SECOND DIVISION

[G.R. NO. 152456 : April 28, 2004]

SEVILLA TRADING COMPANY, Petitioner, v. A. V. A.
TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, Respondents.
DECISION
PUNO, J.:
On appeal is the Decision1 of the Court of Appeals in CA-G. R. SP No. 63086 dated 27
November 2001 sustaining the Decision2 of Accredited Voluntary Arbitrator Tomas E.
Semana dated 13 November 2000, as well as its subsequent Resolution 3 dated 06
March 2002 denying petitioners Motion for Reconsideration.
The facts of the case are as follows:chanroblesvirtua1awlibrary
For two to three years prior to 1999, petitioner Sevilla Trading Company (Sevilla
Trading, for short), a domestic corporation engaged in trading business, organized and
existing under Philippine laws, added to the base figure, in its computation of the 13 th-
month pay of its employees, the amount of other benefits received by the employees
which are beyond the basic pay. These benefits included:chanroblesvirtua1awlibrary
(a) Overtime premium for regular overtime, legal and special
holidays;chanroblesvirtuallawlibrary
(b) Legal holiday pay, premium pay for special holidays;chanroblesvirtuallawlibrary
(c) Night premium;chanroblesvirtuallawlibrary
(d) Bereavement leave pay;chanroblesvirtuallawlibrary
(e) Union leave pay;chanroblesvirtuallawlibrary
(f) Maternity leave pay;chanroblesvirtuallawlibrary
(g) Paternity leave pay;chanroblesvirtuallawlibrary
(h) Company vacation and sick leave pay; andcralawlibrary
(i) Cash conversion of unused company vacation and sick leave.
Petitioner claimed that it entrusted the preparation of the payroll to its office staff,
including the computation and payment of the 13th-month pay and other benefits. When
it changed its person in charge of the payroll in the process of computerizing its payroll,
and after audit was conducted, it allegedly discovered the error of including non-basic
pay or other benefits in the base figure used in the computation of the 13 th-month pay of
its employees. It cited the Rules and Regulations Implementing P. D. No. 851 (13 th-
Month Pay Law), effective December 22, 1975, Sec. 2(b) which stated
that:chanroblesvirtua1awlibrary
Basic salary shall include all remunerations or earnings paid by an employer to an
employee for services rendered but may not include cost-of-living allowances granted
pursuant to P. D. No. 525 or Letter of Instruction No. 174, profit-sharing payments, and
all allowances and monetary benefits which are not considered or integrated as part of
the regular or basic salary of the employee at the time of the promulgation of the Decree
on December 16, 1975.
Petitioner then effected a change in the computation of the thirteenth month pay, as
follows:chanroblesvirtua1awlibrary
13th-month pay = net basic pay
12 months
where:chanroblesvirtua1awlibrary
net basic pay = gross pay (non-basic pay or other benefits)
Now excluded from the base figure used in the computation of the thirteenth month pay
are the following:chanroblesvirtua1awlibrary
a) Overtime premium for regular overtime, legal and special
holidays;chanroblesvirtuallawlibrary
b) Legal holiday pay, premium pay for special holidays;chanroblesvirtuallawlibrary
c) Night premium;chanroblesvirtuallawlibrary
d) Bereavement leave pay;chanroblesvirtuallawlibrary
e) Union leave pay;chanroblesvirtuallawlibrary
f) Maternity leave pay;chanroblesvirtuallawlibrary
g) Paternity leave pay;chanroblesvirtuallawlibrary
h) Company vacation and sick leave pay; andcralawlibrary
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees thirteenth month pay. The daily
piece-rate workers represented by private respondent Sevilla Trading Workers Union
SUPER (Union, for short), a duly organized and registered union, through the Grievance
Machinery in their Collective Bargaining Agreement, contested the new computation
and reduction of their thirteenth month pay. The parties failed to resolve the issue.
On March 24, 2000, the parties submitted the issue of whether or not the exclusion of
leaves and other related benefits in the computation of 13th-month pay is valid to
respondent Accredited Voluntary Arbitrator Tomas E. Semana (A. V. A. Semana, for
short) of the National Conciliation and Mediation Board, for consideration and
resolution.
The Union alleged that petitioner violated the rule prohibiting the elimination or
diminution of employees benefits as provided for in Art. 100 of the Labor Code, as
