court was whether or not
employees who were members of the Iglesia ni Kristo (INK) sect could be
compelled to join the union under a closed shop provision, despite the fact
that their religious beliefs prohibited them from joining a union. In that case,
the Court was asked to balance the constitutional right to religious freedom
against a host of other constitutional provisions including the freedom of
association, the non-establishment clause, the non-impairment of contracts
clause, the equal protection clause, and the social justice provision. In the
end, the Court held that religious freedom, although not unlimited, is a
fundamental personal right and liberty, and has a preferred position in the
hierarchy of values.[42]

However, Victoriano is consistent with Juat since they both affirm that the
right to refrain from joining a union is not absolute. The relevant portion
of Victoriano is quoted below:

The right to refrain from joining labor organizations recognized by Section

3 of the Industrial Peace Act is, however, limited. The legal protection granted
to such right to refrain from joining iswithdrawn 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 withoutVictoriano every

employee has the right to vote no union in a certification election as part of

his freedom of association. However, Reyes is not authority for Justice
Carpios proposition that an employee who is not a member of any union
may claim an exemption from an existing union security clause because he
already has regular and permanent status but simply prefers not to join a
union.

The other cases cited in Justice Carpios dissent on this point are likewise
inapplicable. Basa v. Federacion Obrera de la Industria Tabaquera y Otros
Trabajadores de Filipinas,[44] Anucension v. National Labor Union,
[45]
and Gonzales v. Central Azucarera de Tarlac Labor Union [46] all involved
members of the INK. In line withVictoriano, these cases upheld the INK
members claimed exemption from the union security clause on religious
grounds. In the present case, the former FEBTC employees never claimed
any religious grounds for their exemption from the Union Shop Clause. As
for Philips Industrial Development, Inc. v. National Labor Relations
Corporation[47] andKnitjoy Manufacturing, Inc. v. Ferrer-Calleja,[48] the
employees who were exempted from joining the respondent union or who
were excluded from participating in the certification election were found to
be not members of the bargaining unit represented by respondent
union and were free to form/join their own union. In the case at bar, it is
undisputed that the former FEBTC employees were part of the bargaining
unit that the Union represented. Thus, the rulings in Philips and Knitjoy have
no relevance to the issues at hand.

Time and again, this Court has ruled that the individual employees
right not to join a union may be validly restricted by a union security clause
in a CBA[49] and such union security clause is not a violation of the
employees constitutional right to freedom of association. [50]

It is unsurprising that significant provisions on labor protection of the 1987

Constitution are found in Article XIII on Social Justice. The constitutional
guarantee given the right to form unions[51] and the State policy to promote
unionism[52] have social justice considerations. In Peoples Industrial and
Commercial Employees and Workers Organization v. Peoples Industrial and
Commercial Corporation,[53] we recognized that [l]abor, being the weaker in
economic power and resources than capital, deserve protection that is
actually substantial and material.

The rationale for upholding the validity of union shop clauses in a CBA,
even if they impinge upon the individual employees right or freedom of
association, is not to protect the union for the unions sake. Laws and
jurisprudence promote unionism and afford certain protections to the
certified bargaining agent in a unionized company because a strong and
effective union presumably benefits all employees in the bargaining
unit since such a union would be in a better position to demand improved
benefits and conditions of work from the employer. This is the rationale
behind the State policy to promote unionism declared in the Constitution,
which was elucidated in the above-cited case of Liberty Flour Mills
Employees v. Liberty Flour Mills, Inc.[54]

In the case at bar, since the former FEBTC employees are deemed covered
by the Union Shop Clause, they are required to join the certified bargaining
agent, which supposedly has gathered the support of the majority of
workers within the bargaining unit in the appropriate certification
proceeding. Their joining the certified union would, in fact, be in the best
interests of the former FEBTC employees for it unites their interests with the
majority of employees in the bargaining unit. It encourages employee
solidarity and affords sufficient protection to the majority status of the union
during the life of the CBA which are the precisely the objectives of union
security clauses, such as the Union Shop Clause involved herein. We are
indeed not being called to balance the interests of individual employees as
against the State policy of promoting unionism, since the employees, who
were parties in the court below, no longer contested the adverse Court of
Appeals decision. Nonetheless, settled jurisprudence has already swung the
balance in favor of unionism, in recognition that ultimately the individual
employee will be benefited by that policy. In the hierarchy of constitutional
values, this Court has repeatedly held that the right to abstain from joining
a labor organization is subordinate to the policy of encouraging unionism as
an instrument of social justice.

Also in the dissenting opinion of Justice Carpio, he maintains that one of the
dire consequences to the former FEBTC employees who refuse to join the
union is the forfeiture of their retirement benefits. This is clearly not the
case precisely because BPI expressly recognized under the merger the
length of service of the absorbed employees with FEBTC.Should some refuse
to become members of the union, they may still opt to retire if they are
qualified under the law, the applicable retirement plan, or the CBA, based
on their combined length of service with FEBTC and BPI. Certainly, there is
nothing in the union shop clause that should be read as to curtail an
employees eligibility to apply for retirement if qualified under the law, the
existing retirement plan, or the CBA as the case may be.

In sum, this Court finds it reasonable and just to conclude that the
Union Shop Clause of the CBA covers the former FEBTC employees who
were hired/employed by BPI during the effectivity of the CBA in a manner
which petitioner describes as absorption. A contrary appreciation of the
facts of this case would, undoubtedly, lead to an inequitable and very
volatile labor situation which this Court has consistently ruled against.

In the case of former FEBTC employees who initially joined the union
but later withdrew their membership, there is even greater reason for the
union to request their dismissal from the employer since the CBA also
contained a Maintenance of Membership Clause.

A final point in relation to procedural due process, the Court is not

unmindful that the former FEBTC employees refusal to join the union and
BPIs refusal to enforce the Union Shop Clause in this instance may have
been based on the honest belief that the former FEBTC employees were not
covered by said clause. In the interest of fairness, we believe the former
FEBTC employees should be given a fresh thirty (30) days from notice of
finality of this decision to join the union before the union demands BPI to
terminate their employment under the Union Shop Clause, assuming said
clause has been carried over in the present CBA and there has been no
material change in the situation of the parties.

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

September 30, 2003 of the Court of Appeals is AFFIRMED, subject to the
thirty (30) day notice requirement imposed herein. Former FEBTC
employees who opt not to become union members but who qualify for
retirement shall receive their retirement benefits in accordance with law,
the applicable retirement plan, or the CBA, as the case may be.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice

ANTONIO T. CARPIO
Associate Justice

On leave
PRESBITERO J. VELASCO,
JR.
Associate Justice

CONCHITA CARPIO
MORALES
Associate Justice

ANTONIO EDUARDO B.
NACHURA
Associate Justice

ARTURO D. BRION

DIOSDADO M. PERALTA

Associate Justice

Associate Justice

LUCAS P. BERSAMIN
Associate Justice

ROBERTO A. ABAD
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, I certify that the

conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA
Chief Justice

On official leave.

[1]

Presidential Decree No. 442, as amended. Emphasis added.

[2]

Penned by Associate Justice Arsenio J. Magpale (ret.) with Associate Justices Conrado M. Vasquez, Jr. and Bienvenido L. Reyes,
concurring; rollo, pp. 15-25.

[3]

Rollo, pp. 41-42.

[4]

Id. at 86-93.

[5]

Id. at 78.

[6]

Id. at 79.

[7]

Id. at 18.

[8]

Id. at 16-17.

[9]

Records, p. 8.

[10]

Id. at 18.

[11]

Id. at 19.

[12]

Supra note 4.

[13]

Rollo, p. 19.

[14]

Id. at 24.

[15]

Rollo, pp. 229-231.

[16]

Id. at 66.

[17]

Id. at 17.

[18]

Id. at 68-69.

[19]

Inguillo v. First Philippine Scales, Inc., G.R. No. 165407, June 5, 2009, 588 SCRA 471, 485-486.

[20]

259 Phil. 1156, 1167-1168 (1989).

[21]

Victoriano v. Elizalde Rope Workers Union, G.R. No. L-25246, September 12, 1974, 59 SCRA 54, 68.

[22]

Freeman Shirt Manufacturing Co. v. Court of Industrial Relations, G.R. No. L-16561, January 28,1961, 1 SCRA 353, 356; Sta.
Cecilia Sawmills v. Court of Industrial Relations, G.R. No. L-19273-4, February 29, 1964, 10 SCRA 433, 437.

[23]

Metrolab Industries, Inc. v. Confesor, G.R. No. 108855, February 28, 1996, 254 SCRA 182, 197.

[24]

Manila Mandarin Employees Union v. National Labor Relations Commission, G.R. No. 76989, September 29, 1987, 154 SCRA
368, 375 (citing Lirag Textile Mills, Inc. v. Blanco, G.R. No. L-27029, November 12, 1981, 109 SCRA 87 and Manalang v.
Artex Development Company, Inc., G.R. No. L-20432, October 30, 1967, 21 SCRA 561).

[25]

Id. at 375.

[26]

Rollo, p. 79.

[27]

Filipinas Port Services, Inc. v. National Labor Relations Commission, G.R. No. 97237, August 16, 1991, 200 SCRA 773, 780.

[28]

Sundowner Development Corporation v. Drilon, G.R. No. 82341, December 6, 1989, 180 SCRA 14, 18.

[29]

Art. 283 of the Labor Code 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 operation 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 worker and Ministry of Labor an 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 closures or
cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation
pay shall be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be considered as one (1) whole year.
[30]

Art. 287 of the Labor Code states:

RETIREMENT. Any employees may be retired upon reaching the retirement age established in the collective bargaining agreement or
other applicable employment contact.
In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and
any collective bargaining agreement and other agreements: Provided, however, That an employees retirement benefits under
any collective bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee
upon reaching the age of sixty (6) years or more, but not beyond sixty-five (65) years which is hereby declared the
compulsory retirement age, who has served at least five (5) years in the said establishment may retire and shall be entitled to
retirement pay equivalent to at least one half (1/2) month salary for every year of service, a fraction of at least six (6) months
being considered as one whole year.
Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one twelfth
(1/12) of the 13th-month pay and the cash equivalent of not more than five (5) days of service incentive leaves.
An underground mining employee upon reaching the age of fifty (50) years or more, but not beyond sixty (60) years which is hereby
declared the compulsory retirement age for underground mine workers, who has served at least five (5) years as underground
mine workers, who has served at least (5) years as underground mine worker, may retire and shall be entitled to all the
retirement benefits provided for in this Article. (R.A. No.8558, approved on February 26, 1998.)
Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are exempted
from the coverage of this provision.
Violation of this provision is hereby declared unlawful and subject to the final provisions provided under Article 288 of this Code.
[31]

90 ALR 2D 975, 983-984.

[32]

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

[33]

G.R. No. 123793, June 29, 1998, 291 SCRA 511, 521-522.

[34]

CA rollo, p. 218.

[35]

Article 256 of the Labor Code provides:

Art. 256. Representation issue in organized establishments. In organized establishments, when a verified petition questioning the
majority status of the incumbent bargaining agent is filed before the Department of Labor and Employment within the
sixty-day period before the expiration of the collective bargaining agreement, the Med-Arbiter shall automatically order an
election by secret ballot when the verified petition is supported by the written consent of at least twenty-five percent
(25%) of all the employees in the bargaining unit to ascertain the will of the employees in the appropriate bargaining unit.
To have a valid election, at least a majority of all eligible voters in the unit must have cast their votes. The labor union
receiving the majority of the valid votes cast shall be certified as the exclusive bargaining agent of all the workers in the unit.
When an election which provides for three or more choices results in no choice receiving a majority of the valid votes cast, a

run-off election shall be conducted between the labor unions receiving the two highest number of votes: Provided, that the
total number of votes for all contending unions is at least fifty percent (50%) of the number of votes cast.
At the expiration of the freedom period, the employer shall continue to recognize the majority status of the incumbent bargaining
agent where no petition for certification election is filed. (Emphases supplied.)
[36]

Article 234 of the Labor Code provides:

Art. 234. Requirements of registration. Any applicant labor organization, association or group of unions or workers shall acquire
legal personality and shall be entitled to the rights and privileges granted by law to legitimate labor organizations upon
issuance of the certificate of registration based on the following requirements. x x x
xxxx
c.

The names of all its members comprising at least twenty percent (20%) of all the employees in
the bargaining unit where it seeks to operate;

[37]

Article 238 of the Labor Code provides [t]he certificate of registration of any legitimate labor organization, whether national or
local, shall be cancelled by the Bureau if it has reason to believe, after due hearing, that the said labor organization no longer
meets one or more of the requirements herein prescribed.

[38]

G.R. No. L-20764, November 29, 1965, 15 SCRA 391, 395-397.

[39]

Article 248. Unfair Labor Practices of Employers. It shall be unlawful for an employer to commit any of the following unfair labor
practice: x x x

(e) To discriminate in regard to wages, hours of work, and other terms and conditions of employment in order to encourage or
discourage membership in any labor organization. Nothing in this Code or in any other law shall stop the parties from
requiring membership in a recognized collective bargaining agent as a condition for employment, except those
employees who are already members of another union at the time of the signing of the collective bargaining
agreement.
Employees of an appropriate collective bargaining agent may be assessed a reasonable fee equivalent to the dues and
other fees paid by members of the recognized bargaining agent, if such non-union members accept the benefits under the
collective agreement: Provided, that the individual authorization required under Article 242, paragraph (o) of this Code shall
not apply to the non-members of the recognized collective bargaining agent. x x x. (Emphasis supplied.)
[40]

Supra note 21.

[41]

G.R. No. 84433, June 2, 1992, 209 SCRA 484.

[42]

Victoriano v. Elizalde Rope Workers Union, supra note 21 at 72.

[43]

Id. at 67-68.

[44]

G.R. No. L-27113, November 19, 1974, 61 SCRA 93.

[45]

G.R. No. L-26097, November 29, 1977, 80 SCRA 350.

[46]

G.R. No. L-38178, October 3, 1985, 139 SCRA 30.

[47]

G.R. No. 88957, June 25, 1992, 210 SCRA 339.

[48]

G.R. Nos. 81883 and 82111, September 23, 1992, 214 SCRA 174.

[49]

Dela Salle University v. Dela Salle University Employees Association, 386 Phil. 569, 590 (2000).

[50]

Liberty Flour Mills Employees v. Liberty Flour Mills, Inc., supra note 20.

[51]

Article III, Section 8 of the 1987 Constitution states: The right of the people, including those employed in the public and private
sectors, to form unions, associations, or societies for purposes not contrary to law shall not be abridged.

[52]

Article XIII, Section 3 of the 1987 Constitution provides:

Section 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 and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce
their mutual compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers, recognizing the right of labor to its
just share in the fruits of production and the right of enterprises to reasonable returns to
investments, and to expansion and growth.
[53]

G.R. No. L-37687, March 15, 1982, 112 SCRA 440, 455.

[54]

Supra note 20.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

INSULAR HOTEL EMPLOYEES

UNION-NFL,

G.R. Nos. 174040-41

Present:

Petitioner,

CARPIO, J., Chairperson

,
VELASCO, JR., *
- versus -

PERALTA,
BERSAMIN, ** and
ABAD, JJ.

WATERFRONT
HOTEL DAVAO,
Respondent.

INSULAR

Promulgated:

September 22, 2010

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

DECISION

PERALTA, J.:

Before this Court is a petition for review on certiorari,[1] under Rule 45 of the
Rules of Court, seeking to set aside the Decision [2] dated October 11, 2005,
and the Resolution[3]dated July 13, 2006 of the Court of Appeals (CA) in
consolidated labor cases docketed as CA-G.R. SP No. 83831 and CA-G.R. SP
No. 83657. Said Decision reversed the Decision [4] dated the April 5, 2004 of
the Accredited Voluntary Arbitrator Rosalina L. Montejo (AVA Montejo).
The facts of the case, as culled from the records, are as follows:

On November 6, 2000, respondent Waterfront Insular Hotel Davao

(respondent) sent the Department of Labor and Employment (DOLE), Region

XI, Davao City, a Notice of Suspension of Operations [5] notifying the same
that it will suspend its operations for a period of six months due to severe
and serious business losses. In said notice, respondent assured the DOLE
that if the company could not resume its operations within the six-month
period, the company would pay the affected employees all the benefits
legally due to them.

During the period of the suspension, Domy R. Rojas (Rojas), the President of
Davao Insular Hotel Free Employees Union (DIHFEU-NFL), the recognized
labor organization in Waterfront Davao, sent respondent a number of letters
asking management to reconsider its decision.

In a letter[6] dated November 8, 2000, Rojas intimated that the members of

the Union were determined to keep their jobs and that they believed they
too had to help respondent, thus:

xxxx

Sir, we are determined to keep our jobs and push the Hotel up from sinking. We
believe that we have to help in this (sic) critical times. Initially, we intend to
suspend the re-negotiations of our CBA. We could talk further on possible
adjustments on economic benefits, the details of which we are hoping to discuss
with you or any of your emissaries. x x x[7]

In another letter[8] dated November 10, 2000, Rojas reiterated the Union's
desire to help respondent, to wit:

We would like to thank you for giving us the opportunity to meet [with] your
representatives in order for us to air our sentiments and extend our helping hands
for a possible reconsideration of the company's decision.
The talks have enabled us to initially come up with a suggestion of solving the high
cost on payroll.

We propose that 25 years and above be paid their due retirement benefits and put
their length of service to zero without loss of status of employment with a minimum
hiring rate.
Thru this scheme, the company would be able to save a substantial amount and
reduce greatly the payroll costs without affecting the finance of the families of the
employees because they will still have a job from where they could get their
income.

Moreover, we are also open to a possible reduction of some economic benefits as

our gesture of sincere desire to help.

We are looking forward to a more fruitful round of talks in order to save the hotel. [9]

In another letter[10] dated November 20, 2000, Rojas sent respondent more
proposals as a form of the Union's gesture of their intention to help the
company, thus:
1)
Suspension of [the] CBA for ten years, No strike no lock-out shall be
enforced.
2)
Pay all the employees their benefits due, and put the length of service to
zero with a minimum hiring rate. Payment of benefits may be on a staggered basis
or as available.
3)
Night premium and holiday pays shall be according to law. Overtime hours
rendered shall be offsetted as practiced.
4)

Reduce the sick leaves and vacation leaves to 15 days/15days.

5)

Emergency leave and birthday off are hereby waived.

6)
Duty meal allowance is fixed at P30.00 only. No more midnight snacks and
double meal allowance. The cook drinks be stopped as practiced.
7)
We will shoulder 50% of the group health insurance and family medical
allowance be reduced to 1,500.00 instead of 3,000.00.
8)

The practice of bringing home our uniforms for laundry be continued.

9)
Fixed manning shall be implemented, the rest of manpower requirements
maybe sourced thru WAP and casual hiring. Manpower for fixed manning shall be
145 rank-and-file union members.

10)
Union will cooperate fully on strict implementation of house rules in order to
attain desired productivity and discipline. The union will not tolerate problem
members.
11)
The union in its desire to be of utmost service would adopt multi-tasking for
the hotel to be more competitive.

It is understood that with the suspension of the CBA renegotiations, the same
existing CBA shall be adopted and that all provisions therein shall remain enforced
except for those mentioned in this proposal.

These proposals shall automatically supersede the affected provisions of the CBA.
[11]

In a handwritten letter[12] dated November 25, 2000, Rojas once again

appealed to respondent for it to consider their proposals and to re-open the
hotel. In said letter, Rojasstated that manpower for fixed manning shall be
one hundred (100) rank-and-file Union members instead of the one hundred
forty-five (145) originally proposed.

Finally, sometime in January 2001, DIHFEU-NFL, through Rojas, submitted to

respondent a Manifesto[13] concretizing their earlier proposals.
After series of negotiations, respondent and DIHFEU-NFL, represented by its
President, Rojas, and Vice-Presidents, Exequiel J. Varela Jr. and Avelino C.
Bation, Jr., signed a Memorandum of Agreement[14] (MOA) wherein
respondent agreed to re-open the hotel subject to certain concessions
offered by DIHFEU-NFL in its Manifesto.

Accordingly, respondent downsized its manpower structure to 100 rank-andfile employees as set forth in the terms of the MOA. Moreover, as agreed
upon in the MOA, a new pay scale was also prepared by respondent.

The retained employees individually signed a Reconfirmation of

Employment[15] which embodied the new terms and conditions of their
continued employment. Each employee was assisted by Rojas who also
signed the document.

On June 15, 2001, respondent resumed its business operations.

On August 22, 2002, Darius Joves (Joves) and Debbie Planas, claiming
to be local officers of the National Federation of Labor (NFL), filed a Notice of
Mediation[16]before the National Conciliation and Mediation Board (NCMB),
Region XI, Davao City. In said Notice, it was stated that the Union involved
was DARIUS JOVES/DEBBIE PLANAS ET. AL, National Federation of Labor. The
issue raised in said Notice was the Diminution of wages and other benefits
through unlawful Memorandum of Agreement.

On August 29, 2002, the NCMB called Joves and respondent to a conference
to explore the possibility of settling the conflict. In the said conference,
respondent and petitioner Insular Hotel Employees Union-NFL (IHEU-NFL),
represented by Joves, signed a Submission Agreement [17] wherein they
chose AVA Alfredo C. Olvida (AVA Olvida) to act as voluntary arbitrator.
Submitted for the resolution of AVA Olvida was the determination of whether
or not there was a diminution of wages and other benefits through an
unlawful MOA. In support of his authority to file the complaint, Joves,
assisted by Atty. Danilo Cullo (Cullo), presented several Special Powers of
Attorney (SPA) which were, however, undated and unnotarized.

On September 2, 2002, respondent filed with the NCMB a Manifestation with

Motion for a Second Preliminary Conference, [18] raising the following
grounds:
1)
The persons who filed the instant complaint in the name of the Insular Hotel
Employees Union-NFL have no authority to represent the Union;

2)
The individuals who executed the special powers of attorney in favor of the
person who filed the instant complaint have no standing to cause the filing of the
instant complaint; and
3)
The existence of an intra-union dispute renders the filing of the instant case
premature.[19]

On September 16, 2002, a second preliminary conference was conducted in

the NCMB, where Cullo denied any existence of an intra-union dispute
among the members of the union. Cullo, however, confirmed that the case
was filed not by the IHEU-NFL but by the NFL. When asked to present his
authority from NFL, Cullo admitted that the case was, in fact, filed by
individual employees named in the SPAs. The hearing officer directed both
parties to elevate the aforementioned issues to AVA Olvida. [20]

The case was docketed as Case No. AC-220-RB-11-09-022-02 and referred to

AVA Olvida. Respondent again raised its objections, specifically arguing that
the persons who signed the complaint were not the authorized
representatives of the Union indicated in the Submission Agreement nor
were they parties to the MOA. AVA Olvida directed respondent to file a
formal motion to withdraw its submission to voluntary arbitration.

On October 16, 2002, respondent filed its Motion to Withdraw. [21] Cullo then
filed an Opposition[22] where the same was captioned:

NATIONAL FEDERATION OF LABOR

And 79 Individual Employees, Union Members,
Complainants,
-versusWaterfront Insular Hotel Davao,
Respondent.

In said Opposition, Cullo reiterated that the complainants were not

representing IHEU-NFL, to wit:
xxxx

2. Respondent must have been lost when it said that the individuals who executed the
SPA have no standing to represent the union nor to assail the validity of
Memorandum of Agreement (MOA). What is correct is that the individual
complainants are not representing the union but filing the complaint through
their appointed attorneys-in-fact to assert their individual rights as workers who are
entitled to the benefits granted by law and stipulated in the collective bargaining
agreement.[23]

On November 11, 2002, AVA Olvida issued a Resolution [24] denying

respondent's Motion to Withdraw. On December 16, 2002, respondent filed a
Motion for Reconsideration[25] where it stressed that the Submission
Agreement was void because the Union did not consent thereto. Respondent
pointed out that the Union had not issued any resolution duly authorizing
the individual employees or NFL to file the notice of mediation with the
NCMB.

Cullo filed a Comment/Opposition [26] to respondent's Motion for

Reconsideration. Again, Cullo admitted that the case was not initiated by
the IHEU-NFL, to wit:
The case was initiated by complainants by filling up Revised Form No. 1 of the
NCMB duly furnishing respondent, copy of which is hereto attached as Annex A for
reference and consideration of the Honorable Voluntary Arbitrator. There is no
mention there of Insular Hotel Employees Union, but only National Federation of
Labor (NFL). The one appearing at the Submission Agreement was only a matter of
filling up the blanks particularly on the question there of Union; which was filled up
with Insular Hotel Employees Union-NFL. There is nothing there that indicates that it
is a complainant as the case is initiated by the individual workers and National
Federation of Labor, not by the local union. The local union was not included as
party-complainant considering that it was a party to the assailed MOA. [27]

On March 18, 2003, AVA Olvida issued a Resolution [28] denying respondent's
Motion for Reconsideration. He, however, ruled that respondent was correct
when it raised its objection to NFL as proper party-complainant, thus:

Anent to the real complainant in this instant voluntary arbitration case, the
respondent is correct when it raised objection to the National Federation of Labor
(NFL) and as proper party-complainants.

The proper party-complainant is INSULAR HOTEL EMPLOYEES UNION-NFL, the

recognized and incumbent bargaining agent of the rank-and-file employees of the
respondent hotel. In the submission agreement of the parties dated August 29,
2002, the party complainant written is INSULAR HOTEL EMPLOYEES UNION-NFL and
not the NATIONAL FEDERATION OF LABOR and 79 other members.

However, since the NFL is the mother federation of the local union, and signatory to
the existing CBA, it can represent the union, the officers, the members or union and
officers or members, as the case may be, in all stages of proceedings in courts or
administrative bodies provided that the issue of the case will involve labormanagement relationship like in the case at bar.

The dispositive portion of the March 18, 2003 Resolution of AVA Olvida
reads:

WHEREFORE, premises considered, the motion for reconsideration filed by

respondent is DENIED. The resolution dated November 11, 2002 is modified in so far
as the party-complainant is concerned; thus, instead of National Federation of Labor
and 79 individual employees, union members, shall be Insular Hotel Employees
Union-NFL et. al., as stated in the joint submission agreement dated August 29,
2002. Respondent is directed to comply with the decision of this Arbitrator dated
November 11, 2002,

No further motion of the same nature shall be entertained. [29]

On May 9, 2003, respondent filed its Position Paper Ad Cautelam,[30] where it

declared, among others, that the same was without prejudice to its earlier

objections against the jurisdiction of the NCMB and AVA Olvida and the
standing of the persons who filed the notice of mediation.

Cullo, now using the caption Insular Hotel Employees UnionNFL, Complainant, filed a Comment[31] dated June 5, 2003. On June 23, 2003,
respondent filed its Reply.[32]
Later, respondent filed a Motion for Inhibition [33] alleging AVA Olvida's bias
and prejudice towards the cause of the employees. In an Order [34] dated July
25, 2003, AVA Olvida voluntarily inhibited himself out of delicadeza and
ordered the remand of the case to the NCMB.

On August 12, 2003, the NCMB issued a Notice requiring the parties to
appear before the conciliator for the selection of a new voluntary arbitrator.
In a letter[35] dated August 19, 2003 addressed to the NCMB, respondent
reiterated its position that the individual union members have no standing
to file the notice of mediation before the NCMB. Respondent stressed that
the complaint should have been filed by the Union.

On September 12, 2003, the NCMB sent both parties a Notice [36] asking
them to appear before it for the selection of the new voluntary arbitrator.
Respondent, however, maintained its stand that the NCMB had no
jurisdiction over the case. Consequently, at the instance of Cullo, the NCMB
approved ex parte the selection of AVA Montejo as the new voluntary
arbitrator.

On April 5, 2004, AVA Montejo rendered a Decision[37] ruling in favor of Cullo,

the dispositive portion of which reads:
WHEREOF, in view of the all the foregoing, judgment is hereby rendered:

1.
Declaring the Memorandum of Agreement in question as invalid as it is
contrary to law and public policy;
2.
Declaring that there is a diminution of the wages and other benefits of the
Union members and officers under the said invalid MOA.

3.
Ordering respondent management to immediately reinstate the workers
wage rates and other benefits that they were receiving and enjoying before the
signing of the invalid MOA;
4.
Ordering the management respondent to pay attorneys fees in an amount
equivalent to ten percent (10%) of whatever total amount that the workers union
may receive representing individual wage differentials.

As to the other claims of the Union regarding diminution of other benefits, this
accredited voluntary arbitrator is of the opinion that she has no authority to
entertain, particularly as to the computation thereof.

SO ORDERED.[38]

Both parties appealed the Decision of AVA Montejo to the CA. Cullo only
assailed the Decision in so far as it did not categorically order respondent to
pay the covered workers their differentials in wages reckoned from the
effectivity of the MOA up to the actual reinstatement of the reduced wages
and benefits. Cullos' petition was docketed as CA-G.R. SP No. 83831.
Respondent, for its part, questioned among others the jurisdiction of the
NCMB. Respondent maintained that the MOA it had entered into with the
officers of the Union was valid. Respondent's petition was docketed as CAG.R. SP No. 83657. Both cases were consolidated by the CA.

On October 11, 2005, the CA rendered a Decision [39] ruling in favor of

respondent, the dispositive portion of which reads:

WHEREFORE, premises considered, the petition for review in CA-G.R. SP No. 83657 is
hereby GRANTED, while the petition in CA-G.R. SP No. 83831 is DENIED.
Consequently, the assailed Decision dated April 5, 2004 rendered by AVA Rosalina L.
Montejo is hereby REVERSED and a new one entered declaring the Memorandum of
Agreement dated May 8, 2001 VALID and ENFORCEABLE. Parties are DIRECTED to
comply with the terms and conditions thereof.

SO ORDERED.[40]

Aggrieved, Cullo filed a Motion for Reconsideration, which was, however,

denied by the CA in a Resolution[41] dated July 13, 2006.

Hence, herein petition, with Cullo raising the following issues for this Court's
resolution, to wit:

I.
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERRORS IN FINDING THAT THE ACCREDITED VOLUNTARY ARBITRATOR HAS NO
JURISDICTION OVER THE CASE SIMPLY BECAUSE THE NOTICE OF MEDIATION DOES
NOT MENTION THE NAME OF THE LOCAL UNION BUT ONLY THE AFFILIATE
FEDERATION THEREBY DISREGARDING THE SUBMISSION AGREEMENT DULY SIGNED
BY THE PARTIES AND THEIR LEGAL COUNSELS THAT MENTIONS THE NAME OF THE
LOCAL UNION.

II.
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERROR BY DISREGARDING THE PROVISIONS OF THE CBA SIMPLY BECAUSE IT
BELIEVED THE UNPROVEN ALLEGATIONS OF RESPONDENT HOTEL THAT IT WAS
SUFFERING FROM FINANCIAL CRISIS.

III.
THE HONORABLE COURT OF APPEALS MUST HAVE SERIOUSLY ERRED IN
CONCLUDING THAT ARTICLE 100 OF THE LABOR CODE APPLIES ONLY TO BENEFITS
ENJOYED PRIOR TO THE ADOPTION OF THE LABOR CODE WHICH, IN EFFECT,
ALLOWS THE DIMINUTION OF THE BENEFITS ENJOYED BY EMPLOYEES FROM ITS
ADOPTION HENCEFORTH.[42]

The petition is not meritorious.

Anent the first error raised, Cullo argues that the CA erred when it
overlooked the fact that before the case was submitted to voluntary
arbitration, the parties signed a Submission Agreement which mentioned
the name of the local union and not only NFL. Cullo, thus, contends that the
CA committed error when it ruled that the voluntary arbitrator had no
jurisdiction over the case simply because the Notice of Mediation did not
state the name of the local union thereby disregarding the Submission
Agreement which states the names of local union as Insular Hotel
Employees Union-NFL.[43]

In its Memorandum,[44] respondent maintains its position that the NCMB and
Voluntary Arbitrators had no jurisdiction over the complaint. Respondent,
however, now also contends that IHEU-NFL is a non-entity since it
is DIHFEU-NFL which is considered by the DOLE as the only registered union
in Waterfront Davao.[45] Respondent argues that the Submission Agreement
does not name the local union DIHFEU-NFL and that it had timely withdrawn
its consent to arbitrate by filing a motion to withdraw.

A review of the development of the case shows that there has been much
confusion as to the identity of the party which filed the case against
respondent. In the Notice of Mediation [46] filed before the NCMB, it stated
that the union involved was DARIUS JOVES/DEBBIE PLANAS ET. AL., National
Federation of Labor. In the Submission Agreement, [47] however, it stated that
the union involved was INSULAR HOTEL EMPLOYEES UNION-NFL.

Furthermore, a perusal of the records would reveal that after signing the
Submission Agreement, respondent persistently questioned the authority
and standing of the individual employees to file the complaint. Cullo then
clarified in subsequent documents captioned as National Federation of Labor
and 79 Individual Employees, Union Members,Complainants that the
individual complainants are not representing the union, but filing the
complaint through their appointed attorneys-in-fact. [48] AVA Olvida, however,
in a Resolution dated March 18, 2003, agreed with respondent that the
proper party-complainant should be INSULAR HOTEL EMPLOYEES UNIONNFL, to wit:

x x x In the submission agreement of the parties dated August 29, 2002, the party
complainant written is INSULAR HOTEL EMPLOYEES UNION-NFL and not the
NATIONAL FEDERATION OF LABOR and 79 other members.[49]

The dispositive portion of the Resolution dated March 18, 2003 of AVA
Olvida reads:

WHEREFORE, premises considered, the motion for reconsideration filed by

respondent is DENIED. The resolution dated November 11, 2002, is modified in so
far as the party complainant is concerned, thus, instead of National Federation of
Labor and 79 individual employees, union members, shall be Insular Hotel
Employees Union-NFL et. al., as stated in the joint submission agreement dated
August 29, 2002. Respondent is directed to comply with the decision of this
Arbitrator dated November 11, 2002.[50]

After the March 18, 2003 Resolution of AVA Olvida, Cullo adopted Insular
Hotel Employees Union-NFL et. al., Complainant as the caption in all his
subsequent pleadings. Respondent, however, was still adamant that neither
Cullo nor the individual employees had authority to file the case in behalf of
the Union.

While it is undisputed that a submission agreement was signed by

respondent and IHEU-NFL, then represented by Joves and Cullo, this Court
finds that there are two circumstances which affect its validity: first, the
Notice of Mediation was filed by a party who had no authority to do
so; second, that respondent had persistently voiced out its objection
questioning the authority of Joves, Cullo and the individual members of the
Union to file the complaint before the NCMB.

Procedurally, the first step to submit a case for mediation is to file a notice
of preventive mediation with the NCMB. It is only after this step that a
submission agreement may be entered into by the parties concerned.

Section 3, Rule IV of the NCMB Manual of Procedure provides who may file a
notice of preventive mediation, to wit:

Who may file a notice or declare a strike or lockout or request preventive mediation.
Any certified or duly recognized bargaining representative may file a notice
or declare a strike or request for preventive mediation in cases of
bargaining deadlocks and unfair labor practices. The employer may file a
notice or declare a lockout or request for preventive mediation in the same cases. In
the absence of a certified or duly recognized bargaining representative, any
legitimate labor organization in the establishment may file a notice, request
preventive mediation or declare a strike, but only on grounds of unfair labor practice.

From the foregoing, it is clear that only a certified or duly recognized

bargaining agent may file a notice or request for preventive mediation. It is
curious that even Cullo himself admitted, in a number of pleadings, that the
case was filed not by the Union but by individual members thereof. Clearly,
therefore, the NCMB had no jurisdiction to entertain the notice filed before
it.

Even though respondent signed a Submission Agreement, it had, however,

immediately manifested its desire to withdraw from the proceedings after it
became apparent that the Union had no part in the complaint. As a matter
of fact, only four days had lapsed after the signing of the Submission
Agreement when respondent called the attention of AVA Olvida in a
Manifestation with Motion for a Second Preliminary Conference [51] that the
persons who filed the instant complaint in the name of Insular Hotel
Employees Union-NFL had no authority to represent the Union. Respondent
cannot be estopped in raising the jurisdictional issue, because it is
basic that the issue of jurisdiction may be raised at any stage of the
proceedings, even on appeal, and is not lost by waiver or by estoppel.

In Figueroa v. People,[52] this Court explained that estoppel is the exception

rather than the rule, to wit:

Applying the said doctrine to the instant case, the petitioner is in no way estopped
by laches in assailing the jurisdiction of the RTC, considering that he raised the lack
thereof in his appeal before the appellate court. At that time, no considerable period
had yet elapsed for laches to attach. True, delay alone, though unreasonable, will not
sustain the defense of estoppel by laches unless it further appears that the party,
knowing his rights, has not sought to enforce them until the condition of the party
pleading laches has in good faith become so changed that he cannot be restored to
his former state, if the rights be then enforced, due to loss of evidence, change of
title, intervention of equities, and other causes. In applying the principle of estoppel
by laches in the exceptional case of Sibonghanoy, the Court therein considered the
patent and revolting inequity and unfairness of having the judgment creditors go up
their Calvary once more after more or less 15 years.The same, however, does not
obtain in the instant case.

We note at this point that estoppel, being in the nature of a forfeiture, is not favored
by law. It is to be applied rarelyonly from necessity, and only in extraordinary
circumstances. The doctrine must be applied with great care and the equity must be
strong in its favor.When misapplied, the doctrine of estoppel may be a most effective
weapon for the accomplishment of injustice. x x x (Italics supplied.) [53]

The question to be resolved then is, do the individual members of the Union
have the requisite standing to question the MOA before the NCMB? On this
note, Tabigue v. International Copra Export Corporation (INTERCO) [54] is
instructive:

Respecting petitioners thesis that unsettled grievances should be referred to

voluntary arbitration as called for in the CBA, the same does not lie.The pertinent
portion of the CBA reads:

In case of any dispute arising from the interpretation or

implementation of this Agreement or any matter affecting the relations
of Labor and Management, the UNION and the COMPANY agree to
exhaust all possibilities of conciliation through the grievance
machinery. The committee shall resolve all problems submitted to it
within fifteen (15) days after the problems ha[ve] been discussed by
the members. If the dispute or grievance cannot be settled by the
Committee, or if the committee failed to act on the matter within the

period of fifteen (15) days herein stipulated, the UNION and the
COMPANY agree to submit the issue to Voluntary Arbitration. Selection
of the arbitrator shall be made within seven (7) days from the date of
notification by the aggrieved party. The Arbitrator shall be selected by
lottery from four (4) qualified individuals nominated by in equal
numbers by both parties taken from the list of Arbitrators prepared by
the National Conciliation and Mediation Board (NCMB). If the Company
and the Union representatives within ten (10) days fail to agree on the
Arbitrator, the NCMB shall name the Arbitrator. The decision of the
Arbitrator shall be final and binding upon the parties. However, the
Arbitrator shall not have the authority to change any provisions of the
Agreement.The cost of arbitration shall be borne equally by the parties.

Petitioners have not, however, been duly authorized to represent the

union. Apropos is this Courts pronouncement in Atlas Farms, Inc. v. National Labor
Relations Commission, viz:

x x x Pursuant to Article 260 of the Labor Code, the parties to a CBA

shall name or designate their respective representatives to the
grievance machinery and if the grievance is unsettled in that level, it
shall automatically be referred to the voluntary arbitrators designated
in advance by parties to a CBA. Consequently, only disputes
involving the union and the companyshall be referred to the
grievance machinery or voluntary arbitrators. (Emphasis and
underscoring supplied.)[55]

If the individual members of the Union have no authority to file the case,
does the federation to which the local union is affiliated have the standing
to do so? On this note, Coastal Subic Bay Terminal, Inc. v. Department of
Labor and Employment[56] is enlightening, thus:

x x x A local union does not owe its existence to the federation with which it is
affiliated. It is a separate and distinct voluntary association owing its creation to the
will of its members. Mere affiliation does not divest the local union of its own
personality, neither does it give the mother federation the license to act
independently of the local union. It only gives rise to a contract of agency,

where the former acts in representation of the latter. Hence, local unions are
considered principals while the federation is deemed to be merely their agent. x x
x[57]

Based on the foregoing, this Court agrees with approval with the disquisition
of the CA when it ruled that NFL had no authority to file the complaint in
behalf of the individual employees, to wit:

Anent the first issue, We hold that the voluntary arbitrator had no jurisdiction over
the case. Waterfront contents that the Notice of Mediation does not mention the
name of the Union but merely referred to the National Federation of Labor (NFL) with
which the Union is affiliated. In the subsequent pleadings, NFL's legal counsel even
confirmed that the case was not filed by the union but by NFL and the individual
employees named in the SPAs which were not even dated nor notarized.

Even granting that petitioner Union was affiliated with NFL, still the relationship
between that of the local union and the labor federation or national union with which
the former was affiliated is generally understood to be that of agency, where the
local is the principal and the federation the agency. Being merely an agent of the
local union, NFL should have presented its authority to file the Notice of Mediation.
While We commend NFL's zealousness in protecting the rights of lowly workers, We
cannot, however, allow it to go beyond what it is empowered to do.

As provided under the NCMB Manual of Procedures, only a certified or duly

recognized bargaining representative and an employer may file a notice of
mediation, declare a strike or lockout or request preventive mediation. The Collective
Bargaining Agreement (CBA), on the other, recognizes that DIHFEU-NFL is the
exclusive bargaining representative of all permanent employees. The inclusion of the
word NFL after the name of the local union merely stresses that the local union is
NFL's affiliate. It does not, however, mean that the local union cannot stand on its
own. The local union owes its creation and continued existence to the will of its
members and not to the federation to which it belongs. The spring cannot rise higher
than its source, so to speak.[58]

In its Memorandum, respondent contends that IHEU-NFL is a non-entity and

that DIHFEU-NFL is the only recognized bargaining unit in their
establishment. While the resolution of the said argument is already moot

and academic given the discussion above, this Court shall address the same
nevertheless.

While the November 16, 2006 Certification [59] of the DOLE clearly states
that IHEU-NFL is not a registered labor organization, this Court finds that
respondent is estopped from questioning the same as it did not raise the
said issue in the proceedings before the NCMB and the Voluntary
Arbitrators. A perusal of the records reveals that the main theory posed by
respondent was whether or not the individual employees had the authority
to file the complaint notwithstanding the apparent non-participation of the
union. Respondent never put in issue the fact that DIHFEU-NFL was not the
same as IHEU-NFL. Consequently, it is already too late in the day to assert
the same.
Anent the second issue raised by Cullo, the same is again without merit.

Cullo contends that respondent was not really suffering from serious losses
as found by the CA. Cullo anchors his position on the denial by the Wage
Board of respondent's petition for exemption from Wage Order No. RTWPBX1-08 on the ground that it is a distressed establishment. [60] In said denial,
the Board ruled:
A careful analysis of applicant's audited financial statements showed that during the
period ending December 31, 1999, it registered retained earnings amounting
to P8,661,260.00. Applicant's interim financial statements for the quarter
ending June 30, 2000 cannot be considered, as the same was not audited.
Accordingly, this Board finds that applicant is not qualified for exemption as a
distressed establishment pursuant to the aforecited criteria. [61]

In its Decision, the CA held that upholding the validity of the MOA would
mean the continuance of the hotel's operation and financial viability, to wit:

x x x We cannot close Our eyes to the impending financial distress that an employer
may suffer should the terms of employment under the said CBA continue.

If indeed We are to tilt the balance of justice to labor, then We would be inclined to
favor for the nonce petitioner Waterfront. To uphold the validity of the MOA would

mean the continuance of the hotel's operation and financial viability. Otherwise, the
eventual permanent closure of the hotel would only result to prejudice of the
employees, as a consequence thereof, will necessarily lose their jobs. [62]

In its petition before the CA, respondent submitted its audited financial
statements[63] which show that for the years 1998, 1999, until September
30, 2000, its total operating losses amounted to P48,409,385.00. Based on
the foregoing, the CA was not without basis when it declared that
respondent was suffering from impending financial distress.While the Wage
Board denied respondent's petition for exemption, this Court notes that the
denial was partly due to the fact that the June 2000 financial statements
then submitted by respondent were not audited. Cullo did not question nor
discredit the accuracy and authenticity of respondent's audited financial
statements. This Court, therefore, has no reason to question the veracity of
the contents thereof. Moreover, it bears to point out that respondent's
audited financial statements covering the years 2001 to 2005 show that it
still continues to suffer losses.[64]

Finally, anent the last issue raised by Cullo, the same is without merit.

Cullo argues that the CA must have erred in concluding that Article 100 of
the Labor Code applies only to benefits already enjoyed at the time of the
promulgation of the Labor Code.

Article 100 of the Labor Code provides:

PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS- Nothing in this

Book shall be construed to eliminate or in any way diminish supplements, or other
employee benefits being enjoyed at the time of the promulgation of this Code.