amended. They claimed that paid leaves, like sick leave, vacation leave, paternity leave,
union leave, bereavement leave, holiday pay and other leaves with pay in the CBA
should be included in the base figure in the computation of their 13 th-month pay.
On the other hand, petitioner insisted that the computation of the 13th-month pay is
based on basic salary, excluding benefits such as leaves with pay, as per P. D. No. 851,
as amended. It maintained that, in adjusting its computation of the 13 th-month pay, it
merely rectified the mistake its personnel committed in the previous years.
A. V. A. Semana decided in favor of the Union. The dispositive portion of his Decision
reads as follows:chanroblesvirtua1awlibrary
WHEREFORE, premises considered, this Voluntary Arbitrator hereby declared
that:chanroblesvirtua1awlibrary
1. The company is hereby ordered to include sick leave and vacation leave, paternity
leave, union leave, bereavement leave and other leave with pay in the CBA, premium
for work done on rest days and special holidays, and pay for regular holidays in the
computation of the 13th-month pay to all covered and entitled
employees;chanroblesvirtuallawlibrary
2. The company is hereby ordered to pay corresponding backwages to all covered and
entitled employees arising from the exclusion of said benefits in the computation of 13th-
month pay for the year 1999.
Petitioner received a copy of the Decision of the Arbitrator on December 20, 2000. It
filed before the Court of Appeals, a Manifestation and Motion for Time to File Petition
for Certiorari on January 19, 2001. A month later, on February 19, 2001, it filed its
Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure for the
nullification of the Decision of the Arbitrator. In addition to its earlier allegations,
petitioner claimed that assuming the old computation will be upheld, the reversal to the
old computation can only be made to the extent of including non-basic benefits actually
included by petitioner in the base figure in the computation of their 13 th-month pay in the
prior years. It must exclude those non-basic benefits which, in the first place, were not
included in the original computation. The appellate court denied due course to, and
dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the grounds of its appeal, as
follows:chanroblesvirtua1awlibrary
1. THE DECISION OF THE RESPONDENT COURT TO REVERT TO THE OLD
COMPUTATION OF THE 13TH-MONTH PAY ON THE BASIS THAT THE OLD
COMPUTATION HAD RIPENED INTO PRACTICE IS WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS TO CORRECT ERRORS
IN COMPUTATION WHICH WILL CAUSE GRAVE AND IRREPARABLE DAMAGE TO
EMPLOYERS.4 cralawred
First, we uphold the Court of Appeals in ruling that the proper remedy from the adverse
decision of the arbitrator is a Petition for Review under Rule 43 of the 1997 Rules of
Civil Procedure, not a Petition for Certiorari under Rule 65. Section 1 of Rule 43
states:chanroblesvirtua1awlibrary
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals
SECTION 1. Scope. This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the Civil Service Commission, Central Board of Assessment
Appeals, Securities and Exchange Commission, Office of the President, Land
Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission, Department of
Agrarian Reform under Republic Act No. 6657, Government Service Insurance System,
Employees Compensation Commission, Agricultural Inventions Board, Insurance
Commission, Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary arbitrators authorized
by law. [Emphasis supplied.]
It is elementary that the special civil action of certiorari under Rule 65 is not, and cannot
be a substitute for an appeal, where the latter remedy is available, as it was in this case.
Petitioner Sevilla Trading failed to file an appeal within the fifteen-day reglementary
period from its notice of the adverse decision of A. V. A. Semana. It received a copy of
the decision of A. V. A. Semana on December 20, 2000, and should have filed its
appeal under Rule 43 of the 1997 Rules of Civil Procedure on or before January 4,
2001. Instead, petitioner filed on January 19, 2001 a Manifestation and Motion for Time
to File Petition for Certiorari, and on February 19, 2001, it filed a Petition
for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure. Clearly, petitioner
Sevilla Trading had a remedy of appeal but failed to use it.