On this note, Apex Mining Company, Inc. v. NLRC[65] is instructive, to wit:

Clearly, the prohibition against elimination or diminution of benefits set out in Article
100 of the Labor Code is specifically concerned with benefits already enjoyed at the
time of the promulgation of the Labor Code. Article 100 does not, in other words,
purport to apply to situations arising after the promulgation date of the Labor Code x
x x.[66]

Even assuming arguendo that Article 100 applies to the case at bar, this
Court agrees with respondent that the same does not prohibit a union from
offering and agreeing to reduce wages and benefits of the employees.
In Rivera v. Espiritu,[67] this Court ruled that the right to free collective
bargaining, after all, includes the right to suspend it, thus:

A CBA is a contract executed upon request of either the employer or the exclusive
bargaining representative incorporating the agreement reached after negotiations
with respect to wages, hours of work and all other terms and conditions of
employment, including proposals for adjusting any grievances or questions arising
under such agreement. The primary purpose of a CBA is the stabilization of labormanagement relations in order to create a climate of a sound and stable industrial
peace. In construing a CBA, the courts must be practical and realistic and give due
consideration to the context in which it is negotiated and the purpose which it is
intended to serve.

The assailed PAL-PALEA agreement was the result of voluntary collective

bargaining negotiations undertaken in the light of the severe financial
situation faced by the employer, with the peculiar and unique intention of
not merely promoting industrial peace at PAL, but preventing the latters
closure. We find no conflict between said agreement and Article 253-A of the Labor
Code. Article 253-A has a two-fold purpose. One is to promote industrial stability
and predictability. Inasmuch as the agreement sought to promote industrial peace
at PAL during its rehabilitation, said agreement satisfies the first purpose of Article
253-A. The other is to assign specific timetables wherein negotiations become a
matter of right and requirement. Nothing in Article 253-A, prohibits the parties from
waiving or suspending the mandatory timetables and agreeing on the remedies to
enforce the same.

In the instant case, it was PALEA, as the exclusive bargaining agent of PALs ground
employees, that voluntarily entered into the CBA with PAL. It was also PALEA that
voluntarily opted for the 10-year suspension of the CBA. Either case was the unions
exercise of its right to collective bargaining. The right to free collective
bargaining, after all, includes the right to suspend it.[68]

Lastly, this Court is not unmindful of the fact that DIHFEU-NFL's Constitution
and By-Laws specifically provides that the results of the collective
bargaining negotiations shall be subject to ratification and approval by
majority vote of the Union members at a meeting convened, or by plebiscite
held for such special purpose.[69] Accordingly, it is undisputed that the MOA
was not subject to ratification by the general membership of the Union. The
question to be resolved then is, does the non-ratification of the MOA in
accordance with the Union's constitution prove fatal to the validity thereof?

It must be remembered that after the MOA was signed, the members of the
Union individually signed contracts denominated as Reconfirmation of
Employment.[70] Cullo did not dispute the fact that of the 87 members of the
Union, who signed and accepted the Reconfirmation of Employment, 71 are
the respondent employees in the case at bar. Moreover, it bears to stress
that all the employees were assisted by Rojas, DIHFEU-NFL's president, who
even co-signed each contract.

Stipulated in each Reconfirmation of Employment were the new salary

and benefits scheme. In addition, it bears to stress that specific provisions of
the new contract also made reference to the MOA. Thus, the individual
members of the union cannot feign knowledge of the execution of the MOA.
Each contract was freely entered into and there is no indication that the
same was attended by fraud, misrepresentation or duress. To this Court's
mind, the signing of the individual Reconfirmation of Employment should,
therefore, be deemed an implied ratification by the Union members of the
MOA.

In Planters Products, Inc. v. NLRC,[71] this Court refrained from declaring a

CBA invalid notwithstanding that the same was not ratified in view of the
fact that the employees had enjoyed benefits under it, thus:

Under Article 231 of the Labor Code and Sec. 1, Rule IX, Book V of the Implementing
Rules, the parties to a collective [bargaining] agreement are required to furnish
copies of the appropriate Regional Office with accompanying proof of ratification by
the majority of all the workers in a bargaining unit. This was not done in the case at
bar. But we do not declare the 1984-1987 CBA invalid or void considering that the
employees have enjoyed benefits from it. They cannot receive benefits under
provisions favorable to them and later insist that the CBA is void simply because
other provisions turn out not to the liking of certain employees. x x x. Moreover, the
two CBAs prior to the 1984-1987 CBA were not also formally ratified, yet the
employees are basing their present claims on these CBAs. It is iniquitous to
receive benefits from a CBA and later on disclaim its validity.[72]

Applied to the case at bar, while the terms of the MOA undoubtedly reduced
the salaries and certain benefits previously enjoyed by the members of the
Union, it cannot escape this Court's attention that it was the execution of
the MOA which paved the way for the re-opening of the hotel,
notwithstanding its financial distress. More importantly, the execution of the
MOA allowed respondents to keep their jobs. It would certainly be iniquitous
for the members of the Union to sign new contracts prompting the reopening of the hotel only to later on renege on their agreement on the fact
of the non-ratification of the MOA.

In addition, it bears to point out that Rojas did not act unilaterally when he
negotiated with respondent's management. The Constitution and By-Laws of
DIHFEU-NFL clearly provide that the president is authorized to represent the
union on all occasions and in all matters in which representation of the
union may be agreed or required.[73] Furthermore, Rojas was properly
authorized under a Board of Directors Resolution [74] to negotiate with
respondent, the pertinent portions of which read:

SECRETARY's CERTIFICATE

I, MA. SOCORRO LISETTE B. IBARRA, x x x, do hereby certify that, at a meeting of the

Board of Directors of the DIHFEU-NFL, on 28 Feb. 2001 with a quorum duly
constituted, the following resolutions were unanimously approved:

RESOLVED, as it is hereby resolved that the Manifesto dated 25 Feb.

2001 be approved ratified and adopted;

RESOLVED, FURTHER, that Mr. Domy R. Rojas, the president of

the DIHFEU-NFL, be hereby authorized to negotiate with
Waterfront Insular Hotel Davao and to work for the latter's
acceptance of the proposals contained in DIHFEU-NFL
Manifesto; and

RESOLVED, FINALLY, that Mr. Domy R. Rojas is hereby

authorized to sign any and all documents to implement, and
carry into effect, his foregoing authority.[75]

Withal, while the scales of justice usually tilt in favor of labor, the peculiar
circumstances herein prevent this Court from applying the same in the
instant petition. Even if our laws endeavor to give life to the constitutional
policy on social justice and on the protection of labor, it does not mean that
every labor dispute will be decided in favor of the workers. The law also
recognizes that management has rights which are also entitled to respect
and enforcement in the interest of fair play. [76]

WHEREFORE, premises considered, the petition is DENIED. The Decision

dated October 11, 2005, and the Resolution dated July 13, 2006 of the Court
of Appeals in consolidated labor cases docketed as CA-G.R. SP No. 83831
and CA-G.R. SP No. 83657, are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR. LUCAS P. BERSAMIN

Associate Justice Associate Justice

ROBERTO A. ABAD
Associate Justice

ATTESTATION

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

ANTONIO T. CARPIO
Associate Justice
Second Division, Chairperson

CERTIFICATION

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

RENATO C. CORONA
Chief Justice

Designated as an additional member in lieu of Associate Justice Antonio Eduardo B. Nachura per Special Order No. 883 dated
September 1, 2010.
**

Designated as an additional member in lieu of Associate Justice Jose Catral Mendoza per Special Order No. 886 dated September 1,
2010.
[1]

Rollo, pp. 7-63.

[2]

Penned by Associate Justice Rodrigo F. Lim, Jr., with Associate Justices Teresita Dy-Liacco Flores and Ramon R. Garcia
concurring; id. at 66-82.
[3]

Id. at 84-85.

[4]

Rollo, pp. 86-96.

[5]

CA rollo, Vol. 1, p. 342.

[6]

Rollo, p. 558.

[7]

Id.

[8]

Id. at 559.

[9]

Id.

[10]

Id. at 560-561.

[11]

Id.

[12]

Id. at 562-563.

[13]

CA rollo, Vol. 1, pp. 362-364.

MANIFESTO

On behalf of all its members, the Davao Insular Hotel Free Employees Union-National Federation of Labor
(the Union), hereby declares:
WHEREAS, the Union recognizes and admits that the Davao Insular Hotel (the Hotel), in the sound exercise
of its managerial prerogatives, has temporarily ceased its operations on December 7, 2000, due to
substantial economic losses;
WHEREAS, the Union acknowledges that the heavy losses experienced by the Hotel were basically brought
about by several factors, one of which is the huge payroll cost;
NOW, THEREFORE, to uplift and revive the Hotels financial viability, and, thus encourage the Hotel to
resume its operations, the Union hereby submits to the Hotel the following proposals:

A. RETIREMENT & REDUCED BENEFITS:

1.
Retirement. The Hotel shall pay all employees qualified to retire their retirement benefits under the terms and
conditions of the existing Collective Bargaining Agreement (CBA) and retrench those not yet qualified. Retired employees who may
later on be rehired by the Hotel shall be considered as newly hired employees and are entitled to applicable existing minimum wage
rates. As such, they hereby expressly waive any right that they may have with respect to their length of service.

2.
Overtime and Holiday Pay. Night shift differential premium and holiday pay shall be paid in accordance with the
provisions of the Labor Code. Offsetting of overtime shall be continued.
3.
Leaves. Vacation and sick leave periods shall be limited to a maximum of ten (10) days each, while emergency and
birthday leaves are hereby expressly waived.
4.
Duty Meal Privileges. Meal allowance shall be reduced to P30.00 per duty. Midnight snacks, double meal
allowance and cooks drinks shall no longer be allowed.
5.
Corporate Group Healthcare Programs. Only one (1) person shall be covered by the healthcare program. Family
medical allowance shall be reduced to P1,500.00 per year.
6.

Uniforms Laundry. The practice of bringing home employees uniforms for washing shall be continued.

7.
Other Terms and Conditions. - The standards prescribed in the Labor Code of the Philippines shall be observed as
regards all other terms and conditions of employment not specifically mentioned in this Manifesto.

B. RESTRUCTURE OF MANPOWER
1.
Hiring Procedure. Within the first year of its re-opening, the Hotel shall rehire eighty (80 employees with regular
status at the time of the Hotels closure. After the first year of operations, if management should deem fit, ten (10) more employees
with regular status at the time of closure may be rehired provided that the Hotel achieves an owners profit (net profit) within the same
period. In the event of increased owners profits, the Hotel may again increase the number of its employees by rehiring employees
presently with regular status. Notwithstanding the foregoing provisions, the Hotel may, in its discretion, fill up its other manning
requirements in excess of the eighty (80) rehired employees from an independent recruitment agency.
2.
Salary Scale. The Union hereby abandons the existing pay scale. Thus, the respective salaries of the eighty (80)
rehired employees shall be in accordance with a new scheme to be devised by the Hotel.

C. MISCELLANEOUS
1. Industrial Peace. The Union agrees not to cause, conduct or support any form of strike within the next ten (10) years of the
Hotels operations. It likewise agrees to treat the present Collective Bargaining Agreement as inoperative within the same period
insofar as the economic provisions are concerned. Upon the lapse of the above period, at which time the term of the Collective
Bargaining Agreement shall be deemed to have lapsed, the parties may negotiate for a new Collective Bargaining Agreement.
2. Disciplinary Committee. The Hotel shall establish a disciplinary committee which will decide disciplinary cases involving
violations of the Hotels House Rules and Regulations. The committee shall be composed of eight persons, four (4) of whom shall be
members of the management, while the remaining four (4) shall be members of the Union. The members of the committee shall
choose a presiding officer among themselves. The findings of the committee shall be forwarded to the Human Relations Department
Manager, who shall give his recommendations to the General Manager. The decision of the General Manager shall be final and
immediately executory.
3. Multi-Tasking and Multi-Skilled Employees. Rehired employees shall be trained to perform multi-tasking jobs.
4. Non-intervention of the Union. The Union further undertakes not to intervene in any matter that is primarily within the
exclusive discretion of the Hotel management, such as, but not limited to, the grant of business concessions within the Hotel.
[14]

CA rollo, Vol., pp. 366-371.

MEMORANDUM OF AGREEMENT

Know All Men By These Presents:

This Memorandum of Agreement, entered into this day of May 08 2001 at Cebu City, Philippines, by and
between:
DAVAO INSULAR HOTEL, COMPANY, INC., a corporation duly organized and existing under the
laws of the Philippines and doing business under the name and style: Waterfront Insular
Hotel Davao, hereinafter Hotel;
-andDAVAO INSULAR HOTEL FREE EMPLOYEES UNION-NATIONAL FEDERATION OF LABOR
(DIHFEUNFL), the duly recognized exclusive bargaining agent among the rank-and-file
employees of the Hotel; hereinafter the Union

WITNESSETH:
WHEREAS, due to severe economic losses, the Hotel was constrained to temporarily cease
operations on December 7, 2000.
WHEREAS, the Union acknowledges and admits that the closure of the Hotel was in accordance with
the sound, valid, and good faith exercise of the Hotels managerial prerogatives, and that the heavy
business losses experienced by the Hotel were brought about by factors that actually exist, one which is
the huge payroll cost;
WHEREAS, the parties recognize that a condition precedent to the Hotels resumption of business
operations is its ability to remain financially viable during the first ten (10) years following its resumption of
operations;
WHEREAS, the parties acknowledge that the Hotels financial viability can only be achieved by a
comprehensive reorganization of its system of operations;
WHEREAS, on January 6, 2001, the economic provisions of the Collective Bargaining Agreement
dated January 6, 1998 (hereinafter, the CBA) between the Hotel and the Union are due for renegotiation; WHEREAS, the Union, through a Manifesto dated February 24, 2001, in an effort to help the
Hotel achieve financial viability for purposes of resuming its business operations and avoiding permanent
closure, initiated the re-negotiation of the economic provisions of the CBA by offering reduced employee
benefits;
NOW, THEREFORE, in view of the foregoing premises, the parties, pursuant to Section 2 of Article
XXVI of the CBA, hereby agree to the following amendments to the CBA:

A. TENURE AND PRIORITY OF EMPLOYMENT (Article III)

The following shall be introduced as Sections 5, 6 and 7 under Article II of the CBA:
Section 5. Reduction of Personnel. To help reduce the Hotels payroll cost upon its resumption
of operations, the parties hereby agrees to the retention of 100 rank-and file personnel with
regular status at the time of the temporary closure of the hotel. Employees excluded by the
parties may avail of their retirement benefits in accordance with the terms and conditions of
Article XXIII of this Agreement.
Section 6. Multi-Tasking and Multi-Skilled Employees. Retained employees shall be trained to
perform multi-tasking jobs.

Section 7. Hiring Procedure. Within the first year or resumption of its operations and
provided that it achieves an owners profit (net profit), the Hotel may, if management should
deem fit, source its manpower requirements from among those excluded employees
mentioned in the immediately preceding paragraph, or any qualified member/s of their
immediate families in accordance with Section 4, Article III of the CBA. However, this
provision shall not in any way preclude the Hotel, in the valid exercise of its management
prerogative, from filling up its other manning requirements, in excess of the one hundred
(100) retained employees, from an independent recruitment agency or elsewhere.

B.

RIGHTS AND DUTIES (Article IV)

Sections 1 and 2a of Article IV of the CBA are hereby amended to read as follows:
Section 1. Industrial Peace The Union agrees not to cause, conduct or support any form of
strike within the next ten (10 years following the Hotels resumption of operations.
Section 2a. Non-intervention of the Union The Union further undertakes not to intervene in
any matter that is primarily within the exclusive discretion of the Hotel management, such
as, but not limited to, the grant of business concessions within the Hotel.
The following provisions are hereby incorporated as Sections 2b and 2c under Article IV of the CBA:
2b. Disciplinary Action NO employee shall be subjected to disciplinary action without due
process and without just cause.
2c. Disciplinary Committee The Hotel shall establish a disciplinary committee that will decide
disciplinary cases involving employees violations of the Hotels House Rules and
regulations. The committee shall be composed of eight (8) members, four of whom shall
represent management, while the remaining four shall be members-representatives of the
Union. The members of the committee shall choose a presiding officer among
themselves. The findings of the committee shall be forwarded to the Human Resources
Department Manager, who shall give his recommendations to the General Manager, shall
become immediately final and executory.
C. COMPENSATION (Article V)
Section 4 and Section 5 of Article V of the CBA are hereby amended as follows:
Section 4a. Salary Scale The salary scale of the retired rank-and file employees shall be in
accordance with a new compensation scheme to be determined by the Hotel, which shall in
no case be less than the existing minimum rates prescribed by the Regional Tripartite Wages
and Productivity Board.
Section 5. Duty Meals Meal allowance for regular employee shall be Thirty Pesos (P30.00)
per duty.
Sections 5a and 5b under Article V are hereby expressly repealed.
D.

WORK SCHEDULE, OVERTIME, NIGHT DIFFERENTIAL (Article VI)

Sections 1a, 2, 2b, and 4 of Article VI are hereby amended to read as follows:
Section 1a. Additional Rates Employees requested for duty during his day off shall be paid
his rest day premium in accordance with the requirements of the provisions of the Labor
Code.

Section 2. Overtime Work Overtime premiums shall be determined in accordance with the
requirements of the provisions of the Labor Code. Offsetting of overtime shall be continued.
Section 4. Nightshift Differential Payment of night shift differential premium shall be in
accordance with the requirements of the provisions of the Labor Code.
E. HEALTH BENEFITS (Article VIII)
Section 2 of Article VIII is hereby amended to read as follows:
Section 2. Medical Allowance The employee shall charge the cost of medicine and/or medical
assistance incurred by him up to the amount of P1,500.00 per year.
F. UNIFORM (Article IX)
The following provision shall be introduced under Article IX as Section 5:
Section 5. Uniforms Laundry Laundry of uniforms shall be the sole responsibility of the
employees and shall be done outside the Hotel premises.
G. VACATION LEAVE (Article XI)
Section 1 of Article XI are hereby amended to read as follows:
Section 1. Number of Days Vacation Leave Employees who have rendered at least one year
of continuous service shall be entitled to a vacation leave of ten (10) working days after
each completed year of service.
Sections 1a and 1b are hereby repealed.
H. SICK LEAVE (Article XII)
Section 1a of Article XII is hereby amended to read as follows;
Section 1a. Number of Days Sick Leave Employees shall be granted ten (10) working days
sick leave with pay per year.
Unused sick leave at the end of each year shall be 100% convertible to cash.
I.

EMERGENCY LEAVE (Article XXIII)

The following provisions shall be introduced as Section 6 under Article XXIII of the

CBA:
Article XIII of the CBA on Emergency Leave is hereby expressly repealed.
xxxx
K. AMENDMENTS, DISSEMINATION, DURATION RENEWAL (Article XXVI)
Section 1 of Article XXVI of the CBA shall be amended to read as follows:
Section 1. Effectivity and Duration This Agreement, as amended, shall be in full force and
effect immediately upon its execution by the parties. The Union expressly waives its rights to
renegotiate the wages and all other provisions contained in the Agreement, as amended, for
a period of ten (10) years following the Hotels resumption of operations.
The following provisions shall be introduced under Article XXVI of the CBA as Sections 5 and
6:

Section 5. Separability Clause Should any of the above provisions be hereinafter declared
invalid, the other provisions unaffected thereby shall continue to remain in full force and
effect.
Section 6. Repealing Clause All terms and conditions of the Agreement inconsistent with the
foregoing provisions shall be deemed superseded and repealed by the provisions hereof.
IN WITNESS WHEREOF. The parties have hereunto affixed their signature this on the date and at the
place mentioned above.
[15]

See rollo, pp. 596-770.

[16]

CA rollo, Vol. 1, pp. 110-111.

[17]

Id. at 112.

[18]

Id. at 113- 115.

[19]

Id. at 113.

[20]

Rollo, p. 71.

[21]

CA rollo,Vol. 1, pp. 117-119.

[22]

Id. at 123-125.

[23]

Id. at 123. (Emphasis supplied).

[24]

Id. at 78-82.

[25]

Id. at 251-268.

[26]

Id. at 283-304.

[27]

Id. at 288.

[28]

Id. at 83-88.

[29]

Id. at 88.

[30]

Id. at 317-341.

[31]

Id. at 380-405.

[32]

Id. at 406-424.

[33]

CA rollo, Vol. 2, pp. 620-632.

[34]

Id. at 675.

[35]

Id. at 676-677.

[36]

Id. at 678.

[37]

CA rollo, Vol. 1, pp. 89-100.

[38]

Id. at 100.

[39]

Rollo, pp. 66-82.

[40]

Id. at 81.

[41]

Id. at 84-85.

[42]

Id. at 47-48.

[43]

Id. at 48.

[44]

Id. at 877-906.

[45]

See DOLE Certification dated November 16, 2006, id. at 551.

[46]

CA rollo, Vol. 1, pp. 110-111.

[47]

Id. at 112.

[48]

See Opposition to Motion to Withdraw, CA rollo, Vol. 1, id. at 123-125.

[49]

CA rollo, Vol. 1, p. 87.

[50]

Id. at 88.

[51]

Id. at 113- 115.

[52]

G.R. No. 147406, July 14, 2008, 558 SCRA 63.

[53]

Id. at 81-83.

[54]

G.R. No. 183335, December 23, 2009, 609 SCRA 223.

[55]

Id. at 231-232.

[56]

G.R. No. 157117, November 20, 2006, 507 SCRA 300.

[57]

Id. at 311-312. (Emphasis supplied.)

[58]

Rollo, pp. 77-78.

[59]

Id. at 551.

[60]

See rollo, pp. 25-26.

[61]

Id. at 25. (Emphasis supplied.)

[62]

Id. at 79.

[63]

CA rollo, Vol.1, pp. 343-355.

[64]

2001- P39,495,634.00

2002 - P32,845,995.00
2003 - P23,924,784.00
2004 - P 9,540,927.00
2005 - P 3,330,939.00
See Audited Financial Statements, rollo, pp. 567-594.
[65]

G.R. No. 86200, February 25, 1992, 206 SCRA 497.

[66]

Id. at 501.

[67]

425 Phil. 169 (2002).

[68]

Id. at 182-183. (Emphasis supplied.)

[69]

CA rollo, Vol. 1, p. 279.

[70]

See copies of Reconfirmation of Employment, rollo, pp. 596-770.

[71]

251 Phil. 310 (1989).

[72]

Id. at 322. (Emphasis supplied).

[73]

See Article VII, Section 1 of DIHFEU-NFL Constitution and By-Laws, CA rollo, Vol. 1, p. 271.

[74]

Rollo, p. 595.

[75]

Id. (Emphasis supplied).

[76]

Duncan Association of Detailman-PTGWO v. Glaxo Wellcome Philippines, Inc., 481 Phil. 687, 700 (2004).

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION
DANILO ESCARIO,
PANFILO AGAO,
ARSENIO AMADOR,
ELMER COLICO,
ROMANO DELUMEN,
DOMINADOR AGUILO,
OLYMPIO GOLOSINO,
RICARDO LABAN,
LORETO MORATA,
ROBERTO TIGUE,
GILBERT VIBAR,
THOMAS MANCILLA, JR.,
NESTOR LASTIMOSO,
JIMMY MIRABALLES,
JAILE OLISA, ISIDRO
SANCHEZ, ANTONIO SARCIA,
OSCAR CONTRERAS, ROMEO
ZAMORA, MARIANO GAGAL,
ROBERTO MARTIZANO,
DOMINGO SANTILLICES,
ARIEL ESCARIO, HEIRS OF
FELIX LUCIANO, AND
MALAYANG SAMAHAN NG
MGA MANGGAGAWA SA
BALANCED FOODS,

G.R. No. 160302

Present:

CARPIO MORALES, Chairperson

PERALTA,*
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:

September 27, 2010

Petitioners,
-versus NATIONAL LABOR
RELATIONS COMMISSION
(THIRD DIVISION),
PINAKAMASARAP
CORPORATION,
DR. SY LIAN TIN, AND
DOMINGO TAN,
Respondents.
x-----------------------------------------------------------------------------------------x
DECISION

BERSAMIN, J.:
Conformably with the long honored principle of a fair days wage for a fair days labor,
employees dismissed for joining an illegal strike are not entitled to backwages for the period of
the strike even if they are reinstated by virtue of their being merely members of the striking
union who did not commit any illegal act during the strike.
We apply this principle in resolving this appeal via a petition for review on certiorari of
the decision dated August 18, 2003 of the Court of Appeals (CA), [1] affirming the decision dated
November 29, 2001 rendered by the National Labor Relations Commission (NLRC) directing
their reinstatement of the petitioners to their former positions without backwages, or, in lieu of
reinstatement, the payment of separation pay equivalent to one-half month per year of service.[2]
Antecedents
The petitioners were among the regular employees of respondent Pinakamasarap Corporation
(PINA), a corporation engaged in manufacturing and selling food seasoning. They were
members of petitioner Malayang Samahan ng mga Manggagawa sa Balanced Foods (Union).

At 8:30 in the morning of March 13, 1993, all the officers and some 200 members of the
Union walked out of PINAs premises and proceeded to the barangay office to show support for
Juanito Caete, an officer of the Union charged with oral defamation by Aurora Manor, PINAs

personnel manager, and Yolanda Fabella, Manors secretary.[3] It appears that the proceedings in
the barangay resulted in a settlement, and the officers and members of the Union all returned to
work thereafter.
As a result of the walkout, PINA preventively suspended all officers of
the Union because of the March 13, 1993 incident. PINA terminated the officers of
the Union after a month.
On April 14, 1993, PINA filed a complaint for unfair labor practice (ULP) and damages.
The complaint was assigned to then Labor Arbiter Raul Aquino, who ruled in his decision
dated July 13, 1994 that the March 13, 1993 incident was an illegal walkout constituting ULP;
and that all the Unions officers, except Caete, had thereby lost their employment.[4]
On April 28, 1993, the Union filed a notice of strike, claiming that PINA was guilty of
union busting through the constructive dismissal of its officers. [5] On May 9, 1993,
the Union held a strike vote, at which a majority of 190 members of the Union voted to strike.
[6]
The strike was held in the afternoon of June 15, 1993.[7]
PINA retaliated by charging the petitioners with ULP and abandonment of work, stating
that they had violated provisions on strike of the collective bargaining agreement (CBA), such
as: (a) sabotage by the insertion of foreign matter in the bottling of company products; (b)
decreased production output by slowdown; (c) serious misconduct, and willful disobedience and
insubordination to the orders of the Management and its representatives; (d) disruption of the
work place by invading the premises and perpetrating commotion and disorder, and by causing
fear and apprehension; (e) abandonment of work since June 28, 1993 despite notices to return to
work individually sent to them; and (f) picketing within the company premises on June 15, 1993
that effectively barred with the use of threat and intimidation the ingress and egress of PINAs
officials, employees, suppliers, and customers. [8]
On September 30, 1994, the Third Division of the National Labor Relations Commission
(NLRC) issued a temporary restraining order (TRO), enjoining the Unions officers and
members to cease and desist from barricading and obstructing the entrance to and exit from
PINAs premises, to refrain from committing any and all forms of violence, and to remove all
forms of obstructions such as streamers, placards, or human barricade.[9]
On November 29, 1994, the NLRC granted the writ of preliminary injunction.[10]
On August 18, 1998, Labor Arbiter Jose G. de Vera (LA) rendered a decision, to wit:

WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
declaring the subject strike to be illegal.
The complainants prayer for decertification of the respondent union being outside of the
jurisdiction of this Arbitration Branch may not be given due course.
And finally, the claims for moral and exemplary damages for want of factual basis are dismissed.
SO ORDERED.[11]

On appeal, the NLRC sustained the finding that the strike was illegal, but reversed the
LAs ruling that there was abandonment, viz:
However, we disagree with the conclusion that respondents union members should be
considered to have abandoned their employment.
Under Article 264 of the Labor Code, as amended, the union officers who knowingly
participate in the illegal strike may be declared to have lost their employment status. However,
mere participation of a union member in the illegal strike does not mean loss of employment
status unless he participates in the commission of illegal acts during the strike. While it is true
that complainant thru individual memorandum directed the respondents to return to work (pp.
1031-1112, Records) there is no showing that respondents deliberately refused to return to work.
A worker who joins a strike does so precisely to assert or improve the terms and conditions of his
work. If his purpose is to abandon his work, he would not go to the trouble of joining a strike
(BLTB v. NLRC, 212 SCRA 794).
WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED in
that complainant company is directed to reinstate respondents named in the complaint to their
former positions but without backwages. In the event that reinstatement is not feasible
complainant company is directed to pay respondents separation pay at one (1/2) half month per
year of service.
SO ORDERED.[12]

Following the denial of their motion for reconsideration, the petitioners assailed the
NLRCs decision through a petition for certiorari in the Court of Appeals (CA), claiming that
the NLRC gravely abused its discretion in not awarding backwages pursuant to Article 279 of
the Labor Code, and in not declaring their strike as a good faith strike.
On August 18, 2003, the CA affirmed the NLRC. [13] In denying the petitioners claim for
full backwages, the CA applied the third paragraph of Article 264(a) instead of Article 279 of
the Labor Code, explaining that the only instance under Article 264 when a dismissed employee
would be reinstated with full backwages was when he was dismissed by reason of an illegal
lockout; that Article 264 was silent on the award of backwages to employees participating in a
lawful strike; and that a reinstatement with full backwages would be granted only when the
dismissal of the petitioners was not done in accordance with Article 282 (dismissals with just
causes) and Article 283 (dismissals with authorized causes) of the Labor Code.

The CA disposed thus:[14]

WHEREFORE, premises considered, the Petition is DISMISSED for lack of merit and the
assailed 29 November 2001 Decision of respondent Commission in NLRC NRC CA No.
009701-95 is hereby AFFIRMED in toto. No costs.
SO ORDERED.[15]

On October 13, 2003, the CA denied the petitioners motion for reconsideration.[16]
Hence, this appeal via petition for review on certiorari.
Issue
The petitioners posit that they are entitled to full backwages from the date of dismissal until the
date of actual reinstatement due to their not being found to have abandoned their jobs. They
insist that the CA decided the question in a manner contrary to law and jurisprudence.
Ruling
We sustain the CA, but modify the decision on the amount of the backwages in order to
accord with equity and jurisprudence.
I
Third Paragraph of Article 264 (a),
Labor Code, is Applicable

The petitioners contend that they are entitled to full backwages by virtue of their
reinstatement, and submit that applicable to their situation is Article 279, not the third paragraph
of Article 264(a), both of the Labor Code.
We do not agree with the petitioners.
Article 279 provides:
Article 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 isunjustly 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.

By its use of the phrase unjustly dismissed, Article 279 refers to a dismissal that is
unjustly done, that is, the employer dismisses the employee without observing due process,
either substantive or procedural. Substantive due process requires the attendance of any of the
just or authorized causes for terminating an employee as provided under Article 278
(termination by employer), or Article 283 (closure of establishment and reduction of personnel),
or Article 284 (disease as ground for termination), all of the Labor Code; while procedural due
process demands compliance with the twin-notice requirement.[17]
In contrast, the third paragraph of Article 264(a) states:
Art. 264. Prohibited activities. (a) xxx
Any worker whose employment has been terminated as a consequence of an unlawful
lockout shall be entitled to reinstatement with full backwages. 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.
xxx

Contemplating two causes for the dismissal of an employee, that is: (a) unlawful lockout;
and (b) participation in an illegal strike, the third paragraph of Article 264(a) authorizes the
award of full backwages only when the termination of employment is a consequence of an
unlawful lockout. On the consequences of an illegal strike, the provision distinguishes between
a union officer and a union member participating in an illegal strike. A union officer who
knowingly participates in an illegal strike is deemed to have lost his employment status, but a
union member who is merely instigated or induced to participate in the illegal strike is more
benignly treated. Part of the explanation for the benign consideration for the union member is
the policy of reinstating rank-and-file workers who are misled into supporting illegal strikes,
absent any finding that such workers committed illegal acts during the period of the illegal
strikes.[18]
The petitioners were terminated for joining a strike that was later declared to be illegal.
The NLRC ordered their reinstatement or, in lieu of reinstatement, the payment of their
separation pay, because they were mere rank-and-file workers whom the Unions officers had
misled into joining the illegal strike. They were not unjustly dismissed from work. Based on the
text and intent of the two aforequoted provisions of the Labor Code, therefore, it is plain that
Article 264(a) is the applicable one.
II

Petitioners not entitled to backwages

despite their reinstatement:
A fair days wage for a fair days labor

The petitioners argue that the finding of no abandonment equated to a finding of illegal
dismissal in their favor. Hence, they were entitled to full backwages.
The petitioners argument cannot be sustained.
The petitioners participation in the illegal strike was precisely what prompted PINA to
file a complaint to declare them, as striking employees, to have lost their employment status.
However, the NLRC ultimately ordered their reinstatement after finding that they had not
abandoned their work by joining the illegal strike. They were thus entitled only to
reinstatement, regardless of whether or not the strike was the consequence of the employers
ULP,[19] considering that a strike was not a renunciation of the employment relation.[20]
As a general rule, backwages are granted to indemnify a dismissed employee for his loss
of earnings during the whole period that he is out of his job. Considering that an illegally
dismissed employee is not deemed to have left his employment, he is entitled to all the rights
and privileges that accrue to him from the employment.[21] The grant of backwages to him is in
furtherance and effectuation of the public objectives of the Labor Code, and is in the nature of a
command to the employer to make a public reparation for his illegal dismissal of the employee
in violation of the Labor Code.[22]
That backwages are not granted to employees participating in an illegal strike simply
accords with the reality that they do not render work for the employer during the period of the
illegal strike.[23] According to G&S Transport Corporation v. Infante:[24]
With respect to backwages, the principle of a fair days wage for a fair days labor remains as
the basic factor in determining the award thereof. If there is no work performed by the
employee there can be no wage or pay unless, of course, the laborer was able, willing and
ready to work but was illegally locked out, suspended or dismissed or otherwise illegally
prevented from working. xxx In Philippine Marine Officers Guild v. Compaia Maritima, as
affirmed in Philippine Diamond Hotel and Resort v. Manila Diamond Hotel Employees Union,
the Court stressed thatfor this exception to apply, it is required that the strike be legal, a
situation that does not obtain in the case at bar. (emphasis supplied)

The petitioners herein do not deny their participation in the June 15, 1993 strike. As such, they
did not suffer any loss of earnings during their absence from work. Their
reinstatement sans backwages is in order, to conform to the policy of a fair days wage for a fair
days labor.

Under the principle of a fair days wage for a fair days labor, the petitioners were not
entitled to the wages during the period of the strike (even if the strike might be legal), because
they performed no work during the strike. Verily, it was neither fair nor just that the dismissed
employees should litigate against their employer on the latters time. [25]Thus, the Court deleted
the award of backwages and held that the striking workers were entitled only to reinstatement
in Philippine Diamond Hotel and Resort, Inc. (Manila Diamond Hotel) v. Manila Diamond
Hotel Employees Union,[26] considering that the striking employees did not render work for the
employer during the strike.
III
Appropriate Amount for Separation Pay
Is One Month per Year of Service

The petitioners were ordered reinstated because they were union members merely
instigated or induced to participate in the illegal strike. By joining the strike, they did not
renounce their employment relation with PINA but remained as its employees.
The absence from an order of reinstatement of an alternative relief should the employer
or a supervening event not within the control of the employee prevent reinstatement negates the
very purpose of the order. The judgment favorable to the employee is thereby reduced to a mere
paper victory, for it is all too easy for the employer to simply refuse to have the employee back.
To safeguard the spirit of social justice that the Court has advocated in favor of the working
man, therefore, the right to reinstatement is to be considered renounced or waived only when
the employee unjustifiably or unreasonably refuses to return to work upon being so ordered or
after the employer has offered to reinstate him.[27]
However, separation pay is made an alternative relief in lieu of reinstatement in certain
circumstances, like: (a) when reinstatement can no longer be effected in view of the passage of
a long period of time or because of the realities of the situation; (b) reinstatement is inimical to
the employers interest; (c) reinstatement is no longer feasible; (d) reinstatement does not serve
the best interests of the parties involved; (e) the employer is prejudiced by the workers
continued employment; (f) facts that make execution unjust or inequitable have supervened; or
(g) strained relations between the employer and employee.[28]
Here, PINA manifested that the reinstatement of the petitioners would not be feasible
because: (a) it would inflict disruption and oppression upon the employer; (b) petitioners [had]
stayed away for more than 15 years; (c) its machines had depreciated and had been replaced

with newer, better ones; and (d) it now sold goods through independent distributors, thereby
abolishing the positions related to sales and distribution.[29]
Under the circumstances, the grant of separation pay in lieu of reinstatement of the
petitioners was proper. It is not disputable that the grant of separation pay or some other
financial assistance to an employee is based on equity, which has been defined as justice outside
law, or as being ethical rather than jural and as belonging to the sphere of morals than of law.
[30]
This Court has granted separation pay as a measure of social justice even when an employee
has been validly dismissed, as long as the dismissal has not been due to serious misconduct or
reflective of personal integrity or morality.[31]
What is the appropriate amount for separation pay?
In G & S Transport,[32] the Court awarded separation pay equivalent to one month salary
per year of service considering that 17 years had passed from the time when the striking
employees were refused reinstatement. In Association of Independent Unions in the Philippines
v. NLRC,[33] the Court allowed separation pay equivalent to one month salary per year of service
considering that eight years had elapsed since the employees had staged their illegal strike.
Here, we note that this case has dragged for almost 17 years from the time of the illegal
strike. Bearing in mind PINAs manifestation that the positions that the petitioners used to hold
had ceased to exist for various reasons, we hold that separation pay equivalent to one month per
year of service in lieu of reinstatement fully aligns with the aforecited rulings of the Court on
the matter.
WHEREFORE, we affirm the decision dated August 18, 2003 of the Court of Appeals,
subject to the modification to the effect that in lieu of reinstatement the petitioners are granted
backwages equivalent of one month for every year of service.
SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice
WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

DIOSDADO M. PERALTA MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

C E R T I F I C AT I O N

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

RENATO C. CORONA
Chief Justice

Additional member per Special Order No. 885 dated September 1, 2010.
Rollo, pp. 26-37; penned by Associate Justice Andres B. Reyes, Jr. (now Presiding Justice of the Court of Appeals), with Associate
Justices Eubolo G. Verzola (deceased) and Regalado E. Maambong (retired), concurring.
[2]
Id., pp. 42-51.
[3]
Id., p. 46.
[4]
Id., p. 47.
[5]
Id.
[6]
Id.
[7]
Id.; the date appears as June 23, 1993 in page 4 of the petition for review on certiorari.
[8]
Id., p. 45.
[9]
Id., p. 47.
[10]
Id.
[11]
Id., p. 32.
[12]
Id., pp. 50-51.
[13]
Id., pp. 26-37; penned by Associate Justice Andres B. Reyes, Jr. (now Presiding Justice), and concurred in by Associate Justice
Eubolo G. Verzola (now deceased) and Associate Justice Regalado E. Maambong (now retired).
[14]
Id.
[15]
Id., p. 37.
[16]
Id., pp. 39-40.
[17]
Chan, Law on Labor Relations and Termination of Employment Annotated, 1996, pp. 604-614.
[18]
Stamford Marketing Corporation v. Julian, G.R. No. 145496, February 24, 2004, 423 SCRA 633, 648; Gold City Integrated Port
Service v. National Labor Relations Commission, G.R. Nos. 103560 and 103599, July 6, 1995, 245 SCRA 628.
[19]
Cromwell Commercial Employees and Laborers Union (PTUC) v. Court of Industrial Relations, G.R. No. L-19778, September 30,
1964, 12 SCRA 124; Phil. Steam Navigation Co. v. Phil. Marine Officers Guild, G.R. Nos. L-20667 and L-20669,October 29, 1965,
15 SCRA 174.
[20]
Feati University v. Bautista, G.R. No. L-21278, December 27, 1966, 18 SCRA 1191, 1224; Rex Taxicab v. Court of Industrial
Relations, 70 Phil 621, 631; Radio Operators v. PHILMAROA, 102 Phil 530.
[21]
Gold City Integrated Port Services, Inc. v. National Labor Relations Commission, 245 SCRA 628 and Cristobal v. Melchor, 101
SCRA 857.
[22]
Imperial Textile Mills, Inc. v. National Labor Relations Commission, G.R. No. 101527, January 19, 1993, 217 SCRA 237, 247.
[23]
Lapanday Workers Union v. National Labor Relations Commission, G.R. Nos. 95494-97, September 7, 1995, 248 SCRA 95, 107.
[24]
G.R. No. 160303, September 13, 2007, 533 SCRA 288, 301-302.
[25]
Sugue v. Triumph International (Phils.) Inc., G.R. Nos. 164804 and 164784, January 30, 2009, 577 SCRA 323; Social Security
System v. SSS Supervisors Union, G.R. No. L-31832, October 23, 1982, 117 SCRA 746; J. P. Heilbronn Co. v. Natl Labor Union, 92
Phil. 575 (1953).
[26]
G.R. No. 158075, June 30, 2006, 494 SCRA 195.
[27]
Salvador v. Court of Appeals (Special Sixth Division), G.R. No. 127501, May 5, 2000, 331 SCRA 438, 445; East Asiatic Company,
Ltd. v. Court of Industrial Relations, G.R. No. L-29068, 40 SCRA 521, 537-538.
[28]
Poquiz, Labor Relations Law with Notes and Cases Volume II (2006), p. 319, citing Manipon, Jr. v. National Labor Relations
Commission, G.R. No. 105338, December 24, 1994, 239 SCRA 451.
[29]
Private Respondents Manifestation dated January 19, 2009 (pp. 3-4). Rollo, pp. 121-122.
[30]
Salavarria v. Letran College, G.R. No. 110396, September 25, 1998, 296 SCRA 184, 191; Phil. Long Distance Telephone Co. v.
National Labor Relations Commission, G.R. No.L-80609, August 23, 1988, 164 SCRA 671, 682.
[31]
Philippine Commercial International Bank v. Abad, G.R. No. 158045, February 28, 2005, 452 SCRA 579, 587; Gustilo v. Wyeth
Philippines Inc., G.R. No. 149629, October 4, 2004, 440 SCRA 67, 76; Gabuay v. Oversea Paper Supply, Inc., G.R. No. 148837,
August 13, 2004, 436 SCRA 514.
[1]

[32]

Supra at note 24, p. 304; See also Philippine Diamond Hotel and Resort, Inc. (Manila Diamond Hotel) v. Manila Diamond Hotel
Employees Union, supra at note 26, p. 217.
[33]
G.R. No. 120505, March 25, 1999, 305 SCRA 219,235.

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION

PHILIPPINE
INC.,

AIRLINES,
G.R. No. 123294

Petitioner,
Present:

CORONA, C.J.,
Chairperson,

- versus -

VELASCO, JR.,
LEONARDO-DE
CASTRO,
DEL CASTILLO, and
NATIONAL
LABOR
RELATIONS
COMMISSION
and AIDA M. QUIJANO,

PEREZ, JJ.

Promulgated:

Respondents.
October 20, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Certiorari under Rule 65 of the Rules of Court

seeking to annul, reverse and set aside the following issuances of public

respondent
National
Labor
Relations
Commission
(NLRC): (1)
[1]
Decision dated September 29, 1995 in NLRC NCR CA 007860-94 (NLRC
NCR 00-03-01859-91), entitled Aida M. Quijano v. Philippine Airlines, Inc.,
which set aside the Decision[2] of Labor Arbiter Roberto I. Santos and
ordered petitioner Philippine Airlines, Inc. (PAL) to pay private respondent
Aida M. Quijano (Quijano) her separation pay in accordance with petitioners
Special Retirement & Separation Program, and (2) Resolution [3] dated
November 14, 1995 denying petitioners Motion for Reconsideration thereof.

It bears stressing that pursuant to St. Martin Funeral Home v. National

Labor Relations Commission[4] and In Re: Dismissal of Special Civil Actions in
NLRC Cases,[5]all special civil actions arising out of any decision, final
resolution or order of the NLRC must be filed with the Court of
Appeals. However, since both parties of this case had filed their respective
Memoranda prior to the promulgation of our decision in St. Martin Funeral
Home, this case was no longer referred to the Court of Appeals.

The following are the pertinent facts, as summarized by the NLRC:

Complainant Quijano rose from the ranks starting as accounting clerk in

December 1967 until she became effective September 1, 1984, Manager-Agents
Services Accounting Division (ASAD), vice Josefina Sioson.

ASAD, the specific unit in PAL charged with the processing, verification,
reconciliation, and validation of all claims for commission filed by agents worldwide,
is under the direct supervision and control of the Vice President-Comptroller, and
within the scope of the audit program of the Vice President-Internal Audit & Control.

On May 5, 1989, an investigating committee chaired by Leslie W. Espino

(hereinafter referred to as the Espino Committee) formally charged Quijano as
Manager-ASAD in connection with the processing and payment of commission
claims to Goldair Pty. Ltd. (Goldair for short) wherein PAL overpaid commissions to
the latter amounting to several million Australian dollars during the period 19841987. Specifically, Quijano was charged as Manager-ASAD with the following:

Failure on the job and gross negligence resulting in loss of trust

and confidence in that you failed to:

a.
Exercise the necessary monitoring, control and supervision
over your Senior Accounts Analyst to ensure that the latter was
performing the basic duties and responsibilities of her job in checking
and verifying the correctness and validity of the commission claims
from Goldair.

b.
Adopt and perform the necessary checks and verification
procedures as demanded by your position in order to ensure that the
commission claims of Goldair which you were approving for payment
were correct and valid claims thus resulting in consistent substantial
overpayments to Goldair over a period of more than three years.

c.
Require or otherwise cause a final reconciliation of the
remaining balance due as commission claims to Goldair for a particular
month such that a claim for a particular month was never liquidated in
a final amount and thus contributing to consistent overpayments to
Goldair.

The Senior Accounts Analyst referred to in the charge was Dora Jane Prado
Curammeng who was included as a respondent. Curammeng was specifically
assigned to handle and process commissions of agents in, among others, the
Australia Region, and Goldair was among the travel agents whose production
reports and commission claims were handled by her. Curammeng was accused of
failing to verify the completeness of the documents supporting the claims; to trace
and match each ticket in the production report submitted by Goldair with the IATA,
BSP and CTO sales report; and to perform a complete verification of the net/net
amounts claimed in the production reports against the approved marketing
arrangements. However, Curammeng had already resigned and became a resident
of Canada at the time of the investigation conducted by the Espino Committee.

Pending further investigation, the Espino Committee placed Quijano under

preventive suspension and at the same time required her to submit her answer to
the charges. As directed, Quijano submitted her answer wherein, among others, she
explained as follows:

My staff processes production reports submitted by both

passenger and cargo agents. In 1984, they were only seven (7) people
(with one on loan to Financial Analysis Division) and yet they process
commission claims of an average of PHP four billion annually. My
colleagues who are responsible for processing and recording gross
passenger and cargo sales have around 51 people. Just the ratio of my

staff to accounting sales staff, which is one to seven, would indicate

the heavy load our unit experience.

I wish to emphasize however, that the staff assigned under my

division have been selected on the basis of their judgment competence
considering the very nature of marketing arrangements with agents
are strictly private and confidential. Under the circumstances I have
just mentioned, my staffs judgment and competence is heavily relied
on particularly when random checking of commission claims for traffic
documents and airway bills against sales reports is being performed by
them. I also seek your appreciation of the work environment we are in
and the intermittent conflicts we experience due to the pressure of
prompt settlement of claims to agents and yet having the satisfaction
that the processing procedures are adequate.

xxxx

May I reiterate to the Committee that when my staff informed

me of their findings of double claims on the production reports for the
months of October and November 1987, I followed this up with a
representative of Goldair. On June 1988, I received a handwritten note
from the representative of Goldair signed by its General Manager Aleco
Papazoglou, a xerox copy of it is hereto attached as Annex A. Mr.
Papazoglou, in this note, guaranteed to me that he will undertake to
collect any excessive payments on the agent fees from his agents and
pay these to us afterwards.

At this point, I would like to emphasize that ASAD, before known

as Confidential Staff under the Office of the VP-Comptroller, became a
unit since 1976. Due to the confidential nature of its functions, the
accounting procedures were not written. The procedures being
performed by the staff were mainly practices handed down from their
predecessors. Further, the procedures were tailored to adopt to the
market environment of the country which were based on the approved
marketing arrangements. But of course, there were inherent internal
controls.

A final check whether accounting procedures being observed

were appropriate in accordance with accounting standards, is the
periodic examination of both our internal and external auditors.

During all these 4-1/2 years I have been with ASAD, I did not
receive any feedback that there were weaknesses or lapses in
accounting controls and procedures being followed.

In 1985, Cressop Mccormick & Paget made a study of the CMAs.

They conducted an interview of all key personnel including me who
were involved in handling CMAs. It was of course necessary for them to
observe and evaluate the existing accounting procedures and controls.
Their report, however, did not mention any adverse findings
concerning my division.

In 1986, Sycip, Gorres, Velayo & Co. were engaged to look into
the CMA functional specifications and to propose the best method of
allocating commission expenses to flown revenues. To be able for them
to render a report, it is, of course, necessary for them to delve into the
reports we receive and the records we maintain. It is safe to surmise
that they walked through our accounting procedures. No mention,
however, of weaknesses on our accounting procedures and controls
was made in their report.

Again, during the early part of 1987, all the production reports
from Australia for the period April to September 1986 were borrowed
and audited by Internal Audit and control. We apprised the auditor then
of the various procedures we observed in processing these production
reports. We did not receive any adverse feedback about their audit.
Our confidence that the AMAs were properly enforced by Australian
agents and that there were no irregularities committed were thus
regained. We shifted our concentration to the other agents particularly
those under Nett-Nett settlement arrangements and tried to recall any
commission that should be disallowed.

In the middle of 1987, a special team from the Commission on

Audit conducted a fraud audit and again, interviewed my staff and I on
our accounting procedures. Incentive commission figures by agent by
country were also furnished to them. I wasnt informed of any flaws in
our accounting procedures and control nor existence of any fraud.

My division underwent scrutiny of three (3) prestigious

consulting firms and of our own internal audit. I relied heavily on the
absence of any unfavorable findings on accounting procedures and
controls from them since their studies were quite extensive and
lengthy. It is quite surprising at times why I am now asked how I could

have failed to observe that certain accounting procedures were not

being followed by my staff.

xxxx

Also, Internal Audit & Control made a regular audit in Australia in

November, 1986 headed by no less than the Vice President-Internal
Audit & Control. They did not discover any fraud nor report any
questionable transaction on Passenger but on Cargo transaction only. If
they, the auditors, did not find any discrepancy when their
concentration is on Australia alone, how much more with us when our
concentration is on the whole system? The production reports of
Goldair was borrowed and assessed by the auditor before and after the
regular audit.

The other members of the Espino Committee were Ricardo G. Paloma, then
Senior Vice President-Strategic Planning & Corporate Services wrote a dissenting
opinion to the Final Draft Majority Report in the following manner, to wit:

A new set of procedures was apparently installed by Romeo Ines

and Josefina Sioson in April, 1984 (without any evident formal
authorization by the Comptroller Dept.) upon receipt of Aleco
Papazoglous letter that automatic payment be made upon presentation
of his production reports in Manila Gold Air gained immunity against
any possibility of cross of their production reports: it was simply
impossible to cross check the production reports against sales reports
are not yet in by the time the hand carried production reports arrive in
ASAD.

Upon assumption of office by Aida Quijano this new set of

procedure was carried over. She was made to understand that these
were the OFFICIAL PROCEDURES, contrary to the actual procedure
which called for production reports being initially checked by PAL
Melbourne during the 1981 to 1983 period. This initial check which had
until them been handled by the Regional Office was combined with the
secondary check and were all dumped on ASAD.

A mitigating factor in Quijanos favor is that UNSEEN HANDS

designed or allowed this new procedures to be put in place. Ines, who
became the VP Internal Audit should have known the prescribed

procedures (or at the very least the actual practice during the period
1981 to 1983 when he was the VP Comptroller) and yet, did not alert
her. Unknowingly, Quijano allowed the by-pass and the automatic
payment of 80% upon presentation of production reports because
Sioson assured her that was the procedure previously followed.
Trustingly, she became a participant in this mess.

It should be noted that the Romeo Ines mentioned in the dissenting opinion is
the same Romeo R. Ines who was one of the members of the Espino Committee and
who was later named a respondent in the second Goldair charge, together with
Chairman Espino. Romeo R. Ines was the VP-Comptroller for the period 1981-1983
and VP-Internal Audit for the period 1984-1987. While Josefina Sioson, as earlier
shown, was the Manager-ASAD during the period 1981-1983 until she was replaced
by Quijano on September 1, 1984. Incidentally, as found by respondents witness
Benigno Datoc, the Goldair fraud started in 1981 and continued until its discovery
sometime in the latter part of 1987. And as of that year, Goldair had been PALs
agent for about seventeen (17) years already.

On July 2, 1990, another Administrative charge involving the same Goldair

anomaly was filed, this time including Committee Chairman Leslie W. Espino and
Committee Member Romeo R. Ines and several others, for gross incompetence and
inefficiency, negligence, imprudence, mismanagement, dereliction of duty, failure to
observe and/or implement administrative and executive policies, and related acts or
omissions. Pending the result of investigation by another committee chaired by
Judge Martin S. Ocampo, the PAL Board of Directors suspended respondents Leslie
W. Espino, Executive Vice-President and Chief Operating Officer; Ramon C. Lozon,
Senior Vice-President-Finance; Romeo R. Ines, Vice President-Internal Audit &
Control; Josefina Sioson, Manager-Staff Pricing; except respondents VP-Comptroller
Robin C. Dui and Manager-ASAD Aida Quijano who were already suspended by the
Espino Committee, and respondent Juan Yoga, former Regional Vice PresidentAustralia who has already retired.

Meantime, PAL filed a civil case in Australia against Goldair seeking to recover
AUD 11 million. Twice, Quijano went to Australia as witness for PAL. Thereafter, a
settlement was reached whereby Goldair was to pay PAL a total of around AUD 7
million inclusive of court costs. A criminal case was nevertheless filed against
Goldairs owner, Alexandro Papazoglou, by the Fraud Squad Victorian Police.

The Ocampo Committee having submitted its findings to the PAL Board of
Directors, the latter, in a resolution dated January 18, 1991, considered respondents
Leslie W. Espino, Ramon C. Lozon, Romeo R. Ines, Robin C. Dui, Josefina Sioson, and
Aida M. Quijano, resigned from the service effective immediately, for loss of
confidence and for acts inimical to the interest of the company.

The Board found as follows:

This is the extended Resolution.

The Goldair fraud has caused a total loss to PAL as of August

1990 in the amount of AUD 14.6 million (PHP 204 million). Goldair is a
company that served then as the General Sales Agent of PAL in
Australia against Goldair, a settlement was reached whereby Goldair
was to pay PAL a total of around AUD 7 million inclusive of court costs.
This settlement is said to be the most practical and realistic under the
circumstances. A criminal case was nevertheless filed against Goldairs
owner, Alexandro Papazoglou, by the Fraud Squad Victorian Police.
Hearings are still going on.

According to the evidence received and evaluated by the

investigating committee, PAL lost the above huge sum of money to
Goldair as a result of false, padded, erroneous or irregular claims for
commissions submitted by Goldair and unwittingly paid by PAL. The
Agents Services Accounting Division (ASAD), one of the divisions under
the Comptroller Department, is the specific unit in the company
charged with the processing, verification, and validation of all claims
for commissions filed by the companys agents worldwide (excluding
the U.S. which is processed by the San Francisco Regional Office).
Consequently, responsibility for the Goldair fraud has been attributed
mainly to the failure of ASAD to properly process and validate Goldairs
commission claims prior to payment.

Thus, the following lapses or irregularities were uncovered in the

course of the investigations that have been conducted:

1.
No adequate effort was exerted to see to it that the
supporting documents (photocopies of tickets submitted and attached
to the production report were complete). Neither was a verification or
comparison made between the tickets and the production report.

2.
The simple and basic step of verifying the names of the
passengers and their ticket numbers against ticket numbers, even on a
check basis, to see whether they were reported more than once was

not accomplished. If done, double or multiple reporting of tickets could

have been readily detected.

3.
Validation of the correctness of prorate values, by performing
the proration, was not undertaken.

4.
No reconciliation was made of all the amounts due the agent
for a particular month. Such reconciliation would have disclosed
whether or not the account for a particular month could be closed.

5.
Production reports were not cross-checked against sales
report or flight coupon registers.

6.
Superiors failed to adequately monitor the activities of their
subordinates to ensure that the latter were performing their duties.

7.
The policy that cash vouchers could be approved only by duly
authorized persons was in several cases violated.

Resolving the case of Quijano, the Board said:

The charge against Ms. Quijano is that:

Quijano was the Manager-ASAD (Agents Services Accounting
Division) in 1984-87, and responsible for the final scrutiny of agents
Production Reports and final recommendation for payment of travel
agents commissions.

As Manager-ASAD from 1984 to 1987 (when the fraud was

discovered), she failed to uncover or detect and report or grossly
disregarded the fraud although the commissions vis--vis production
were scandalously high.

Ms. Quijano claims that she relied heavily on Ms. Curammengs

judgment competence to perform her work, particularly the
completeness of the documents check. She argues that if she were to
do the completeness check herself, there would be no need for the

analyst. This argument, however, wittingly or unwittingly,

misconceives the nature of her job. Precisely, her basic role and duty
as a manager was to make sure that the analysts in her division were
performing the tasks assigned to them. But Ms. Quijano did not see to
it that the completeness check was actually being performed by Ms.
Curammeng. This lapse in control, contributed materially to the double,
multiple and fictitious reporting of tickets, and double claims for
commissions perpetrated by Goldair. Ms. Quijano was certainly not
expected to personally do and perform the completeness check
herself. But as manager, it was clearly incumbent upon her to see to it
that this completeness check was being done by her subordinates
competently and efficiently. Yet, Ms. Quijano even failed to adopt ways
and means of keeping herself sufficiently informed of the activities of
her staff members so as to prevent or at least discover at an early
stage the fraud being perpetrated on a massive scale by Goldair
against her company.

Her incompetence at her job is patent.

Her motion for reconsideration having been denied by the Board in a

Resolution dated February 19, 1991, Quijano filed on March 25, 1991 the instant
case against PAL for illegal suspension and illegal dismissal. [6]

The Labor Arbiter dismissed private respondents complaint in a Decision

dated September 7, 1994, the dispositive portion of which reads:

WHEREFORE, in conformity with the opinion above-expressed, judgment is hereby

rendered dismissing the above-captioned case for lack of merit and, consequently,
the respondent is absolved from any liability. [7]

Undeterred, private respondent filed an appeal before the NLRC which

rendered the assailed Decision dated September 29, 1995, the dispositive
portion of which reads:

WHEREFORE, in view of all the foregoing considerations, the decision appealed from
should be, as it is hereby, VACATED and SET ASIDE and another one entered,

directing the Philippine Airlines, Inc., thru its responsible officials, to pay Aida M.
Quijano her separation pay in accordance with its Special Retirement & Separation
Program dated February 15, 1988, plus ten percent (10%) of the total amount by
way of attorneys fee.[8]

Petitioner filed a Motion for Reconsideration but this was denied by the
NLRC in its Resolution dated November 14, 1995, the dispositive portion of
which reads:

After due consideration of the Motion for Reconsideration filed by respondentappellee on October 20, 1995, from the Decision of September 29, 1995, the
Commission (Second Division) RESOLVED to deny the same for lack of merit. [9]

Hence, this petition for certiorari.

Both parties submitted their respective Memoranda [10] in late 1997,

however, on September 11, 1998, petitioner filed a Motion for Suspension of
Proceedings[11] based on Presidential Decree No. 902-A which reads, in part:

That upon appointment of management committee, rehabilitation receiver, board or

body, pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly.[12] (Underscoring
supplied.)

The said motion referred to an Order [13] dated June 23, 1998 of the
Securities and Exchange Commission (SEC) which appointed an Interim
Rehabilitation Receiver for petitioner pursuant to Presidential Decree No.
902-A that was followed by the issuance of another Order [14] dated July 1,
1998 which commanded that all claims against PAL are deemed suspended.

After hearing both parties on the question of whether or not the Court
should render judgment during the state of suspension of claims, we ruled

in the negative in a Resolution [15] dated September 4, 2000, the dispositive

portion of which reads:
IN VIEW THEREOF, the Motion for Suspension of Proceedings of petitioner is
GRANTED.[16]

Private respondent filed a Motion for Reconsideration [17] on October 3,

2000 of the above Resolution but we denied the same in a
Resolution[18] dated November 13, 2000.

Since then petitioner was required by this Court to submit periodic

status reports on the rehabilitation proceedings, the last of which was dated
October 22, 2007,[19]declaring that the petitioners request to exit from
rehabilitation had been granted by the SEC via an Order[20] issued on
September 28, 2007, the dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, and considering PALs firm

commitment to settle its outstanding obligations as well as the fact that its
operations and its financial condition have beennormalized and stabilized in
conformity with the Amended and Restated Rehabilitation Plan exemplifying a
successful corporate rehabilitation, the PALs request to exit from rehabilitation is
herebyGRANTED.

The PRR is likewise directed to furnish all creditors and parties concerned
with copies of this Order at the expense of the Petitioner and submit proof of service
thereof to the Commission, within fifteen (15) days from date of receipt of this
Order.[21]

Considering the foregoing and the fact that both parties have long
submitted their respective Memoranda in the instant case, private
respondent filed a Motion to Resume Proceedings and to Render
Judgment[22] on December 11, 2007. In compliance with this Courts
Resolution[23] dated January 21, 2008 requiring petitioner to comment on
private respondents motion, petitioner filed a Comment/Manifestation [24] on
February 28, 2008 which confirmed that with the issuance of the Securities

and Exchange Commissions September 28, 2007 Order granting PALs

request to exit from rehabilitation, there is no longer any legal impediment
to the resumption of the instant proceedings.

In the instant petition, petitioner puts forward a singular argument, to

wit:

ASSUMING
ARGUENDO
(WITHOUT
ADMITTING)
THAT
THE
EQUITABLE
CONSIDERATIONS CITED BY THE NLRC DID EXIST, THE SAME CANNOT JUSTIFY THE
AWARD OF SEPARATION PAY TO MRS. QUIJANO (despite the finding that she was
legally suspended and thereafter legally dismissed) IN THE FACE OF
OVERWHELMING EVIDENCE SUBMITTED BY PETITIONER WHICH CLEARLY SHOW THAT
PHILIPPINE AIRLINES, INC. LOST SEVERAL MILLION AUSTRALIAN DOLLARS AS A
RESULT OF THE FRAUD COMMITTED BY GOLDAIR AND THAT SAID FRAUD COULD
ONLY HAVE BEEN MADE POSSIBLE BY MRS. QUIJANOS PATENT MISMANAGEMENT
AND GROSS INCOMPETENCE AS ASAD MANAGER IN FAILING TO DETECT THE
IRREGULARITY. IN AWARDING SEPARATION PAY TO MRS. QUIJANO, THE NLRC
COMMITTED A GRAVE ABUSE OF ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION.[25]

We affirm the NLRC ruling with modification.

At the onset, it should be noted that the parties do not dispute the
validity of private respondents dismissal from employment for loss of
confidence and acts inimical to the interest of the employer. The assailed
September 29, 1995 Decision of the NLRC was emphatic in declaring that it
was not prepared to rule as illegal the preventive suspension and eventual
dismissal from the service of [private respondent] [26] and rightfully so
because the last position that private respondent held, Manager-ASAD
(Agents Services Accounting Division), undeniably qualifies as a position of
trust and confidence.

Loss of confidence as a just cause for termination of employment is

premised from the fact that an employee concerned holds a position of trust
and confidence. This situation holds where a person is entrusted with
confidence on delicate matters, such as the custody, handling, or care and
protection of the employers property. But, in order to constitute a just cause

for dismissal, the act complained of must be work-related such as would

show the employee concerned to be unfit to continue working for the
employer.[27]

The January 18, 1991 Resolution of the PAL Board of Directors, the
relevant portions of which are discussed in the narration of the facts of this
case as culled from the assailed September 29, 1995 NLRC Decision, clearly
laid out the reasons why it considered private respondent along with her
other co-employees in PAL resigned from the service effective immediately
for loss of confidence and for acts inimical to the interest of the company. In
private respondents case, the Resolution underscored her acts of
mismanagement and gross incompetence which made her fail to detect the
irregularities in the Goldair account that resulted in huge financial losses for
petitioner. Admittedly, the said findings are not backed by proof beyond
reasonable doubt but are, nevertheless, given credence since they have
been adopted by both the labor arbiter and the NLRC and are supported by
substantial evidence. As we have consistently held, the degree of proof
required in labor cases is not as stringent as in other types of cases. [28]

As a general rule, employers are allowed a wider latitude of discretion

in terminating the employment of managerial personnel or those who, while
not of similar rank, perform functions which by their nature require the
employers full trust and confidence. This must be distinguished from the
case of ordinary rank and file employees, whose termination on the basis of
these same grounds requires a higher proof of involvement in the events in
question; mere uncorroborated assertions and accusations by the employer
will not suffice.[29]

Having succinctly disposed of the issue of the validity of private

respondents dismissal, we now delve into the true crux of this controversy
which is the legality of the award of separation pay to private respondent
despite having been lawfully terminated for a just cause.

Petitioner argues that, in light of the fact that a just cause forms the
basis for her lawful termination from the job, private respondent is not
entitled to separation pay.Likewise, petitioner insists that even assuming
that the equitable considerations cited by the NLRC did exist, the same
cannot justify the award of separation pay. And, in awarding the same, the
NLRC committed grave abuse of discretion amounting to lack of jurisdiction.

We do not agree.

Grave abuse of discretion is an evasion of a positive duty or a virtual

refusal to perform a duty enjoined by law or to act in contemplation of law
as when the judgment rendered is not based on law and evidence but on
caprice, whim and despotism.[30] This Court holds that the NLRC did not
gravely abuse its discretion in granting separation pay to private respondent
as the same is not characterized by caprice or arbitrariness being rooted in
established jurisprudence.

The language of Article 279 of the Labor Code is pregnant with the
implication that a legally dismissed employee is not entitled to separation
pay, to wit:

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.

However, in exceptional cases, this Court has granted separation pay

to a legally dismissed employee as an act of social justice or based on
equity. 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[31] or would involve moral turpitude. This equitable and
humanitarian principle was first discussed by the Court in the landmark case
of Philippine Long Distance Telephone Co. (PLDT) v. National Labor Relations
Commission,[32] wherein it was held:

Strictly speaking, however, it is not correct to say that there is no express justification for
the grant of separation pay to lawfully dismissed employees other than the abstract consideration
of equity. The reason is that our Constitution is replete with positive commands for the
promotion of social justice, and particularly the protection of the rights of the workers. The
enhancement of their welfare is one of the primary concerns of the present charter. In fact,
instead of confining itself to the general commitment to the cause of labor in Article II on the

Declaration of Principles of State Policies, the new Constitution contains a separate article
devoted to the promotion of social justice and human rights with a separate sub-topic for labor.
Article XIII expressly recognizes the vital role of labor, hand in hand with management, in the
advancement of the national economy and the welfare of the people in general. The categorical
mandates in the Constitution for the improvement of the lot of the workers are more than
sufficient basis to justify the award of separation pay in proper cases even if the dismissal be for
cause.

xxxx
There should be no question that where it comes to such valid but not iniquitous causes as
failure to comply with work standards, the grant of separation pay to the dismissed employee
may be both just and compassionate, particularly if he has worked for some time with the
company. For example, a subordinate who has irreconcilable policy or personal differences with
his employer may be validly dismissed for demonstrated loss of confidence, which is an
allowable ground. A working mother who has to be frequently absent because she has also to
take care of her child may also be removed because of her poor attendance, this being another
authorized ground. It is not the employee's fault if he does not have the necessary aptitude for his
work but on the other hand the company cannot be required to maintain him just the same at the
expense of the efficiency of its operations. He too may be validly replaced. Under these and
similar circumstances, however, the award to the employee of separation pay would be
sustainable under the social justice policy even if the separation is for cause.

But where the cause of the separation is more serious than mere inefficiency, the
generosity of the law must be more discerning. There is no doubt it is compassionate to give
separation pay to a salesman if he is dismissed for his inability to fill his quota but surely he does
not deserve such generosity if his offense is misappropriation of the receipts of his sales. This is
no longer mere incompetence but clear dishonesty. A security guard found sleeping on the job is
doubtless subject to dismissal but may be allowed separation pay since his conduct, while inept,
is not depraved. But if he was in fact not really sleeping but sleeping with a prostitute during his
tour of duty and in the company premises, the situation is changed completely. This is not only
inefficiency but immorality and the grant of separation pay would be entirely unjustified.

We hold that henceforth separation pay shall be allowed as a measure of

social justice only in those instances where the employee is validly dismissed for
causes other than serious misconduct or those reflecting on his moral character.
Where the reason for the valid dismissal is, for example, habitual intoxication or an
offense involving moral turpitude, like theft or illicit sexual relations with a fellow
worker, the employer may not be required to give the dismissed employee

separation pay, or financial assistance, or whatever other name it is called, on the

ground of social justice.[33]

In Toyota Motor Phils. Corp. Workers Association (TMPCWA) v. National

Labor Relations Commission,[34] we clarified that the grant of separation pay
may still be precluded even if the ground for the employees dismissal is not
serious misconduct under Article 282(a) of the Labor Code but other just
causes under the same article and/or other authorized causes provided for
under the Labor Code. However, the TMPCWA case still recognized the
social justice exception prescribed in Philippine Long Distance Telephone
Company. To quote the relevant portions of that decision:

Explicit in PLDT are two exceptions when the NLRC or the courts should not
grant separation pay based on social justiceserious misconduct (which is the first
ground for dismissal under Art. 282) or acts that reflect on the moral character of
the employee. What is unclear is whether the ruling likewise precludes the grant of
separation pay when the employee is validly terminated from work on grounds laid
down in Art. 282 of the Labor Code other than serious misconduct.
A recall of recent cases decided bearing on the issue reveals that when the
termination is legally justified on any of the grounds under Art. 282, separation pay
was not allowed. x x x.
xxxx
In all of the foregoing situations, the Court declined to grant termination pay
because the causes for dismissal recognized under Art. 282 of the Labor Code were
serious or grave in nature and attended by willful or wrongful intent or
they reflected adversely on the moral character of the employees. We
therefore find that in addition to serious misconduct, in dismissals based on other
grounds under Art. 282 like willful disobedience, gross and habitual neglect of duty,
fraud or willful breach of trust, and commission of a crime against the employer or
his family, separation pay should not be conceded to the dismissed employee.
In analogous causes for termination like inefficiency, drug use, and
others, the NLRC or the courts may opt to grant separation pay anchored
on social justice in consideration of the length of service of the employee, the
amount involved, whether the act is the first offense, the performance of the
employee and the like, using the guideposts enunciated in PLDT on the
propriety of the award of separation pay.[35] (Emphases supplied.)

In other words, under the present jurisprudential framework, the

grant of separation pay as a matter of equity to a validly dismissed
employee is not contingent on whether the ground for dismissal is
expressly under Article 282(a) but whether the ground relied upon is akin
to serious misconduct or involves willful or wrongful intent on the part of
the employee.
It, thus, becomes pertinent to examine the ground relied upon for the
dismissal of private respondent and to determine if the special
circumstances described in PLDT are present in the case at bar.

Serious misconduct as a valid cause for the dismissal of an employee is

defined simply as improper or wrong conduct. It is a transgression of some
established and definite rule of action, a forbidden act, a dereliction of duty,
willful in character, and implies wrongful intent and not mere error of
judgment. To be serious within the meaning and intendment of the law, the
misconduct must be of such grave and aggravated character and not
merely trivial or unimportant. However serious such misconduct, it must,
nevertheless, be in connection with the employees work to constitute just
cause for his separation. The act complained of must be related to the
performance of the employees duties such as would show him to be unfit to
continue working for the employer. [36] On the other hand, moral turpitude
has been defined as everything which is done contrary to justice, modesty,
or good morals; an act of baseness, vileness or depravity in the private and
social duties which a man owes his fellowmen, or to society in general,
contrary to justice, honesty, modesty, or good morals. [37]

In the case at bar, the transgressions imputed to private respondent

have never been firmly established as deliberate and willful acts clearly
directed at making petitioner lose millions of pesos. At the very most, they
can only be characterized as unintentional, albeit major, lapses in
professional judgment. Likewise, the same cannot be described as morally
reprehensible actions. Thus, private respondent may be granted separation
pay on the ground of equity which this Court had defined as justice outside
law, being ethical rather than jural and belonging to the sphere of morals
than of law. It is grounded on the precepts of conscience and not on any
sanction of positive law, for equity finds no room for application where there
is law.[38]

A perusal of the assailed September 29, 1995 NLRC Decision would

show that the following equitable considerations were relied upon by the
NLRC to arrive at its assailed ruling, to wit:

a)

The Goldair fraud was found to have started in 1981. Private

respondent became the Manager-ASAD only on September 1,
1984. The former Manager-ASAD from 1981 to August 1984 was
Josefina Sioson.[39]

b)

ASAD is under the direct supervision and control of the Vice

President-Comptroller and within the scope of the audit program
of the Vice President-Internal Audit and Control. The VPComptroller for the period 1981 to 1983 and the VP-Internal Audit
for the period 1984 to 1987 was Romeo Ines.[40]

c)

The accounting procedures and controls inherited by private

respondent when she took over ASAD were subjected to the
scrutiny of prestigious accounting firms like Cressop, McCormick &
Paget in 1985, the Sycip, Gorres, Velayo & Co., Inc. in 1986,
including a special team from the Commission on Audit in 1987 all
of which made no adverse findings concerning ASAD. [41]

d)

No less than the VP-Internal Audit made a regular audit in

Australia in November 1986 and in the early part of 1987, by
borrowing all production reports covering April to September
1986, but found no irregularities nor made any adverse feedback
against ASAD.[42]

e)

Private respondent was the first to discover the overpayment of

commission claims to Goldair in 1984 in rate differences in net/net
settlement which, after her intervention, did not recur. She was
also the one who first discovered the fraud in double and fictitious
commission claims and promptly took action when she withheld
all provisional payments due Goldair. [43]

f)

Even after the Goldair anomaly was discovered, private

respondent could have availed of PALs Special Retirement and
Separation Program, but she stayed put and had gone twice to
Australia, while under preventive suspension, to attend court
proceedings as a witness for petitioner enabling the said company
to recover and minimize its economic loss. [44]

g)

Private respondent has no derogatory record during the entire

period of her employment with petitioner for more than two
decades. She steadily rose from the ranks until she became the
ASAD Manager.[45]

h)

In the dissenting opinion of Ricardo Paloma, Vice Chairman of

the Espino Committee and PAL Senior VP Strategic Planning and
Corporate Service, to the Final Draft Majority Report, he observed
that a mitigating factor in [private respondents] favor is that
UNSEEN HANDS designed or allowed this new procedures to be
put in place. Ines, who became the VP Internal Audit should have
known the prescribed procedures (or at the very least the actual
practice during the period 1981 to 1983 when he was the VP
Comptroller) and yet, did not alert her. Unknowingly, [private
respondent] allowed the by-pass and the automatic payment of
80% upon presentation of production reports because Sioson
assured her that was the procedure previously followed. Trusting,
she became a participant in this mess. [46]

Considering the foregoing uncontroverted special circumstances, we

rule that the NLRC did not commit grave abuse of discretion amounting to
lack of jurisdiction in ordering petitioner to pay private respondent
separation pay for equitable considerations.

However, we do not agree with the NLRC that private respondents

separation pay should be awarded in accordance with PALs Special
Retirement & Separation Program dated February 15, 1988 plus ten percent
(10%) of the total amount by way of attorneys fees.

At the risk of stating the obvious, private respondent was not

separated from petitioners employ due to mandatory or optional retirement

but, rather, by termination of employment for a just cause. Thus, any

retirement pay provided by PALs Special Retirement & Separation Program
dated February 15, 1988 or, in the absence or legal inadequacy thereof, by
Article 287 of the Labor Code[47] does not operate nor can be made to
operate for the benefit of private respondent. Even private respondents
assertion that, at the time of her lawful dismissal, she was already qualified
for retirement does not aid her case because the fact remains that private
respondent was already terminated for cause thereby rendering nugatory
any entitlement to mandatory or optional retirement pay that she might
have previously possessed.

Likewise, attorneys fees are not proper in this case because the same
can only be awarded when the employee is illegally dismissed in bad faith
and is compelled to litigate or incur expenses to protect his rights by reason
of the unjustified act of his employer. [48] The aforementioned conditions do
not obtain in this case.

As to the matter of the proper amount of separation pay to be awarded

to private respondent on the basis of equitable considerations, our
pronouncement in Yrasuegui v. Philippine Airlines, Inc. [49] is instructive, to
wit:

Here, We grant petitioner separation pay equivalent to one-half (1/2) months pay for
every year of service. It should include regular allowances which he might have been receiving.
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.

Private respondents circumstances are more or less identical to the abovecited case in the sense that, as previously discussed, her dismissal was
neither for serious misconduct nor for an offense involving moral turpitude.
Furthermore, her employment with petitioner spanned more than two
decades unblemished with any derogatory record prior to the infractions at
issue in the case at bar.

WHEREFORE, the assailed NLRC Decision dated September 29, 1995

as well as the Resolution dated November 14, 1995 are AFFIRMED with
theMODIFICATION that petitioner Philippine Airlines, Inc. pay private
respondent Aida Quijano one-half (1/2) month salary for every year of
service as separation pay on equitable grounds.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR.

Associate Justice

MARIANO C. DEL
CASTILLO
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

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

RENATO C. CORONA
Chief Justice

[1]

Rollo, pp. 34-52; penned by Commissioner Victoriano R. Calaycay with Presiding Commissioner Raul T. Aquino and
Commissioner Rogelio I. Rayala, concurring.

[2]

Id. at 54-74.

[3]

Id. at 32.

[4]

356 Phil. 811 (1998).

[5]

A.M. No. 99-2-01-SC, February 9, 1999. The pertinent portion of which reads:

In light of the decision in St. Martin Funeral Homes v. NLRC (G.R. No. 130866, 16 September 1998), all special
civil actions arising out of any decision or final resolution or order of the National Labor Relations Commission filed with the
Court after 01 June 1999 shall no longer be referred to the Court of Appeals, but shall forthwith be DISMISSED.

[6]

Rollo, pp. 35-45.

[7]

Id. at 74.

[8]

Id. at 52.

[9]

Id. at 32.

[10]

Id. at 326-350 & 357-368.

[11]

Id. at 381-385.

[12]

Id. at 382.

[13]

Id. at 395-398.

[14]

Id. at 399-400.

[15]

Id. at 437-440.

[16]

Id. at 440.

[17]

Id. at 442-445.

[18]

Id. at 446.

[19]

Id. at 640-642.

[20]

Id. at 643-648.

[21]

Id. at 648.

[22]

Id. at 649-651.

[23]

Id. at 653.

[24]

Id. at 653-655.

[25]

Id. at 22.

[26]

Id. at 51.

[27]

Rentokil (Initial) Philippines, Inc. v. Sanchez, G.R. No. 176219, December 23, 2008, 575 SCRA 324, 333.

[28]

Etcuban, Jr. v. Sulpicio Lines, Inc., G.R. No. 148410, January 17, 2005, 448 SCRA 516, 529.

[29]

Coca-Cola Bottlers Philippines Incorporated v. National Labor Relations Commission, 254 Phil. 771, 778 (1989).

[30]

Ferrer v. Office of the Ombudsman, G.R. No. 129036, August 6, 2008, 561 SCRA 51, 65.

[31]

Yrasuegui v. Philippine Airlines, Inc., G.R. No. 168081, October 17, 2008, 569 SCRA 467, 502.

[32]

247 Phil. 641 (1988).

[33]

Id. at 647-649.

[34]

G.R. Nos. 158786 & 158789, October 19, 2007, 537 SCRA 171.

[35]

Id. at 222-223.

[36]

Lagrosas v. Bristol-Myers Squibb (Phil.), Inc./Mead Johnson Phil., G.R. Nos. 168637 & 170684, September 12, 2008, 565 SCRA
90, 99.

[37]

Soriano v. Dizon, A.C. No. 6792, January 25, 2006, 480 SCRA 1, 9.

[38]

Aparente, Sr. v. National Labor Relations Commission, 387 Phil. 96, 107 (2000).

[39]

Rollo, p. 47.

[40]

Id. at 47-48.

[41]

Id. at 48.

[42]

Id. at 49.

[43]

Id. at 50-51.

[44]

Id. at 51.

[45]

Id. at 50-51.

[46]

Id. at 49.

[47]

Article 287. RETIREMENT. Any employee may be retired upon reaching the retirement age established in the collective bargaining
agreement or other applicable employment contract.

In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and
any collective bargaining agreement and other agreements: Provided, however, That an employees retirement benefits under
any collective bargaining and other agreements shall not be less than those provided herein.
In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee
upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the
compulsory retirement age, who has served at least five (5) years in the said establishment may retire and shall be entitled to
retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months
being considered as one whole year.
Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one twelfth
(1/12) of the 13th-month pay and the cash equivalent of not more than five (5) days of service incentive leaves.
An underground mining employee upon reaching the age of fifty (50) years or more, but not beyond sixty (60) years which is hereby
declared the compulsory retirement age for underground mine workers, who has served at least five (5) years as underground

mine worker, may retire and shall be entitled to all the retirement benefits provided for in this Article. (R.A. No. 8558,
approved on February 26, 1998.)
Retail, service and agricultural establishments or operations employing not more than ten (10) employees or workers are exempted
from the coverage of this provision.
Violation of this provision is hereby declared unlawful and subject to the penal provisions provided under Article 288 of this Code.
[48]

Pepsi Cola Products Philippines, Inc. v. Santos, G.R. No. 165968, April 14, 2008, 551 SCRA 245, 253.

[49]

Supra note 31 at 502, citing Aparente, Sr. v. National Labor Relations Commission, supra note 34; Planters Products, Inc. v.
National Labor Relations Commission, G.R. No. 78524, January 20, 1989, 169 SCRA 328; Insular Life Assurance Co., Ltd.
v. National Labor Relations Commission, 240 Phil. 703 (1987); Soriano v. National Labor Relations Commission, 239 Phil.
119 (1987).

G.R. No. 96169 September 24, 1991

EMPLOYERS CONFEDERATION OF THE PHILIPPINES, petitioner,
vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION AND REGIONAL TRIPARTITE WAGES AND
PRODUCTIVITY BOARD-NCR, TRADE UNION CONGRESS OF THE PHILIPPINES, respondents.
Sycip Salazar, Hernandez & Gatmaitan for petitioner.
Gilbert P. Lorenzo for private respondent.

SARMIENTO, J.:p

The petition is given due course and the various pleadings submitted being sufficient to aid the Court in the proper
resolution of the basic issues raised in this case, we decide it without further ado.
The Employers Confederation of the Philippines (ECOP) is questioning the validity of Wage Order No. NCR-01-A
dated October 23, 1990 of the Regional Tripartite Wages and Productivity Board, National Capital Region,
promulgated pursuant to the authority of Republic Act No. 6727, "AN ACT TO RATIONALIZE WAGE POLICY
DETERMINATION BY ESTABLISHING THE MECHANISM AND PROPER STANDARDS THEREFORE,
AMENDING FOR THE PURPOSE ARTICLE 99 OF, AND INCORPORATING ARTICLES 120, 121, 122, 123, 124,
126, AND 127 INTO, PRESIDENTIAL DECREE NO. 442 AS AMENDED, OTHERWISE KNOWN AS THE LABOR
CODE OF THE PHILIPPINES, FIXING NEW WAGE RATES, PROVIDING WAGE INCENTIVES FOR INDUSTRIAL
DISPERSAL TO THE COUNTRYSIDE, AND FOR OTHER PURPOSES," was approved by the President on June 9,
1989. Aside from providing new wage rates, 1 the "Wage Rationalization Act" also provides, among other things, for
various Regional Tripartite Wages and Productivity Boards in charge of prescribing minimum wage rates for all workers in
the various regions 2 and for a National Wages and Productivity Commission to review, among other functions, wage
levels determined by the boards. 3
On October 15, 1990, the Regional Board of the National Capital Region issued Wage Order No. NCR-01,
increasing the minimum wage by P17.00 daily in the National Capital Region. 4 The Trade Union Congress of the
Philippines (TUCP) moved for reconsideration; so did the Personnel Management Association of the Philippines
(PMAP). 5 ECOP opposed.
On October 23, 1990, the Board issued Wage Order No. NCR-01-A amending Wage Order No. NCR-01, as follows:
Section 1. Upon the effectivity of this Wage Order, all workers and employees in the private sector in
the National Capital Region already receiving wages above the statutory minimum wage rates up to
one hundred and twenty-five pesos (P125.00) per day shall also receive an increase of seventeen
pesos (P17.00) per day.
ECOP appealed to the National Wages and Productivity Commission. On November 6, 1990, the Commission
promulgated an Order, dismissing the appeal for lack of merit. On November 14, 1990, the Commission denied
reconsideration.
The Orders of the Commission (as well as Wage Order No. NCR-01-A) are the subject of this petition, in which.
ECOP assails the board's grant of an "across-the-board" wage increase to workers already being paid more than
existing minimum wage rates (up to P125. 00 a day) as an alleged excess of authority, and alleges that under the
Republic Act No. 6727, the boards may only prescribe "minimum wages," not determine "salary ceilings." ECOP
likewise claims that Republic Act No. 6727 is meant to promote collective bargaining as the primary mode of settling
wages, and in its opinion, the boards can not preempt collective bargaining agreements by establishing ceilings.
ECOP prays for the nullification of Wage Order No. NCR 01-A and for the "reinstatement" of Wage Order No. NCR01.
The Court directed the Solicitor General to comment on behalf of the Government, and in the Solicitor General's
opinion, the Board, in prescribing an across-the-board hike did not, in reality, "grant additional or other benefits to
workers and employees, such as the extension of wage increases to employees and workers already receiving
more than minimum wages ..." 6 but rather, fixed minimum wages according to the "salary-ceiling method."
ECOP insists, in its reply, that wage is a legislative function, and Republic Act No. 6727 delegated to the regional
boards no more "than the power to grant minimum wage adjustments" 7 and "in the absence of clear statutory
authority," 8 the boards may no more than adjust "floor wages." 9
The Solicitor General, in his rejoinder, argues that Republic Act No. 6727 is intended to correct "wage distortions"
and the salary-ceiling method (of determining wages) is meant, precisely, to rectify wage distortions. 10
The Court is inclined to agree with the Government. In the National Wages and Productivity Commission's Order of
November 6, 1990, the Commission noted that the determination of wages has generally involved two methods, the
"floor-wage" method and the "salary-ceiling" method. We quote:

Historically, legislation involving the adjustment of the minimum wage made use of two methods. The
first method involves the fixing of determinate amount that would be added to the prevailing statutory
minimum wage. The other involves "the salary-ceiling method" whereby the wage adjustment is
applied to employees receiving a certain denominated salary ceiling. The first method was adopted
in the earlier wage orders, while the latter method was used in R.A. Nos. 6640 and 6727. Prior to
this, the salary-ceiling method was also used in no less than eleven issuances mandating the grant
of cost-of-living allowances (P.D. Nos. 525, 1123, 1614, 1634, 1678, 1713 and Wage Order Nos. 1,
2, 3, 5 and 6). The shift from the first method to the second method was brought about by labor
disputes arising from wage distortions, a consequence of the implementation of the said wage
orders. Apparently, the wage order provisions that wage distortions shall be resolved through the
grievance procedure was perceived by legislators as ineffective in checking industrial unrest
resulting from wage order implementations. With the establishment of the second method as a
practice in minimum wage fixing, wage distortion disputes were minimized. 11
As the Commission noted, the increasing trend is toward the second mode, the salary-cap method, which has
reduced disputes arising from wage distortions (brought about, apparently, by the floor-wage method). Of course,
disputes are appropriate subjects of collective bargaining and grievance procedures, but as the Commission
observed and as we are ourselves agreed, bargaining has helped very little in correcting wage distortions. Precisely,
Republic Act No. 6727 was intended to rationalize wages, first, by providing for full-time boards to police wages
round-the-clock, and second, by giving the boards enough powers to achieve this objective. The Court is of the
opinion that Congress meant the boards to be creative in resolving the annual question of wages without labor and
management knocking on the legislature's door at every turn. The Court's opinion is that if Republic No. 6727
intended the boards alone to set floor wages, the Act would have no need for a board but an accountant to keep
track of the latest consumer price index, or better, would have Congress done it as the need arises, as the
legislature, prior to the Act, has done so for years. The fact of the matter is that the Act sought a "thinking" group of
men and women bound by statutory standards. We quote:
ART. 124. Standards / Criteria for Minimum Wage Fixing. The regional minimum wages to be
established by the Regional Board shall be as nearly adequate as is economically feasible to
maintain the minimum standards of living necessary for the health, efficiency and general well-being
of the employees within the framework of the national economic and social development program. In
the determination of such regional minimum wages, the Regional Board shall, among other relevant
factors, consider the following:
(a) The demand for living wages;
(b) Wage adjustment vis-a-vis the consumer price index;
(c) The cost of living and changes or increases therein;
(d) The needs of workers and their families;
(e) The need to induce industries to invest in the countryside;
(f) Improvements in standards of living;
(g) The prevailing wage levels;
(h) Fair return of the capital invested and capacity to pay of emphasis employers;
(i) Effects of employment generation and family income; and
(j) The equitable distribution of income and wealth along the imperatives of economic and social
development. 12
The Court is not convinced that the Regional Board of the National Capital Region, in decreeing an across-theboard hike, performed an unlawful act of legislation. It is true that wage-fixing, like rate constitutes an act

Congress; 13 it is also true, however, that Congress may delegate the power to fix rates 14 provided that, as in all
delegations cases, Congress leaves sufficient standards. As this Court has indicated, it is impressed that the abovequoted standards are sufficient, and in the light of the floor-wage method's failure, the Court believes that the Commission
correctly upheld the Regional Board of the National Capital Region.
Apparently, ECOP is of the mistaken impression that Republic Act No. 6727 is meant to "get the Government out of
the industry" and leave labor and management alone in deciding wages. The Court does not think that the law
intended to deregulate the relation between labor and capital for several reasons: (1) The Constitution calls upon the
State to protect the rights of workers and promote their welfare; 15 (2) the Constitution also makes it a duty of the State
"to intervene when the common goal so demands" in regulating property and property relations; 16 (3) the Charter urges
Congress to give priority to the enactment of measures, among other things, to diffuse the wealth of the nation and to
regulate the use of property; 17 (4) the Charter recognizes the "just share of labor in the fruits of production;" 18 (5) under
the Labor Code, the State shall regulate the relations between labor and management; 19 (6) under Republic Act No. 6727
itself, the State is interested in seeing that workers receive fair and equitable wages; 20 and (7) the Constitution is primarily
a document of social justice, and although it has recognized the importance of the private sector, 21 it has not embraced
fully the concept of laissez faire 22 or otherwise, relied on pure market forces to govern the economy; We can not give to
the Act a meaning or intent that will conflict with these basic principles.
It is the Court's thinking, reached after the Court's own study of the Act, that the Act is meant to rationalize wages,
that is, by having permanent boards to decide wages rather than leaving wage determination to Congress year after
year and law after law. The Court is not of course saying that the Act is an effort of Congress to pass the buck, or
worse, to abdicate its duty, but simply, to leave the question of wages to the expertise of experts. As Justice Cruz
observed, "[w]ith the proliferation of specialized activities and their attendant peculiar problems, the national
legislature has found it more necessary to entrust to administrative agencies the power of subordinate legislation' as
it is caned." 23
The Labor Code defines "wage" as follows:
"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 reasonably value, as determined by
the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to
the employee. "Fair and reasonable value" shall not include any profit to the employer or to any
person affiliated with the employer. 24
The concept of "minimum wage" is, however, a different thing, and certainly, it means more than setting a floor wage
to upgrade existing wages, as ECOP takes it to mean. "Minimum wages" underlies the effort of the State, as
Republic Act No. 6727 expresses it, "to promote productivity-improvement and gain-sharing measures to ensure a
decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the
fruits of production; to enhance employment generation in the countryside through industry dispersal; and to allow
business and industry reasonable returns on investment, expansion and growth," 25 and as the Constitution expresses
it, to affirm "labor as a primary social economic force." 26 As the Court indicated, the statute would have no need for a
board if the question were simply "how much". The State is concerned, in addition, that wages are not distributed
unevenly, and more important, that social justice is subserved.
It is another question, to be sure, had Congress created "roving" boards, and were that the case, a problem of
undue delegation would have ensued; but as we said, we do not see a Board (National Capital Region) "running
riot" here, and Wage Order No. NCR-01-A as an excess of authority.
It is also another question whether the salary-cap method utilized by the Board may serve the purposes of Republic
Act No. 6727 in future cases and whether that method is after all, a lasting policy of the Board; however, it is a
question on which we may only speculate at the moment. At the moment, we find it to be reasonable policy
(apparently, it has since been Government policy); and if in the future it would be perceptibly unfair to management,
we will take it up then.
WHEREFORE, premises considered, the petition is DENIED. No pronouncement as to costs.