A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to
timely file a Petition for Review on Certiorari under Rule 45 (Rule 43, in the case at bar)
of the Rules of Court. Rule 65 is an independent action that cannot be availed of as a
substitute for the lost remedy of an ordinary appeal, including that under Rule 45 (Rule
43, in the case at bar), especially if such loss or lapse was occasioned by ones own
neglect or error in the choice of remedies.5 cralawred
Thus, the decision of A. V. A. Semana had become final and executory when petitioner
Sevilla Trading filed its Petition for Certiorari on February 19, 2001. More particularly,
the decision of A. V. A. Semana became final and executory upon the lapse of the
fifteen-day reglementary period to appeal, or on January 5, 2001. Hence, the Court of
Appeals is correct in holding that it no longer had appellate jurisdiction to alter, or much
less, nullify the decision of A. V. A. Semana.
Even assuming that the present Petition for Certiorari under Rule 65 of the 1997 Rules
of Civil Procedure is a proper action, we still find no grave abuse of discretion
amounting to lack or excess of jurisdiction committed by A. V. A. Semana. Grave abuse
of discretion has been interpreted to mean such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, or, in other words where the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility,
and it must be so patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 6 We
find nothing of that sort in the case at bar.
On the contrary, we find the decision of A. V. A. Semana to be sound, valid, and in
accord with law and jurisprudence. A. V. A. Semana is correct in holding that petitioners
stance of mistake or error in the computation of the thirteenth month pay is
unmeritorious. Petitioners submission of financial statements every year requires the
services of a certified public accountant to audit its finances. It is quite impossible to
suggest that they have discovered the alleged error in the payroll only in 1999. This
implies that in previous years it does not know its cost of labor and operations. This is
merely basic cost accounting. Also, petitioner failed to adduce any other relevant
evidence to support its contention. Aside from its bare claim of mistake or error in the
computation of the thirteenth month pay, petitioner merely appended to its petition a
copy of the 1997-2002 Collective Bargaining Agreement and an alleged corrected
computation of the thirteenth month pay. There was no explanation whatsoever why its
inclusion of non-basic benefits in the base figure in the computation of their 13th-month
pay in the prior years was made by mistake, despite the clarity of statute and
jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay Cable and Radio
Corp. v. NLRC,7which petitioner Sevilla Trading invokes. In that case, this Court
decided on the proper computation of the cost-of-living allowance (COLA) for monthly-
paid employees. Petitioner Corporation, pursuant to Wage Order No. 6 (effective 30
October 1984), increased the COLA of its monthly-paid employees by multiplying
the P3. 00 daily COLA by 22 days, which is the number of working days in the
company. The Union disagreed with the computation, claiming that the daily COLA rate
of P3. 00 should be multiplied by 30 days, which has been the practice of the company
for several years. We upheld the contention of the petitioner corporation. To answer the
Unions contention of company practice, we ruled that:chanroblesvirtua1awlibrary
Payment in full by Petitioner Corporation of the COLA before the execution of the CBA
in 1982 and in compliance with Wage Orders Nos. 1 (26 March 1981) to 5 (11 June
1984), should not be construed as constitutive of voluntary employer practice, which
cannot now be unilaterally withdrawn by petitioner. To be considered as such, it should
have been practiced over a long period of time, and must be shown to have been
consistent and deliberate. .. The test of long practice has been enunciated
thus:chanroblesvirtua1awlibrary
.. . Respondent Company agreed to continue giving holiday pay knowing fully well that
said employees are not covered by the law requiring payment of holiday pay. (Oceanic
Pharmacal Employees Union [FFW] v. Inciong, 94 SCRA 270 [1979])
Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the