IT IS SO ORDERED.
Melencio-Herrera (Chairperson), Padilla and Regalado, JJ., concur.
Paras, J., took no part.

Footnotes
1 Rep. Act No. 6727, sec. 4(a)
2 Supra, art. 3
3 Supra.
4 Wage Order No. NCR-01 (RTWPB) (DOLE), October 15, 1990; the Order exempts, of course,
domestics and other household servants.
5 Wage Order No. NCR-01-A (RTWPB) (DOLE), October 23, 1990.
6 Id., 76.
7 Id., 91.
8 Id.
9 Id.
10 Id., 122.
11 Id., 27.
12 Rep. Act No. 6727, supra.
13 Shreveport Rate Case, 234, U.S. 342 (1914). But see Philippine Communications Satellite
Corporation v. Alcuaz, G.R. 84818, December 18, 1989, 180 SCRA 218, on when rate-fixing is
quasi-judicial for purposes of determining compliance with due process.
14 Supra.
15 CONST., art. II, 18.
16 Supra, art, XII, sec. 6.
17 Supra, art, XIII, sec. 1.
18 Supra, sec. 3.
19 Pres. Decree No. 442, art 3.
20 Rep. Act No. 6727, supra.
21 e.g., CONST., art. II, sec. 20.

22 Philippine Association of Service Exporters v. Drilon, G.R. No. 81958, June 30, 1988, 163 SCRA
386.
23 CRUZ, PHILIPPINE POLITICAL LAW 96 (1987).
24 Pres. Decree No. 442, art. 97(f).
25 Rep. Act No. 6727, supra, sec. 1.
26 CONST., art. II, sec. 18, supra.

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 unconstitutional.
Petitioner was hired by Gallant Maritime Services, Inc. and Marlow Navigation Co., Ltd. (respondents) under a
Philippine Overseas Employment Administration (POEA)-approved Contract of Employment with the following
terms and conditions:
Duration of contract

12 months

Position

Chief Officer

Basic monthly salary

US$1,400.00

Hours of work

48.0 hours per week

Overtime

US$700.00 per month

Vacation leave with pay

7.00 days per month5

On March 19, 1998, the date of his departure, petitioner was constrained to accept a downgraded employment
contract for the position of Second Officer with a monthly salary of 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
Respondents did not deliver on their promise to make petitioner Chief Officer.7 Hence, petitioner refused to stay
on as Second Officer and was repatriated to the Philippines on May 26, 1998.8
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.
Petitioner filed with the Labor Arbiter (LA) a Complaint9 against respondents for constructive dismissal and for
payment of his money claims in the total amount of US$26,442.73, broken down as follows:
May
27/31,
1998 (5
days)
incl.
Leave
pay

US$ 413.90

June
01/30,
1998

2,590.00

July
01/31,
1998

2,590.00

August
01/31,
1998

2,590.00

Sept.
01/30,
1998

2,590.00

Oct.
01/31,
1998

2,590.00

Nov.
01/30,
1998

2,590.00

Dec.
01/31,
1998

2,590.00

Jan.
01/31,
1999

2,590.00

Feb.
01/28,

2,590.00

1999
Mar.
1/19,
1999
(19
days)
incl.
leave
pay

1,640.00

-------------------------------------------------------------------------------25,382.23
Amount
adjuste
d to
chief
mate's
salary
(March 1,060.5010
19/31,
1998 to
April
1/30,
1998) +
--------------------------------------------------------------------------------------------TOTAL
CLAIM

US$ 26,442.7311

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 complainants 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 complainants 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 complainants (petitioner's) claim for attorneys 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$4,2

2. Salary differential
US$4,245.00
3. 10% Attorneys fees

4
TOTAL

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

US$4,6

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 petitioners 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 unexpired portion of nine months and 23
days of his employment contract or a total of 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;33 and 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,50 otherwise 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
acompetent 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 forCertiorari before the CA.54 Nonetheless, 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 receive57 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,58 and 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.61 Police 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 class71 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 race74or
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 Courts 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:
First, OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts
of one year or more;
Second, among OFWs with employment contracts of more than one year; and
Third, OFWs vis--vis local workers with fixed-period employment;

OFWs with employment contracts of less than one year vis--vis OFWs with employment contracts of
one year or more
As pointed out by petitioner,78 it was in Marsaman Manning Agency, Inc. v. National Labor 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:
A plain reading of Sec. 10 clearly reveals that the choice of which amount to award an illegally
dismissed overseas contract worker, i.e., whether his salaries for the unexpired portion of his
employment contract or three (3) months salary for every 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 evident from the words "for every year of the unexpired term" which follows the words
"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 disregard and overlook some words
used in the statute while giving effect to some. This is contrary to the well-established rule in legal
hermeneutics that in interpreting a statute, care 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 advisedly. Ut res magis valeat quam pereat.80 (Emphasis supplied)
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.
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 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 after working for one year and two months. The LA declared his
dismissal illegal and awarded him SR13,600.00 as lump-sum salary covering eight months, the unexpired
portion of his 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.
In the case at bar, the unexpired portion of private respondents employment contract is eight (8) months.
Private respondent should therefore be paid his basic salary corresponding to three (3) months or a total of
SR3,600.82
Another was Triple-Eight Integrated Services, Inc. v. National Labor Relations Commission (Third Division,
December 1998),83 which involved an OFW (therein respondent Erlinda Osdana) who was originally granted a
12-month contract, which was deemed renewed for another 12 months. After serving for one year and sevenand-a-half 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.
The Marsaman interpretation of Section 10(5) has since been adopted in the following cases:
Case Title

Contract
Period

Period of
Service

Unexpired
Period

Period Applied in
the Computation
of the Monetary
Award

Skippers v.
Maguad84

6 months

2 months

4 months

4 months

Bahia Shipping
v. Reynaldo
Chua 85

9 months

8 months

4 months

4 months

Centennial
Transmarine v.
dela Cruz l86

9 months

4 months

5 months

5 months

Talidano v.
Falcon87

12 months

3 months

9 months

3 months

Univan v. CA88

12 months

3 months

9 months

3 months

Oriental v. CA89

12 months

more than 2
months

10 months

3 months

PCL v. NLRC90

12 months

more than 2
months

more or less 9
months

3 months

Olarte v.
Nayona91

12 months

21 days

11 months and 9
days

3 months

JSS v.Ferrer92

12 months

16 days

11 months and
24 days

3 months

9 months and
7 days

2 months and 23
days

2 months and 23
days

Pentagon v.
Adelantar93

12 months

Phil. Employ v.
Paramio, et
al.94

12 months

10 months

2 months

Unexpired portion

Flourish
Maritime v.
Almanzor 95

2 years

26 days

23 months and 4
days

6 months or 3
months for each
year of contract

Athenna
Manpower v.
Villanos 96

1 year, 10
months and
28 days

1 month

1 year, 9 months
and 28 days

6 months or 3
months for each
year of contract

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 than one year; in case of illegal
dismissal, they are entitled to their salaries for the entire 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 monetary award equivalent to only 3 months of the unexpired portion of their
contracts.
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
contract, whereas OFW-B will be entitled to only US$3,000.00, equivalent to his salaries for 3 months of the
unexpired portion of his contract, instead of US$14,000.00 for the unexpired portion of 14 months of his
contract, as the US$3,000.00 is the lesser amount.
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, no matter how long the period of
their employment contracts, were entitled to their salaries for the entire unexpired portions of their contracts.
The matrix below speaks for itself:
Case Title

Contract
Period

Period of
Service

Unexpired
Period

Period Applied in the

Computation of the
Monetary Award

ATCI v. CA, et
al.98

2 years

2 months

22 months

22 months

Phil. Integrated
v. NLRC99

2 years

7 days

23 months
and 23 days

23 months and 23
days

JGB v. NLC100

2 years

9 months

15 months

15 months

Agoy v.
NLRC101

2 years

2 months

22 months

22 months

EDI v. NLRC,
et al.102

2 years

5 months

19 months

19 months

Barros v.
NLRC, et al.103

12 months

4 months

8 months

8 months

Philippine
Transmarine v.
Carilla104

12 months

6 months
and 22 days

5 months and
18 days

5 months and 18 days

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, OFWD 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--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 fixedterm 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 Compaia 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 fixedterm employment contracts were illegally terminated, such as in First Asian Trans & Shipping Agency, Inc. v.
Ople,119 involving 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 12month 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 employeremployee 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 visa-vis their 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
3,131 Article 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 selfactuating:

Thus, the constitutional mandates of protection to labor and security of tenure may be deemed as selfexecuting 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.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
LEONARDO A. QUISUMBING
Associate Justice

CONSUELO YNARES-SANTIAGO
Associate Justice

ANTONIO T. CARPIO
Associate Justice

RENATO C. CORONA
Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice

(On leave)
MINITA V. CHICO-NAZARIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

(see concurring opinion)

ARTURO D. BRION
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice

Footnotes
1

http://www.un.org/News/Press/docs/2007/sgsm11084.doc.htm.

Migrant Workers and Overseas Filipinos Act of 1995, effective July 15, 1995.

Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate Justices Lucas P.
Bersamin and Celia C. Librea-Leagogo; rollo, p. 231.
3

Id. at 248.

Rollo, p. 57.

Id. at 58.

Id. at 59.

Id. at 48.

Id. at 55.

According to petitioner, this amount represents the pro-rated difference between the salary of
US$2,590.00 per month which he was supposed to receive as Chief Officer from March 19, 1998 to April 30,
1998 and the salary of US$1,850.00 per month which he was actually paid as Second Officer for the same
period. See LA Decision, rollo, pp. 107 and 112.
10

11

Position Paper, id. at 53-54.

The LA awarded petitioner US$45.00 out of the US$1,480.00 salary differential to which petitioner is
entitled in view of his having received from respondents US$1,435.00 as evidenced by receipts marked as
Annexes "F", "G" and "H", id. at 319-321.
12

13

Id. at 114.

14

Rollo, pp. 111-112.

15

Id. at 124.

16

Id. at 115.

17

G.R. No. 129584, December 3, 1998, 299 SCRA 608.

18

Appeal Memorandum, rollo, p. 121.

19

Id. at 134.

20

NLRC Decision, rollo, p. 140.

21

Id. at 146-150.

22

Id. at 153.

23

Id. at 155.

24

Id. at 166-177.

25

CA Decision, id. at 239-241.

26

Id. at 242.

27

Id. at 248.

28

Petition, rollo, p. 28.

29

Id. at 787.

30

Id. at 799.

31

Rollo, p. 282

32

Memorandum for Petitioner, id. at 741-742.

33

Id. at 746-753.

Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare.
34

35

Rollo, pp. 763-766.

36

Petition, id. at 735.

37

Memorandum of the Solicitor General, rollo, p. 680.

38

Memorandum for Petitioner, id. at 755.

39

Id. at 761-763.

40

Rollo, pp. 645-646 and 512-513.

Alfredo L. Benipayo was Solicitor General at the time the Comment was filed. Antonio Eduardo B. Nachura
(now an Associate Justice of the Supreme Court) was Solicitor General when the Memorandum was filed.
41

42

Memorandum of the Solicitor General, id. at 662-665.

43

G.R. No. 113658, March 31, 1995, 243 SCRA 190.

44

G.R. No. 110524, July 29, 2002, 385 SCRA 306.

45

Memorandum of the Solicitor General, rollo, pp. 668-678.

46

Id. at 682.

The Province of North Cotabato v. The Government of the Republic of the Philippines Peace Panel on
Ancestral Domain, G.R. No. 183591 October 14, 2008.
47

48

Automotive Industry Workers Alliance v. Romulo, G.R. No. 157509, January 18, 2005, 449 SCRA 1.

49

David v. Macapagal-Arroyo, G.R. No. 171396, May 3, 2006, 489 SCRA 160.

50

Arceta v. Mangrobang, G.R. No. 152895, June 15, 2004, 432 SCRA 136.

Moldex Realty, Inc. v. Housing and Land Use Regulatory Board, G.R. No. 149719, June 21, 2007, 525
SCRA 198; Marasigan v. Marasigan, G.R. No. 156078, March 14, 2008, 548 SCRA 409.
51

52

Matibag v. Benipayo, G.R. No. 149036, April 2, 2002, 380 SCRA 49.

53

Rollo, p. 145.

54

Id. at 166.

Smart Communications, Inc. v. National Telecommunications Commission, G.R. No. 151908, August 12,
2003, 408 SCRA 678.
55

Equi-Asia Placement, Inc. v. Department of Foreign Affairs, G.R. No. 152214, September 19, 2006, 502
SCRA 295.
56

57

Memorandum for Petitioner, rollo, pp. 741-742.

58

Ortigas & Co., Ltd. v. Court of Appeals, G.R. No. 126102, December 4, 2000, 346 SCRA 748.

Picop Resources, Inc. v. Base Metals Mineral Resources Corporation, G.R. No. 163509, December 6,
2006, 510 SCRA 400.
59

Walker v. Whitehead, 83 U.S. 314 (1873); Wood v. Lovett, 313 U.S. 362, 370 (1941); Intrata-Assurance
Corporation v. Republic of the Philippines, G.R. No. 156571, July 9, 2008; Smart Communications, Inc. v.
City of Davao, G.R. No. 155491, September 16, 2008.
60

Executive Secretary v. Court of Appeals, G.R. No. 131719, May 25, 2004, 429 SCRA 81, citing JMM
Promotion and Management, Inc. v. Court of Appeals, G.R. No. 120095, August 5, 1996, 260 SCRA 319.
61

62

Ortigas & Co., Ltd. v. Court of Appeals, supra note 58.

Section 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare.
63

Section 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.
64

See City of Manila v. Laguio, G.R. No. 118127, April 12, 2005, 455 SCRA 308; Pimentel III v. Commission
on Elections, G.R. No. 178413, March 13, 2008, 548 SCRA 169.
65

League of Cities of the Philippines v. Commission on Elections G.R. No. 176951, November 18,
2008;Beltran v. Secretary of Health, G.R. No. 139147,November 25, 2005, 476 SCRA 168.
66

Association of Small Landowners in the Philippines v. Secretary of Agrarian Reform, G.R. No. 78742, July
14, 1989, 175 SCRA 343.
67

68

Los Angeles v. Almeda Books, Inc., 535 U.S. 425 (2002); Craig v. Boren, 429 US 190 (1976).

There is also the "heightened scrutiny" standard of review which is less demanding than "strict scrutiny"
but more demanding than the standard rational relation test. Heightened scrutiny has generally been applied
to cases that involve discriminatory classifications based on sex or illegitimacy, such as inPlyler v. Doe, 457
U.S. 202, where a heightened scrutiny standard was used to invalidate a State's denial to the children of
illegal aliens of the free public education that it made available to other residents.
69

America v. Dale, 530 U.S. 640 (2000); Parents Involved in Community Schools v. Seattle School District
No. 1, 551 U.S. (2007); http://www.supremecourtus.gov/opinions/06pdf/05-908.pdf.
70

71

Adarand Constructors, Inc. v. Pea, 515 US 230 (1995).

72

Grutter v. Bollinger, 539 US 306 (2003); Bernal v. Fainter, 467 US 216 (1984).

The concept of suspect classification first emerged in the famous footnote in the opinion of Justice Harlan
Stone in U.S. v. Carolene Products Co., 304 U.S. 144 (1938), the full text of which footnote is reproduced
below:
73

There may be narrower scope for operation of the presumption of constitutionality when legislation
appears on its face to be within a specific prohibition of the Constitution, such as those of the first ten
amendments, which are deemed equally specific when held to be embraced within the Fourteenth.
See Stromberg v. California, 283 U.S. 359, 369-370; Lovell v. Griffin, 303 U.S. 444, 452.
It is unnecessary to consider now whether legislation which restricts those political processes which
can ordinarily be expected to bring about repeal of undesirable legislation is to be subjected to more
exacting judicial scrutiny under the general prohibitions of the Fourteenth Amendment than are most
other types of legislation. On restrictions upon the right to vote, see Nixon v. Herndon, 273 U.S. 536;
Nixon v. Condon, 286 U.S. 73; on restraints upon the dissemination of information, see Near v.
Minnesota ex rel. Olson, 283 U.S. 697, 713-714, 718-720, 722; Grosjean v. American Press Co., 297
U.S. 233; Lovell v. Griffin, supra; on interferences with political organizations, see Stromberg v.
California, supra, 369; Fiske v. Kansas, 274 U.S. 380; Whitney v. California, 274 U.S. 357, 373-378;
Herndon v. Lowry, 301 U.S. 242, and see Holmes, J., in Gitlow v. New York, 268 U.S. 652, 673; as to
prohibition of peaceable assembly, see De Jonge v. Oregon, 299 U.S. 353, 365.
Nor need we enquire whether similar considerations enter into the review of statutes directed at
particular religious, Pierce v. Society of Sisters, 268 U.S. 510, or national, Meyer v. Nebraska, 262

U.S. 390; Bartels v. Iowa, 262 U.S. 404; Farrington v. Tokushige, 273 U.S. 284, or racial minorities,
Nixon v. Herndon, supra; Nixon v. Condon, supra: whether prejudice against discrete and insular
minorities may be a special condition, which tends seriously to curtail the operation of those political
processes ordinarily to be relied upon to protect minorities, and which may call for a correspondingly
more searching judicial inquiry. Compare McCulloch v. Maryland, 4 Wheat. 316, 428; South Carolina
v. Barnwell Bros., 303 U.S. 177, 184, n 2, and cases cited.
Korematsu v. United States, 323 U.S. 214 (1944); Regents of the University of California v. Bakke, 438
U.S. 265 (1978).
74

75

Frontiero v. Richardson, 411 U.S. 677 (1973); U.S. v. Virginia, 518 U.S. 515 (1996).

76

San Antonio Independent School District v. Rodriguez, 411 U.S. 1 (1973).

77

G.R. No. 148208, December 15, 2004, 446 SCRA 299.

78

Rollo, pp. 727 and 735.

79

371 Phil. 827 (1999).

80

Id. at 840-841.

81

G.R. No. 131656, October 20, 1998, 297 SCRA 727.

82

Id.

83

Supra note 17.

84

G.R. No. 166363, August 15, 2006, 498 SCRA 639.

85

G.R. No. 162195, April 8, 2008, 550 SCRA 600.

86

G.R. No. 180719, August 22, 2008.

87

G.R. No. 172031, July 14, 2008, 558 SCRA 279.

88

G.R. No. 157534, June 18, 2003 (Resolution).

89

G.R. No. 153750, January 25, 2006, 480 SCRA 100.

90

G.R. No. 148418, July 28, 2005, 464 SCRA 314.

91

G.R. No. 148407, November 12, 2003, 415 SCRA 720.

92

G.R. No. 156381, October 14, 2005, 473 SCRA 120.

93

G.R. No. 157373, July 27, 2004, 435 SCRA 342.

94

G.R. No. 144786, April 15, 2004, 427 SCRA 732.

95

G.R. No. 177948, March 14, 2008, 548 SCRA 712.

96

G.R. No. 151303, April 15, 2005, 456 SCRA 313.

97

Asian Center v. National Labor Relations Commission, supra note 81.

98

G.R. No. 143949, August 9, 2001, 362 SCRA 571.

99

G.R. No. 123354, November 19, 1996, 264 SCRA 418.

100

G.R. No. 109390, March 7, 1996, 254 SCRA 457.

101

G.R. No. 112096, January 30, 1996, 252 SCRA 588.

102

G.R. No. 145587, October 26, 2007, 537 SCRA 409.

103

G.R. No. 123901, September 22, 1999, 315 SCRA 23.

104

G.R. No. 157975, June 26, 2007, 525 SCRA 586.

105

www.merriam-webster.com/dictionary visited on November 22, 2008 at 3:09.

106

See also Flourish, supra note 95; and Athena, supra note 96.

It is noted that both petitioner and the OSG drew comparisons between OFWs in general and local
workers in general. However, the Court finds that the more relevant comparison is between OFWs whose
employment is necessarily subject to a fixed term and local workers whose employment is also subject to a
fixed term.
107

Promulgated on August 6, 1888 by Queen Maria Cristina of Spain and extended to the Philippines by
Royal Decree of August 8, 1888. It took effect on December 1, 1888.
108

109

No. 1133, March 29, 1904, 3 SCRA 519.

110

No. L-8431, October 30, 1958, 104 SCRA 748.

See also Wallem Philippines Shipping, Inc. v. Hon. Minister of Labor, No. L-50734-37, February 20, 1981,
102 scra 835, where Madrigal Shipping Company, Inc. v. Ogilvie is cited.
111

112

No. L-10422, January 11, 1916, 33 SCRA 162.

113

No. L-15878, January 11, 1922, 42 SCRA 660.

114

7 Phil. 268 (1907).

115

See also Knust v. Morse, 41 Phil 184 (1920).

116

Brent School, Inc. v. Zamora, No. L-48494, February 5, 1990, 181 SCRA 702.

117

No. L-22608, June 30, 1969, 28 SCRA 699.

The Labor Code itself does not contain a specific provision for local workers with fixed-term employment
contracts. As the Court observed in Brent School, Inc., the concept of fixed-term employment has slowly
faded away from our labor laws, such that reference to our labor laws is of limited use in determining the
monetary benefits to be awarded to fixed-term workers who are illegally dismissed.
118

119

No. L-65545, July 9, 1986., 142 SCRA 542.

120

G.R. No. 100399, August 4, 1992, 212 SCRA 132.

121

G.R. No. 111212, January 22, 1996, 252 SCRA 116.

122

G.R. No. 113363, August 24, 1999, 313 SCRA 1.

123

G.R. No. 113911, January 23, 1998, 284 SCRA 656.

124

See Estrada v. Escritor, A.M. No. P-02-1651, August 4, 2003, 408 SCRA 1.

125

Id.

Roe v. Wade, 410 U.S. 113 (1971); see also Carey v. Population Service International, 431 U.S. 678
(1977).
126

127

Sabio v. Gordon, G.R. Nos. 174340, 174318, 174177, October 16, 2006, 504 SCRA 704.

128

Comment, rollo, p. 555.

129

Memorandum of the Solicitor General, id. at 682-683

130

Id. at p. 693.

Section 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.
131

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 and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual
compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers, recognizing the right of labor to its
just share in the fruits of production and the right of enterprises to reasonable returns to investments, and to
expansion and growth.
Manila Prince Hotel v. Government Service Insurance System, G.R. No. 122156, February 3, 1997, 267
SCRA 408.
132

133

Basco v. Philippine Amusement and Gaming Corporation, G.R. No. 91649, May 14, 1991, 197 SCRA 52.

134

G.R. No. 158693, November 17, 2004, 442 SCRA 573.

135

Agabon v. National Labor Relations Commission, supra note 134, at 686.

Associated Communications and Wireless Services, Ltd. v. Dumlao, G. R. No. 136762, November 21,
2002, 392 SCRA 269.
136

Section 1. 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 laws.
137

G.R. No. 180719, August 22, 2008. See also PCL Shipping Philippines, Inc. v. National Labor Relations
Commission. G.R. No. 153031, December 14, 2006, 511 SCRA 44.
138

SECOND DIVISION

[G.R. No. 168159. August 19, 2005]

NORKIS TRADING CO., INC., ATTY. NORBERTO QUISUMBING, JR., RACQUEL

LICSI, EMMANUEL S. TAMAYO and NICHOL JUDE THADDEUS
JURIDICO, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION
and MA. ARLENE C. GNILO, respondents.

RESOLUTION
CHICO-NAZARIO, J.:

For resolution is a petition for review of the Decision [1] and Resolution of the Court of Appeals,
dated 07 March 2005 and 18 May 2005, respectively, affirming the Resolution of the National Labor
Relations Commission (NLRC) dated 26 March 2004, which, in turn, affirmed the Decision of Labor
Arbiter Rolando L. Bobis, dated 06 November 2003, finding petitioners guilty of illegal dismissal.
On 06 June 2005, petitioners filed before this Court a motion for extension of time to file petition
for review. In our resolution of 04 July 2005, we denied this motion due to lack of:
a) sufficient showing that petitioners have not lost the fifteen (15)-day reglementary period pursuant
to Section 2, Rule 45 of the 1997 Rules of Civil Procedure, as amended, in view of counsels
failure to indicate whether the Court of Appeals resolution dated 18 May 2005 is a
denial/dismissal of the petition or a denial of the motion for reconsideration thereof; and
b) service of a copy of the motion on the Court of Appeals in accordance with Section 4, Rule 13 in
relation to Section 2, Rule 45 of the Rules.[2]

In the same resolution, this Court noted petitioners manifestation dated 07 June 2005 that copies
of the motion were served on the Court of Appeals and the Office of the Solicitor General on 7 June
2005 by registered mail.[3]
On 04 July 2005, petitioners filed their petition for certiorari raising the sole issue of

WHETHER OR NOT THE COURT OF APPEALS ERRED IN DENYING THE PETITIONERS

MOTION FOR RECONSIDERATION THEREBY AFFIRMING THE DECISION OF THE NLRC
AND LABOR ARBITER THAT PRIVATE RESPONDENT WAS CONSTRUCTIVELY
DISMISSED AND THEREFORE ENTITLED TO BACKWAGES, 13TH MONTH PAY,
SERVICE INCENTIVE LEAVE PAY, MORAL DAMAGES, EXEMPLARY DAMAGES AND
ATTORNEYS FEES.[4]
The antecedent facts are exhaustively presented in the assailed decision of the Court of Appeals
as follows:

Private respondent Ma. Arlene C. Gnilo started working for petitioner Norkis Trading Co., Inc. on
March 8, 1990 when she was initially trained as administration and finance officer assigned to the
companys branch at Calamba, Laguna. She was subsequently appointed as Acting Administrative
Finance Officer with assignment at Naga City Branch, a position she held until she achieved
regular employment status. On December 1, 1993, she was appointed as Branch
Bookkeeper/Cashier of Naga City Branch (Rank Category 4B). On January 24, 2001, she was
promoted as Acting Senior Branch Control Officer for Bicol Region.
During her stint as Senior BCO for Bicol Region, private respondent was instructed by her
immediate superior Ms. Marfi Ruiz to confirm transactions pertaining to collections and deposits of
BCO Marivic Faura at Polangui. In a memorandum dated May 22, 2002, private respondent was
informed by Deputy Controller Ms. Rhea De Jesus about a recent company audit which disclosed
that she had disregarded the detailed instructions of her superior and failed to perform her duties as
a Senior Branch Control Officer. She was thus directed to explain in writing what actually
transpired during her assignment at Polangui. She complied by submitting her written explanation
on May 25, 2002. An investigation by the companys Internal Audit Group ensued and private

respondent was formally charged with Negligence Resulting to Material Loss. She was instructed
to make herself available by reporting to the Inquiry Assistance Panel (IAP) on June 20, 2002.
After the hearing of the IAP was concluded, private respondent made a written Request for Reassignment addressed to Ms. De Jesus to be assigned as Cashier of the Naga Branch which is
vacant and considering that she is a resident of Naga City and a mother. On July 29, 2002, she
reiterated this request to be assigned anew in Naga City while waiting for the resolution of her case,
citing that she is a mother of three (3) growing kids and she wanted to be with her family. In August
and September 2002, private respondent also requested to be furnished a copy of the minutes and/or
audit report of the IAP investigation. The company did not accede to her requests and she continued
reporting at the main office performing whatever work assigned to her, such as monitoring of
collections at Cubao Branch for which she submitted an accomplishment report to Deputy
Controller Emmanuel S. Tamayo.
For the period March 18 to April 1, 2003, the company withheld the Transportation and Travel
Allowance (TNT) being received by private respondent amounting to P7,555.00, which prompted
her to formally protest her questionable assignment at the Home Office (HO) in Mandaluyong City
which she insisted is against her appointment as Senior BCO for Bicol Region and Samar. In a
letter dated March 21, 2003, addressed to Deputy Controller Emmanuel S. Tamayo, private
respondent berated management for wanting to ease her out of the company due to a labor case
(constructive dismissal) filed by her husband, who also worked at Norkis for more than thirteen
(13) years, and such withdrawal of her travel allowances is calculated to cause suffering on her
part. She expressed that the situation has become unbearable for her so that she is constrained to
report back to Naga City effective March 24, 2003, there being no written order issued by
management for her to stay in the main office.
Upon returning to Naga City, however, private respondent learned from a co-employee that Deputy
Controller Tamayo through a telephone call gave instruction to deny her entry to the branch
premises and access to company records. She caused this incident to be entered at the local police
blotter. On April 2, 2003, she received a faxed Speedletter from Deputy Managing Director Nichol
Jude Thaddeus C. Juridico and Deputy Controller Emmanuel S. Tamayo directing her to report
back to the main office reminding her that her new assignment required her to report to the main
office pending issuance of a permanent assignment, and that she was instructed to monitor the BCO
of Porta Coeli Finance Corporation (PCFC) branches and to assist the BCO Accounting Manager
Belen Yaun in the meantime. She was ordered to explain in writing within forty-eight (48) hours
why no disciplinary action should be taken against her for abandonment of work, which under
existing company policy, carries the penalty of dismissal. She was also directed to refund the total
amount ofP123,685.00 of travel and transportation allowance received by her during the period
June 1, 2002 and March 17, 2003 because she is not entitled thereto while assigned at the main
office.
In her faxed reply, private respondent explained that she reported at the main office starting June
10, 2002 upon assurance given by her former superior, Ms. Aurea De Jesus, that she shall be
receiving her regular TNT package as Senior BCO-Bicol Region and Samar since her stay in the
main office would be just temporary as they will just iron out the problem in Polangui Branch.
There was hesitation on her part since being a permanent resident of Naga City and mother of three

(3) children, she will be dislocated and separated from her family. She insisted that it was never
clarified to her that her area of assignment is being changed and also denied that Deputy Controller
Tamayo specifically instructed her to monitor the BCOs of Porta Coeli Finance Corporation
(PCFC) or assist Ms. Belen Yaun, pointing out that if she ever assisted Ms. Yaun it was her
initiative to get herself busy and if ever she had a record of travel to a PCFC branch, it was done
out of an emergency or her superior was just forced to. She asserted that her assignment at the HO
is a demotion intended to make her feel that her continued presence in the company is no longer
necessary because neither Mr. Tamayo nor Ms. Yaun have been talking to her. Were it not for her
monthly TNT, she could not have stayed at the HO because her take-home pay amounted to only a
little over P2,500.00 every fifteen (15) days, and its subsequent withdrawal by the company
constrained her to report back to Naga City branch, her repeated requests to be returned to her post
having been ignored for the reason that top management was against it. She asserted that her TNT
being a long and accepted company policy, may not be arbitrarily withdrawn and that all her cash
advances and liquidations have been previously approved by her superiors including Mr. Tamayo.
She deplored the mental anguish and social humiliation wrought to her by her present predicament
and sought understanding from the management, wanting to know the reasons behind their
instruction to deny her entry to the premises of the Naga City branch and access to company
records as if she were a thief.
In a memorandum dated April 9, 2003, management reiterated its directive to private respondent for
her to report back to the main office, reminding her that despite her denial regarding any instruction
from Mr. Tamayo for her to monitor the PCFC branches, records showed that she had complied
based on reports she had submitted to the office. Private respondent, however, maintained her
position that she could no longer report to the Home Office after the company withdrew her
monthly TNT. She asserted that considering her difficult situation, she had no choice but to stick to
her appointment as Senior BCO-Bicol Region and Samar there being no superseding memo
changing her assignment.
On April 14, 2003, private respondent received a memorandum from the IAP for an investigation
on the charges of abandonment of work, insubordination and refusal to report back to the place of
work (Head Office), and directing her to attend a hearing set on April 16, 2003 at the main office.
On April 15, 2003, private respondent acknowledged receipt of said memo but proposed that the
hearing be held at Naga City or that she be allowed to make a cash advance to defray her expenses
in going to Mandaluyong City to attend the hearing and investigation by the IAP. She failed to
attend the IAP hearing on the scheduled date as she had been waiting for action from management
regarding the concerns she had communicated. On that same day, she found out that her salary for
the period April 1 to 15, 2003 was withheld and failing to get an explanation from management, she
again reported the matter to the police. Thereupon, she faxed a letter addressed to HRD Manager
Raquel Licsi that the situation had become unbearable for her tantamount to constructive dismissal
and consequently she will ventilate her case before the NLRC.
On April 21, 2003, private respondent filed a complaint for constructive dismissal before the
regional arbitration branch at Naga City, with claims for nonpayment of salaries, service incentive
leave pay, 13th month pay, and praying for reinstatement with full back wages, and moral and
exemplary damages, and attorneys fees (NLRC SUB RUB V No. 05-04-00098-03). On April 24,
2003, private respondent received another memo on the rescheduled date of IAP hearing that very

same day, but in a handwritten reply she submitted to the Naga City Branch, she manifested that
she could not longer report at the HO in view of the case she had already instituted with the NLRC.
On April 30, 2003, the company terminated her services effective May 2, 2003. [5]
In his decision dated 06 November 2003, the Labor Arbiter found petitioners guilty of illegal
dismissal. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered finding respondents [petitioners herein] guilty of

ILLEGAL DISMISSAL. Consequently, the latter are hereby directed to reinstate the complainant
[private respondent herein] to her former position as Sr. BCO in her assignment in Bicol/Samar,
within ten (10) days from receipt of this decision, without loss of seniority and to pay her salary
corresponding thereto. Further, respondents are hereby ordered to pay jointly and severally
complainant with the following:
A. Backwages computed from the date of her separation on April 16, 2003 up to the date of her
actual reinstatement, either physically or on payroll, at the option of the respondent, which as of the
date of this decision has already amounted to P69,911.14, based on the rate of P9,273.02 per month
for seven (7) [months];
B. 13th Month Pay equivalent to P3,091.00;
C. Service Incentive Leave Pay for three (3) years amounting to P5,349.75 computed at the rate
of P356.65/day of five (5) days per year.
D. Moral Damages of P200,000.00;
E. Exemplary Damages of P100,000.00; and
F. Attorneys fees equivalent to 10% of the above-amount of P378,351.89 which is P37,835.18.
All other claims are hereby ordered DISMISSED for lack of merit. [6]
Petitioners thereafter filed their memorandum of appeal before the NLRC which, however,
affirmed in toto the decision of the Labor Arbiter.[7] Petitioners motion for reconsideration was likewise
denied.[8]
Petitioners seasonably filed their petition for review on certiorari before the Court of Appeals. In
the decision[9] now impugned before us, the appellate court denied said petition and dismissed the
same for lack of merit. In said decision, the Court of Appeals also affirmed the NLRCs resolutions
dated 26 March 2004 and 20 May 2004. The dispositive portion of the Court of Appeals decision
follows:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and
accordingly DISMISSED for lack of merit. Consequently, the challenged Resolutions dated March
26, 2004 and May 20, 2004 of the National Labor Relations Commission in NLRC CA No.
038611-04 (NLRC SRAB-V-0400098-03) are hereby both affirmed. [10]
Petitioners moved for the reconsideration of this ruling but they were rebuffed by the appellate
court.[11]

In this petition, petitioners argue, in the main, that the decision to transfer or re-assign private
respondent from Naga City to the head office in Manila was a legitimate exercise of petitioner
corporations management prerogative. Thus, private respondents refusal to report to work in Manila,
coupled with her insistence that she be allowed to resume her work in Naga City, constitutes
insubordination and willful disobedience justifying the termination of her employment.
We do not agree.
Concededly, employers are allowed, under the broad concept of management prerogative, to
regulate all aspects of personnel administration including hiring, work assignments, working methods,
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 dismissal
and recall of workers.[12]
Particularly on the matter of transfer of personnel, this Court, in the case of Philippine Japan
Active Carbon Corporation v. National Labor Relations Commission, [13] held that:

It is the employers prerogative, based on its assessment and perception of its employees
qualifications, aptitudes, and competence, to move them around in the various areas of its business
operations in order to ascertain where they will function with maximum benefit to the company. An
employees right to security of tenure does not give him such a vested right in his position as would
deprive the company of its prerogative to change his assignment or transfer him where he will be
most useful. When his transfer is not unreasonable, nor inconvenient, nor prejudicial to him, and it
does not involve a demotion in rank or a diminution of his salaries, benefits, and other privileges,
the employee may not complain that it amounts to a constructive dismissal. [14]
The managements right to transfer or re-assign its personnel, however, is not absolute as it is
subject to limitations imposed by law, collective bargaining agreements, and general principles of fair
play and justice.[15] The employer must, therefore, muster the test for determining the validity of the
transfer of employees as enunciated in the case of Blue Dairy Corporation v. National Labor
Relations Commission,[16] to wit:

. . . The managerial prerogative to transfer personnel must be exercised without grave abuse of
discretion, bearing in mind the basic elements of justice and fair play. Having the right should not
be confused with the manner in which that right is exercised. Thus, it cannot be used as a
subterfuge by the employer to rid himself of an undesirable worker. In particular, the employer
must be able to show that the transfer is not unreasonable, inconvenient or prejudicial to the
employee; nor does it involve a demotion in rank or a diminution of his salaries, privileges and
other benefits. Should the employer fail to overcome this burden of proof, the employees transfer
shall be tantamount to constructive dismissal, which has been defined as a quitting because
continued employment is rendered impossible, unreasonable or unlikely; as an offer involving a
demotion in rank and diminution in pay. Likewise, constructive dismissal exists when an act of
clear discrimination, insensibility or disdain by an employer has become so unbearable to the
employee leaving him with no option but to forego with his continued employment. [17]
In this case, petitioners failed to pass this test. In the words of the Court of Appeals

While petitioners invoke management prerogative in the transfer of private respondent to Manila,
there is no showing at all of any valid and legitimate reason (i.e., business necessity) for the verbal
transfer order, as in fact private respondent was not given work to do, only occasionally and

constantly (sic) avoided by her superiors. Her meek and desperate plea to be allowed to return to
her former post in Naga City Branch was met with total silence on managements end. Such
insensitivity and disdain pervading her work environment became more intense when her travel
allowances were withdrawn and management demanded for refund of those amounts received by
her on the ground that she is not entitled thereto while posted in the main office, which realized
such erroneous grant only at a late stage after all the vouchers underwent routine approval by the
concerned officers of the company. No other conclusion is discernible from the attendant
circumstances except to confirm private respondents sentiment gleaned from what she had been
hearing all along, that top management indeed wanted to ease her out of the company, as a
consequence of her husbands filing of a similar illegal dismissal suit before the NLRC. [18]
Surely, petitioners cannot expect this Court to sustain its stance by the simple expedient of
invoking its management prerogative. In the end, it is still up to them, as employers, to discharge the
burden of proving the validity of private respondents transfer to the head office. Having failed in this
regard, we are constrained to sustain the findings of the Court of Appeals as well as those of the
NLRC.
We, likewise, rule in favor of private respondent with respect to her entitlement to moral and
exemplary damages. Moral damages may be recovered only where the dismissal of the employee
was tainted by bad faith or fraud, or where it constituted an act oppressive to labor, and done in a
manner contrary to morals, good customs or public policy while exemplary damages are recoverable
only if the dismissal was done in a wanton, oppressive, or malevolent manner. [19] These damages,
however, are not intended to enrich private respondent such that, after deliberations, we find the
amount of P50,000.00 for moral damages and P50,000.00 for exemplary damages sufficient to
assuage the sufferings experienced by private respondent and by way of example or correction for
the public good.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The Court
of Appeals Decision dated 07 March 2005 and its Resolution dated 18 May 2005 are hereby
AFFIRMED with the following MODIFICATIONS:1) the amount of backwages shall be computed from
the date of private respondents illegal dismissal until the finality of this judgment; and 2) the amount
of moral and exemplary damages are reduced to P50,000.00 each. With costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

[1]

Penned by Associate Justice Martin S. Villarama, Jr. with Associate Justices Regalado E. Maambong and Lucenito N.
Tagle, concurring.

[2]

Rollo, p. 11.

[3]

Ibid.

[4]

Rollo, p. 21.

[5]

Rollo, pp. 252-256.

[6]

Rollo, p. 150.

[7]

Rollo, p. 201.

[8]

Rollo, p. 214.

[9]

Rollo, pp. 252-269.

[10]

Rollo, p. 268.

[11]

Rollo, p. 284.

[12]

San Miguel Corporation v. Reynaldo R. Ubaldo, et al., G.R. No. 92859, 01 February 1993, 218 SCRA 293.

[13]

G.R. No. 83239, 08 March 1989, 171 SCRA 164, 168, cited in Agustin Chu v. National Labor Relations Commission,
G.R. No. 106107, 02 June 1994, 232 SCRA 764.

[14]

Id. at 768.

[15]

Philippine Airlines, Inc. v. National Labor Relations Commission, G.R. No. 85985, 13 August 1993, 225 SCRA 301.

[16]

G.R. No. 129843, 14 September 1999, 314 SCRA 401.

[17]

Id. at 408.

[18]

Rollo, pp. 265-266.

[19]

Permex, Inc. and/or Jane (Jean) Punzalan, et al. v. National Labor Relations Commission, G.R. No. 125031, 24
January 2000, 323 SCRA 121.

G.R. No. 106370 September 8, 1994

PHILIPPINE GEOTHERMAL, INC., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and EDILBERTO M. ALVAREZ, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De Los Angeles for petitioner.
Fidel Angelito I. Arias for private respondent.

PADILLA, J.:
Petitioner Philippine Geothermal, Incorporated filed the present petition for certiorari seeking the reversal of the
decision of public respondent National Labor Relation Commision In NLRC CA No. L-000295-91/RB-IV-1-3583-91
entitled "Edilberto M. Alvarez v. Philippine Geothermal, Inc. et al."
The relevant facts of this case are as follows:
Private respondent Edilberto M. Alvarez was first employed by petitioner on 2 July 1979. On 31 May 1989, private
respondent, who was then occupying the position of Steam Test Operator II, injured his right wrist when a steampressured "chicksan swivel joint assembly" exploded while he was checking a geothermal well operated by
petitioner. As a result, private respondent's right arm was placed in a plaster cast and he was confined at the San
Pablo Doctor's Hospital from 31 May 1989 to 3 June 1989.
Dr. Oscar M. Brion, the attending physician, diagnosed private respondent's injuries to be:
1) Complete fracture/dislocation distal radius (r);
2) Complete fracture styloid process and dislocation of the ulna;
3) Right pelvic contusion, which required a recuperation period of approximately forty-five (45) days.
Petitioner thus gave private respondent a fifty (50) days "work-connected accident" (WCA) leave with pay until 29
July 1989. Petitioner also referred private respondent's case to Dr. Liberato A.C. Leagogo, Jr. of the Philippine
Orthopedic Institute, at petitioner's expense.
On 26 July 1989, Dr. Leagogo certified that private respondent was fit to return to work with the qualification
however, that he could only perform light work. Thus, on 31 July 1989, when respondent Alvarez returned to work,
he was assigned to "caliberation of barton recorders", in accordance with the doctor's recommendations.
On 13 November 1989, Alvarez was again examined by Dr. Leagogo who issued a medical certificate which reads:
This is with regards [sic] the work recommendation for Mr. Bert Alvarez.
At this point in time, 5 months post-injury, he can be given moderate working activities, pulling,
pushing, carrying and turning a 20 lbs.-25 lbs. weight/force.
On the 6th month, he can go back to his previous job.

Despite this certification, respondent Alvarez continued to absent himself from work and by the end of 1989 he had
used ten (10) days of vacation leave, eighteen (18) days of sick leave, fifteen (15) days of WCA leave and four (4)
days of emergency leave for the period starting 31 July 1989.
On 28 December 1989, Dr. Leagogo, after examining Alvarez, certified that the latter's injury had healed completely
and that he could thus return to his pre-injury work.
On the same day, Alvarez consulted another doctor, Dr. Angela D.V. Garcia, a private physician, who likewise
confirmed that there were "no contraindications for him (Alvarez) not to attend to his work."
On 29 December 1989, based on Dr. Leagogo's findings, petitioner wrote Alvarez stating:
This is to inform you that based on the examination performed on December 28, 1989 by your
attending physician, Dr. Liberato Antonio C. Leagogo, Jr., your right wrist fracture is completely
healed as stated in the attached medical certificate. Therefore, you are advised to go back to your
regular duty as an Operator II at the Well Testing Section effective immediately.
xxx xxx xxx
Any absences you may incur in the future will be subject to our existing policy on leaves and
absences. . . . 2
Since Alvarez failed to report for work from 2 to 10 January 1990, petitioner again wrote him stating:
. . . it is indicated that your therapy has no contraindication for you not to attend to your work.
However, from that date up to now, January 11, you have not reported for work. . . .
Therefore, as of January 11, 1990, you are considered to be "Absent Without Official Leave (AWOL)
and Without Pay". This letter serves as a warning letter per our rules and regulations, Unauthorized
absences, rule 3, par. i, page 31.
You are advised to immediately report for work or further disciplinary action will be taken.

After reading the letter. Alvarez wrote a hand-written note on petitioner's copy of the letter, stating "Please wait for
my doctor's medical certificate from Dr. Relampagos."
On 19 January 1990, Dr. Victoria Pineda, an orthopedic doctor of the National Orthopedic Hospital whom Alvarez
also consulted issued the following medical certificate:
Patient has reached a plateau in his rehabilitation with limitations of wrist motion (r) as regular. Fit for
work. 4
On 20 January 1990, Alvarez consulted Dr. Francisco, another orthopedic doctor at the Polymedic General Hospital,
who recommended a set of laboratory tests to be conducted on Alvarez' right wrist.
On 1 February 1990, Dr. Relampagos of the National Orthopedic Hospital certified Alvarez to be "Fit for light job." 5
On 6 February 1990, Dr. Francisco, who read and interpreted the results of the tests undertaken on Alvarez at the
St. Luke's Medical Center, certified that there is no "hindrance for him (Mr. Alvarez) to do his office work." 6
Notwithstanding the above medical findings, respondent Edilberto M. Alvarez continued to incur numerous
absences. He did not report for work in the months of January and February 1990.
On 7 February 1990, petitioner addressed its third letter to Alvarez stating:

The attached medical certificates from Dr. Garcia, Dr. Pineda,

Dr. Relampagos, Dr. Francisco, and Dr. Leagogo all indicate that you are fit to work. Based on these
medical certificates, your absences from January 11 to February 6 1990 (23 working days) will be
charged to your sick leave credits. Be advised that your sick leave credits will be exhausted on
February 8, 1990 therefore, you will not be paid for subsequent absences.
In addition, if you fail to report to work and are unable to present a medical certificate explaining your
absences, you will face disciplinary action. I am enclosing the statement of company policy on
absences for your information and would strongly suggest that you report to work immediately. 7
Under petitioner's company rules, employees who incur unauthorized absences of six (6) days or more are subject
to dismissal. Thus, when Alvarez failed to report for work from 8 to 28 February 1990, a total of eighteen (18)
working days with three (3) days off, petitioner wrote Alvarez a fourth time stating in part:
This refers to your continued refusal to report back to work following your recovery from a workrelated accident involving your right wrist last May 31, 1989. That you have recovered is based on
the certification of four (4) physicians, including the company-retained orthopedic doctor and three
(3) other orthopedic specialists whom you personally chose and consulted.
xxx xxx xxx
In order not to lose your income, the company has allowed you to charge all these unwarranted
absences against your accumulated sick leave credits. Our records show that as of February 7,
1990, you have used up all your remaining sick leaves. We would like to emphasize that from
February 8 to 28, all your absences are considered unauthorized and without pay. Please be
reminded that, according to company rules, employees who go on unauthorized absences of six (6)
or more days are subject to dismissal.
The company, therefore, believes that it has given all the time, help, and considerations in your case.
We go by the doctor's certifications that you are already fit to work.
In view of the above, we are giving you a final warning. Should you fail to report to work on Monday,
March 5, 1990 your employment with the company will be terminated. 8
This fourth warning letter of petitioner was unheeded. Alvarez failed to report for work; neither did he inform
petitioner of the reason for his continued absences.
As a consequence, petitioner terminated Alvarez, employment on
9 March 1990.
On 19 June 1990, Alvarez filed a complaint for illegal dismissal against petitioner with the Regional Arbitration
Branch, Region IV.
On 19 December 1990, the labor arbiter dismissed the complaint, without prejudice, for failure of the complainant to
submit his position paper despite repeated orders from the labor arbiter.
On 16 January 1991, private respondent refiled his complaint for illegal dismissal.
On 6 September 1991 the labor arbiter rendered a decision holding private respondent's termination from
employment as valid and justified.
On appeal to the public respondent National Labor Relations Commission (NLRC), the decision was reserved and
set aside. Petitioner was ordered to reinstate Edilberto M. Alvarez to his former position without loss of seniority
rights but without backwages.
A Motion for Reconsideration was denied on 15 May 1992. Petitioner then filed the present petition for certiorari,
based on two (2) grounds namely:

RESPONDENT COMMISSION ABUSED ITS DISCRETION AND ACTED BEYOND ITS

JURISDICTION BY ENTERTAINING AN APPEAL THAT WAS FILED OUT OF TIME
EVEN ON THE MERITS OF THE CASE, RESPONDENT COMMISSION ABUSED ITS
DISCRETION BY FAILING TO APPRECIATE OVERWHELMING EVIDENCE UNIFORMLY
SHOWING THAT THE TERMINATION OF MR. ALVAREZ WAS VALID AND JUSTIFIED. 9
On the issue of whether or not the appeal from the decision of the labor arbiter to the NLRC was filed within the ten
(10) day reglementary period, it is undisputed that private respondent received a copy of the labor arbiter's decision
on 5 September 1991. Alvarez thus had up to 15 September 1991 to perfect his appeal. Since this last mentioned
date was a Sunday, private respondent had to file his appeal on the next business day, 16 September 1991.
Petitioner contends that the appeal was filed only on 20 September 1991. Respondent NLRC however found that
private respondent filed his appeal by registered mail on 16 September 1991, the same day that petitioner's counsel
was furnished copies of said appeal. 10
We will not disturb this factual finding of the NLRC.
The contention that even assuming arguendo that the appeal was filed on time, the appeal fee was paid four (4)
days late (and, therefore, the appeal to the NLRC should be dismissed) likewise fails to entirely empress us. InC.W.
Tan Manufacturing v. NLRC, 11 we held that "the broader interest of justice and the desired objective of deciding the case
on the merits demand that the appeal be given due course."
On the issue of whether or not Edilberto M. Alvarez was validly dismissed, we rule in the affirmative and
consequently the decision of respondent NLRC is set aside.
Article 282(b) of the Labor Code provides that an employer may validly dismiss an employee for gross and habitual
neglect by the employee of his duties. In the present case, it is clear that private respondent was guilty of seriously
neglecting his duties.
The records establish that as early as 26 July 1989, Dr. Leagogo already had certified that Alvarez could perform
light work. On 13 November 1989,
Dr. Leagogo certified that Alvarez could perform moderate work and it was further certified that by December 1989,
Alvarez could return to his pre-injury duties. Notwithstanding these certifications, Alvarez continued to incur
unexplained absences until his dismissal on 9 March 1990.
A review of Alvarez' record of attendance shows that from August to December 1989, he reported for work only
seventy-seven (77) times while he incurred forty-seven (47) absences.
An employee who earnestly desires to resume his regular duties after recovering from an injury undoubtedly will not
go through the trouble of getting opinions from five (5) different of getting opinions from five (5) different physicians
before going back to work after he has been certified to be fit to return to his regular duties.
Petitioner has not been shown to be without sympathy or concern for Alvarez. He was given fifty (50) days workconnected accident (WCA) leave with pay to allow him to recuperate from his injury without loss of earnings. He was
allowed to use his leave credits and was actually given an additional fifteen (15) days WCA leave to allow him to
consult his doctors and fully recover from his injuries. Moreover, petitioner gave Alvarez several warnings to report
for work, otherwise, he would face disciplinary sanctions. In spite of these warnings, Alvarez was absent without
official leave (AWOL) for eighteen (18) days. Under company policy, of which Alvarez was made aware, employees
who incur without valid reason six (6) or more absences are subject to dismissal.
Petitioner, in its fourth and last warning letter to Alvarez, was willing to allow him to resume his work in spite of the
eighteen (18) days he went on AWOL. It was made clear, however, that should private respondent still fail to report
for work on 5 March 1990, his employment would be terminated.
Private respondent failed to report for work on 5 March 1990. Petitioner validly dismissed him not only for violation
of company policy but also for violation of Section 282(c) of the Labor Code aforecited.

While it is true that compassion and human consideration should guide the disposition of casses 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. 12 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).
In Cando v. National Labor Relations Commission 13 the Court awarded separation pay to an employee who was
terminated for unuathorized absences. We believe that separation pay of one-half (1/2) month salary for every year of
service is adequate in this case.
WHEREFORE, the decision of respondent National Labor Relations Commision is hereby SET ASIDE and the
decision of the Labor Arbiter is reinstated with the MODIFICATION that petitioner Philippine Geothermal, Inc. is
ordered to pay private respondent Edilberto M. Alvarez separation pay equivalent to one-half (1/2) month salary for
every year of service starting from 2 July 1979 until his dismissal on 9 March 1990.
SO ORDERED.
Narvasa, C.J., Regalado, and Puno, JJ., concur.
Mendoza, J., took no part.

#Footnotes

1 Annex "D", Petition.

2 Annex "G", Petition.
3 Annex "H", Petition.
4 Annex "I", Petition.
5 Annex "J", Petition.
6 Annex "L", Petition.
7 Annex "M", Petition.
8 Annex "N", Petition.
9 Rollo, p. 17.
10 Rollo, p. 114.
11 G.R. No. 79596, 10 February 1989, 170 SCRA 240.
12 Pacific Mills, Inc. v. Alonzo, G.R. No. 78090, 26 July 1991, 199 SCRA 617.
13 G.R. No. 91344, 14 September 1990, 189 SCRA 666.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

FRANCISCO A. LABAO,
Petitioner,

G.R. No. 187984

Present:

versus CARPIO MORALES, J., Chairperson,

BRION,

LOLITO N. FLORES, AMADO

A. DAGUISONAN, PEPE M.
CANTAR, JULIO G.
PAGENTE, JESUS E. ARENA,
CRISPIN A. NAVALES,
OSCAR M. VENTE,
ARTEMIO B. ARAGON,
ARNOLD M. CANTAR,
ALBERTO T. CUADERO,
RASMI E. RONQUILLO,
PEDRO R. GABUTAN,
ELPEDIO E.
MENTANG, WILFREDO R.
MIOSA, RODERICK P.
NAMBATAC, MARCIAL D.
RIVERA, SANDE E.
CASTIL,CRISOSTOMO B.
ESIC, and AMBROSIO M.
CANTAR,

BERSAMIN,

Respondents.

November 15, 2010

VILLARAMA, JR., and

SERENO, JJ.

Promulgated:

x----------------------------------------------------------------------------------------x
DECISION
BRION, J.:

We resolve the petition for review on certiorari[1] filed by petitioner Francisco

A. Labao (petitioner) to challenge the decision[2] and resolution[3] of the
Court of Appeals (CA) in CA-G.R. SP No. 01472-MIN.[4]
The Factual Antecedents

The facts of the case, gathered from the records, are briefly
summarized below.

The petitioner is the proprietor and general manager of the San Miguel
Protective Security Agency (SMPSA), a licensed security-service
contractor. Respondents Lolito N. Flores, Amado A. Daguisonan, Pepe M.
Cantar, Julio G. Pagente, Jesus E. Arena, Crispin A. Navales, Oscar M. Vente,
Artemio B. Aragon, Arnold M. Cantar, Alberto T. Cuadero, Rasmi E. Ronquillo,
Pedro R. Gabutan, Elpedio E. Mentang, Wilfredo R. Miosa, Roderick P.
Nambatac, Marcial D. Rivera, Sande E. Castil, Crisostomo B. Esic, Ambrosio
M. Cantar (respondents) and Jimmy O. Bicoy, were SMPSA security guards
assigned to the National Power Corporation, Mindanao Regional Center
(NPC-MRC), Ditucalan, Iligan City. Each of the respondents had a monthly
salary of P7,020.00.

On July 27, 2004, the petitioner issued a memorandum requiring all

security guards to submit their updated personal data files, security guard
professional license, and other pertinent documents by July 30, 2004 for
reevaluation in connection with the SMPSAs new service contract with the
NPC-MRC. [5]

When respondents failed to comply with the petitioners directive,

despite several notices to do so, the petitioner relieved them from NPC-MRC
duty starting September and October 2004, and ordered them to report to
the Senior Operations Officer, Nemesio Sombilon, for new assignments.

Sometime in March and April 2005, the respondents filed individual

complaints with the Iligan City Sub-Regional Arbitration Branch of the

National Labor Relations Commission (NLRC) for illegal dismissal and money
claims, claiming they were constructively dismissed when they were not
given new assignments for a period of over 6 months, despite repeated
requests for NPC-MRC redeployment and for new assignments. The
complaints were consolidated.

The petitioner and SMPSA denied the charge of constructive

dismissal. They countered that the respondents relief from NPC-MRC duty
was a valid exercise of its management prerogative. Furthermore, they
issued a notice (dated January 17, 2005)[6] directing the respondents to
report to SMPSAs main office for new assignments, but the latter failed or
refused to comply without any valid reasons.

The Labor Arbiter Ruling

In a December 27, 2005 decision, Labor Arbiter (LA) Noel Augusto S.

Magbanua dismissed the consolidated complaints for lack of merit. He held
that the respondents relief from NPC-MRC duty was due to their failure to
comply with SMSPAs requirement for its employees to submit updated
documents to meet NPC-MRC contract renewal requirements. According to
the LA, this was a legitimate exercise of NPC-MRCs management
prerogative, in light of the information it received that some security guards
carried falsified documents.[7]

The respondents appealed the dismissal of their complaints to the

NLRC.

The NLRC Ruling

In a July 31, 2006 resolution, the NLRC affirmed the LA decision. It

noted that the respondents relief was in good faith, without grave abuse of
discretion, and in the best interest of the business enterprise since SMPSA
merely exercised its management prerogative and discretion to protect its
business interest.[8]

It also noted that the respondents temporary off-detail did not exceed
the 6-month period permitted by law, since the respondents were directed,
through the January 17, 2005 notice, to report for a new assignment on
January 25, 2005, but they failed or refused to do so.

In a September 29, 2006 resolution, the NLRC denied the respondents

subsequent motion for reconsideration. [9] The respondents counsel, Atty.
Demosthenes R. Plando, received the September 29, 2006 resolution
on October 13, 2006.

Eighty-eight (88) days later, or on January 9, 2007, the respondents,

through their new counsel, filed with the CA a petition for certiorari under
Rule 65 of the Rules of Court, alleging that they were informed of the
September 29, 2006 resolution on December 6, 2006, while Bicoy
received a copy of the resolution on November 6, 2006.

The CA Ruling

In its September 5, 2008 decision, the CA set aside the NLRC

resolution, finding that the respondents were constructively dismissed when
they were not given new assignments for more than 6 months, from
September and October 2004, when the respondents were off-detailed, until
March and April 2005, when they filed their individual complaints for illegal
dismissal. The appellate court noted that the January 17, 2005 notice to
report for new assignments did not toll the 6-month floating status period
since the respondents failed to receive the notice before the appointed
date, as SMPSA sent the notice by registered mail, which normally takes at
least 5 working days to reach the intended recipients. [10]

Finding that reinstatement was no longer viable under the

circumstances, the CA awarded the respondents separation pay at one (1)
months salary for every year of service, plus full backwages, allowances and
other statutory benefits under the law.

The petitioner and SMPSA moved for reconsideration, arguing that the
CA should have dismissed the petition outright for late filing, and that there
was no compelling reason for the reversal of the LA and the NLRCs factual
findings.[11]

In its April 22, 2009 resolution, the CA modified its September 5, 2008
decision by dismissing Bicoys petition for having been filed out of
time. However, it considered the respondents petition as timely filed. It also
opined that disregarding any procedural lapses best served substantial
justice.[12]

The petitioner then filed the present petition. Bicoy, with respondents
Castil, Esic, and Ambrocio M. Cantar filed a separate appeal, docketed as
G.R. No. 190848. The Court denied this appeal in its April 5, 2010 resolution
for late filing and for non-compliance with Rules 45 and 46 of the Rules of
Court.

The Petition

The petitioner argues that: (a) the respondents CA petition

for certiorari was filed 28 days late; (b) the respondents new counsel
concealed Atty. Plandos October 13, 2006 receipt of the September 26,
2006 resolution and relied on the respondents December 6, 2006 notice of
the resolution; and (c) the evidence on record supports the LA and NLRC
decisions.

The Case for the Respondents

In contrast, the respondents submit that: (a) December 6, 2006 is the

reckoning date of the 60-day period; (b) Atty. Plandos October 13, 2006
receipt did not bind them because his secretary, Sonia M. Barnachea,
misplaced the September 29, 2006 resolution and they should not suffer for
her negligence; and (c) the evidence on record does not support the LA and
NLRC rulings.

Issue

The core issues boil down to whether the CA erred in acting on the
respondents petition despite its late filing, and in reversing the LA and NLRC
decisions.

The Courts Ruling

We find the petition meritorious.

Timeliness of the CA petition for certiorari

Under Section 4 of Rule 65 of the 1997 Rules of Civil Procedure,

certiorari should be instituted within a period of 60 days from notice of
the judgment, order, or resolution sought to be assailed. [14] The 60-day
[13]

period is inextendible to avoid any unreasonable delay that would violate

the constitutional rights of parties to a speedy disposition of their case. [15]

Time and again, we have stressed that procedural rules do not exist for
the convenience of the litigants; the rules were established primarily to
provide order to, and enhance the efficiency of, our judicial system. [16] While
procedural rules are liberally construed, the provisions on reglementary
periods are strictly applied, indispensable as they are to the prevention of
needless delays, and are necessary to the orderly and speedy discharge of
judicial business.[17] The timeliness of filing a pleading is a jurisdictional
caveat that even this Court cannot trifle with. [18]

Viewed in this light, procedural rules are not to be belittled or

dismissed simply because their non-observance may have prejudiced a
party's substantive rights; like all rules, they are required to be followed.
However, there are recognized exceptions to their strict observance,
such as: (1) most persuasive and weighty reasons; (2) to relieve a litigant
from an injustice not commensurate with his failure to comply with the
prescribed procedure; (3) good faith of the defaulting party by immediately
paying within a reasonable time from the time of the default; (4) the
existence of special or compelling circumstances; (5) the merits of the case;
(6) a cause not entirely attributable to the fault or negligence of the party
favored by the suspension of the rules; (7) a lack of any showing that the
review sought is merely frivolous and dilatory; (8) the other party will not be
unjustly prejudiced thereby; (9) fraud, accident, mistake or excusable
negligence without appellant's fault; (10) peculiar legal and equitable
circumstances attendant to each case; (11) in the name of substantial
justice and fair play; (12) importance of the issues involved; and (13)
exercise of sound discretion by the judge guided by all the attendant
circumstances.[19] Thus, there should be an effort on the part of the party
invoking liberality to advance a reasonable or meritorious explanation for
his/her failure to comply with the rules.

Negligence of former counsel binds the respondents

In the present case, the respondents petition for certiorari was filed
twenty-eight (28) days late from Atty. Plandos October 13, 2006 receipt of
the September 29, 2006 resolution. The respondents insist that they should
not suffer for Atty. Plandos negligence in failing to inform them of the
September 29, 2006 resolution, and the reckoning date for the 60-day
period should be their December 6, 2006 notice.

The general rule is that a client is bound by the acts, even mistakes, of
his counsel in the realm of procedural technique. [20] The exception to this
rule is when the negligence ofcounsel is so gross, reckless and inexcusable
that the client is deprived of his day in court. [21] The failure of a
partys counsel to notify him on time of the adverse judgment, to enable him
to appeal therefrom, is negligence that is not excusable. We have
repeatedly held that notice sent to counsel of record is binding upon
the client, and the neglect or failure of counsel to inform him of an
adverse judgment resulting in the loss of his right to appeal is not
a ground for setting aside a judgment valid and regular on its face.
[22]

We cannot sustain the respondents argument that they cannot be bound by

Atty. Plandos negligence since this would set a dangerous precedent. It
would enable every party-litigant to render inoperative any adverse order or
decision of the courts or tribunals, through the simple expedient of alleging
his/her counsels gross negligence.

We thus find that the CA erred in acting on the respondents petition

for certiorari despite its late filing. The NLRC resolution was already final and
executory, and the CA had no jurisdiction to entertain the petition, except to
order its dismissal.

Immutability of NLRC resolution

The NLRCs resolution became final ten (10) days after counsels receipt,
and the respondents failure to file the petition within the required (60)-day

period rendered it impervious to any attack through a Rule 65 petition

for certiorari. Thus, no court can exercise jurisdiction to review the
resolution.[23]

Needless to stress, a decision that has acquired finality becomes

immutable and unalterable and may no longer be modified in any respect,
even if the modification is meant to correct erroneous conclusions of fact or
law and whether it will be made by the court that rendered it or by the
highest court of the land. [24] All the issues between the parties are deemed
resolved and laid to rest once a judgment becomes final and executory;
execution of the decision proceeds as a matter of right as vested rights are
acquired by the winning party.[25] Just as a losing party has the right to
appeal within the prescribed period, the winning party has the correlative
right to enjoy the finality of the decision on the case. [26] After all, a denial of
a petition for being time-barred is tantamount to a decision on the merits.
[27]
Otherwise, there will be no end to litigation, and this will set to naught
the main role of courts of justice to assist in the enforcement of the rule of
law and the maintenance of peace and order by settling justiciable
controversies with finality.[28]

WHEREFORE, the present petition is GRANTED. The assailed decision

and resolution of the Court of Appeals in CA-G.R. SP No. 01472-MIN
are REVERSED and SET ASIDE. The decision of the Labor Arbiter
is REINSTATED. No pronouncement as to costs.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARTIN S. VILLARAMA,
JR.
Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

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

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

CERTIFICATION

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

RENATO C. CORONA
Chief Justice

Known as Elpedito Mentang in other parts of the record.

Known as Wilfredo R. Mioza in other parts of the record.

Known as Sandy A. Castil in other parts of the record.

Known as Ambrocio M. Cantar, Jr. and Ambrosio M. Cantar, Jr. in other parts of the record.

[1]

Pursuant to Rule 45 of the Rules of Court; rollo, pp.74-95.

[2]

Dated September 5, 2008; penned by Associate Justice Jane Aurora C. Lantion, with the concurrence of Associate Justices Edgardo
A. Camello and Edgardo T. Lloren; id. at 100-123.

[3]

Dated April 22, 2009; id. at 154-158.

[4]

Entitled Jimmy O. Bicoy, et al. v. San Miguel Protective Security Agency and/or Francisco A. Labao; Lolito N. Flores, et al. v.
SMPSA and/or Francisco A. Labao; Pedro Gabutan, et al. v. SMPSA and/or Francisco A. Labao.

[5]

Rollo, p. 211.

[6]

Id. at 266-284.

[7]

Id. at 289-294.

[8]

Id. at 319-326.

[9]

Id. at 340-342.

[10]

Supra note 2.

[11]

Id. at 124-145.

[12]

Supra note 3.

[13]

SEC. 4. Where petition filed. The petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution sought to be
assailed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a corporation, board, officer or person, in the Regional Trial
Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the
same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves the acts or omissions of a quasi-judicial
agency, and unless otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the Court of Appeals.

[14]

Philemploy Services and Resources, Inc. v. Rodriguez, G.R. No. 152616, March 31, 2006, 486 SCRA 302, 324, citing Abbott Laboratories Phils.,
Inc. v. Abbott Laboratories Employees Union, 380 Phil. 364 (2000), and St. Martin Funeral Home v. NLRC, 356 Phil. 811 (1998).

[15]

Laguna Metts Corporation v. Court of Appeals, G.R. No. 185220, July 27, 2009, 594 SCRA 139, 143, citing De Los Santos v.
Court of Appeals, G.R. No. 147912, April 26, 2006, 488 SCRA 351; Yutingco v. Court of Appeals, 435 Phil. 83, 91 (2002).

[16]

Mejillano v. Lucillo, G.R. No. 154717, June 19, 2009, 590 SCRA 1, 9; Ko v. Philippine National Bank, G.R. Nos. 169131-32,
January 20, 2006, 479 SCRA 298, 303.

[17]

Villa v. Heirs of Enrique Altavas, G.R. No. 162028, July 14, 2008, 558 SCRA 157, 166; Moneytrend Lending Corporation v. Court
of Appeals, G.R. No 165580, February 20, 2006, 482 SCRA 705, 714. Prudential Guarantee and Assurance, Inc. v. Court of
Appeals, 480 Phil. 134 (2004); FJR Garments Industries v. Court of Appeals, 130 SCRA 216, 218 (1984).

[18]

National Power Corporation v. Laohoo, G.R. No. 151973, July 23, 2009, 593 SCRA 564, 579-580; Bank of America, NT & SA v.
Gerochi, Jr., G.R. No. 73210, February 10, 1994, 230 SCRA 9, 15.

[19]

Lim v. Delos Santos, G.R. No. 172574, July 31, 2009, 594 SCRA 607, 616-617; Villena v. Rupisan, G.R. No. 167620, April 3, 2007,
520 SCRA 346, 358-359.

[20]

Philux, Inc. v. National Labor Relations Commission, G.R. No. 151854, September 3, 2008, 564 SCRA 21, 33; Producers Bank of
the Phils. v. Court of Appeals, 430 Phil. 812, 830 (2002).

[21]

Ibid.

[22]

Rivera v. Court of Appeals, G.R. No. 157040, February 12, 2008, 544 SCRA 434, 451-452; Manaya v. Alabang Country Club
Incorporated, G.R. No. 168988, June 19, 2007, 525 SCRA 140; Trust International Paper Corporation v. Pelaez, G.R. No. 164871,
August 22, 2006, 499 SCRA 552, 561-562; Azucena v. Foreign Manpower Services, 484 Phil. 316, 327 (2004); Mercury Drug
Corporation v. Court of Appeals, 390 Phil. 902, 913-914 (2000).

[23]

Philippine Commercial and Industrial Bank v. Court of Appeals, 391 Phil. 145, 153 (2000).

[24]

Pea v. Government Service Insurance System, G.R No.159520, September 19, 2006, 502 SCRA 383, 404.

[25]

Rules of Court, Rule 39, Sec. 1. Execution upon judgments or final orders. - Execution shall issue as a matter of right, on motion,
upon a judgment or order that disposes of the action or proceedings upon the expiration of the period to appeal therefrom if no
appeal has been duly perfected. x x x

[26]

Bello v. National Labor Relations Commission, G.R. No. 146212, September 5, 2007, 532 SCRA 234, 242.

[27]

National Power Corporation v. Laohoo, supra note 18, at 590; Videogram Regulatory Board v. Court of Appeals, G.R. No.
106564, November 28, 1996, 265 SCRA 50, 56.

[28]

Estinozo v. Court of Appeals, G.R. No. 150276, February 12, 2008, 544 SCRA 422, 432.

G.R. No. 101279 August 6, 1992

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner,
vs.

HON. RUBEN D. TORRES, as Secretary of the Department of Labor & Employment, and JOSE N.
SARMIENTO, as Administrator of the PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION,respondents.
De Guzman, Meneses & Associates for petitioner.

GRIO-AQUINO, J.:
This petition for prohibition with temporary restraining order was filed by the Philippine Association of Service
Exporters (PASEI, for short), to prohibit and enjoin the Secretary of the Department of Labor and Employment
(DOLE) and the Administrator of the Philippine Overseas Employment Administration (or POEA) from enforcing and
implementing DOLE Department Order No. 16, Series of 1991 and POEA Memorandum Circulars Nos. 30 and 37,
Series of 1991, temporarily suspending the recruitment by private employment agencies of Filipino domestic helpers
for Hong Kong and vesting in the DOLE, through the facilities of the POEA, the task of processing and deploying
such workers.
PASEI is the largest national organization of private employment and recruitment agencies duly licensed and
authorized by the POEA, to engaged in the business of obtaining overseas employment for Filipino landbased
workers, including domestic helpers.
On June 1, 1991, as a result of published stories regarding the abuses suffered by Filipino housemaids employed in
Hong Kong, DOLE Secretary Ruben D. Torres issued Department Order No. 16, Series of 1991, temporarily
suspending the recruitment by private employment agencies of "Filipino domestic helpers going to Hong Kong" (p.
30, Rollo). The DOLE itself, through the POEA took over the business of deploying such Hong Kong-bound workers.
In view of the need to establish mechanisms that will enhance the protection for Filipino domestic
helpers going to Hong Kong, the recruitment of the same by private employment agencies is hereby
temporarily suspended effective 1 July 1991. As such, the DOLE through the facilities of the
Philippine Overseas Employment Administration shall take over the processing and deployment of
household workers bound for Hong Kong, subject to guidelines to be issued for said purpose.
In support of this policy, all DOLE Regional Directors and the Bureau of Local Employment's regional
offices are likewise directed to coordinate with the POEA in maintaining a manpower pool of
prospective domestic helpers to Hong Kong on a regional basis.
For compliance. (Emphasis ours; p. 30, Rollo.)
Pursuant to the above DOLE circular, the POEA issued Memorandum Circular No. 30, Series of 1991, dated July
10, 1991, providing GUIDELINES on the Government processing and deployment of Filipino domestic helpers to
Hong Kong and the accreditation of Hong Kong recruitment agencies intending to hire Filipino domestic helpers.
Subject: Guidelines on the Temporary Government Processing and Deployment of Domestic Helpers
to Hong Kong.
Pursuant to Department Order No. 16, series of 1991 and in order to operationalize the temporary
government processing and deployment of domestic helpers (DHs) to Hong Kong resulting from the
temporary suspension of recruitment by private employment agencies for said skill and host market,
the following guidelines and mechanisms shall govern the implementation of said policy.
I. Creation of a joint POEA-OWWA Household Workers Placement Unit (HWPU)
An ad hoc, one stop Household Workers Placement Unit [or HWPU] under the supervision of the
POEA shall take charge of the various operations involved in the Hong Kong-DH industry segment:
The HWPU shall have the following functions in coordination with appropriate units and other entities
concerned:

1. Negotiations with and Accreditation of Hong Kong Recruitment Agencies

2. Manpower Pooling
3. Worker Training and Briefing
4. Processing and Deployment
5. Welfare Programs
II. Documentary Requirements and Other Conditions for Accreditation of Hong Kong Recruitment
Agencies or Principals
Recruitment agencies in Hong Kong intending to hire Filipino DHs for their employers may negotiate
with the HWPU in Manila directly or through the Philippine Labor Attache's Office in Hong Kong.
xxx xxx xxx
X. Interim Arrangement
All contracts stamped in Hong Kong as of June 30 shall continue to be processed by POEA until 31
July 1991 under the name of the Philippine agencies concerned. Thereafter, all contracts shall be
processed with the HWPU.
Recruitment agencies in Hong Kong shall submit to the Philippine Consulate General in Hong kong
a list of their accepted applicants in their pool within the last week of July. The last day of acceptance
shall be July 31 which shall then be the basis of HWPU in accepting contracts for processing. After
the exhaustion of their respective pools the only source of applicants will be the POEA manpower
pool.
For strict compliance of all concerned. (pp. 31-35, Rollo.)
On August 1, 1991, the POEA Administrator also issued Memorandum Circular No. 37, Series of 1991, on the
processing of employment contracts of domestic workers for Hong Kong.
TO: All Philippine and Hong Kong Agencies engaged in the recruitment of Domestic helpers for
Hong Kong
Further to Memorandum Circular No. 30, series of 1991 pertaining to the government processing
and deployment of domestic helpers (DHs) to Hong Kong, processing of employment contractswhich
have been attested by the Hong Kong Commissioner of Labor up to 30 June 1991 shall be
processed by the POEA Employment Contracts Processing Branch up to 15 August 1991 only.
Effective 16 August 1991, all Hong Kong recruitment agent/s hiring DHs from the Philippines shall
recruit under the new scheme which requires prior accreditation which the POEA.
Recruitment agencies in Hong Kong may apply for accreditation at the Office of the Labor Attache,
Philippine Consulate General where a POEA team is posted until 31 August 1991. Thereafter, those
who failed to have themselves accredited in Hong Kong may proceed to the POEA-OWWA
Household Workers Placement Unit in Manila for accreditation before their recruitment and
processing of DHs shall be allowed.
Recruitment agencies in Hong Kong who have some accepted applicants in their pool after the cutoff period shall submit this list of workers upon accreditation. Only those DHs in said list will be
allowed processing outside of the HWPU manpower pool.

For strict compliance of all concerned. (Emphasis supplied, p. 36, Rollo.)

On September 2, 1991, the petitioner, PASEI, filed this petition for prohibition to annul the aforementioned DOLE
and POEA circulars and to prohibit their implementation for the following reasons:
1. that the respondents acted with grave abuse of discretion and/or in excess of their rule-making
authority in issuing said circulars;
2. that the assailed DOLE and POEA circulars are contrary to the Constitution, are unreasonable,
unfair and oppressive; and
3. that the requirements of publication and filing with the Office of the National Administrative
Register were not complied with.
There is no merit in the first and second grounds of the petition.
Article 36 of the Labor Code grants the Labor Secretary the power to restrict and regulate recruitment and
placement activities.
Art. 36. Regulatory Power. The Secretary of Labor shall have the power to restrict and regulatethe
recruitment and placement activities of all agencies within the coverage of this title [Regulation of
Recruitment and Placement Activities] and is hereby authorized to issue orders and promulgate
rules and regulations to carry out the objectives and implement the provisions of this title. (Emphasis
ours.)
On the other hand, the scope of the regulatory authority of the POEA, which was created by Executive Order No.
797 on May 1, 1982 to take over the functions of the Overseas Employment Development Board, the National
Seamen Board, and the overseas employment functions of the Bureau of Employment Services, is broad and farranging for:
1. Among the functions inherited by the POEA from the defunct Bureau of Employment Services was
the power and duty:
"2. To establish and maintain a registration and/or licensing system to regulate
private sector participation in the recruitment and placement of workers, locally and
overseas, . . ." (Art. 15, Labor Code, Emphasis supplied). (p. 13, Rollo.)
2. It assumed from the defunct Overseas Employment Development Board the power and duty:
3. To recruit and place workers for overseas employment of Filipino contract workers
on a government to government arrangement and in such other sectors as policy
may dictate . . . (Art. 17, Labor Code.) (p. 13, Rollo.)
3. From the National Seamen Board, the POEA took over:
2. To regulate and supervise the activities of agents or representatives of shipping
companies in the hiring of seamen for overseas employment; and secure the best
possible terms of employment for contract seamen workers and secure compliance
therewith. (Art. 20, Labor Code.)
The vesture of quasi-legislative and quasi-judicial powers in administrative bodies is not unconstitutional,
unreasonable and oppressive. It has been necessitated by "the growing complexity of the modern society" (Solid
Homes, Inc. vs. Payawal, 177 SCRA 72, 79). More and more administrative bodies are necessary to help in the
regulation of society's ramified activities. "Specialized in the particular field assigned to them, they can deal with the
problems thereof with more expertise and dispatch than can be expected from the legislature or the courts of
justice" (Ibid.).

It is noteworthy that the assailed circulars do not prohibit the petitioner from engaging in the recruitment and
deployment of Filipino landbased workers for overseas employment. A careful reading of the challenged
administrative issuances discloses that the same fall within the "administrative and policing powers expressly or by
necessary implication conferred" upon the respondents (People vs. Maceren, 79 SCRA 450). The power to "restrict
and regulate conferred by Article 36 of the Labor Code involves a grant of police power (City of Naga vs. Court of
Appeals, 24 SCRA 898). To "restrict" means "to confine, limit or stop" (p. 62, Rollo) and whereas the power to
"regulate" means "the power to protect, foster, promote, preserve, and control with due regard for the interests, first
and foremost, of the public, then of the utility and of its patrons" (Philippine Communications Satellite Corporation
vs. Alcuaz, 180 SCRA 218).
The Solicitor General, in his Comment, aptly observed:
. . . Said Administrative Order [i.e., DOLE Administrative Order No. 16] merely restricted the scope or
area of petitioner's business operations by excluding therefrom recruitment and deployment of
domestic helpers for Hong Kong till after the establishment of the "mechanisms" that will enhance
the protection of Filipino domestic helpers going to Hong Kong. In fine, other than the recruitment
and deployment of Filipino domestic helpers for Hongkong, petitioner may still deploy other class of
Filipino workers either for Hongkong and other countries and all other classes of Filipino workers for
other countries.
Said administrative issuances, intended to curtail, if not to end, rampant violations of the rule against
excessive collections of placement and documentation fees, travel fees and other charges
committed by private employment agencies recruiting and deploying domestic helpers to Hongkong.
[They are reasonable, valid and justified under the general welfare clause of the Constitution, since
the recruitment and deployment business, as it is conducted today, is affected with public interest.
xxx xxx xxx
The alleged takeover [of the business of recruiting and placing Filipino domestic helpers in
Hongkong] is merely a remedial measure, and expires after its purpose shall have been attained.
This is evident from the tenor of Administrative Order No. 16 that recruitment of Filipino domestic
helpers going to Hongkong by private employment agencies are hereby "temporarily
suspendedeffective July 1, 1991."
The alleged takeover is limited in scope, being confined to recruitment of domestic helpers going to
Hongkong only.
xxx xxx xxx
. . . the justification for the takeover of the processing and deploying of domestic helpers for
Hongkong resulting from the restriction of the scope of petitioner's business is confined solely to the
unscrupulous practice of private employment agencies victimizing applicants for employment as
domestic helpers for Hongkong and not the whole recruitment business in the Philippines. (pp. 6265, Rollo.)
The questioned circulars are therefore a valid exercise of the police power as delegated to the executive branch of
Government.
Nevertheless, they are legally invalid, defective and unenforceable for lack of power publication and filing in the
Office of the National Administrative Register as required in Article 2 of the Civil Code, Article 5 of the Labor Code
and Sections 3(1) and 4, Chapter 2, Book VII of the Administrative Code of 1987 which provide:
Art. 2. Laws shall take effect after fifteen (15) days following the completion of their publication in the
Official Gazatte, unless it is otherwise provided. . . . (Civil Code.)
Art. 5. Rules and Regulations. The Department of Labor and other government agencies charged
with the administration and enforcement of this Code or any of its parts shall promulgate the

necessary implementing rules and regulations. Such rules and regulations shall become effective
fifteen (15) days after announcement of their adoption in newspapers of general circulation.
(Emphasis supplied, Labor Code, as amended.)
Sec. 3. Filing. (1) Every agency shall file with the University of the Philippines Law Center, three
(3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of this Code
which are not filed within three (3) months shall not thereafter be the basis of any sanction against
any party or persons. (Emphasis supplied, Chapter 2, Book VII of the Administrative Code of 1987.)
Sec. 4. Effectivity. In addition to other rule-making requirements provided by law not inconsistent
with this Book, each rule shall become effective fifteen (15) days from the date of filing as above
provided unless a different date is fixed by law, or specified in the rule in cases of imminent danger
to public health, safety and welfare, the existence of which must be expressed in a statement
accompanying the rule. The agency shall take appropriate measures to make emergency rules
known to persons who may be affected by them. (Emphasis supplied, Chapter 2, Book VII of the
Administrative Code of 1987).
Once, more we advert to our ruling in Taada vs. Tuvera, 146 SCRA 446 that:
. . . Administrative rules and regulations must also be published if their purpose is to enforce or
implement existing law pursuant also to a valid delegation. (p. 447.)
Interpretative regulations and those merely internal in nature, that is, regulating only the personnel of
the administrative agency and not the public, need not be published. Neither is publication required
of the so-called letters of instructions issued by administrative superiors concerning the rules or
guidelines to be followed by their subordinates in the performance of their duties. (p. 448.)
We agree that publication must be in full or it is no publication at all since its purpose is to inform the
public of the content of the laws. (p. 448.)
For lack of proper publication, the administrative circulars in question may not be enforced and implemented.
WHEREFORE, the writ of prohibition is GRANTED. The implementation of DOLE Department Order No. 16, Series
of 1991, and POEA Memorandum Circulars Nos. 30 and 37, Series of 1991, by the public respondents is hereby
SUSPENDED pending compliance with the statutory requirements of publication and filing under the
aforementioned laws of the land.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Medialdea, Regalado, Davide, Jr., Romero, Nocon and
Bellosillo, JJ., concur.

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

MATLING INDUSTRIAL
AND COMMERCIAL
CORPORATION,

G.R. No. 157802

Present:

RICHARD K. SPENCER,
CATHERINE SPENCER,

CARPIO MORALES, Chairperson,

AND ALEX MANCILLA,

BRION,

Petitioners,

BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

-versus Promulgated:
RICARDO R. COROS,

October 13, 2010

Respondent.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:
This case reprises the jurisdictional conundrum of whether a complaint
for illegal dismissal is cognizable by the Labor Arbiter (LA) or by the
Regional Trial Court (RTC). The determination of whether the dismissed
officer was a regular employee or a corporate officer unravels the
conundrum. In the case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to adjudicate.

In this appeal via petition for review on certiorari, the petitioners

challenge the decision dated September 13, 2002[1] and the resolution dated
April 2, 2003,[2] both promulgated in C.A.-G.R. SP No. 65714 entitled Matling
Industrial and Commercial Corporation, et al. v. Ricardo R. Coros and
National Labor Relations Commission, whereby by the Court of Appeals (CA)
sustained the ruling of the National Labor Relations Commission (NLRC) to
the effect that the LA had jurisdiction because the respondent was not a

corporate officer of petitioner Matling Industrial and Commercial Corporation

(Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and
Administration, the respondent filed on August 10, 2000 a complaint for
illegal suspension and illegal dismissal against Matling and some of its
corporate officers (petitioners) in the NLRC, Sub-Regional Arbitration Branch
XII, Iligan City.[3]

The petitioners moved to dismiss the complaint,[4] raising the ground,

among others, that the complaint pertained to the jurisdiction of the
Securities and Exchange Commission (SEC) due to the controversy being
intra-corporate inasmuch as the respondent was a member of Matlings
Board of Directors aside from being its Vice-President for Finance and
Administration prior to his termination.
The respondent opposed the petitioners motion to dismiss,[5] insisting that
his status as a member of Matlings Board of Directors was doubtful,
considering that he had not been formally elected as such; that he did not
own a single share of stock in Matling, considering that he had been made
to sign in blank an undated indorsement of the certificate of stock he had
been given in 1992; that Matling had taken back and retained the certificate
of stock in its custody; and that even assuming that he had been a Director
of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination
dated April 10, 2000 showed.