implementation of the Wage Orders. It was only when the Rules Implementing Wage
Order No. 4 were issued on 21 May 1984 that a formula for the conversion of the daily
allowance to its monthly equivalent was laid down.
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for
erroneous application of the law. ..
In the above quoted case, the grant by the employer of benefits through an erroneous
application of the law due to absence of clear administrative guidelines is not
considered a voluntary act which cannot be unilaterally discontinued. Such is not the
case now. In the case at bar, the Court of Appeals is correct when it pointed out that as
early as 1981, this Court has held in San Miguel Corporation v.
Inciong8that:chanroblesvirtua1awlibrary
Under Presidential Decree 851 and its implementing rules, the basic salary of an
employee is used as the basis in the determination of his 13th-month pay. Any
compensations or remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the following
compensations are deemed not part of the basic salary:chanroblesvirtua1awlibrary
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of
Instruction No. 174;chanroblesvirtuallawlibrary
b) Profit sharing payments;chanroblesvirtuallawlibrary
c) All allowances and monetary benefits which are not considered or integrated as part
of the regular basic salary of the employee at the time of the promulgation of the Decree
on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing Presidential
Decree 851 issued by the then Labor Secretary Blas Ople, overtime pay, earnings and
other remunerations are excluded as part of the basic salary and in the computation of
the 13th-month pay.
The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of
Instruction No. 174 and profit sharing payments indicate the intention to strip basic
salary of other payments which are properly considered as fringe benefits. Likewise, the
catch-all exclusionary phrase all allowances and monetary benefits which are not
considered or integrated as part of the basic salary shows also the intention to strip
basic salary of any and all additions which may be in the form of allowances or fringe
benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree
851 is even more empathic in declaring that earnings and other remunerations which
are not part of the basic salary shall not be included in the computation of the 13 th-
month pay.
While doubt may have been created by the prior Rules and Regulations Implementing
Presidential Decree 851 which defines basic salary to include all remunerations or
earnings paid by an employer to an employee, this cloud is dissipated in the later and
more controlling Supplementary Rules and Regulations which categorically, exclude
from the definition of basic salary earnings and other remunerations paid by employer to
an employee. A cursory perusal of the two sets of Rules indicates that what has hitherto
been the subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming tendency of the former rules to
include all remunerations and earnings within the definition of basic salary.
The all-embracing phrase earnings and other remunerations which are deemed not part
of the basic salary includes within its meaning payments for sick, vacation, or maternity
leaves, premium for works performed on rest days and special holidays, pay for regular
holidays and night differentials. As such they are deemed not part of the basic salary
and shall not be considered in the computation of the 13th-month pay. If they were not
so excluded, it is hard to find any earnings and other remunerations expressly excluded
in the computation of the 13th-month pay. Then the exclusionary provision would prove
to be idle and with no purpose.
In the light of the clear ruling of this Court, there is, thus no reason for any mistake in
the construction or application of the law. When petitioner Sevilla Trading still included
over the years non-basic benefits of its employees, such as maternity leave pay, cash
equivalent of unused vacation and sick leave, among others in the computation of the
13th-month pay, this may only be construed as a voluntary act on its part. Putting the
blame on the petitioners payroll personnel is inexcusable.
In Davao Fruits Corporation v. Associated Labor Unions, we likewise held
that:9 cralawred
The Supplementary Rules and Regulations Implementing P. D. No. 851 which put to