On October 16, 2000, the LA granted the petitioners motion to dismiss,

ruling that the respondent was a corporate officer because he was
occupying the position of Vice President for Finance and Administration and
at the same time was a Member of the Board of Directors of Matling; and
[6]

that, consequently, his removal was a corporate act of Matling and the
controversy resulting from such removal was under the jurisdiction of the
SEC, pursuant to Section 5, paragraph (c) of Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,[7] urging that:

I
THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION
GRANTING APPELLEES MOTION TO DISMISS WITHOUT GIVING THE APPELLANT
ANOPPORTUNITY TO FILE HIS OPPOSITION THERETO THEREBY VIOLATING THE BASIC
PRINCIPLE OF DUE PROCESS.

II
THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE
FOR LACK OF JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the
respondents complaint for illegal dismissal was properly cognizable by the
LA, not by the SEC, because he was not a corporate officer by virtue of his
position in Matling, albeit high ranking and managerial, not being among the
positions listed in Matlings Constitution and By-Laws. [8] The NLRC disposed
thuswise:

WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring
and holding that the case at bench does not involve any intracorporate matter.
Hence, jurisdiction to hear and act on said case is vested with the Labor Arbiter, not
the SEC, considering that the position of Vice-President for Finance and
Administration being held by complainant-appellant is not listed as among
respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of
origin in order that the Labor Arbiter below could act on the case at bench, hear

both parties, receive their respective evidence and position papers fully observing
the requirements of due process, and resolve the same with reasonable dispatch.
SO ORDERED.

The petitioners sought reconsideration, [9] reiterating that the respondent,

being a member of the Board of Directors, was a corporate officer whose
removal was not within the LAs jurisdiction.

The petitioners later submitted to the NLRC in support of the motion

for reconsideration the certified machine copies of Matlings Amended
Articles of Incorporation and By Laws to prove that the President of Matling
was thereby granted full power to create new offices and appoint the
officers thereto, and the minutes of special meeting held on June 7, 1999 by
Matlings Board of Directors to prove that the respondent was, indeed, a
Member of the Board of Directors.[10]

Nonetheless, on April 30, 2001, the NLRC denied the petitioners motion
for reconsideration.[11]

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari,

docketed as C.A.-G.R. No. SP 65714, contending that the NLRC committed
grave abuse of discretion amounting to lack of jurisdiction in reversing the
correct decision of the LA.

In its assailed decision promulgated on September 13, 2002,[12] the CA

dismissed the petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to
be considered as a corporate officer, the position must, if not listed in the by-laws,
have been created by the corporation's board of directors, and the occupant thereof
appointed or elected by the same board of directors or stockholders. This is the

implication of the ruling in Tabang v. National Labor Relations Commission, which

reads:
The president, vice president, secretary and treasurer are commonly
regarded as the principal or executive officers of a corporation, and modern
corporation statutes usually designate them as the officers of the
corporation. However, other offices are sometimes created by the charter or
by-laws of a corporation, or the board of directors may be empowered
under the by-laws of a corporation to create additional offices as may be
necessary.
It has been held that an 'office' is created by the charter of the
corporation and the officer is elected by the directors or stockholders. On
the other hand, an 'employee' usually occupies no office and generally is
employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation
to be paid to such employee.
This ruling was reiterated in the subsequent cases of Ongkingco v. National
Labor Relations Commission and De Rossi v. National Labor Relations Commission.
The position of vice-president for administration and finance, which Coros used
to hold in the corporation, was not created by the corporations board of directors
but only by its president or executive vice-president pursuant to the by-laws of the
corporation. Moreover, Coros appointment to said position was not made through
any act of the board of directors or stockholders of the corporation. Consequently,
the position to which Coros was appointed and later on removed from, is not a
corporate office despite its nomenclature, but an ordinary office in the corporation.
Coros alleged illegal dismissal therefrom is, therefore, within the jurisdiction of
the labor arbiter.
WHEREFORE, the petition for certiorari is hereby DISMISSED.
SO ORDERED.

The CA denied the petitioners motion for reconsideration on April 2,

2003.[13]

Issue

Thus, the petitioners are now before the Court for a review
on certiorari, positing that the respondent was a stockholder/member of the
Matlings Board of Directors as well as its Vice President for Finance and
Administration; and that the CA consequently erred in holding that the LA
had jurisdiction.

The decisive issue is whether the respondent was a corporate officer of

Matling or not. The resolution of the issue determines whether the LA or the
RTC had jurisdiction over hiscomplaint for illegal dismissal.

Ruling

The appeal fails.

I
The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a

private employer is properly cognizable by the LA. This is pursuant to Article
217 (a) 2 of the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except
as otherwise provided under this Code, the Labor Arbiters shall have
original and exclusive jurisdiction to hear and decide, within thirty (30)
calendar days after the submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may
file involving wages, rates of pay, hours of work and other terms and conditions of
employment;

4. Claims for actual, moral, exemplary and other forms of damages

arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and

maternity benefits, all other claims arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with
a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all
cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective

bargaining agreements and those arising from the interpretation or enforcement of
company personnel policies shall be disposed of by the Labor Arbiter by referring
the same to the grievance machinery and voluntary arbitration as may be provided
in said agreements. (As amended by Section 9, Republic Act No. 6715, March 21,
1989).

Where the complaint for illegal dismissal concerns a corporate officer,

however, the controversy falls under the jurisdiction of the Securities and
Exchange Commission (SEC), because the controversy arises out of intracorporate or partnership relations between and among stockholders,
members, or associates, or between any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or
associates, respectively; and between such corporation, partnership, or
association and the State insofar as the controversy concerns their
individual franchise or right to exist as such entity; or because the
controversy involves the election or appointment of a director, trustee,
officer, or manager of such corporation, partnership, or association. [14] Such
controversy, among others, is known as an intra-corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No.

8799,[15] otherwise known as The Securities Regulation Code, the SECs
jurisdiction over all intra-corporate disputes was transferred to the RTC,
pursuant to Section 5.2 of RA No. 8799, to wit:
5.2. The Commissions jurisdiction over all cases enumerated under Section 5
of Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, that the
Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission
shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within
one (1) year from the enactment of this Code.The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30
June 2000 until finally disposed.

Considering that the respondents complaint for illegal dismissal was

commenced on August 10, 2000, it might come under the coverage of
Section 5.2 of RA No. 8799,supra, should it turn out that the respondent was
a corporate, not a regular, officer of Matling.

II
Was the Respondents Position of Vice President
for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondents position as Vice

President for Finance and Administration was a corporate office. If it was, his
dismissal by the Board of Directors rendered the matter an intra-corporate
dispute cognizable by the RTC pursuant to RA No. 8799.

The petitioners contend that the position of Vice President for Finance and
Administration was a corporate office, having been created by Matlings
President pursuant to By-Law No. V, as amended, [16] to wit:

BY LAW NO. V

Officers

The President shall be the executive head of the corporation; shall preside over
the meetings of the stockholders and directors; shall countersign all certificates,
contracts and other instruments of the corporation as authorized by the Board of
Directors; shall have full power to hire and discharge any or all employees of the
corporation; shall have full power to create new offices and to appoint the
officers thereto as he may deem proper and necessary in the operations of
the corporation and as the progress of the business and welfare of the
corporation may demand; shall make reports to the directors and stockholders
and perform all such other duties and functions as are incident to his office or are
properly required of him by the Board of Directors. In case of the absence or
disability of the President, the Executive Vice President shall have the power to
exercise his functions.

The petitioners argue that the power to create corporate offices and to
appoint the individuals to assume the offices was delegated by Matlings
Board of Directors to its President through By-Law No. V, as amended; and
that any office the President created, like the position of the respondent,
was as valid and effective a creation as that made by the Board of Directors,
making the office a corporate office. In justification, they cite Tabang v.
National Labor Relations Commission, [17] which held that other offices are
sometimes created by the charter or by-laws of a corporation, or the board
of directors may be empowered under the by-laws of a corporation to create
additional officers as may be necessary.
The respondent counters that Matlings By-Laws did not list his position as
Vice President for Finance and Administration as one of the corporate
offices; that Matlings By-Law No. III listed only four corporate officers,
namely:
President,
Executive
Vice
President,
Secretary,
and
[18]
Treasurer; that the corporate offices contemplated in the phrase and such
other officers as may be provided for in the by-laws found in Section 25 of
the Corporation Code should be clearly and expressly stated in the By-Laws;
that the fact that Matlings By-Law No. III dealt with Directors &

Officers while its By-Law No. V dealt with Officers proved that there was a
differentiation between the officers mentioned in the two provisions, with
those
classified
under
By-Law
No.
V
being ordinary or noncorporate officers; and that the officer, to be considered as a corporate
officer, must be elected by the Board of Directors or the stockholders, for
the President could only appoint an employee to a position pursuant to ByLaw No. V.

We agree with respondent.

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the

directors of a corporation must formally organize by the election of a president, who
shall be a director, a treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such other officers as may
be provided for in the by-laws. Any two (2) or more positions may be held
concurrently by the same person, except that no one shall act as president and
secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties
enjoined on them by law and the by-laws of the corporation. Unless the articles of
incorporation or the by-laws provide for a greater majority, a majority of the number
of directors or trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business, and every decision of at least a
majority of the directors or trustees present at a meeting at which there is a quorum
shall be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.

Directors or trustees cannot attend or vote by proxy at board meetings.

Conformably with Section 25, a position must be expressly mentioned

in the By-Laws in order to be considered as a corporate office. Thus, the
creation of an office pursuant to or under a By-Law enabling provision is not
enough to make a position a corporate office. Guerrea v. Lezama,[19] the first
ruling on the matter, held that the only officers of a corporation were those

given that character either by the Corporation Code or by the By-Laws; the
rest of the corporate officers could be considered only as employees or
subordinate officials. Thus, it was held in Easycall Communications Phils.,
Inc. v. King:[20]

An office is created by the charter of the corporation and the officer is elected by
the directors or stockholders. On the other hand, an employee occupies no office
and generally is employed not by the action of the directors or stockholders but by
the managing officer of the corporation who also determines the compensation to
be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by
Malonzo, petitioner's general manager, not by the board of directors of petitioner. It
was also Malonzo who determined the compensation package of respondent. Thus,
respondent was an employee, not a corporate officer. The CA was therefore correct
in ruling that jurisdiction over the case was properly with the NLRC, not the SEC
(now the RTC).

This interpretation is the correct application of Section 25 of

the Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurerand such other officers as may be
provided for in the By-Laws. Accordingly, the corporate officers in the
context of PD No. 902-A are exclusively those who are given that character
either by the Corporation Code or by the corporations By-Laws.

A different interpretation can easily leave the way open for the Board
of Directors to circumvent the constitutionally guaranteed security of tenure
of the employee by the expedient inclusion in the By-Laws of an enabling
clause on the creation of just any corporate officer position.

It is relevant to state in this connection that the SEC, the primary

agency administering the Corporation Code, adopted a similar interpretation
of Section 25 of theCorporation Code in its Opinion dated November 25,
1993,[21] to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation

Code), whoever are the corporate officers enumerated in the by-laws are
the exclusive Officers of the corporation and the Board has no power to
create other Offices without amending first the corporate Bylaws. However, the Board may create appointive positions other than the
positions of corporate Officers, but the persons occupying such positions
are not considered as corporate officers within the meaning of Section 25
of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to
them. Their functions and duties are to be determined by the Board of
Directors/Trustees.

Moreover, the Board of Directors of Matling could not validly delegate

the power to create a corporate office to the President, in light of Section 25
of the Corporation Code requiring the Board of Directors itself to elect the
corporate officers. Verily, the power to elect the corporate officers was a
discretionary power that the law exclusively vested in the Board of
Directors, and could not be delegated to subordinate officers or agents.
[22]
The office of Vice President for Finance and Administration created by
Matlings President pursuant to By Law No. V was an ordinary, not a
corporate, office.

To emphasize, the power to create new offices and the power to appoint the
officers to occupy them vested by By-Law No. V merely allowed Matlings
President to create non-corporate offices to be occupied by ordinary
employees of Matling. Such powers were incidental to the Presidents duties
as the executive head of Matling to assist him in the daily operations of the
business.

The petitioners reliance on Tabang, supra, is misplaced. The statement

in Tabang, to the effect that offices not expressly mentioned in the By-Laws
but were created pursuant to a By-Law enabling provision were also
considered corporate offices, was plainly obiter dictum due to the position
subject of the controversy being mentioned in the By-Laws. Thus, the Court
held therein that the position was a corporate office, and that the
determination of the rights and liabilities arising from the ouster from the
position was an intra-corporate controversy within the SECs jurisdiction.

In Nacpil v. Intercontinental Broadcasting Corporation, [23] which may be the

more appropriate ruling, the position subject of the controversy was not
expressly mentioned in the By-Laws, but was created pursuant to a By-Law
enabling provision authorizing the Board of Directors to create other offices
that the Board of Directors might see fit to create. The Court held there that
the position was a corporate office, relying on the obiter dictum in Tabang.
Considering that the observations earlier made herein show that the
soundness of their dicta is not unassailable, Tabang and Nacpil should no
longer be controlling.

III
Did Respondents Status as Director and
Stockholder Automatically Convert his Dismissal
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a

Director/stockholder of Matling, and relying on Paguio v. National Labor
Relations Commission[24] and Ongkingko v. National Labor Relations
Commission,[25] the NLRC had no jurisdiction over his complaint, considering
that any case for illegal dismissal brought by a stockholder/officer against
the corporation was an intra-corporate matter that must fall under the
jurisdiction of the SEC conformably with the context of PD No. 902-A.

The petitioners insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko is misplaced. In both

rulings, the complainants were undeniably corporate officers due to their
positions being expressly mentioned in the By-Laws, aside from the fact that
both of them had been duly elected by the respective Boards of Directors.
But the herein respondents position of Vice President for Finance and
Administration was not expressly mentioned in the By-Laws; neither was the

position of Vice President for Finance and Administration created by Matlings

Board of Directors. Lastly, the President, not the Board of Directors,
appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and

the corporation. There is no distinction, qualification or any exemption whatsoever.
The provision is broad and covers all kinds of controversies between stockholders
and corporations.[26]

However, the Tabang pronouncement is not controlling because it is too

sweeping and does not accord with reason, justice, and fair play. In order to
determine whether a dispute constitutes an intra-corporate controversy or
not, the Court considers two elements instead, namely: (a) the status or
relationship of the parties; and (b) the nature of the question that is the
subject of their controversy. This was our thrust in Viray v. Court of Appeals:
[27]

The establishment of any of the relationships mentioned above will not necessarily
always confer jurisdiction over the dispute on the SEC to the exclusion of regular
courts. The statement made in one case that the rule admits of no exceptions or
distinctions is not that absolute. The better policy in determining which body has
jurisdiction over a case would be to consider not only the status or relationship of
the parties but also the nature of the question that is the subject of their
controversy.

Not every conflict between a corporation and its stockholders involves corporate
matters that only the SEC can resolve in the exercise of its adjudicatory or quasijudicial powers. If, for example, a person leases an apartment owned by a
corporation of which he is a stockholder, there should be no question that a
complaint for his ejectment for non-payment of rentals would still come under the
jurisdiction of the regular courts and not of the SEC. By the same token, if one
person injures another in a vehicular accident, the complaint for damages filed by
the victim will not come under the jurisdiction of the SEC simply because of the
happenstance that both parties are stockholders of the same corporation. A

contrary interpretation would dissipate the powers of the regular courts and distort
the meaning and intent of PD No. 902-A.

In another case, Mainland Construction Co., Inc. v. Movilla,[28] the Court

reiterated these determinants thuswise:
In order that the SEC (now the regular courts) can take cognizance of a case, the
controversy must pertain to any of the following relationships:

a) between the corporation, partnership or association and the public;

b) between the corporation, partnership or association and its stockholders,

partners, members or officers;
c) between the corporation, partnership or association and the State as far as
its franchise, permit or license to operate is concerned; and
d) among the stockholders, partners or associates themselves.
The fact that the parties involved in the controversy are all stockholders or that
the parties involved are the stockholders and the corporation does not necessarily
place the dispute within the ambit of the jurisdiction of SEC. The better policy to be
followed in determining jurisdiction over a case should be to consider concurrent
factors such as the status or relationship of the parties or the nature of the question
that is the subject of their controversy. In the absence of any one of these factors,
the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that
every conflict between the corporation and its stockholders would involve such
corporate matters as only the SEC can resolve in the exercise of its adjudicatory or
quasi-judicial powers.[29]

The criteria for distinguishing between corporate officers who may be

ousted from office at will, on one hand, and ordinary corporate employees
who may only be terminated for just cause, on the other hand, do not
depend on the nature of the services performed, but on the manner of
creation of the office. In the respondents case, he was supposedly at once
an employee, a stockholder, and a Director of Matling. The circumstances
surrounding his appointment to office must be fully considered to determine
whether the dismissal constituted an intra-corporate controversy or a labor

termination dispute. We must also consider whether his status as Director

and stockholder had any relation at all to his appointment and subsequent
dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for
Finance and Administration because of his being a stockholder or Director of
Matling. He had started working for Matling on September 8, 1966, and had
been employed continuously for 33 years until his termination on April 17,
2000, first as a bookkeeper, and his climb in 1987 to his last position as Vice
President for Finance and Administration had been gradual but steady, as
the following sequence indicates:

1966 Bookkeeper
1968 Senior Accountant
1969 Chief Accountant
1972 Office Supervisor
1973 Assistant Treasurer
1978 Special Assistant for Finance
1980 Assistant Comptroller
1983 Finance and Administrative Manager
1985 Asst. Vice President for Finance and Administration
1987

to April 17, 2000 Vice

Administration

President for

Finance and

Even though he might have become a stockholder of Matling in 1992,

his promotion to the position of Vice President for Finance and
Administration in 1987 was by virtue of the length of quality service he had
rendered as an employee of Matling. His subsequent acquisition of the
status of Director/stockholder had no relation to his promotion. Besides, his
status of Director/stockholder was unaffected by his dismissal from
employment as Vice President for Finance and Administration.

In Prudential Bank and Trust Company v. Reyes ,[30] a case involving a

lady bank manager who had risen from the ranks but was dismissed, the
Court held that her complaint for illegal dismissal was correctly brought to
the NLRC, because she was deemed a regular employee of the bank. The
Court observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank
on July 14, 1963. From that position she rose to become supervisor. Then in 1982,
she was appointed Assistant Vice-President which she occupied until her illegal
dismissal on July 19, 1991. The banks contention that she merely holds an
elective position and that in effect she is not a regular employee is belied
by the nature of her work and her length of service with the Bank. As
earlier stated, she rose from the ranks and has been employed with the Bank since
1963 until the termination of her employment in 1991. As Assistant Vice President
of the Foreign Department of the Bank, she is tasked, among others, to collect
checks drawn against overseas banks payable in foreign currency and to ensure the
collection of foreign bills or checks purchased, including the signing of transmittal
letters covering the same. It has been stated that the primary standard of
determining regular employment is the reasonable connection between the
particular activity performed by the employee in relation to the usual trade or
business of the employer. Additionally, an employee is regular because of the nature
of work and the length of service, not because of the mode or even the reason for
hiring them. As Assistant Vice-President of the Foreign Department of the Bank she
performs tasks integral to the operations of the bank and her length of service with
the bank totaling 28 years speaks volumes of her status as a regular employee of
the bank. In fine, as a regular employee, she is entitled to security of tenure; that
is, her services may be terminated only for a just or authorized cause. This being in
truth a case of illegal dismissal, it is no wonder then that the Bank endeavored to
the very end to establish loss of trust and confidence and serious misconduct on the
part of private respondent but, as will be discussed later, to no avail.

WHEREFORE, we deny the petition for review on certiorari, and affirm the
decision of the Court of Appeals.

Costs of suit to be paid by the petitioners.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

ARTURO D. BRION MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO

Associate Justice

ATTESTATION

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

CONCHITA CARPIO MORALES

Associate Justice
Chairperson

CERTIFICATION

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

RENATO C. CORONA

Chief Justice

[1]

Rollo, pp. 53-61; penned by Associate Justice Oswaldo D. Agcaoili (retired), with Associate Justice Edgardo P. Cruz (retired) and
Associate Justice Amelita G. Tolentino concurring.
[2]

Id., pp.63-67.

[3]

Id., pp. 69-70.

[4]

Id., pp. 71-74.

[5]

Id., pp. 90-95.

[6]

Id., pp. 96-99.

[7]

Id., pp. 100-111.

[8]

Id., pp. 112-116.

[9]

Id., pp. 117-120.

[10]

Id., pp. 121-142.

[11]

Id., pp. 143-144.

[12]

Supra, at note 1.

[13]

Supra, at note 2.

[14]

Section 5 of Presidential Decree No. 902-A.

[15]

President Estrada approved the law on July 19, 2000.

[16]

[17]

[18]

Rollo, p. 135.
G.R. No.121143, January 21, 1997, 266 SCRA 462, 467.
Rollo, p. 134:
BY-LAW NO. III
Directors and Officers

The directors shall be elected by the stockholders at their annual meeting and shall hold their respective
offices for a term of one year or until their successors are duly elected and qualified unless they shall be
sooner removed as hereinafter provided; provided, however, that the foregoing provisions shall not apply
to the first Board of Directors who are appointed to serve until the next annual meeting of the
stockholders. Absence from two successive meetings of the Board of Directors may in the discretion of the

Board terminate the membership of the director. Directors shall receive no compensation for their services
except per diems as may be allowed by the stockholders.
The
officers of the corporation shall be the President,
Executive
Vice
President,
Secretary and Treasurer, each of whom may hold his office until his successor is elected and qualified,
unless sooner removed by the Board of Directors; Provided, That for the convenience of the corporation,
the office of the Secretary and Treasurer my be held by one and the same person. Officers shall be
designated by the stockholders' meeting at the time they elect the members of the Board of Directors. Any
vacancy occurring among the officers of the Corporation on account of removal or resignation shall be
filled by a stockholders' meeting. Stockholders holding one half or more of the subscribed capital stock of
the corporation may demand and compel the resignation of any officer at any time.
[19]

103 Phil. 553 (1958).

[20]

G.R. No.145901, December 15, 2005, 478 SCRA 102, 110-111.

[21]

SEC Folio 1960-1976, at p. 498.

[22]

2 Fletcher 377, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. 3, 1988
Edition, page 226.
[23]

G.R. No. 144767, March 21, 2002, 379 SCRA 653.

[24]

G.R. No. 116662, February 1, 1996, 253 SCRA 166.

[25]

G.R. No. 119877, March 31, 1997, 270 SCRA 613.

[26]

Supra, at note 16.

[27]

G.R. No. 92481, November 9, 1990, 191 SCRA 308, 322-323.

[28]

G.R. No. 118088, November 23, 1995, 250 SCRA 290, 294-295.

[29]

See also Saura v. Saura, Jr., G.R. No. 136159, September 1, 1999, 313 SCRA 465; Lozano v. De los Santos, G.R. No. 125221, June
19, 1997, 274 SCRA 452.
[30]

G.R. No. 141093, February 20, 2001, 352 SCRA 316, 327.

FIRST DIVISION

[G.R. No. 119877. March 31, 1997]

BIENVENIDO ONGKINGCO, as President and GALERIA DE MAGALLANES

CONDOMINIUM ASSOCIATION, INC., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION and FEDERICO B. GUILAS, respondents.
DECISION
KAPUNAN, J.:

At fore, once again, is the jurisdictional tug of war between the National Labor Relations
Commission (NLRC) and the Securities & Exchange Commission (SEC) in this special civil actionfor
certiorari under Rule 65 of the Revised Rules of Court. It seeks to set aside the Resolutions of the
NLRC in NLRC NCR Case No. 00-05-02780-92 (NLRC CA No. 004329-93) dated 9 March 1995 and
4 April 1995 which reversed the decision of Labor Arbiter Oswald Lorenzo and denied petitioners'
motion for reconsideration, respectively.
Petitioner Galeria de Magallanes Condominium Association, Inc. (Galeria for brevity) is a nonstock, non-profit corporation formed in accordance with R.A. No. 4726, otherwise known as the
Condominium Act. "Its primary purpose is to hold title to the common areas of the Galeria de
Magallanes Condominium Project and to manage and administer the same for the use and
convenience of the residents and/or owners." Petitioner Bienvenido Ongkingco was the president of
Galeria at the time private respondent filed his complaint.
[1]

On 1 September 1990, Galeria's Board of Directors appointed private respondent Federico B.

Guilas as Administrator/Superintendent. He was given a "monthly salary of P10,000 subject to review
after five (5) months and subsequently thereafter as Galeria's finances improved."
[2]

As Administrator, private respondent was tasked with the maintenance of the "performance and
elegance of the common areas of the condominium and external appearance of the compound
thereof for the convenience and comfort of the residents as well as to keep up the quality image, and
hence the value of the investment for the owners thereof."
[3]

However, on 17 March 1992, through a resolution passed by the Board of Directors of Galeria,
private respondent was not re-appointed as Administrator.
As a result, on 15 May 1992, private respondent instituted a complaint against petitioners for
illegal dismissal and non-payment of salaries with the NLRC.
In response, on 22 July 1992, petitioners filed a motion to dismiss alleging that it is the SEC, and
not the labor arbiter, which has jurisdiction over the subject matter of the complaint.
Labor Arbiter Lorenzo granted the aforestated motion to dismiss in his order dated 29 December
1992. He ruled, thus:

A judicious calibration of the position taken by the contending parties preponderate clearly in favor
of respondents, that this case is within the jurisdiction of the Securities and Exchange Commission
and not this Office (Labor Arbiter).
Our reasons are as follows:
ONE. The Position of Administrator or Superintendent is a corporate position, whose appointment
depended on the Board of Directors. As such, the position of the administrator is a corporate
creation.
TWO. Clearly from the respondent corporation's Articles of Incorporation, Art. V, Sec. 6 thereof,
the appointment and removal of the administrator is a prerogative that belongs to the Board, and
thereby involves the exercise of deliberate choice and faculty of discriminative selection.
THIRD. Thus, we find lacking of merit the argument of complainant that since he is not a member
of the condominium association where he was formerly administrator, or is not a unit holder
thereof, since a person's relationship to a corporation is not determinative of the services performed
but by the incidents of the relationship as they exist. (PSBA vs. LEANO, 127 SCRA 778.)
The resolution, therefore, of the other pending incident, which is the MOTION FOR
SUBSTITUTION OF PARTIES is hereby deferred for action by the SEC.
WHEREFORE, in view of all the foregoing considerations, this Office hereby orders the dismissal
of the instant action for reason of lack of jurisdiction. The complainant, if he is mindful should file
this case with the Securities and Exchange Commission.
SO ORDERED.

[4]

The NLRC, however, reversed the Labor Arbiter's order in its resolution dated 9 March 1995. It
ruled in this wise:

We find merit in the appeal. It cannot be gainsaid that the complainant's cause of action in his
complaint is illegal dismissal which issue falls four square within the jurisdiction of the NLRC.
This is so, because while it may be true that the termination of the complainant was effected
allegedly by a resolution of the Board of Directors of the respondent association, this did not make
the dispute intracorporate in nature. Moreover, We have taken note of the fact that the complainant
is neither a member of the association nor an officer thereof. Hence, We are more convinced that he
is an employee of the respondent association occupying the position of administrator who is in (sic)
charged with the function of managing and administering the building or condominium owned by
the members. Indeed, there is a whale of difference between a member of the association who is a
part owner of the building and a mere employee performing managerial and administrative
functions which are necessary in the usual undertaking of the respondent Association. The
complainant falls under the second category.
And, to the point of being repetitious, it needs to be stressed that the fact that the complainant was
removed by the Board of Directors did not change the issue from an illegal dismissal case to an
intracorporate one. For, what remains to be resolved here is whether or not the complainant's
removal from his position as Administrator was for a just and valid cause and in compliance with
due process. And, as the facts now stand, the issue is within the scope of authority of the National
Labor Relations Commission to resolve.
We simply could not agree with the conclusions of law made by the Arbiter a quo on the
applicability of the provisions of P.D. 902. Our view finds basis in the case of Gregorio Araneta
University Foundation vs. Antonio J. Teodoro and NLRC (167 SCRA 79) wherein the Supreme
Court had the occasion to clarify the jurisdiction of the Securities and Exchange Commission and
that of the NLRC. It (Supreme Court) held, thus
"x x x Relying on Philippine School of Business Administration, et al., (127 SCRA 778) and Dy, et
al., vs. National Labor Relations Commission, et al., (145 SCRA 211), Petitioner theorizes that
since private respondent was a corporate officer, the present controversy is within the jurisdiction
of the Securities and Exchange Commission, pursuant to P.D. 902-A, and not in the public
respondent.
Without need of applying the rule on estoppel by laches against petitioner, its contention must fail
on the ground of misplaced reliance. As explained in Dy, the same is true with Philippine Business
Administration, the controversies therein were intra corporate in nature and squarely within the
purview of Section 5(c), PD. 902-A since the real question was the invalidity of the board of
director's meeting wherein corporate officers involved were not re-elected, resulting in the
termination of their services." (Underscoring ours.)
As obtaining in this case, no intracorporate controversy exists, hence, the jurisdiction of the NLRC
should be sustained.
WHEREFORE, finding merit on the appeal, the same is hereby, given due course. Accordingly, the
Order appealed from is declared Null and Void and is hereby, VACATED and SET ASIDE.
Accordingly, let the records of the case be remanded to the Arbitration Branch of origin for further
proceedings. With the directive that the instant case be given priority in the calendar of the Labor

Arbiter for the speedy disposition hereon. Concomitant hereto, the respondents are hereby directed
to submit their position paper within ten (10) days from receipt hereof.
SO ORDERED.

[5]

Petitioners filed a motion for reconsideration but the same was denied in the NLRC's resolution
dated 4 April 1995. Hence, the present recourse.
[6]

The petitioners raised a single issue:

THE PRIVATE RESPONDENT ACTED WITHOUT OR IN EXCESS OF ITS

JURISDICTION OR COMMITTED GRAVE ABUSE OF DISCRETION IN TAKING
COGNIZANCE OF A SUBJECT MATTER THAT FELL WITHIN THE ORIGINAL AND
EXCLUSIVE JURISDICTION OF THE SEC.
The petition is granted.
Specifically delineated in P.D. 902-A are the cases over which the SEC exercises exclusive
jurisdiction:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and
Exchange Commission over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
a) Devices or schemes employed by or any acts of the board of directors, business associates, its
officers or partners, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholders, partners, members of associations or organizations
registered with the Commission.
b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership
or association of which they are stockholders, members or associates, respectively; and between
such corporation, partnership or association and the State insofar as it concerns their individual
franchise or right to exist as such entity;
c) Controversies in the election or appointment of directors, trustees, officers, or managers of such
corporations, partnerships or associations.
d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of
payments in cases where the corporation, partnership or association possesses property to cover all
of its debts but foresees the impossibility of meeting them when they respectively fall due or in
cases where the corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the Management Committee created pursuant to this Decree. (Underscoring
ours.)
The Solicitor General contends that the case at bar falls outside the purview of the aforequoted
provision. He insists that private respondent was a mere employee of petitioner corporation being
tasked mainly, as administrator/superintendent, with the upkeep of the condominium's common

areas. He, thus, maintains that private respondent cannot be deemed a corporate officer because "it
is the nature of one's functions and not the nomenclature or title given to one's job which determines
one's status in a corporation."
[7]

The contentions of public respondent lack merit. That private respondent is an officer of petitioner
corporation and not its mere employee cannot be questioned. The by-laws of the Galeria de
Magallanes Condominium Association specifically includes the Superintendent/Administrator in its
roster of corporate officers:

ARTICLE IV
OFFICERS
Section 1. Executive Officers The Executive officers of the corporation shall be a President, a Vice
President, a Treasurer, all of whom shall be elected by the Board of Directors. They may be
removed with or without cause at any meeting by the concurrence of four directors. The Board of
Directors may appoint a Superintendent or Administrator and such other officers and employees
and delineate their powers and duties as the Board shall find necessary to manage the affairs of the
corporation. (Underscoring ours.)
[8]

xxx.

Section 6. The Superintendent or Administrator The Board of Directors may appoint a

Superintendent or Administrator for the condominium project if the activities and financial
condition of the Association so warrant. If one is so appointed, he shall be the principal
administrative officer of the Association. He shall attend to routinary and day-to-day business and
activities of the Association and shall keep regular officer hours for the purpose. He shall have such
other duties and powers as may be conferred upon him by the Board of Directors or delegated by
the President of the Association.
At the discretion of the Board of Directors, the work and duties of Superintendent or Administrator
may be entrusted to a juridical entity which is qualified and competent to perform such work.
[9]

Closely approximating the dispute at bar is the recent case of Tabang v. NLRC. This Court,
through Justice Florenz D. Regalado, ruled that:
[10]

Contrary to the contention of petitioner, a medical director and a hospital administrator are
considered as corporate officers under the by-laws of respondent corporation. Section 2(i), Article I
thereof states that one of the powers of the Board of Trustees is "(t)o appoint a Medical Director,
Comptroller/Administrator, Chiefs of Services and such other officers as it may deem necessary
and prescribe their powers and duties."
The president, vice-president, secretary and treasurer are commonly regarded as the principal or
executive officers of a corporation, and modern corporation statutes usually designate them as the
officers of the corporation. However, other offices are sometimes created by the charter or by-laws
of a corporation, or the board of directors may be empowered under the by-laws of a corporation to
create additional offices as may be necessary.

It has been held that an "office" is created by the charter of the corporation and the officer is elected
by the directors or stockholders. On the other hand, an "employee" usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer of
the corporation who also determines the compensation to be paid to such employee.
In the case at bar, considering that herein petitioner, unlike an ordinary employee, was appointed by
respondent corporation's Board of Trustees in its memorandum of October 30, 1990, she is deemed
an officer of the corporation. Perforce, Section 5(c) of Presidential Decree No. 902-A, which
provides that the SEC exercises exclusive jurisdiction over controversies in the election or
appointment of directors, trustees, officers or managers of corporations, partnerships or
associations, applies in the present dispute. Accordingly, jurisdiction over the same is vested in the
SEC, and not in the Labor Arbiter or the NLRC.
Supplementing the afore-quoted ruling, in Lozon v. NLRC and Espino v. NLRC, citing Fortune
Cement Corp. v. NLRC, we declared that:
[11]

[12]

[13]

A corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and
that nature is not altered by the reason or wisdom which the Board of Directors may have in taking
such action.
Based on the foregoing, we must rule that private respondent was indeed a corporate officer. He
was appointed directly by the Board of Directors not by any managing officer of the corporation and
his salary was, likewise, set by the same Board. Having thus determined, his dismissal or nonappointment is clearly an intra-corporate matter and jurisdiction, therefore, properly belongs to the
SEC and not the NLRC.
The respondents also attack the SEC's jurisdiction over the instant case on grounds that Guilas
was not elected by the Board of Directors but was merely appointed.
This particular argument baffles us. P.D. 902-A cannot be any clearer. Sec. 5(c) of said law
expressly covers both election and appointment of corporate directors, trustees, officers and
managers.
[14]

It is of no consequence, likewise, that the complaint of private respondent for illegal dismissal
includes money claims, jurisdiction remains with the SEC as ruled in the case of Cagayan de Oro
Coliseum, Inc. v. Office of the MOLE:
[15]

Although the reliefs sought by Chaves appear to fall under the jurisdiction of the labor arbiter as
they are claims for unpaid salaries and other remunerations for services rendered, a close scrutiny
thereof shows that said claims are actually part of the perquisites of his position in, and therefore
interlinked with his relations with the corporation. In Dy vs. NLRC, the Court said: "(t)he question
of remuneration involving as it does, a person who is not a mere employee but a stockholder and
officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a
matter that comes within the area of corporate affairs and, management, and is in fact a corporate
controversy in contemplation of the Corporation Code."
WHEREFORE, the petition for certiorari is given DUE COURSE, the assailed resolutions of the
NLRC are hereby REVERSED and the Order of the Labor Arbiter dated 29 December
1992 REINSTATED.
SO ORDERED.

Bellosillo, Vitug, and Hermosisima, Jr., JJ., concur.

Padilla, (Chairman), no part; member of Magallanes Village Association.

[1]

Rollo, p. 9.

[2]

Id., at 96.

[3]

Ibid.

[4]

Id., at 56-57.

[5]

Id., at 28-31.

[6]

Id., at 33.

[7]

Id., at 103.

[8]

Id., at 40.

[9]

Id., at 43.

[10]

G.R. No. 121143, 21 January 1997.

[11]

240 SCRA 1 (1995).

[12]

240 SCRA 52 (1995).

[13]

193 SCRA 258 (1991), see also, PSBA v. Leano, 127 SCRA 778 (1985).

[14]

Paguio v. NLRC, 253 SCRA 166 (1996).

[15]

192 SCRA 315 (1990).

[Syllabus]

FIRST DIVISION

[G.R. No. 113191. September 18, 1996]

DEPARTMENT OF FOREIGN AFFAIRS, petitioner, vs. NATIONAL LABOR

RELATIONS COMMISSION, HON. LABOR ARBITER NIEVES V. DE CASTRO
and JOSE C. MAGNAYI, respondents.
DECISION
VITUG, J.:
The questions raised in the petition for certiorari are a few coincidental matters relative to the
diplomatic immunity extended to the Asian Development Bank ("ADB").
On 27 January 1993, private respondent initiated NLRC-NCR Case No. 00-01-0690-93 for his
alleged illegal dismissal by ADB and the latter's violation of the "labor-only" contracting law.Two
summonses were served, one sent directly to the ADB and the other through the Department of
Foreign Affairs ("DFA"), both with a copy of the complaint. Forthwith, the ADB and the DFA notified
respondent Labor Arbiter that the ADB, as well as its President and Officers, were covered by an
immunity from legal process except for borrowings, guaranties or the sale of securities pursuant to
Article 50(1) and Article 55 of the Agreement Establishing the Asian Development Bank (the
"Charter") in relation to Section 5 and Section 44 of the Agreement Between The Bank And The

Government Of
Agreement").

The

Philippines

Regarding

The

Bank's

Headquarters (the

"Headquarters

The Labor Arbiter took cognizance of the complaint on the impression that the ADB had waived
its diplomatic immunity from suit. In time, the Labor Arbiter rendered his decision, dated 31 August
1993, that concluded:

"WHEREFORE, above premises considered, judgment is hereby rendered declaring the

complainant as a regular employee of respondent ADB, and the termination of his services as
illegal. Accordingly, respondent Bank is hereby ordered:
"1. To immediately reinstate the complainant to his former position effective September 16, 1993;
"2. To pay complainant full backwages from December 1, 1992 to September 15, 1993 in the
amount of P42,750.00 (P4,500.00 x 9 months);
"3. And to pay complainants other benefits and without loss of seniority rights and other privileges
and benefits due a regular employee of Asian Development Bank from the time he was terminated
on December 31, 1992;
"4. To pay 10% attorney's fees of the total entitlements."

[1]

The ADB did not appeal the decision. Instead, on 03 November 1993, the DFA referred the matter
to the National Labor Relations Commission ("NLRC"); in its referral, the DFA sought a "formal
vacation of the void judgment." Replying to the letter, the NLRC Chairman, wrote:

"The undersigned submits that the request for the 'investigation' of Labor Arbiter Nieves de Castro,
by the National Labor Relations Commission, has been erroneously premised on Art. 218(c) of the
Labor Code, as cited in the letter of Secretary Padilla, considering that the provision deals with 'a
question, matter or controversy within its (the Commission) jurisdiction' obviously referring to a
labor dispute within the ambit of Art. 217 (on jurisdiction of Labor Arbiters and the Commission
over labor cases).
"The procedure, in the adjudication of labor cases, including raising of defenses, is prescribed by
law. The defense of immunity could have been raised before the Labor Arbiter by a special
appearance which, naturally, may not be considered as a waiver of the very defense being
raised. Any decision thereafter is subject to legal remedies, including appeals to the appropriate
division of the Commission and/or a petition for certiorari with the Supreme Court, under Rule 65
of the Rules of Court. Except where an appeal is seasonably and properly made, neither the
Commission nor the undersigned may review, or even question, the propriety of any decision by a
Labor Arbiter. Incidentally, the Commission sits en banc (all fifteen Commissioners) only to
promulgate rules of procedure or to formulate policies (Art. 213, Labor Code).
"On the other hand, while the undersigned exercises 'administrative supervision over the
Commission and its regional branches and all its personnel, including the Executive Labor Arbiters
and Labor Arbiters' (penultimate paragraph, Art. 213, Labor Code), he does not have the
competence to investigate or review any decision of a Labor Arbiter. However, on the purely

administrative aspect of the decision-making process, he may cause that an investigation be made
of any misconduct, malfeasance or misfeasance, upon complaint properly made.
"If the Department of Foreign Affairs feels that the action of Labor Arbiter Nieves de Castro
constitutes misconduct, malfeasance or misfeasance, it is suggested that an appropriate complaint
be lodged with the Office of the Ombudsman.
"Thank you for your kind attention."

[2]

Dissatisfied, the DFA lodged the instant petition for certiorari. In this Court's resolution of 31
January 1994, respondents were required to comment. Petitioner was later constrained to make an
application for a restraining order and/or writ of preliminary injunction following the issuance, on 16
March 1994, by the Labor Arbiter of a writ of execution. In a resolution, dated 07 April 1994, the Court
issued the temporary restraining order prayed for.
The Office of the Solicitor General (OSG), in its comment of 26 May 1994, initially assailed the
claim of immunity by the ADB. Subsequently, however, it submitted a Manifestation (dated 20 June
1994) stating, among other things, that "after a thorough review of the case and the records," it
became convinced that ADB, indeed, was correct in invoking its immunity from suit under the Charter
and the Headquarters Agreement.
The Court is of the same view.
Article 50(1) of the Charter provides:

The Bank shall enjoy immunity from every form of legal process, except in cases arising out of or
in connection with the exercise of its powers to borrow money, to guarantee obligations, or to buy
and sell or underwrite the sale of securities.
[3]

Under Article 55 thereof -

All Governors, Directors, alternates, officers and employees of the Bank, including experts
performing missions for the Bank:
(1) shall be immune from legal process with respect of acts performed by them in their official
capacity, except when the Bank waives the immunity.
[4]

Like provisions are found in the Headquarters Agreement. Thus, its Section 5 reads:

"The Bank shall enjoy immunity from every form of legal process, except in cases arising out of, or
in connection with, the exercise of its powers to borrow money, to guarantee obligations, or to buy
and sell or underwrite the sale of securities.
[5]

And, with respect to certain officials of the bank, Section 44 of the agreement states:

Governors, other representatives of Members, Directors, the President, Vice-President and

executive officers as may be agreed upon between the Government and the Bank shall enjoy,
during their stay in the Republic of the Philippines in connection with their official duties with the
Bank:

xxxxxxxxx

(b) Immunity from legal process of every kind in respect of words spoken or written and all acts
done by them in their official capacity.
[6]

The above stipulations of both the Charter and Headquarters Agreement should be able, nay well
enough, to establish that, except in the specified cases of borrowing and guarantee operations, as
well as the purchase, sale and underwriting of securities, the ADB enjoys immunity from legal process
of every form. The Banks officers, on their part, enjoy immunity in respect of all acts performed by
them in their official capacity. The Charter and the Headquarters Agreement granting these
immunities and privileges are treaty covenants and commitments voluntarily assumed by the
Philippine government which must be respected.
In World Health Organization vs. Aquino, we have declared:
[7]

It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic
immunity is recognized and affirmed by the executive branch of the government x x x it is then the
duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal law
officer of the government, x x x or other officer acting under his direction. Hence, in adherence to
the settled principle that courts may not so exercise their jurisdiction x x x as to embarrass the
executive arm of the government in conducting foreign relations, it is accepted doctrine that `in
such cases the judicial department of government follows the action of the political branch and will
not embarrass the latter by assuming an antagonistic jurisdiction.'"
[8]

To the same effect is the decision in International Catholic Migration Commission vs. Calleja,
which has similarly deemed the Memoranda of the Legal Adviser of the Department of Foreign
Affairs to be "a categorical recognition by the Executive Branch of Government that ICMC x x x
enjoy(s) immunities accorded to international organizations" and which determination must be held
"conclusive upon the Courts in order not to embarrass a political department of Government. In the
instant case, the filing of the petition by the DFA, in behalf of ADB, is itself an affirmance of the
government's own recognition of ADB's immunity.
[9]

Being an international organization that has been extended a diplomatic status, the ADB is
independent of the municipal law. In Southeast Asian Fisheries Development Center vs. Acosta,
the Court has cited with approval the opinion of the then Minister of Justice; thus [10]

[11]

[12]

"One of the basic immunities of an international organization is immunity from local jurisdiction,
i.e., that it is immune from the legal writs and processes issued by the tribunals of the country
where it is found. (See Jenks, Id., pp. 37-44). The obvious reason for this is that the subjection of
such an organization to the authority of the local courts would afford a convenient medium thru
which the host government may interfere in their operations or even influence or control its policies
and decisions of the organization; besides, such subjection to local jurisdiction would impair the
capacity of such body to discharge its responsibilities impartially on behalf of its member-states."
[13]

Contrary to private respondent's assertion, the claim of immunity is not here being raised for the
first time; it has been invoked before the forum of origin through communications sent by petitioner
and the ADB to the Labor Arbiter, as well as before the NLRC following the rendition of the questioned
judgment by the Labor Arbiter, but evidently to no avail.

In its communication of 27 May 1993, the DFA, through the Office of Legal Affairs, has advised
the NLRC:

"Respectfully returned to the Honorable Domingo B. Mabazza, Labor Arbitration Associate,

National Labor Relations Commission, National Capital Judicial Region, Arbitration Branch,
Associated bank Bldg., T.M. Kalaw St., Ermita, Manila, the attached Notice of Hearing addressed
to the Asian Development Bank, in connection with the aforestated case, for the reason stated in the
Department's 1st Indorsement dated 23 March 1993, copy attached, which is self-explanatory.
"In view of the fact that the Asian Development Bank (ADB) invokes its immunity which is
sustained by the Department of Foreign Affairs, a continuous hearing of this case erodes the
credibility of the Philippine government before the international community, let alone the negative
implication of such a suit on the official relationship of the Philippine government with the ADB.
"For the Secretary of Foreign Affairs
(Sgd.)
"SIME D. HIDALGO
Assistant Secretary"

[14]

The Office of the President, likewise, has issued on 18 May 1993 a letter to the Secretary of
Labor, viz:

"Dear Secretary Confesor,

"I am writing to draw your attention to a case filed by a certain Jose C. Magnayi against the Asian
Development Bank and its President, Kimimasa Tarumizu, before the National Labor Relations
Commission, National Capital Region Arbitration Board (NLRC NCR Case No. 00-01690-93).
"Last March 8, the Labor Arbiter charged with the case, Ms. Nieves V. de Castro, addressed a
Notice of Resolution/Order to the Bank which brought it to the attention of the Department of
Foreign Affairs on the ground that the service of such notice was in violation of the RP-ADB
Headquarters Agreement which provided, inter-alia, for the immunity of the Bank, its President and
officers from every form of legal process, except only, in cases of borrowings, guarantees or the
sale of securities.
"The Department of Foreign Affairs, in turn, informed Labor Arbiter Nieves V. de Castro of this
fact by letter dated March 22, copied to you.
"Despite this, the labor arbiter in question persisted to send summons, the latest dated May 4,
herewith attached, regarding the Magnayi case.
"The Supreme Court has long settled the matter of diplomatic immunities. In WHO vs. Aquino,
SCRA 48, it ruled that courts should respect diplomatic immunities of foreign officials recognized
by the Philippine government. Such decision by the Supreme Court forms part of the law of the
land.

"Perhaps you should point out to Labor Arbiter Nieves V. de Castro that ignorance of the law is a
ground for dismissal.
"Very truly yours,
(Sgd.)
JOSE B. ALEJANDRINO
Chairman, PCC-ADB"
[15]

Private respondent argues that, by entering into service contracts with different private
companies, ADB has descended to the level of an ordinary party to a commercial transaction giving
rise to a waiver of its immunity from suit. In the case of Holy See vs. Hon. Rosario, Jr., the Court has
held:
[16]

There are two conflicting concepts of sovereign immunity, each widely held and firmly
established. According to the classical or absolute theory, a sovereign cannot, without its consent,
be made a respondent in the Courts of another sovereign. According to the newer or restrictive
theory, the immunity of the sovereign is recognized only with regard to public acts or acts jure
imperii of a state, but not with regard to private act or acts jure gestionis.
xxxxxxxxx

Certainly, the mere entering into a contract by a foreign state with a private party cannot be the
ultimate test. Such an act can only be the start of the inquiry. The logical question is whether the
foreign state is engaged in the activity in the regular course of business. If the foreign state is not
engaged regularly in a business or trade, the particular act or transaction must then be tested by its
nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an act jure
imperii, especially when it is not undertaken for gain or profit.
[17]

The service contracts referred to by private respondent have not been intended by the ADB for profit
or gain but are official acts over which a waiver of immunity would not attach.
With regard to the issue of whether or not the DFA has the legal standing to file the present
petition, and whether or not petitioner has regarded the basic rule that certiorari can be availed of only
when there is no appeal nor plain, speedy and adequate remedy in the ordinary course of law, we
hold both in the affirmative.
The DFA's function includes, among its other mandates, the determination of persons and
institutions covered by diplomatic immunities, a determination which, when challenged, entitles it to
seek relief from the court so as not to seriously impair the conduct of the country's foreign
relations. The DFA must be allowed to plead its case whenever necessary or advisable to enable it to
help keep the credibility of the Philippine government before the international community. When
international agreements are concluded, the parties thereto are deemed to have likewise accepted
the responsibility of seeing to it that their agreements are duly regarded. In our country, this task falls
principally on the DFA as being the highest executive department with the competence and authority
to so act in this aspect of the international arena. In Holy See vs. Hon. Rosario, Jr., this Court has
explained the matter in good detail; viz:
[18]

[19]

"In Public International Law, when a state or international agency wishes to plead sovereign or
diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is sued to
convey to the court that said defendant is entitled to immunity.
"In the United States, the procedure followed is the process of 'suggestion,' where the foreign state
or the international organization sued in an American court requests the Secretary of State to make
a determination as to whether it is entitled to immunity. If the Secretary of State finds that the
defendant is immune from suit, he, in turn, asks the Attorney General to submit to the court a
'suggestion' that the defendant is entitled to immunity. In England, a similar procedure is followed,
only the Foreign Office issues a certification to that effect instead of submitting a 'suggestion'
(O'Connell, I International Law 130 [1965]; Note: Immunity from Suit of Foreign Sovereign
Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).
"In the Philippines, the practice is for the foreign government or the international organization to
first secure an executive endorsement of its claim of sovereign or diplomatic immunity. But how
the Philippine Foreign Office conveys its endorsement to the courts varies. In International Catholic
Migration Commission vs. Calleja, 190 SCRA 130 (1990), the Secretary of Foreign Affairs just
sent a letter directly to the Secretary of Labor and Employment, informing the latter that the
respondent-employer could not be sued because it enjoyed diplomatic immunity. In World Health
Organization vs. Aquino, 48 SCRA 242 (1972), the Secretary of Foreign Affairs sent the trial court
a telegram to that effect. In Baer vs. Tizon, 57 SCRA 1 (1974), the U.S. Embassy asked the
Secretary of Foreign Affairs to request the Solicitor General to make, in behalf of the Commander
of the United States Naval Base at Olongapo City, Zambales, a 'suggestion' to respondent
Judge. The Solicitor General embodied the 'suggestion' in a manifestation and memorandum
as amicus curiae.
"In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs moved
with this Court to be allowed to intervene on the side of petitioner. The Court allowed the said
Department to file its memorandum in support of petitioner's claim of sovereign immunity.
"In some cases, the defense of sovereign immunity was submitted directly to the local courts by the
respondents through their private counsels (Raquiza vs. Bradford, 75 Phil. 50 [1945]; Miquiabas vs.
Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of America vs. Guinto, 182
SCRA 644 [1990] and companion cases). In cases where the foreign states bypass the Foreign
Office, the courts can inquire into the facts and make their own determination as to the nature of the
acts and transactions involved."
[20]

Relative to the propriety of the extraordinary remedy of certiorari, the Court has, under special
circumstances, so allowed and entertained such a petition when (a) the questioned order or decision
is issued in excess of or without jurisdiction, or (b) where the order or decision is a patent nullity,
which, verily, are the circumstances that can be said to obtain in the present case.When an
adjudicator is devoid of jurisdiction on a matter before him, his action that assumes otherwise would
be a clear nullity.
[21]

[22]

WHEREFORE, the petition for certiorari is GRANTED, and the decision of the Labor Arbiter,
dated 31 August 1993 is VACATED for being NULL AND VOID. The temporary restraining order
issued by this Court on 07 April 1994 is hereby made permanent. No costs.
SO ORDERED.

Bellosillo, Kapunan, and Hermosisima, Jr., JJ., concur.

Padilla, (Chairman), J., no part.

[1]

Rollo, pp. 34-35.

[2]

Rollo, pp. 36-37.

[3]

Rollo, p. 170.

[4]

Rollo, p. 171.

[5]

Rollo, p. 45.

[6]

Rollo, pp. 51-52.

[7]

48 SCRA 242.

[8]

At pp. 248-249.

[9]

190 SCRA 130.

[10]

SEAFDEC vs. NLRC, 206 SCRA 283; See International Catholic Migration Commission vs. Calleja, supra.

[11]

226 SCRA 49.

[12]

No. 139, Series of 1984.

[13]

At page 53.

[14]

Rollo, p. 272.

[15]

Rollo, p. 273.

[16]

238 SCRA 524.

[17]

At pp. 535-536.

[18]

See ICMC vs. Calleja, supra.

[19]

Supra.

[20]

At pp. 531-533.

[21]

Aguilar vs. Tan, 31 SCRA 205; Bautista, et al. vs. Sarmiento, 138 SCRA 587.

[22]

Marcelo vs. De Guzman, 114 SCRA 657.

G.R. No. 76607 February 26, 1990

UNITED STATES OF AMERICA, FREDERICK M. SMOUSE AND YVONNE REEVES, petitioners,
vs.
HON. ELIODORO B. GUINTO, Presiding Judge, Branch LVII, Regional Trial Court, Angeles City, ROBERTO T.
VALENCIA, EMERENCIANA C. TANGLAO, AND PABLO C. DEL PILAR, respondents.
G.R. No. 79470 February 26, 1990
UNITED STATES OF AMERICA, ANTHONY LAMACHIA, T/SGT. USAF, WILFREDO BELSA, PETER ORASCION
AND ROSE CARTALLA, petitioners,
vs.
HON. RODOLFO D. RODRIGO, as Presiding Judge of Branch 7, Regional Trial Court (BAGUIO CITY), La
Trinidad, Benguet and FABIAN GENOVE, respondents.
G.R. No. 80018 February 26, 1990
UNITED STATES OF AMERICA, TOMI J. KINGI, DARREL D. DYE and STEVEN F. BOSTICK, petitioners,
vs.
HON. JOSEFINA D. CEBALLOS, As Presiding Judge, Regional Trial Court, Branch 66, Capas, Tarlac, and
LUIS BAUTISTA, respondents.
G.R. No. 80258 February 26, 1990
UNITED STATES OF AMERICA, MAJOR GENERAL MICHAEL P. C. CARNS, AIC ERNEST E. RIVENBURGH,
AIC ROBIN BLEVINS, SGT. NOEL A. GONZALES, SGT. THOMAS MITCHELL, SGT. WAYNE L. BENJAMIN, ET
AL., petitioners,
vs.
HON. CONCEPCION S. ALARCON VERGARA, as Presiding Judge, Branch 62 REGIONAL TRIAL COURT,
Angeles City, and RICKY SANCHEZ, FREDDIE SANCHEZ AKA FREDDIE RIVERA, EDWIN MARIANO, AKA
JESSIE DOLORES SANGALANG, ET AL., respondents.
Luna, Sison & Manas Law Office for petitioners.

CRUZ, J.:
These cases have been consolidated because they all involve the doctrine of state immunity. The United
States of America was not impleaded in the complaints below but has moved to dismiss on the ground that
they are in effect suits against it to which it has not consented. It is now contesting the denial of its motions
by the respondent judges.
In G.R. No. 76607, the private respondents are suing several officers of the U.S. Air Force stationed in Clark
Air Base in connection with the bidding conducted by them for contracts for barber services in the said
base.
On February 24, 1986, the Western Pacific Contracting Office, Okinawa Area Exchange, U.S. Air Force,
solicited bids for such contracts through its contracting officer, James F. Shaw. Among those who
submitted their bids were private respondents Roberto T. Valencia, Emerenciana C. Tanglao, and Pablo C.
del Pilar. Valencia had been a concessionaire inside Clark for 34 years; del Pilar for 12 years; and Tanglao
for 50 years.
The bidding was won by Ramon Dizon, over the objection of the private respondents, who claimed that he
had made a bid for four facilities, including the Civil Engineering Area, which was not included in the
invitation to bid.
The private respondents complained to the Philippine Area Exchange (PHAX). The latter, through its
representatives, petitioners Yvonne Reeves and Frederic M. Smouse explained that the Civil Engineering
concession had not been awarded to Dizon as a result of the February 24, 1986 solicitation. Dizon was
already operating this concession, then known as the NCO club concession, and the expiration of the
contract had been extended from June 30, 1986 to August 31, 1986. They further explained that the
solicitation of the CE barbershop would be available only by the end of June and the private respondents
would be notified.
On June 30, 1986, the private respondents filed a complaint in the court below to compel PHAX and the
individual petitioners to cancel the award to defendant Dizon, to conduct a rebidding for the barbershop
concessions and to allow the private respondents by a writ of preliminary injunction to continue operating
the concessions pending litigation. 1
Upon the filing of the complaint, the respondent court issued an ex parte order directing the individual
petitioners to maintain the status quo.
On July 22, 1986, the petitioners filed a motion to dismiss and opposition to the petition for preliminary
injunction on the ground that the action was in effect a suit against the United States of America, which had
not waived its non-suability. The individual defendants, as official employees of the U.S. Air Force, were
also immune from suit.
On the same date, July 22, 1986, the trial court denied the application for a writ of preliminary injunction.
On October 10, 1988, the trial court denied the petitioners' motion to dismiss, holding in part as follows:
From the pleadings thus far presented to this Court by the parties, the Court's attention is
called by the relationship between the plaintiffs as well as the defendants, including the US
Government, in that prior to the bidding or solicitation in question, there was a binding
contract between the plaintiffs as well as the defendants, including the US Government. By
virtue of said contract of concession it is the Court's understanding that neither the US
Government nor the herein principal defendants would become the employer/s of the
plaintiffs but that the latter are the employers themselves of the barbers, etc. with the
employer, the plaintiffs herein, remitting the stipulated percentage of commissions to the
Philippine Area Exchange. The same circumstance would become in effect when the

Philippine Area Exchange opened for bidding or solicitation the questioned barber shop
concessions. To this extent, therefore, indeed a commercial transaction has been entered,
and for purposes of the said solicitation, would necessarily be entered between the plaintiffs
as well as the defendants.
The Court, further, is of the view that Article XVIII of the RP-US Bases Agreement does not
cover such kind of services falling under the concessionaireship, such as a barber shop
concession. 2
On December 11, 1986, following the filing of the herein petition for certiorari and prohibition with
preliminary injunction, we issued a temporary restraining order against further proceedings in the court
below. 3
In G.R. No. 79470, Fabian Genove filed a complaint for damages against petitioners Anthony Lamachia,
Wilfredo Belsa, Rose Cartalla and Peter Orascion for his dismissal as cook in the U.S. Air Force Recreation
Center at the John Hay Air Station in Baguio City. It had been ascertained after investigation, from the
testimony of Belsa Cartalla and Orascion, that Genove had poured urine into the soup stock used in
cooking the vegetables served to the club customers. Lamachia, as club manager, suspended him and
thereafter referred the case to a board of arbitrators conformably to the collective bargaining agreement
between the Center and its employees. The board unanimously found him guilty and recommended his
dismissal. This was effected on March 5, 1986, by Col. David C. Kimball, Commander of the 3rd Combat
Support Group, PACAF Clark Air Force Base. Genove's reaction was to file Ms complaint in the Regional
Trial Court of Baguio City against the individual petitioners. 4
On March 13, 1987, the defendants, joined by the United States of America, moved to dismiss the complaint,
alleging that Lamachia, as an officer of the U.S. Air Force stationed at John Hay Air Station, was immune
from suit for the acts done by him in his official capacity. They argued that the suit was in effect against the
United States, which had not given its consent to be sued.
This motion was denied by the respondent judge on June 4, 1987, in an order which read in part:
It is the understanding of the Court, based on the allegations of the complaint which have
been hypothetically admitted by defendants upon the filing of their motion to dismiss that
although defendants acted initially in their official capacities, their going beyond what their
functions called for brought them out of the protective mantle of whatever immunities they
may have had in the beginning. Thus, the allegation that the acts complained of were illegal,
done. with extreme bad faith and with pre-conceived sinister plan to harass and finally
dismiss the plaintiff, gains significance. 5
The petitioners then came to this Court seeking certiorari and prohibition with preliminary injunction.
In G.R. No. 80018, Luis Bautista, who was employed as a barracks boy in Camp O' Donnell, an extension of
Clark Air Base, was arrested following a buy-bust operation conducted by the individual petitioners herein,
namely, Tomi J. King, Darrel D. Dye and Stephen F. Bostick, officers of the U.S. Air Force and special agents
of the Air Force Office of Special Investigators (AFOSI). On the basis of the sworn statements made by
them, an information for violation of R.A. 6425, otherwise known as the Dangerous Drugs Act, was filed
against Bautista in the Regional Trial Court of Tarlac. The above-named officers testified against him at his
trial. As a result of the filing of the charge, Bautista was dismissed from his employment. He then filed a
complaint for damages against the individual petitioners herein claiming that it was because of their acts
that he was removed. 6
During the period for filing of the answer, Mariano Y. Navarro a special counsel assigned to the International
Law Division, Office of the Staff Judge Advocate of Clark Air Base, entered a special appearance for the
defendants and moved for an extension within which to file an "answer and/or other pleadings." His reason
was that the Attorney General of the United States had not yet designated counsel to represent the
defendants, who were being sued for their official acts. Within the extended period, the defendants, without
the assistance of counsel or authority from the U.S. Department of Justice, filed their answer. They alleged

therein as affirmative defenses that they had only done their duty in the enforcement of the laws of the
Philippines inside the American bases pursuant to the RP-US Military Bases Agreement.
On May 7, 1987, the law firm of Luna, Sison and Manas, having been retained to represent the defendants,
filed with leave of court a motion to withdraw the answer and dismiss the complaint. The ground invoked
was that the defendants were acting in their official capacity when they did the acts complained of and that
the complaint against them was in effect a suit against the United States without its consent.
The motion was denied by the respondent judge in his order dated September 11, 1987, which held that the
claimed immunity under the Military Bases Agreement covered only criminal and not civil cases. Moreover,
the defendants had come under the jurisdiction of the court when they submitted their answer. 7
Following the filing of the herein petition for certiorari and prohibition with preliminary injunction, we issued
on October 14, 1987, a temporary restraining order. 8
In G.R. No. 80258, a complaint for damages was filed by the private respondents against the herein
petitioners (except the United States of America), for injuries allegedly sustained by the plaintiffs as a result
of the acts of the defendants. 9 There is a conflict of factual allegations here. According to the plaintiffs, the
defendants beat them up, handcuffed them and unleashed dogs on them which bit them in several parts of their
bodies and caused extensive injuries to them. The defendants deny this and claim the plaintiffs were arrested for
theft and were bitten by the dogs because they were struggling and resisting arrest, The defendants stress that
the dogs were called off and the plaintiffs were immediately taken to the medical center for treatment of their
wounds.
In a motion to dismiss the complaint, the United States of America and the individually named defendants
argued that the suit was in effect a suit against the United States, which had not given its consent to be
sued. The defendants were also immune from suit under the RP-US Bases Treaty for acts done by them in
the performance of their official functions.
The motion to dismiss was denied by the trial court in its order dated August 10, 1987, reading in part as
follows:
The defendants certainly cannot correctly argue that they are immune from suit. The
allegations, of the complaint which is sought to be dismissed, had to be hypothetically
admitted and whatever ground the defendants may have, had to be ventilated during the trial
of the case on the merits. The complaint alleged criminal acts against the individually-named
defendants and from the nature of said acts it could not be said that they are Acts of State,
for which immunity should be invoked. If the Filipinos themselves are duty bound to respect,
obey and submit themselves to the laws of the country, with more reason, the members of
the United States Armed Forces who are being treated as guests of this country should
respect, obey and submit themselves to its laws. 10
and so was the motion for reconsideration. The defendants submitted their answer as required but
subsequently filed their petition for certiorari and prohibition with preliminary injunction with this Court. We
issued a temporary restraining order on October 27, 1987. 11
II
The rule that a state may not be sued without its consent, now expressed in Article XVI, Section 3, of the
1987 Constitution, is one of the generally accepted principles of international law that we have adopted as
part of the law of our land under Article II, Section 2. This latter provision merely reiterates a policy earlier
embodied in the 1935 and 1973 Constitutions and also intended to manifest our resolve to abide by the
rules of the international community.
Even without such affirmation, we would still be bound by the generally accepted principles of international
law under the doctrine of incorporation. Under this doctrine, as accepted by the majority of states, such
principles are deemed incorporated in the law of every civilized state as a condition and consequence of its

membership in the society of nations. Upon its admission to such society, the state is automatically
obligated to comply with these principles in its relations with other states.
As applied to the local state, the doctrine of state immunity is based on the justification given by Justice
Holmes that "there can be no legal right against the authority which makes the law on which the right
depends." 12 There are other practical reasons for the enforcement of the doctrine. In the case of the foreign state
sought to be impleaded in the local jurisdiction, the added inhibition is expressed in the maxim par in parem, non
habet imperium. All states are sovereign equals and cannot assert jurisdiction over one another. A contrary
disposition would, in the language of a celebrated case, "unduly vex the peace of nations." 13
While the doctrine appears to prohibit only suits against the state without its consent, it is also applicable
to complaints filed against officials of the state for acts allegedly performed by them in the discharge of
their duties. The rule is that if the judgment against such officials will require the state itself to perform an
affirmative act to satisfy the same, such as the appropriation of the amount needed to pay the damages
awarded against them, the suit must be regarded as against the state itself although it has not been
formally impleaded. 14 In such a situation, the state may move to dismiss the complaint on the ground that it has
been filed without its consent.
The doctrine is sometimes derisively called "the royal prerogative of dishonesty" because of the privilege it
grants the state to defeat any legitimate claim against it by simply invoking its non-suability. That is hardly
fair, at least in democratic societies, for the state is not an unfeeling tyrant unmoved by the valid claims of
its citizens. In fact, the doctrine is not absolute and does not say the state may not be sued under any
circumstance. On the contrary, the rule says that the state may not be sued without its consent, which
clearly imports that it may be sued if it consents.
The consent of the state to be sued may be manifested expressly or impliedly. Express consent may be
embodied in a general law or a special law. Consent is implied when the state enters into a contract or it
itself commences litigation.
The general law waiving the immunity of the state from suit is found in Act No. 3083, under which the
Philippine government "consents and submits to be sued upon any moneyed claim involving liability
arising from contract, express or implied, which could serve as a basis of civil action between private
parties." In Merritt v. Government of the Philippine Islands, 15 a special law was passed to enable a person to
sue the government for an alleged tort. When the government enters into a contract, it is deemed to have
descended to the level of the other contracting party and divested of its sovereign immunity from suit with its
implied consent. 16 Waiver is also implied when the government files a complaint, thus opening itself to a
counterclaim. 17
The above rules are subject to qualification. Express consent is effected only by the will of the legislature
through the medium of a duly enacted statute. 18 We have held that not all contracts entered into by the
government will operate as a waiver of its non-suability; distinction must be made between its sovereign and
proprietary acts. 19 As for the filing of a complaint by the government, suability will result only where the
government is claiming affirmative relief from the defendant. 20
In the case of the United States of America, the customary rule of international law on state immunity is
expressed with more specificity in the RP-US Bases Treaty. Article III thereof provides as follows:
It is mutually agreed that the United States shall have the rights, power and authority within
the bases which are necessary for the establishment, use, operation and defense thereof or
appropriate for the control thereof and all the rights, power and authority within the limits of
the territorial waters and air space adjacent to, or in the vicinity of, the bases which are
necessary to provide access to them or appropriate for their control.
The petitioners also rely heavily on Baer v. Tizon, 21 along with several other decisions, to support their
position that they are not suable in the cases below, the United States not having waived its sovereign immunity
from suit. It is emphasized that in Baer, the Court held:

The invocation of the doctrine of immunity from suit of a foreign state without its consent is
appropriate. More specifically, insofar as alien armed forces is concerned, the starting point
is Raquiza v. Bradford, a 1945 decision. In dismissing a habeas corpus petition for the
release of petitioners confined by American army authorities, Justice Hilado speaking for the
Court, cited Coleman v. Tennessee, where it was explicitly declared: 'It is well settled that a
foreign army, permitted to march through a friendly country or to be stationed in it, by
permission of its government or sovereign, is exempt from the civil and criminal jurisdiction
of the place.' Two years later, in Tubb and Tedrow v. Griess, this Court relied on the ruling in
Raquiza v. Bradford and cited in support thereof excerpts from the works of the following
authoritative writers: Vattel, Wheaton, Hall, Lawrence, Oppenheim, Westlake, Hyde, and
McNair and Lauterpacht. Accuracy demands the clarification that after the conclusion of the
Philippine-American Military Bases Agreement, the treaty provisions should control on such
matter, the assumption being that there was a manifestation of the submission to jurisdiction
on the part of the foreign power whenever appropriate. More to the point is Syquia v. Almeda
Lopez, where plaintiffs as lessors sued the Commanding General of the United States Army
in the Philippines, seeking the restoration to them of the apartment buildings they owned
leased to the United States armed forces stationed in the Manila area. A motion to dismiss on
the ground of non-suability was filed and upheld by respondent Judge. The matter was taken
to this Court in a mandamus proceeding. It failed. It was the ruling that respondent Judge
acted correctly considering that the 4 action must be considered as one against the U.S.
Government. The opinion of Justice Montemayor continued: 'It is clear that the courts of the
Philippines including the Municipal Court of Manila have no jurisdiction over the present
case for unlawful detainer. The question of lack of jurisdiction was raised and interposed at
the very beginning of the action. The U.S. Government has not given its consent to the filing
of this suit which is essentially against her, though not in name. Moreover, this is not only a
case of a citizen filing a suit against his own Government without the latter's consent but it is
of a citizen firing an action against a foreign government without said government's consent,
which renders more obvious the lack of jurisdiction of the courts of his country. The
principles of law behind this rule are so elementary and of such general acceptance that we
deem it unnecessary to cite authorities in support thereof then came Marvel Building
Corporation v. Philippine War Damage Commission, where respondent, a United States
Agency established to compensate damages suffered by the Philippines during World War II
was held as falling within the above doctrine as the suit against it would eventually be a
charge against or financial liability of the United States Government because ... , the
Commission has no funds of its own for the purpose of paying money judgments.' The
Syquia ruling was again explicitly relied upon in Marquez Lim v. Nelson, involving a
complaint for the recovery of a motor launch, plus damages, the special defense interposed
being 'that the vessel belonged to the United States Government, that the defendants merely
acted as agents of said Government, and that the United States Government is therefore the
real party in interest.' So it was in Philippine Alien Property Administration v. Castelo, where
it was held that a suit against Alien Property Custodian and the Attorney General of the
United States involving vested property under the Trading with the Enemy Act is in substance
a suit against the United States. To the same effect is Parreno v. McGranery, as the following
excerpt from the opinion of justice Tuazon clearly shows: 'It is a widely accepted principle of
international law, which is made a part of the law of the land (Article II, Section 3 of the
Constitution), that a foreign state may not be brought to suit before the courts of another
state or its own courts without its consent.' Finally, there is Johnson v. Turner, an appeal by
the defendant, then Commanding General, Philippine Command (Air Force, with office at
Clark Field) from a decision ordering the return to plaintiff of the confiscated military payment
certificates known as scrip money. In reversing the lower court decision, this Tribunal,
through Justice Montemayor, relied on Syquia v. Almeda Lopez, explaining why it could not
be sustained.
It bears stressing at this point that the above observations do not confer on the United States of America a
blanket immunity for all acts done by it or its agents in the Philippines. Neither may the other petitioners
claim that they are also insulated from suit in this country merely because they have acted as agents of the
United States in the discharge of their official functions.

There is no question that the United States of America, like any other state, will be deemed to have
impliedly waived its non-suability if it has entered into a contract in its proprietary or private capacity. It is
only when the contract involves its sovereign or governmental capacity that no such waiver may be implied.
This was our ruling in United States of America v. Ruiz, 22 where the transaction in question dealt with the
improvement of the wharves in the naval installation at Subic Bay. As this was a clearly governmental function,
we held that the contract did not operate to divest the United States of its sovereign immunity from suit. In the
words of Justice Vicente Abad Santos:
The traditional rule of immunity exempts a State from being sued in the courts of another
State without its consent or waiver. This rule is a necessary consequence of the principles of
independence and equality of States. However, the rules of International Law are not
petrified; they are constantly developing and evolving. And because the activities of states
have multiplied, it has been necessary to distinguish them between sovereign and
governmental acts (jure imperii) and private, commercial and proprietary acts (jure gestionis).
The result is that State immunity now extends only to acts jure imperii The restrictive
application of State immunity is now the rule in the United States, the United kingdom and
other states in Western Europe.
xxx xxx xxx
The restrictive application of State immunity is proper only when the proceedings arise out of
commercial transactions of the foreign sovereign, its commercial activities or economic
affairs. Stated differently, a State may be said to have descended to the level of an individual
and can thus be deemed to have tacitly given its consent to be sued only when it enters into
business contracts. It does not apply where the contract relates to the exercise of its
sovereign functions. In this case the projects are an integral part of the naval base which is
devoted to the defense of both the United States and the Philippines, indisputably a function
of the government of the highest order; they are not utilized for nor dedicated to commercial
or business purposes.
The other petitioners in the cases before us all aver they have acted in the discharge of their official
functions as officers or agents of the United States. However, this is a matter of evidence. The charges
against them may not be summarily dismissed on their mere assertion that their acts are imputable to the
United States of America, which has not given its consent to be sued. In fact, the defendants are sought to
be held answerable for personal torts in which the United States itself is not involved. If found liable, they
and they alone must satisfy the judgment.
In Festejo v. Fernando, 23 a bureau director, acting without any authority whatsoever, appropriated private land
and converted it into public irrigation ditches. Sued for the value of the lots invalidly taken by him, he moved to
dismiss the complaint on the ground that the suit was in effect against the Philippine government, which had not
given its consent to be sued. This Court sustained the denial of the motion and held that the doctrine of state
immunity was not applicable. The director was being sued in his private capacity for a personal tort.
With these considerations in mind, we now proceed to resolve the cases at hand.
III
It is clear from a study of the records of G.R. No. 80018 that the individually-named petitioners therein were
acting in the exercise of their official functions when they conducted the buy-bust operation against the
complainant and thereafter testified against him at his trial. The said petitioners were in fact connected with
the Air Force Office of Special Investigators and were charged precisely with the function of preventing the
distribution, possession and use of prohibited drugs and prosecuting those guilty of such acts. It cannot
for a moment be imagined that they were acting in their private or unofficial capacity when they
apprehended and later testified against the complainant. It follows that for discharging their duties as
agents of the United States, they cannot be directly impleaded for acts imputable to their principal, which
has not given its consent to be sued. As we observed in Sanders v. Veridiano: 24

Given the official character of the above-described letters, we have to conclude that the
petitioners were, legally speaking, being sued as officers of the United States government. As
they have acted on behalf of that government, and within the scope of their authority, it is that
government, and not the petitioners personally, that is responsible for their acts.
The private respondent invokes Article 2180 of the Civil Code which holds the government liable if it acts
through a special agent. The argument, it would seem, is premised on the ground that since the officers are
designated "special agents," the United States government should be liable for their torts.
There seems to be a failure to distinguish between suability and liability and a misconception that the two
terms are synonymous. Suability depends on the consent of the state to be sued, liability on the applicable
law and the established facts. The circumstance that a state is suable does not necessarily mean that it is
liable; on the other hand, it can never be held liable if it does not first consent to be sued. Liability is not
conceded by the mere fact that the state has allowed itself to be sued. When the state does waive its
sovereign immunity, it is only giving the plaintiff the chance to prove, if it can, that the defendant is liable.
The said article establishes a rule of liability, not suability. The government may be held liable under this
rule only if it first allows itself to be sued through any of the accepted forms of consent.
Moreover, the agent performing his regular functions is not a special agent even if he is so denominated, as
in the case at bar. No less important, the said provision appears to regulate only the relations of the local
state with its inhabitants and, hence, applies only to the Philippine government and not to foreign
governments impleaded in our courts.
We reject the conclusion of the trial court that the answer filed by the special counsel of the Office of the
Sheriff Judge Advocate of Clark Air Base was a submission by the United States government to its
jurisdiction. As we noted in Republic v. Purisima, 25 express waiver of immunity cannot be made by a mere
counsel of the government but must be effected through a duly-enacted statute. Neither does such answer come
under the implied forms of consent as earlier discussed.
But even as we are certain that the individual petitioners in G.R. No. 80018 were acting in the discharge of
their official functions, we hesitate to make the same conclusion in G.R. No. 80258. The contradictory
factual allegations in this case deserve in our view a closer study of what actually happened to the
plaintiffs. The record is too meager to indicate if the defendants were really discharging their official duties
or had actually exceeded their authority when the incident in question occurred. Lacking this information,
this Court cannot directly decide this case. The needed inquiry must first be made by the lower court so it
may assess and resolve the conflicting claims of the parties on the basis of the evidence that has yet to be
presented at the trial. Only after it shall have determined in what capacity the petitioners were acting at the
time of the incident in question will this Court determine, if still necessary, if the doctrine of state immunity
is applicable.
In G.R. No. 79470, private respondent Genove was employed as a cook in the Main Club located at the U.S.
Air Force Recreation Center, also known as the Open Mess Complex, at John Hay Air Station. As manager
of this complex, petitioner Lamachia is responsible for eleven diversified activities generating an annual
income of $2 million. Under his executive management are three service restaurants, a cafeteria, a bakery, a
Class VI store, a coffee and pantry shop, a main cashier cage, an administrative office, and a decentralized
warehouse which maintains a stock level of $200,000.00 per month in resale items. He supervises 167
employees, one of whom was Genove, with whom the United States government has concluded a collective
bargaining agreement.
From these circumstances, the Court can assume that the restaurant services offered at the John Hay Air
Station partake of the nature of a business enterprise undertaken by the United States government in its
proprietary capacity. Such services are not extended to the American servicemen for free as a perquisite of
membership in the Armed Forces of the United States. Neither does it appear that they are exclusively
offered to these servicemen; on the contrary, it is well known that they are available to the general public as
well, including the tourists in Baguio City, many of whom make it a point to visit John Hay for this reason.
All persons availing themselves of this facility pay for the privilege like all other customers as in ordinary

restaurants. Although the prices are concededly reasonable and relatively low, such services are
undoubtedly operated for profit, as a commercial and not a governmental activity.
The consequence of this finding is that the petitioners cannot invoke the doctrine of state immunity to
justify the dismissal of the damage suit against them by Genove. Such defense will not prosper even if it be
established that they were acting as agents of the United States when they investigated and later dismissed
Genove. For that matter, not even the United States government itself can claim such immunity. The reason
is that by entering into the employment contract with Genove in the discharge of its proprietary functions, it
impliedly divested itself of its sovereign immunity from suit.
But these considerations notwithstanding, we hold that the complaint against the petitioners in the court
below must still be dismissed. While suable, the petitioners are nevertheless not liable. It is obvious that the
claim for damages cannot be allowed on the strength of the evidence before us, which we have carefully
examined.
The dismissal of the private respondent was decided upon only after a thorough investigation where it was
established beyond doubt that he had polluted the soup stock with urine. The investigation, in fact, did not
stop there. Despite the definitive finding of Genove's guilt, the case was still referred to the board of
arbitrators provided for in the collective bargaining agreement. This board unanimously affirmed the
findings of the investigators and recommended Genove's dismissal. There was nothing arbitrary about the
proceedings. The petitioners acted quite properly in terminating the private respondent's employment for
his unbelievably nauseating act. It is surprising that he should still have the temerity to file his complaint for
damages after committing his utterly disgusting offense.
Concerning G.R. No. 76607, we also find that the barbershops subject of the concessions granted by the
United States government are commercial enterprises operated by private person's. They are not agencies
of the United States Armed Forces nor are their facilities demandable as a matter of right by the American
servicemen. These establishments provide for the grooming needs of their customers and offer not only the
basic haircut and shave (as required in most military organizations) but such other amenities as shampoo,
massage, manicure and other similar indulgences. And all for a fee. Interestingly, one of the
concessionaires, private respondent Valencia, was even sent abroad to improve his tonsorial business,
presumably for the benefit of his customers. No less significantly, if not more so, all the barbershop
concessionaires are under the terms of their contracts, required to remit to the United States government
fixed commissions in consideration of the exclusive concessions granted to them in their respective areas.
This being the case, the petitioners cannot plead any immunity from the complaint filed by the private
respondents in the court below. The contracts in question being decidedly commercial, the conclusion
reached in the United States of America v. Ruiz case cannot be applied here.
The Court would have directly resolved the claims against the defendants as we have done in G.R. No.
79470, except for the paucity of the record in the case at hand. The evidence of the alleged irregularity in the
grant of the barbershop concessions is not before us. This means that, as in G.R. No. 80258, the respondent
court will have to receive that evidence first, so it can later determine on the basis thereof if the plaintiffs
are entitled to the relief they seek. Accordingly, this case must also be remanded to the court below for
further proceedings.
IV
There are a number of other cases now pending before us which also involve the question of the immunity
of the United States from the jurisdiction of the Philippines. This is cause for regret, indeed, as they mar the
traditional friendship between two countries long allied in the cause of democracy. It is hoped that the socalled "irritants" in their relations will be resolved in a spirit of mutual accommodation and respect, without
the inconvenience and asperity of litigation and always with justice to both parties.
WHEREFORE, after considering all the above premises, the Court hereby renders judgment as follows:

1. In G.R. No. 76607, the petition is DISMISSED and the respondent judge is directed to
proceed with the hearing and decision of Civil Case No. 4772. The temporary restraining
order dated December 11, 1986, is LIFTED.
2. In G.R. No. 79470, the petition is GRANTED and Civil Case No. 829-R(298) is DISMISSED.
3. In G.R. No. 80018, the petition is GRANTED and Civil Case No. 115-C-87 is DISMISSED. The
temporary restraining order dated October 14, 1987, is made permanent.
4. In G.R. No. 80258, the petition is DISMISSED and the respondent court is directed to
proceed with the hearing and decision of Civil Case No. 4996. The temporary restraining
order dated October 27, 1987, is LIFTED.
All without any pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Narvasa, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, Padilla, Bidin,
Sarmiento, Cortes, Grio-Aquino, Medialdea and Regalado, JJ., concur.

Footnotes
1 Civil Case No. 4772.
2 Annex "B", Rollo, pp. 36-38.
3 Rollo, p. 88.
4 Civil Case No. 829-R(298).
5 Annex "A", Rollo, p. 38.
6 Civil Case No. 115-C-87.
7 Annex "A," Rollo, p. 33.
8 Rollo, p. 69.
9 Civil Case No. 4996.
10 Annex "A," Rollo, p. 58.
11 Rollo, p. 181.
12 Kawanakoa v. Polybank, 205 U.S. 349.
13 De Haber v. Queen of Portugal, 17 Q.B. 171.
14 Garcia v. Chief of Staff, 16 SCRA 120.
15 4 Phil. 311.
16 Santos v. Santos, 92 Phil. 281; Lyons v. United States of America, 104 Phil. 593.

17 Froilan v. Pan Oriental Shipping Co., G.R. No. 6060, September 30, 1950.
18 Republic v. Purisima, 78 SCRA 470.
19 United States of America v. Ruiz, 136 SCRA 487.
20 Lim v. Brownell, 107 Phil. 345.
21 57 SCRA 1.
22 136 SCRA 487.
23 50 O.G. 1556.
24 162 SCRA 88.
25 Supra.

G.R. Nos. 109095-109107 February 23, 1995

ELDEPIO LASCO, RODOLFO ELISAN, URBANO BERADOR, FLORENTINO ESTOBIO, MARCELINO
MATURAN, FRAEN BALIBAG, CARMELITO GAJOL, DEMOSTHENES MANTO, SATURNINO BACOL,
SATURNINO LASCO, RAMON LOYOLA, JOSENIANO B. ESPINA, all represented by MARIANO R.
ESPINA, petitioner,
vs.
UNITED NATIONS REVOLVING FUND FOR NATURAL RESOURCES EXPLORATION (UNRFNRE) represented
by its operations manager, DR. KYRIACOS LOUCA, OSCAR N. ABELLA, LEON G. GONZAGA, JR., MUSIB M.
BUAT, Commissioners of National Labor Relations Commission (NLRC), Fifth Division, Cagayan de Oro City
and IRVING PETILLA, Labor Arbiter of Butuan City, respondents.

QUIASON, J.:
This is a petition for certiorari under Rule 65 of the Revised Rules of Court to set aside the Resolution dated January
25, 1993 of the National Labor Relations Commission (NLRC), Fifth Division, Cagayan de Oro City.
We dismiss the petition.
I
Petitioners were dismissed from their employment with private respondent, the United Nations Revolving Fund for
Natural Resources Exploration (UNRFNRE), which is a special fund and subsidiary organ of the United Nations. The
UNRFNRE is involved in a joint project of the Philippine Government and the United Nations for exploration work in
Dinagat Island.
Petitioners are the complainants in NLRC Cases Nos. SRAB 10-03-00067-91 to 10-03-00078-91 and SRAB 10-0700159-91 for illegal dismissal and damages.
In its Motion to Dismiss, private respondent alleged that respondent Labor Arbiter had no jurisdiction over its
personality since it enjoyed diplomatic immunity pursuant to the 1946 Convention on the Privileges and Immunities
of the United Nations. In support thereof, private respondent attached a letter from the Department of Foreign Affairs
dated August 26, 1991, which acknowledged its immunity from suit. The letter confirmed that private respondent,
being a special fund administered by the United Nations, was covered by the 1946 Convention on the Privileges and
Immunities of the United Nations of which the Philippine Government was an original signatory (Rollo, p. 21).
On November 25, 1991, respondent Labor Arbiter issued an order dismissing the complaints on the ground that
private respondent was protected by diplomatic immunity. The dismissal was based on the letter of the Foreign
Office dated September 10, 1991.
Petitioners' motion for reconsideration was denied. Thus, an appeal was filed with the NLRC, which affirmed the
dismissal of the complaints in its Resolution dated January 25, 1993.
Petitioners filed the instant petition for certiorari without first seeking a reconsideration of the NLRC resolution.

II
Article 223 of the Labor Code of the Philippines, as amended, provides that decisions of the NLRC are final and
executory. Thus, they may only be questioned through certiorari as a special civil action under Rule 65 of the
Revised Rules of Court.
Ordinarily, certiorari as a special civil action will not lie unless a motion for reconsideration is first filed before the
respondent tribunal, to allow it an opportunity to correct its assigned errors (Liberty Insurance Corporation v. Court of
Appeals, 222 SCRA 37 [1993]).
In the case at bench, petitioners' failure to file a motion for reconsideration is fatal to the instant petition. Moreover,
the petition lacks any explanation for such omission, which may merit its being considered as falling under the
recognized exceptions to the necessity of filing such motion.
Notwithstanding, we deem it wise to give due course to the petition because of the implications of the issue in our
international relations.
Petitioners argued that the acts of mining exploration and exploitation are outside the official functions of an
international agency protected by diplomatic immunity. Even assuming that private respondent was entitled to
diplomatic immunity, petitioners insisted that private respondent waived it when it engaged in exploration work and
entered into a contract of employment with petitioners.
Petitioners, likewise, invoked the constitutional mandate that the State shall afford full protection to labor and
promote full employment and equality of employment opportunities for all (1987 Constitution, Art. XIII, Sec. 3).
The Office of the Solicitor General is of the view that private respondent is covered by the mantle of diplomatic
immunity. Private respondent is a specialized agency of the United Nations. Under Article 105 of the Charter of the
United Nations:
1. The Organization shall enjoy in the territory of its Members such privileges and immunities as are
necessary for the fulfillment of its purposes.
2. Representatives of the Members of the United Nations and officials of the Organization shall
similarly enjoy such privileges and immunities as are necessary for the independent exercise of their
functions in connection with the organization.
Corollary to the cited article is the Convention on the Privileges and Immunities of the Specialized Agencies of the
United Nations, to which the Philippines was a signatory (Vol. 1, Philippine Treaty Series, p. 621). We quote
Sections 4 and 5 of Article III thereof:
Sec. 4. The specialized agencies, their property and assets, wherever located and by whomsoever
held shall enjoy immunity from every form of legal process except insofar as in any particular case
they have expressly waived their immunity. It is, however, understood that no waiver of immunity
shall extend to any measure of execution (Emphasis supplied).
Sec. 5. The premises of the specialized agencies shall be inviolable. The property and assets of the
specialized agencies, wherever located and by whomsoever held, shall be immune from search,
requisition, confiscation, expropriation and any other form of interference, whether by executive,
administrative, judicial or legislative action (Emphasis supplied).
As a matter of state policy as expressed in the Constitution, the Philippine Government adopts the generally
accepted principles of international law (1987 Constitution, Art. II, Sec. 2). Being a member of the United Nations
and a party to the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations,
the Philippine Government adheres to the doctrine of immunity granted to the United Nations and its specialized
agencies. Both treaties have the force and effect of law.
In World Health Organization v. Aquino, 48 SCRA 242, (1972), we had occasion to rule that:

It is a recognized principle of international law and under our system of separation of powers
thatdiplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic immunity
is recognized and affirmed by the executive branch of the government as in the case at bar, it is then
the duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal
law officer of the government, the Solicitor General or other officer acting under his direction. Hence,
in adherence to the settled principle that courts may not so exercise their jurisdiction by seizure and
detention of property, as to embarrass the executive arm of the government in conducting foreign
relations, it is accepted doctrine that "in such cases the judicial department of (this) government
follows the action of the political branch and will not embarrass the latter by assuming an
antagonistic jurisdiction (Emphasis supplied).
We recognize the growth of international organizations dedicated to specific universal endeavors, such as health,
agriculture, science and technology and environment. It is not surprising that their existence has evolved into the
concept of international immunities. The reason behind the grant of privileges and immunities to international
organizations, its officials and functionaries is to secure them legal and practical independence in fulfilling their
duties (Jenks, International Immunities 17 [1961]).
Immunity is necessary to assure unimpeded performance of their functions. The purpose is "to shield the affairs of
international organizations, in accordance with international practice, from political pressure or control by the host
country to the prejudice of member States of the organization, and to ensure the unhampered performance of their
functions" (International Catholic Migration Commission v. Calleja, 190 SCRA 130 [1990]).
In the International Catholic Migration Commission case, we held that there is no conflict between the constitutional
duty of the State to protect the rights of workers and to promote their welfare, and the grant of immunity to
international organizations. Clauses on jurisdictional immunity are now standard in the charters of the international
organizations to guarantee the smooth discharge of their functions.
The diplomatic immunity of private respondent was sufficiently established by the letter of the Department of Foreign
Affairs, recognizing and confirming the immunity of UNRFNRE in accordance with the 1946 Convention on
Privileges and Immunities of the United Nations where the Philippine Government was a party. The issue whether
an international organization is entitled to diplomatic immunity is a "political question" and such determination by the
executive branch is conclusive on the courts and quasi-judicial agencies (The Holy See v. Hon. Eriberto U. Rosario,
Jr., G.R. No. 101949, Dec. 1, 1994; International Catholic Migration Commission v. Calleja, supra).
Our courts can only assume jurisdiction over private respondent if it expressly waived its immunity, which is not so in
the case at bench (Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations,
Art. III, Sec. 4).
Private respondent is not engaged in a commercial venture in the Philippines. Its presence here is by virtue of a joint
project entered into by the Philippine Government and the United Nations for mineral exploration in Dinagat Island.
Its mission is not to exploit our natural resources and gain pecuniarily thereby but to help improve the quality of life
of the people, including that of petitioners.
This is not to say that petitioner have no recourse. Section 31 of the Convention on the Privileges and Immunities of
the Specialized Agencies of the United Nations states that "each specialized agency shall make a provision for
appropriate modes of settlement of: (a) disputes arising out of contracts or other disputes of private character to
which the specialized agency is a party."
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

G.R. No. L-35131 November 29, 1972

THE WORLD HEALTH ORGANIZATION and DR. LEONCE VERSTUYFT, petitioners,
vs.
HON. BENJAMIN H. AQUINO, as Presiding Judge of Branch VIII, Court of First Instance of Rizal, MAJOR
WILFREDO CRUZ, MAJOR ANTONIO G. RELLEVE, and CAPTAIN PEDRO S. NAVARRO of the Constabulary
Offshore Action Center (COSAC), respondents.
Sycip, Salazar, Luna, Manalo and Feliciano for petitioners.
Emilio L. Baldia for respondents.

TEEHANKEE, J.:p

An original action for certiorari and prohibition to set aside respondent judge's refusal to quash a search warrant
issued by him at the instance of respondents COSAC (Constabulary Offshore Action Center) officers for the search
and seizure of the personal effects of petitioner official of the WHO (World Health Organization) notwithstanding his
being entitled to diplomatic immunity, as duly recognized by the executive branch of the Philippine Government and
to prohibit respondent judge from further proceedings in the matter.
Upon filing of the petition, the Court issued on June 6, 1972 a restraining order enjoining respondents from
executing the search warrant in question.
Respondents COSAC officers filed their answer joining issue against petitioners and seeking to justify their act of
applying for and securing from respondent judge the warrant for the search and seizure of ten crates consigned to
petitioner Verstuyft and stored at the Eternit Corporation warehouse on the ground that they "contain large quantities
of highly dutiable goods" beyond the official needs of said petitioner "and the only lawful way to reach these articles
and effects for purposes of taxation is through a search warrant." 1
The Court thereafter called for the parties' memoranda in lieu of oral argument, which were filed on August 3, 1972
by respondents and on August 21, 1972 by petitioners, and the case was thereafter deemed submitted for decision.
It is undisputed in the record that petitioner Dr. Leonce Verstuyft, who was assigned on December 6, 1971 by the
WHO from his last station in Taipei to the Regional Office in Manila as Acting Assistant Director of Health Services,
is entitled to diplomatic immunity, pursuant to the Host Agreement executed on July 22, 1951 between the Philippine
Government and the World Health Organization.
Such diplomatic immunity carries with it, among other diplomatic privileges and immunities, personal inviolability,
inviolability of the official's properties, exemption from local jurisdiction, and exemption from taxation and customs
duties.
When petitioner Verstuyft's personal effects contained in twelve (12) crates entered the Philippines as
unaccompanied baggage on January 10, 1972, they were accordingly allowed free entry from duties and taxes. The
crates were directly stored at the Eternit Corporation's warehouse at Mandaluyong, Rizal, "pending his relocation
into permanent quarters upon the offer of Mr. Berg, Vice President of Eternit who was once a patient of Dr. Verstuyft
in the Congo." 2
Nevertheless, as above stated, respondent judge issued on March 3, 1972 upon application on the same date of
respondents COSAC officers search warrant No. 72-138 for alleged violation of Republic Act 4712 amending section
3601 of the Tariff and Customs Code 3 directing the search and seizure of the dutiable items in said crates.
Upon protest of March 6, 1972 of Dr. Francisco Dy, WHO Regional Director for the Western Pacific with station in
Manila, Secretary of Foreign Affairs Carlos P. Romulo, personally wired on the same date respondent Judge
advising that "Dr. Verstuyft is entitled to immunity from search in respect of his personal baggage as accorded to
members of diplomatic missions" pursuant to the Host Agreement and requesting suspension of the search warrant
order "pending clarification of the matter from the ASAC."
Respondent judge set the Foreign Secretary's request for hearing and heard the same on March 16, 1972, but
notwithstanding the official plea of diplomatic immunity interposed by a duly authorized representative of the
Department of Foreign Affairs who furnished the respondent judge with a list of the articles brought in by petitioner
Verstuyft, respondent judge issued his order of the same date maintaining the effectivity of the search warrant
issued by him, unless restrained by a higher court. 4
Petitioner Verstuyft's special appearance on March 24, 1972 for the limited purpose of pleading his diplomatic
immunity and motion to quash search warrant of April 12, 1972 failed to move respondent judge.
At the hearing thereof held on May 8, 1972, the Office of the Solicitor General appeared and filed an extended
comment stating the official position of the executive branch of the Philippine Government that petitioner Verstuyft is
entitled to diplomatic immunity, he did not abuse his diplomatic immunity, 5 and that court proceedings in the receiving
or host State are not the proper remedy in the case of abuse of diplomatic immunity. 6

The Solicitor General accordingly joined petitioner Verstuyft's prayer for the quashal of the search warrant.
Respondent judge nevertheless summarily denied quashal of the search warrant per his order of May 9, 1972 "for
the same reasons already stated in (his) aforesaid order of March 16, 1972" disregarding Foreign Secretary
Romulo's plea of diplomatic immunity on behalf of Dr. Verstuyft.
Hence, the petition at bar. Petitioner Verstuyft has in this Court been joined by the World Health Organization (WHO)
itself in full assertion of petitioner Verstuyft's being entitled "to all privileges and immunities, exemptions and facilities
accorded to diplomatic envoys in accordance with international law" under section 24 of the Host Agreement.
The writs of certiorari and prohibition should issue as prayed for.
1. The executive branch of the Philippine Government has expressly recognized that petitioner Verstuyft is entitled
to diplomatic immunity, pursuant to the provisions of the Host Agreement. The Department of Foreign Affairs formally
advised respondent judge of the Philippine Government's official position that accordingly "Dr. Verstuyft cannot be
the subject of a Philippine court summons without violating an obligation in international law of the Philippine
Government" and asked for the quashal of the search warrant, since his personal effects and baggages after having
been allowed free entry from all customs duties and taxes, may not be baselessly claimed to have been "unlawfully
imported" in violation of the tariff and customs code as claimed by respondents COSAC officers. The SolicitorGeneral, as principal law officer of the Government, 7 likewise expressly affirmed said petitioner's right to diplomatic
immunity and asked for the quashal of the search warrant.
It is a recognized principle of international law and under our system of separation of powers that diplomatic
immunity is essentially a political question and courts should refuse to look beyond a determination by the executive
branch of the government, 8 and where the plea of diplomatic immunity is recognized and affirmed by the executive
branch of the government as in the case at bar, it is then the duty of the courts to accept the claim of immunity upon
appropriate suggestion by the principal law officer of the government, the Solicitor General in this case, or other officer
acting under his direction. 9 Hence, in adherence to the settled principle that courts may not so exercise their jurisdiction by
seizure and detention of property, as to embarrass the executive arm of the government in conducting foreign relations, it
is accepted doctrine that "in such cases the judicial department of (this) government follows the action of the political
branch and will not embarrass the latter by assuming an antagonistic jurisdiction." 10
2. The unfortunate fact that respondent judge chose to rely on the suspicion of respondents COSAC officers "that
the other remaining crates unopened contain contraband items" 11 rather than on the categorical assurance of the
Solicitor-General that petitioner Verstuyft did not abuse his diplomatic immunity, 12 which was based in turn on the official
positions taken by the highest executive officials with competence and authority to act on the matter, namely, the
Secretaries of Foreign Affairs and of Finance, could not justify respondent judge's denial of the quashal of the search
warrant.
As already stated above, and brought to respondent court's attention, 13 the Philippine Government is bound by the
procedure laid down in Article VII of the Convention on the Privileges and Immunities of the Specialized Agencies of the
United Nations 14 for consultations between the Host State and the United Nations agency concerned to determine, in the
first instance the fact of occurrence of the abuse alleged, and if so, to ensure that no repetition occurs and for other
recourses. This is a treaty commitment voluntarily assumed by the Philippine Government and as such, has the force and
effect of law.
Hence, even assuming arguendo as against the categorical assurance of the executive branch of government that
respondent judge had some ground to prefer respondents COSAC officers' suspicion that there had been an abuse
of diplomatic immunity, the continuation of the search warrant proceedings before him was not the proper remedy.
He should, nevertheless, in deference to the exclusive competence and jurisdiction of the executive branch of
government to act on the matter, have acceded to the quashal of the search warrant, and forwarded his findings or
grounds to believe that there had been such abuse of diplomatic immunity to the Department of Foreign Affairs for it
to deal with, in accordance with the aforementioned Convention, if so warranted.
3. Finally, the Court has noted with concern the apparent lack of coordination between the various departments
involved in the subject-matter of the case at bar, which made it possible for a small unit, the COSAC, to which
respondents officers belong, seemingly to disregard and go against the authoritative determination and
pronouncements of both the Secretaries of Foreign Affairs and of Finance that petitioner Verstuyft is entitled to
diplomatic immunity, as confirmed by the Solicitor-General as the principal law officer of the Government. Such
executive determination properly implemented should have normally constrained respondents officers themselves to

obtain the quashal of the search warrant secured by them rather than oppose such quashal up to this Court, to the
embarrassment of said department heads, if not of the Philippine Government itself vis a visthe petitioners. 15
The seriousness of the matter is underscored when the provisions of Republic Act 75 enacted since October 21,
1946 to safeguard the jurisdictional immunity of diplomatic officials in the Philippines are taken into account. Said
Act declares as null and void writs or processes sued out or prosecuted whereby inter alia the person of an
ambassador or public minister is arrested or imprisoned or his goods or chattels are seized or attached and makes it
a penal offense for "every person by whom the same is obtained or prosecuted, whether as party or as attorney, and
every officer concerned in executing it" to obtain or enforce such writ or process. 16
The Court, therefore, holds that respondent judge acted without jurisdiction and with grave abuse of discretion in not
ordering the quashal of the search warrant issued by him in disregard of the diplomatic immunity of petitioner
Verstuyft.
ACCORDINGLY, the writs of certiorari and prohibition prayed for are hereby granted, and the temporary restraining
order heretofore issued against execution or enforcement of the questioned search warrant, which is hereby
declared null and void, is hereby made permanent. The respondent court is hereby commanded to desist from
further proceedings in the matter. No costs, none having been prayed for.
The clerk of court is hereby directed to furnish a copy of this decision to the Secretary of Justice for such action as
he may find appropriate with regard to the matters mentioned in paragraph 3 hereof. So ordered.
Concepcion, C.J., Makalintal, Zaldivar, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
Castro, J., reserves his vote.

Footnotes
1 Respondents' Answer, Rollo, p. 138.
2 Citygram of March 6, 1972 of Secretary of Foreign Affairs Carlos P. Romulo to respondent judge,
Annex D, petition.
3 This penal provision of the tariff & customs code imposes a penalty of a fine of not less than
P600.00 nor more than P5000.00 and imprisonment for not less than 6 months nor more than two
years for unlawful importation and illegal possession of goods imported contrary to law, upon "Any
person who shall fraudulently import or bring into the Philippines, or assist in so doing, any article,
contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation,
concealment, or sale of such article after importation, knowing the same to have been imported
contrary to law," and states that "(W)hen, upon trial for a violation of this section, the defendant is
shown to have or to have had possession of the article in question, such possession shall be
deemed sufficient evidence to authorize conviction, unless the defendant shall explain the
possession to the satisfaction of the court...."
4 Respondent judge's justification in his said order reads in part as follows:
"... From the reply submitted by Captains Pedro S. Navarro and Antonio G. Relleve of the COSAC, it
appears that the articles contained in the two baggages allegedly belonging to Dr. Verstuyft so far
opened by them, are 120 bottles of assorted foreign wine and 15 tins of PX goods which are said to
be dutiable under the Customs and Tariff Code of the Philippines. The two COSAC officers further
manifested that they positively believe that there are more contraband items in the nine other huge
crates which are still unopened.... The articles so far found in the two crates opened by Capt.
Navarro and Relleve are not mentioned in the list of articles brought in by Dr. Verstuyft and are
highly dutiable under the Customs and Tariff Code and according to said officers they have strong
reasons to believe that the other remaining crates unopened contain contraband items. The Court is

certain that the World Health Organization would not tolerate violations of local laws by its officials
and/or representatives under a claim of immunity granted to them by the host agreement. Since the
right of immunity invoked by the Department of Foreign Affairs is admittedly relative and not
absolute, and there are strong and positive indications of violation of local laws, the Court declines to
suspend the effectivity of the search warrant issued in the case at bar...."
5 Aside from the Foreign Affairs Department's certification that the importation of 120 bottles of wine
is "ordinary in diplomatic practice," the Solicitor General took pains to inform the lower court that the
packing of Dr. Verstuyft's baggages and personal effects was done "by a packing company in
Taipei ... (and) Dr. Verstuyft had no hand in the preparation of the packing list of his personal effects
which has been assailed by ASAC agents. Also implicit from the foregoing is the fact that Dr.
Verstuyft had no intention to violate Philippine laws by selling the 120 bottles of foreign wine and 15
tins of PX goods in the Philippines. Otherwise, he need not have stored the same at the Eternit
Corporation where they may be subject to the probing eyes of government agents."
6 The Solicitor General cites that the Convention on the Privileges and Immunities of the Specialized
Agencies of the U.N. adopted on Nov. 21, 1947, and made applicable by ratification to the WHO
contains Article VII on abuse of privilege, calling for consultations between the Host State and the
U.S. agency concerned and in case no satisfactory result is reached for submittal to the International
Court of Justice for determination whether "such an abuse has occurred," and providing for the
customary procedure of requiring the offending official's departure in certain instances.
7 Section 1661, Rev. Administrative Code.
8 See Trost vs. Tompkins, 44A, 2b 226.
9 See Ins. Co., 24 N.E. 2d 81, 281 N.Y. 362, reversing 5 N.Y.S. 2d 295, 254 App. Div. 511,
reargument denied 26 N.E. 2d 808, 282 N.Y. 676, motion denied 29 N.E. 2d 939, 284 N.Y. 633 (275th D-1127).
10 See, United States v. Lee, 106 U. S. 196, 209, 1 S. Ct. 240, 27 L. Ed. 171; Ex parte Republic of
Peru, 318 U.S. 578, 63 S. CT. 793, 87 L. Ed. 1014; Republic of Mexico v. Hoffman, 324, U. S. 30, 35,
65 S. Ct. 530, 89 L. Ed. 729; Welleman vs. Chase Manhattan Bank 192 N.Y.S. 2d 469.
11 Supra. fn. 4.
12 Supra, fn. 5.
13 Supra, fn. 6.
14 This Convention was adopted by the U. N. General Assembly on Nov. 21, 1947; it was concurred
in by the Philippine Senate under Sen. Resolution No. 21, May 17, 1949; and the Philippine
Instrument of Ratification was signed by the President of the Republic on Feb. 21, 1959 applying the
Convention to the WHO. See 45 0. G. 3187 (1949) and Vol. I, Phil. Treaty series, p. 621.
15 In their answer to petition, respondents COSAC officers insist on their "belief and contention" that
the 120 bottles of foreign wine found by them "are far in excess, considered by any reasonable
standard of taste and elegance in the diplomatic world of the official mission and needs of a
diplomat, much more of the status of (petitioner), hence, they should be taxed" and on their
"conviction that the articles and effects ... are not in fact and in truth personal effects so as to be
comprehended within the privileges and immunities accorded representatives of (WHO)." Rollo, pp.
138-139.
16 The pertinent section of Rep. Act 75, entitled "An act to penalize acts which would impair the
proper observance by the Republic and inhabitants of the Philippines of the immunities, rights and
privileges of duly accredited foreign diplomatic and consular agents in the Philippines," reads: "Any
writ or process sued out or prosecuted by any person in any court of the Republic of the Philippines,

or by any judge or justice, whereby the person of any ambassador or public minister of any foreign
State, authorized and received as such by the President, or any domestic or domestic servant of any
such ambassador or minister is arrested or imprisoned, or his goods or chattels aredistrained,
seized, or attacked, shall be deemed void, and every person by whom the same is obtained or
prosecuted, whether as party or as attorney, and every officer concerned in executing it, shall upon
conviction, be punished by imprisonment for not more than three years and a fine of not exceeding
two hundred pesos in the discretion of the court." (Section 4, emphasis supplied) As to whether this
Act may be invoked on behalf of petitioner (who does not pertain to the foreign diplomatic
corps), quaere.

G.R. No. 85750 September 28, 1990

INTERNATIONAL CATHOLIC IMMIGRATION COMMISSION, petitioner
vs
HON. PURA CALLEJA IN HER CAPACITY AS DIRECTOR OF THE BUREAU OF LABOR RELATIONS AND
TRADE UNIONS OF THE PHILIPPINES AND ALLIED SERVICES (TUPAS) WFTU respondents.
G.R. No. 89331 September 28, 1990
KAPISANAN NG MANGGAGAWA AT TAC SA IRRI-ORGANIZED LABOR ASSOCIATION IN LINE INDUSTRIES
AND AGRICULTURE, petitioner,
vs
SECRETARY OF LABOR AND EMPLOYMENT AND INTERNATIONAL RICE RESEARCH INSTITUTE,
INC.,respondents.
Araullo, Zambrano, Gruba, Chua Law Firm for petitioner in 85750.
Dominguez, Armamento, Cabana & Associates for petitioner in G.R. No. 89331.
Jimenez & Associates for IRRI.
Alfredo L. Bentulan for private respondent in 85750.

MELENCIO-HERRERA, J.:
Consolidated on 11 December 1989, these two cases involve the validity of the claim of immunity by the
International Catholic Migration Commission (ICMC) and the International Rice Research Institute, Inc. (IRRI) from
the application of Philippine labor laws.
I
Facts and Issues
A. G.R. No. 85750 the International Catholic Migration Commission (ICMC) Case.
As an aftermath of the Vietnam War, the plight of Vietnamese refugees fleeing from South Vietnam's communist rule
confronted the international community.
In response to this crisis, on 23 February 1981, an Agreement was forged between the Philippine Government and
the United Nations High Commissioner for Refugees whereby an operating center for processing Indo-Chinese
refugees for eventual resettlement to other countries was to be established in Bataan (Annex "A",Rollo, pp. 22-32).
ICMC was one of those accredited by the Philippine Government to operate the refugee processing center in
Morong, Bataan. It was incorporated in New York, USA, at the request of the Holy See, as a non-profit agency
involved in international humanitarian and voluntary work. It is duly registered with the United Nations Economic and
Social Council (ECOSOC) and enjoys Consultative Status, Category II. As an international organization rendering
voluntary and humanitarian services in the Philippines, its activities are parallel to those of the International
Committee for Migration (ICM) and the International Committee of the Red Cross (ICRC) [DOLE Records of BLR
Case No. A-2-62-87, ICMC v. Calleja, Vol. 1].

On 14 July 1986, Trade Unions of the Philippines and Allied Services (TUPAS) filed with the then Ministry of Labor
and Employment a Petition for Certification Election among the rank and file members employed by ICMC The latter
opposed the petition on the ground that it is an international organization registered with the United Nations and,
hence, enjoys diplomatic immunity.
On 5 February 1987, Med-Arbiter Anastacio L. Bactin sustained ICMC and dismissed the petition for lack of
jurisdiction.
On appeal by TUPAS, Director Pura Calleja of the Bureau of Labor Relations (BLR), reversed the Med-Arbiter's
Decision and ordered the immediate conduct of a certification election. At that time, ICMC's request for recognition
as a specialized agency was still pending with the Department of Foreign Affairs (DEFORAF).
Subsequently, however, on 15 July 1988, the Philippine Government, through the DEFORAF, granted ICMC the
status of a specialized agency with corresponding diplomatic privileges and immunities, as evidenced by a
Memorandum of Agreement between the Government and ICMC (Annex "E", Petition, Rollo, pp. 41-43), infra.
ICMC then sought the immediate dismissal of the TUPAS Petition for Certification Election invoking the immunity
expressly granted but the same was denied by respondent BLR Director who, again, ordered the immediate conduct
of a pre-election conference. ICMC's two Motions for Reconsideration were denied despite an opinion rendered by
DEFORAF on 17 October 1988 that said BLR Order violated ICMC's diplomatic immunity.
Thus, on 24 November 1988, ICMC filed the present Petition for Certiorari with Preliminary Injunction assailing the
BLR Order.
On 28 November 1988, the Court issued a Temporary Restraining Order enjoining the holding of the certification
election.
On 10 January 1989, the DEFORAF, through its Legal Adviser, retired Justice Jorge C. Coquia of the Court of
Appeals, filed a Motion for Intervention alleging that, as the highest executive department with the competence and
authority to act on matters involving diplomatic immunity and privileges, and tasked with the conduct of Philippine
diplomatic and consular relations with foreign governments and UN organizations, it has a legal interest in the
outcome of this case.
Over the opposition of the Solicitor General, the Court allowed DEFORAF intervention.
On 12 July 1989, the Second Division gave due course to the ICMC Petition and required the submittal of
memoranda by the parties, which has been complied with.
As initially stated, the issue is whether or not the grant of diplomatic privileges and immunites to ICMC extends to
immunity from the application of Philippine labor laws.
ICMC sustains the affirmative of the proposition citing (1) its Memorandum of Agreement with the Philippine
Government giving it the status of a specialized agency, (infra); (2) the Convention on the Privileges and Immunities
of Specialized Agencies, adopted by the UN General Assembly on 21 November 1947 and concurred in by the
Philippine Senate through Resolution No. 91 on 17 May 1949 (the Philippine Instrument of Ratification was signed
by the President on 30 August 1949 and deposited with the UN on 20 March 1950) infra; and (3) Article II, Section 2
of the 1987 Constitution, which declares that the Philippines adopts the generally accepted principles of
international law as part of the law of the land.
Intervenor DEFORAF upholds ICMC'S claim of diplomatic immunity and seeks an affirmance of the DEFORAF
determination that the BLR Order for a certification election among the ICMC employees is violative of the
diplomatic immunity of said organization.
Respondent BLR Director, on the other hand, with whom the Solicitor General agrees, cites State policy and
Philippine labor laws to justify its assailed Order, particularly, Article II, Section 18 and Article III, Section 8 of the
1987 Constitution, infra; and Articles 243 and 246 of the Labor Code, as amended, ibid. In addition, she contends

that a certification election is not a litigation but a mere investigation of a non-adversary, fact-finding character. It is
not a suit against ICMC its property, funds or assets, but is the sole concern of the workers themselves.
B. G.R. No. 89331 (The International Rice Research Institute [IRRI] Case).
Before a Decision could be rendered in the ICMC Case, the Third Division, on 11 December 1989, resolved to
consolidate G.R. No. 89331 pending before it with G.R. No. 85750, the lower-numbered case pending with the
Second Division, upon manifestation by the Solicitor General that both cases involve similar issues.
The facts disclose that on 9 December 1959, the Philippine Government and the Ford and Rockefeller Foundations
signed a Memorandum of Understanding establishing the International Rice Research Institute (IRRI) at Los Baos,
Laguna. It was intended to be an autonomous, philanthropic, tax-free, non-profit, non-stock organization designed to
carry out the principal objective of conducting "basic research on the rice plant, on all phases of rice production,
management, distribution and utilization with a view to attaining nutritive and economic advantage or benefit for the
people of Asia and other major rice-growing areas through improvement in quality and quantity of rice."
Initially, IRRI was organized and registered with the Securities and Exchange Commission as a private corporation
subject to all laws and regulations. However, by virtue of Pres. Decree No. 1620, promulgated on 19 April 1979,
IRRI was granted the status, prerogatives, privileges and immunities of an international organization.
The Organized Labor Association in Line Industries and Agriculture (OLALIA), is a legitimate labor organization with
an existing local union, the Kapisanan ng Manggagawa at TAC sa IRRI (Kapisanan, for short) in respondent IRRI.
On 20 April 1987, the Kapisanan filed a Petition for Direct Certification Election with Region IV, Regional Office of
the Department of Labor and Employment (DOLE).
IRRI opposed the petition invoking Pres. Decree No. 1620 conferring upon it the status of an international
organization and granting it immunity from all civil, criminal and administrative proceedings under Philippine laws.
On 7 July 1987, Med-Arbiter Leonardo M. Garcia, upheld the opposition on the basis of Pres. Decree No. 1620 and
dismissed the Petition for Direct Certification.
On appeal, the BLR Director, who is the public respondent in the ICMC Case, set aside the Med-Arbiter's Order and
authorized the calling of a certification election among the rank-and-file employees of IRRI. Said Director relied on
Article 243 of the Labor Code, as amended, infra and Article XIII, Section 3 of the 1987 Constitution, 1and held that
"the immunities and privileges granted to IRRI do not include exemption from coverage of our Labor Laws."
Reconsideration sought by IRRI was denied.
On appeal, the Secretary of Labor, in a Resolution of 5 July 1989, set aside the BLR Director's Order, dismissed the
Petition for Certification Election, and held that the grant of specialized agency status by the Philippine Government
to the IRRI bars DOLE from assuming and exercising jurisdiction over IRRI Said Resolution reads in part as follows:
Presidential Decree No. 1620 which grants to the IRRI the status, prerogatives, privileges and
immunities of an international organization is clear and explicit. It provides in categorical terms that:
Art. 3 The Institute shall enjoy immunity from any penal, civil and administrative proceedings,
except insofar as immunity has been expressly waived by the Director-General of the Institution or
his authorized representative.
Verily, unless and until the Institute expressly waives its immunity, no summons, subpoena, orders,
decisions or proceedings ordered by any court or administrative or quasi-judicial agency are
enforceable as against the Institute. In the case at bar there was no such waiver made by the
Director-General of the Institute. Indeed, the Institute, at the very first opportunity already
vehemently questioned the jurisdiction of this Department by filing an ex-parte motion to dismiss the
case.

Hence, the present Petition for Certiorari filed by Kapisanan alleging grave abuse of discretion by respondent
Secretary of Labor in upholding IRRI's diplomatic immunity.
The Third Division, to which the case was originally assigned, required the respondents to comment on the petition.
In a Manifestation filed on 4 August 1990, the Secretary of Labor declared that it was "not adopting as his own" the
decision of the BLR Director in the ICMC Case as well as the Comment of the Solicitor General sustaining said
Director. The last pleading was filed by IRRI on 14 August 1990.
Instead of a Comment, the Solicitor General filed a Manifestation and Motion praying that he be excused from filing
a comment "it appearing that in the earlier case of International Catholic Migration Commission v. Hon. Pura Calleja,
G.R. No. 85750. the Office of the Solicitor General had sustained the stand of Director Calleja on the very same
issue now before it, which position has been superseded by respondent Secretary of Labor in G.R. No. 89331," the
present case. The Court acceded to the Solicitor General's prayer.
The Court is now asked to rule upon whether or not the Secretary of Labor committed grave abuse of discretion in
dismissing the Petition for Certification Election filed by Kapisanan.
Kapisanan contends that Article 3 of Pres. Decree No. 1620 granting IRRI the status, privileges, prerogatives and
immunities of an international organization, invoked by the Secretary of Labor, is unconstitutional in so far as it
deprives the Filipino workers of their fundamental and constitutional right to form trade unions for the purpose of
collective bargaining as enshrined in the 1987 Constitution.
A procedural issue is also raised. Kapisanan faults respondent Secretary of Labor for entertaining IRRI'S appeal
from the Order of the Director of the Bureau of Labor Relations directing the holding of a certification election.
Kapisanan contends that pursuant to Sections 7, 8, 9 and 10 of Rule V 2 of the Omnibus Rules Implementing the
Labor Code, the Order of the BLR Director had become final and unappeable and that, therefore, the Secretary of Labor
had no more jurisdiction over the said appeal.
On the other hand, in entertaining the appeal, the Secretary of Labor relied on Section 25 of Rep. Act. No. 6715,
which took effect on 21 March 1989, providing for the direct filing of appeal from the Med-Arbiter to the Office of the
Secretary of Labor and Employment instead of to the Director of the Bureau of Labor Relations in cases involving
certification election orders.
III
Findings in Both Cases.
There can be no question that diplomatic immunity has, in fact, been granted ICMC and IRRI.
Article II of the Memorandum of Agreement between the Philippine Government and ICMC provides that ICMC shall
have a status "similar to that of a specialized agency." Article III, Sections 4 and 5 of the Convention on the
Privileges and Immunities of Specialized Agencies, adopted by the UN General Assembly on 21 November 1947
and concurred in by the Philippine Senate through Resolution No. 19 on 17 May 1949, explicitly provides:
Art. III, Section 4. The specialized agencies, their property and assets, wherever located and by
whomsoever held, shall enjoy immunity from every form of legal process except insofar as in any
particular case they have expressly waived their immunity. It is, however, understood that no waiver
of immunity shall extend to any measure of execution.
Sec. 5. The premises of the specialized agencies shall be inviolable. The property and assets of
the specialized agencies, wherever located and by whomsoever held shall be immune from search,
requisition, confiscation, expropriation and any other form of interference, whether by executive,
administrative, judicial or legislative action. (Emphasis supplied).
IRRI is similarly situated, Pres. Decree No. 1620, Article 3, is explicit in its grant of immunity, thus:

Art. 3. Immunity from Legal Process. The Institute shall enjoy immunity from any penal, civil and
administrative proceedings, except insofar as that immunity has been expressly waived by the
Director-General of the Institute or his authorized representatives.
Thus it is that the DEFORAF, through its Legal Adviser, sustained ICMC'S invocation of immunity when in a
Memorandum, dated 17 October 1988, it expressed the view that "the Order of the Director of the Bureau of Labor
Relations dated 21 September 1988 for the conduct of Certification Election within ICMC violates the diplomatic
immunity of the organization." Similarly, in respect of IRRI, the DEFORAF speaking through The Acting Secretary of
Foreign Affairs, Jose D. Ingles, in a letter, dated 17 June 1987, to the Secretary of Labor, maintained that "IRRI
enjoys immunity from the jurisdiction of DOLE in this particular instance."
The foregoing opinions constitute a categorical recognition by the Executive Branch of the Government that ICMC
and IRRI enjoy immunities accorded to international organizations, which determination has been held to be a
political question conclusive upon the Courts in order not to embarrass a political department of Government.
It is a recognized principle of international law and under our system of separation of powers that
diplomatic immunity is essentially a political question and courts should refuse to look beyond a
determination by the executive branch of the government, and where the plea of diplomatic immunity
is recognized and affirmed by the executive branch of the government as in the case at bar, it is then
the duty of the courts to accept the claim of immunity upon appropriate suggestion by the principal
law officer of the government . . . or other officer acting under his direction. Hence, in adherence to
the settled principle that courts may not so exercise their jurisdiction . . . as to embarrass the
executive arm of the government in conducting foreign relations, it is accepted doctrine that in such
cases the judicial department of (this) government follows the action of the political branch and will
not embarrass the latter by assuming an antagonistic jurisdiction. 3
A brief look into the nature of international organizations and specialized agencies is in order. The term "international
organization" is generally used to describe an organization set up by agreement between two or more
states. 4 Under contemporary international law, such organizations are endowed with some degree of international legal
personality 5 such that they are capable of exercising specific rights, duties and powers. 6 They are organized mainly as a
means for conducting general international business in which the member states have an interest. 7 The United Nations,
for instance, is an international organization dedicated to the propagation of world peace.
"Specialized agencies" are international organizations having functions in particular fields. The term appears in
Articles 57 8 and 63 9 of the Charter of the United Nations:
The Charter, while it invests the United Nations with the general task of promoting progress and
international cooperation in economic, social, health, cultural, educational and related matters,
contemplates that these tasks will be mainly fulfilled not by organs of the United Nations itself but by
autonomous international organizations established by inter-governmental agreements outside the
United Nations. There are now many such international agencies having functions in many different
fields, e.g. in posts, telecommunications, railways, canals, rivers, sea transport, civil aviation,
meteorology, atomic energy, finance, trade, education and culture, health and refugees. Some are
virtually world-wide in their membership, some are regional or otherwise limited in their membership.
The Charter provides that those agencies which have "wide international responsibilities" are to be
brought into relationship with the United Nations by agreements entered into between them and the
Economic and Social Council, are then to be known as "specialized agencies." 10
The rapid growth of international organizations under contemporary international law has paved the way for the
development of the concept of international immunities.
It is now usual for the constitutions of international organizations to contain provisions conferring
certain immunities on the organizations themselves, representatives of their member states and
persons acting on behalf of the organizations. A series of conventions, agreements and protocols
defining the immunities of various international organizations in relation to their members generally
are now widely in force; . . . 11

There are basically three propositions underlying the grant of international immunities to international organizations.
These principles, contained in the ILO Memorandum are stated thus: 1) international institutions should have a
status which protects them against control or interference by any one government in the performance of functions
for the effective discharge of which they are responsible to democratically constituted international bodies in which
all the nations concerned are represented; 2) no country should derive any national financial advantage by levying
fiscal charges on common international funds; and 3) the international organization should, as a collectivity of States
members, be accorded the facilities for the conduct of its official business customarily extended to each other by its
individual member States. 12 The theory behind all three propositions is said to be essentially institutional in character. "It
is not concerned with the status, dignity or privileges of individuals, but with the elements of functional independence
necessary to free international institutions from national control and to enable them to discharge their responsibilities
impartially on behalf of all their members. 13 The raison d'etre for these immunities is the assurance of unimpeded
performance of their functions by the agencies concerned.
The grant of immunity from local jurisdiction to ICMC and IRRI is clearly necessitated by their international character
and respective purposes. The objective is to avoid the danger of partiality and interference by the host country in
their internal workings. The exercise of jurisdiction by the Department of Labor in these instances would defeat the
very purpose of immunity, which is to shield the affairs of international organizations, in accordance with
international practice, from political pressure or control by the host country to the prejudice of member States of the
organization, and to ensure the unhampered performance of their functions.
ICMC's and IRRI's immunity from local jurisdiction by no means deprives labor of its basic rights, which are
guaranteed by Article II, Section 18, 14 Article III, Section 8, 15 and Article XIII, Section 3 (supra), of the 1987 Constitution;
and implemented by Articles 243 and 246 of the Labor Code, 16 relied on by the BLR Director and by Kapisanan.
For, ICMC employees are not without recourse whenever there are disputes to be settled. Section 31 of the
Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations 17 provides that "each
specialized agency shall make provision for appropriate modes of settlement of: (a) disputes arising out of contracts or
other disputes of private character to which the specialized agency is a party." Moreover, pursuant to Article IV of the
Memorandum of Agreement between ICMC the the Philippine Government, whenever there is any abuse of privilege by
ICMC, the Government is free to withdraw the privileges and immunities accorded. Thus:
Art. IV. Cooperation with Government Authorities. 1. The Commission shall cooperate at all times
with the appropriate authorities of the Government to ensure the observance of Philippine laws, rules
and regulations, facilitate the proper administration of justice and prevent the occurrences of any
abuse of the privileges and immunities granted its officials and alien employees in Article III of this
Agreement to the Commission.
2. In the event that the Government determines that there has been an abuse of the privileges and
immunities granted under this Agreement, consultations shall be held between the Government and
the Commission to determine whether any such abuse has occurred and, if so, the Government
shall withdraw the privileges and immunities granted the Commission and its officials.
Neither are the employees of IRRI without remedy in case of dispute with management as, in fact, there had been
organized a forum for better management-employee relationship as evidenced by the formation of the Council of
IRRI Employees and Management (CIEM) wherein "both management and employees were and still are
represented for purposes of maintaining mutual and beneficial cooperation between IRRI and its employees." The
existence of this Union factually and tellingly belies the argument that Pres. Decree No. 1620, which grants to IRRI
the status, privileges and immunities of an international organization, deprives its employees of the right to selforganization.
The immunity granted being "from every form of legal process except in so far as in any particular case they have
expressly waived their immunity," it is inaccurate to state that a certification election is beyond the scope of that
immunity for the reason that it is not a suit against ICMC. A certification election cannot be viewed as an
independent or isolated process. It could tugger off a series of events in the collective bargaining process together
with related incidents and/or concerted activities, which could inevitably involve ICMC in the "legal process," which
includes "any penal, civil and administrative proceedings." The eventuality of Court litigation is neither remote and
from which international organizations are precisely shielded to safeguard them from the disruption of their
functions. Clauses on jurisdictional immunity are said to be standard provisions in the constitutions of international

Organizations. "The immunity covers the organization concerned, its property and its assets. It is equally applicable
to proceedings in personam and proceedings in rem." 18
We take note of a Manifestation, dated 28 September 1989, in the ICMC Case (p. 161, Rollo), wherein TUPAS calls
attention to the case entitled "International Catholic Migration Commission v. NLRC, et als., (G.R. No. 72222, 30
January 1989, 169 SCRA 606), and claims that, having taken cognizance of that dispute (on the issue of payment of
salary for the unexpired portion of a six-month probationary employment), the Court is now estopped from passing
upon the question of DOLE jurisdiction petition over ICMC.
We find no merit to said submission. Not only did the facts of said controversy occur between 1983-1985, or before
the grant to ICMC on 15 July 1988 of the status of a specialized agency with corresponding immunities, but also
because ICMC in that case did not invoke its immunity and, therefore, may be deemed to have waived it, assuming
that during that period (1983-1985) it was tacitly recognized as enjoying such immunity.
Anent the procedural issue raised in the IRRI Case, suffice it to state that the Decision of the BLR Director, dated 15
February 1989, had not become final because of a Motion for Reconsideration filed by IRRI Said Motion was acted
upon only on 30 March 1989 when Rep. Act No. 6715, which provides for direct appeals from the Orders of the
Med-Arbiter to the Secretary of Labor in certification election cases either from the order or the results of the election
itself, was already in effect, specifically since 21 March 1989. Hence, no grave abuse of discretion may be imputed
to respondent Secretary of Labor in his assumption of appellate jurisdiction, contrary to Kapisanan's allegations. The
pertinent portion of that law provides:
Art. 259. Any party to an election may appeal the order or results of the election as determined by
the Med-Arbiter directly to the Secretary of Labor and Employment on the ground that the rules and
regulations or parts thereof established by the Secretary of Labor and Employment for the conduct
of the election have been violated. Such appeal shall be decided within 15 calendar days (Emphasis
supplied).
En passant, the Court is gratified to note that the heretofore antagonistic positions assumed by two departments of
the executive branch of government have been rectified and the resultant embarrassment to the Philippine
Government in the eyes of the international community now, hopefully, effaced.
WHEREFORE, in G.R. No. 85750 (the ICMC Case), the Petition is GRANTED, the Order of the Bureau of Labor
Relations for certification election is SET ASIDE, and the Temporary Restraining Order earlier issued is made
PERMANENT.
In G.R. No. 89331 (the IRRI Case), the Petition is Dismissed, no grave abuse of discretion having been committed
by the Secretary of Labor and Employment in dismissing the Petition for Certification Election.
No pronouncement as to costs.
SO ORDERED.
Padilla, Sarmiento and Regalado, JJ., concur.
Paras, J., is on leave.

Footnotes
1 Article XIII, Section 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full 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.

2 RULE V. Section 7. Appeal Any aggrieved party may appeal the order of the Med-Arbiter to the
Bureau only on the following grounds: a) grave abuse of discretion and b) gross incompetence. The
appeal shall specifically state the grounds relied upon by the appellant with supporting
memorandum.
Section 8. Where to file appeal appellant shall file his appeal which shall be under oath, in the
Regional Office where the case originated, copy furnished the appellee.
Section 9. Period to Appeal. The appeal shall be filed within ten (10) working days from receipt of
the Order by the appellant. Likewise, the appellee shall file his answer thereto within ten (10)
working days from receipt of the appeal. The Regional Director shall immediately forward the entire
records of the case to the Bureau.
Section 10. Decision of the Bureau is final and unappealable. The Bureau shall have twenty (20)
working days within which to decide the appeal from receipt of the records of the case. The decision
of the Bureau in all cases shall be final and unappealable.
3 World Health Organization and Dr. Leonce Verstuyft v. Hon. Benjamin Aquino, et al., L-35131, 29
November 1972, 48 SCRA 242.
4 MICHAEL AKEHURST A MODERN INTRODUCTION TO INTERNATIONAL LAW (1984) at 69.
5 The leading judicial authority on the personality of international organizations is the advisory
opinion even by the ICJ in the Reparation for Injuries Suffered in the Service of the United Nations
Case ([1949] I.C.J. Rep 174) where the Court recognized the UNs international personality.
6 M. AKEHURST supra, at 70.
7 J.L. BRIERLY, THE LAW OF NATIONS (1963) at 95.
8 Article 57. 1. The various specialized-agencies, established by inter-governmental agreement
and having wide international responsibilities, as defined in their basic instruments, in economic,
social, cultural, educational, health, and related fields, shall be brought into relationship with the
United Nations in accordance with the provisions of Article 63.
2. Such agencies thus brought into relationship with the United Nations are hereinafter referred to as
specialized agencies.
9 Article 63. 1. The Economic and Social Council may enter into agreements with any of the
agencies referred to in Article 57, defining the terms on which the agency concerned shall be
brought into relationship with the United Nations. Such agreements shall be subject to approval by
the General Assembly.
2. It may co-ordinate the activities of the specialized agencies through consultation with and
recommendations to such agencies and through recommendations to the General Assembly and to
the Members of the United Nations.
10 BRIERLY, supra, at 121-122.
11 C. WILFRED JENKS, INTERNATIONAL IMMUNITIES (1961) at 2-3.
12 Ibid., at 17.
13 Ibid.

14 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.
15 Article III, Section 8. The right of the people, including those employed in the public and private
sectors, to form unions, associations, or societies for purposes not contrary to law shall not be
abridged.
16 Article 243. Coverage and Employees' Right to Self- Organization. All persons employed in
commercial, industrial and agricultural enterprises and in religious, charitable, medical or educational
institutions whether operating for profit or not, shall have the right to self-organization and to form,
join or assist labor organizations of their own choosing for purposes of collective bargaining.
Ambulant, intermittent and itinerant workers, self- employed people, rural workers and those without
any definite employees may form labor organizations for their mutual aid and protection.
Article 246. Non-abridgement of Right to Self-organization. It shall be unlawful for any person to
restrain, coerce, discriminate against or unduly interfere with employees and workers in their
exercise of the right to self-organization. Such right shall include the rignt to form, join, or assist labor
organizations for the purpose of collective bargaining through representatives of their own choosing
and to engage in lawful concerted activities for the same purpose or for their mutual aid and
protection, subject to the provisions of Article 264 of this Code.
17 This Convention, adopted by the U.N. General Assembly on November 21, 1947, was concurred
in by the Philippine Senate under Senate Resolution No. 21, dated 17 May 1949. The Philippine
Instrument of Ratification was signed by the Philippine President on 21 February 1959. (Vol. 1, Phil.
Treaty Series, p. 621).
18 JENKS, supra at 38.