rest all doubts in the computation of the thirteenth month pay, was issued by the
Secretary of Labor as early as January 16, 1976, barely one month after the effectivity
of P. D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid the
thirteenth month pay, without excluding the subject items therein until 1981. Petitioner
continued its practice in December 1981, after promulgation of the aforequoted San
Miguel decision on February 24, 1981, when petitioner purportedly discovered its
mistake.
From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the
computation of its employees thirteenth month pay, without the payments for sick,
vacation and maternity leave, premium for work done on rest days and special holidays,
and pay for regular holidays. The considerable length of time the questioned items had
been included by petitioner indicates a unilateral and voluntary act on its part, sufficient
in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed been established and the
payments made pursuant thereto, ripened into benefits enjoyed by them. And any
benefit and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer, by virtue of Sec. 10 of the
Rules and Regulations Implementing P. D. No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or elimination by the employer of the
employees existing benefits. [Tiangco v. Leogardo, Jr., 122 SCRA 267 (1983)]
With regard to the length of time the company practice should have been exercised to
constitute voluntary employer practice which cannot be unilaterally withdrawn by the
employer, we hold that jurisprudence has not laid down any rule requiring a specific
minimum number of years. In the above quoted case of Davao Fruits Corporation v.
Associated Labor Unions,10 the company practice lasted for six (6) years. In another
case, Davao Integrated Port Stevedoring Services v. Abarquez,11 the employer, for
three (3) years and nine (9) months, approved the commutation to cash of the
unenjoyed portion of the sick leave with pay benefits of its intermittent workers. While
in Tiangco v. Leogardo, Jr. ,12 the employer carried on the practice of giving a fixed
monthly emergency allowance from November 1976 to February 1980, or three (3)
years and four (4) months. In all these cases, this Court held that the grant of these
benefits has ripened into company practice or policy which cannot be peremptorily
withdrawn. In the case at bar, petitioner Sevilla Trading kept the practice of including
non-basic benefits such as paid leaves for unused sick leave and vacation leave in the
computation of their 13th-month pay for at least two (2) years. This, we rule likewise
constitutes voluntary employer practice which cannot be unilaterally withdrawn by the
employer without violating Art. 100 of the Labor Code:chanroblesvirtua1awlibrary
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book
shall be construed to eliminate or in any way diminish supplements, or other employee
benefits being enjoyed at the time of promulgation of this Code.
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in
CA-G. R. SP No. 63086 dated 27 November 2001 and its Resolution dated 06 March
2002 are hereby AFFIRMED.
SO ORDERED.
Quisumbing, Austria-Martinez, and TINGA, JJ., concur.
Callejo, Sr., J., no part.
 SECOND DIVISION
[G.R. NO. 170734 : May 14, 2008]
ARCO METAL PRODUCTS, CO., INC., and MRS. SALVADOR
UY, Petitioners, v. SAMAHAN NG MGA MANGGAGAWA SA
ARCO METAL-NAFLU (SAMARM-NAFLU), Respondent.
DECISION
TINGA, J.:
This treats of the Petition for Review1 of the Resolution2 and Decision3 of the Court of
Appeals dated 9 December 2005 and 29 September 2005, respectively in CA-G.R. SP
No. 85089 entitled
Samahan ng mga Manggagawa sa Arco Metal-NAFLU (SAMARM-NAFLU) v. Arco
Metal Products Co., Inc. and/or Mr. Salvador Uy/Accredited Voluntary Arbitrator Apron
M. Mangabat,4 which ruled that the 13thmonth pay, vacation leave and sick leave
conversion to cash shall be paid in full to the employees of petitioner regardless of the
actual service they rendered within a year.
Petitioner is a company engaged in the manufacture of metal products, whereas
respondent is the labor union of petitioner's rank and file employees. Sometime in
December 2003, petitioner paid the 13th month pay, bonus, and leave encashment of
three union members in amounts proportional to the service they actually rendered in a
year, which is less than a full twelve (12) months. The employees were:

1. Rante Lamadrid Sickness 27 August 2003 to 27 February 2004

2. Alberto Gamban Suspension 10 June 2003 to 1 July 2003

3. Rodelio Collantes Sickness August 2003 to February 2004

Respondent protested the prorated scheme, claiming that on several occasions

petitioner did not prorate the payment of the same benefits to seven (7) employees who
had not served for the full 12 months. The payments were made in 1992, 1993, 1994,
1996, 1999, 2003, and 2004. According to respondent, the prorated payment violates
the rule against diminution of benefits under Article 100 of the Labor Code. Thus, they
filed a complaint before the National Conciliation and Mediation Board (NCMB). The
parties submitted the case for voluntary arbitration.
The voluntary arbitrator, Apron M. Mangabat, ruled in favor of petitioner and found that
the giving of the contested benefits in full, irrespective of the actual service rendered
within one year has not ripened into a practice. He noted the affidavit of Joselito
Baingan, manufacturing group head of petitioner, which states that the giving in full of
the benefit was a mere error. He also interpreted the phrase "for each year of service"
found in the pertinent CBA provisions to mean that an employee must have rendered
one year of service in order to be entitled to the full benefits provided in the CBA. 5
Unsatisfied, respondent filed a Petition for Review6 under Rule 43 before the Court of
Appeals, imputing serious error to Mangabat's conclusion. The Court of Appeals ruled
that the CBA did not intend to foreclose the application of prorated payments of leave
benefits to covered employees. The appellate court found that petitioner, however, had
an existing voluntary practice of paying the aforesaid benefits in full to its employees,
thereby rejecting the claim that petitioner erred in paying full benefits to its seven
employees. The appellate court noted that aside from the affidavit of petitioner's officer,
it has not presented any evidence in support of its position that it has no voluntary
practice of granting the contested benefits in full and without regard to the service
actually rendered within the year. It also questioned why it took petitioner eleven (11)
years before it was able to discover the alleged error. The dispositive portion of the
court's decision reads:
WHEREFORE, premises considered, the instant petition is hereby GRANTED and the
Decision of Accredited Voluntary Arbiter Apron M. Mangabat in NCMB-NCR Case No.
PM-12-345-03, dated June 18, 2004 is hereby AFFIRMED WITH MODIFICATION in
that the 13th month pay, bonus, vacation leave and sick leave conversions to cash shall
be paid to the employees in full, irrespective of the actual service rendered within a
year.7
Petitioner moved for the reconsideration of the decision but its motion was denied,
hence this petition.
Petitioner submits that the Court of Appeals erred when it ruled that the grant of
13th month pay, bonus, and leave encashment in full regardless of actual service
rendered constitutes voluntary employer practice and, consequently, the prorated
payment of the said benefits does not constitute diminution of benefits under Article 100
of the Labor Code.8
The petition ultimately fails.
First, we determine whether the intent of the CBA provisions is to grant full benefits
regardless of service actually rendered by an employee to the company. According to
petitioner, there is a one-year cutoff in the entitlement to the benefits provided in the
CBA which is evident from the wording of its pertinent provisions as well as of the
existing law.
We agree with petitioner on the first issue. The applicable CBA provisions read:
ARTICLE XIV-VACATION LEAVE
Section 1. Employees/workers covered by this agreement who have rendered at least
one (1) year of service shall be entitled to sixteen (16) days vacation leave with pay for
each year of service. Unused leaves shall not be cumulative but shall be converted into
its cash equivalent and shall become due and payable every 1 st Saturday of December
of each year.
However, if the 1st Saturday of December falls in December 1, November 30 (Friday)
being a holiday, the management will give the cash conversion of leaves in November
29.
Section 2. In case of resignation or retirement of an employee, his vacation leave shall
be paid proportionately to his days of service rendered during the year.
ARTICLE XV-SICK LEAVE
Section 1. Employees/workers covered by this agreement who have rendered at least
one (1) year of service shall be entitled to sixteen (16) days of sick leave with pay for
each year of service. Unused sick leave shall not be cumulative but shall be converted
into its cash equivalent and shall become due and payable every 1st Saturday of
December of each year.
Section 2. Sick Leave will only be granted to actual sickness duly certified by the
Company physician or by a licensed physician.
Section 3. All commutable earned leaves will be paid proportionately upon retirement or
separation.
ARTICLE XVI - EMERGENCY LEAVE, ETC.
Section 1. The Company shall grant six (6) days emergency leave to employees
covered by this agreement and if unused shall be converted into cash and become due
and payable on the 1st Saturday of December each year.
Section 2. Employees/workers covered by this agreement who have rendered at least
one (1) year of service shall be entitled to seven (7) days of Paternity Leave with pay in
case the married employee's legitimate spouse gave birth. Said benefit shall be non-
cumulative and non-commutative and shall be deemed in compliance with the law on
the same.
Section 3. Maternity leaves for married female employees shall be in accordance with
the SSS Law plus a cash grant of P1,500.00 per month.
xxx
ARTICLE XVIII - 13TH MONTH PAY & BONUS
Section 1. The Company shall grant 13th Month Pay to all employees covered by this
agreement. The basis of computing such pay shall be the basic salary per day of the
employee multiplied by 30 and shall become due and payable every 1st Saturday of
December.
Section 2. The Company shall grant a bonus to all employees as practiced which shall
be distributed on the 2nd Saturday of December.
Section 3. That the Company further grants the amount of Two Thousand Five Hundred
Pesos (P2,500.00) as signing bonus plus a free CBA Booklet.9 (Underscoring ours)
There is no doubt that in order to be entitled to the full monetization of sixteen (16) days
of vacation and sick leave, one must have rendered at least one year of service. The
clear wording of the provisions does not allow any other interpretation. Anent the
13th month pay and bonus, we agree with the findings of Mangabat that the CBA
provisions did not give any meaning different from that given by the law, thus it should
be computed at 1/12 of the total compensation which an employee receives for the
whole calendar year. The bonus is also equivalent to the amount of the 13 th month pay
given, or in proportion to the actual service rendered by an employee within the year.
On the second issue, however, petitioner founders.
As a general rule, in petitions for review under Rule 45, the Court, not being a trier of
facts, does not normally embark on a re-examination of the evidence presented by the
contending parties during the trial of the case considering that the findings of facts of the
Court of Appeals are conclusive and binding on the Court.10 The rule, however, admits
of several exceptions, one of which is when the findings of the Court of Appeals are
contrary to that of the lower tribunals. Such is the case here, as the factual conclusions
of the Court of Appeals differ from that of the voluntary arbitrator.
Petitioner granted, in several instances, full benefits to employees who have not served
a full year, thus:

Name Reason Duration

1. Percival Bernas Sickness July 1992 to November 1992

2. Cezar Montero Sickness 21 Dec. 1992 to February 1993

3. Wilson Sayod Sickness May 1994 to July 1994

4. Nomer Becina Suspension 1 Sept. 1996 to 5 Oct. 1996

5. Ronnie Licuan Sickness 8 Nov. 1999 to 9 Dec. 1999

6. Guilbert Villaruel Sickness 23 Aug. 2002 to 4 Feb. 2003

7. Melandro Moque Sickness 29 Aug. 2003 to 30 Sept. 200311

Petitioner claims that its full payment of benefits regardless of the length of service to
the company does not constitute voluntary employer practice. It points out that the
payments had been erroneously made and they occurred in isolated cases in the years
1992, 1993, 1994, 1999, 2002 and 2003. According to petitioner, it was only in 2003
that the accounting department discovered the error "when there were already three (3)
employees involved with prolonged absences and the error was corrected by
implementing the pro-rata payment of benefits pursuant to law and their existing
CBA."12 It adds that the seven earlier cases of full payment of benefits went unnoticed
considering the proportion of one employee concerned (per year) vis à vis the 170
employees of the company. Petitioner describes the situation as a "clear oversight"
which should not be taken against it.13 To further bolster its case, petitioner argues that
for a grant of a benefit to be considered a practice, it should have been practiced over a
long period of time and must be shown to be consistent, deliberate and intentional,
which is not what happened in this case. Petitioner tries to make a case out of the fact
that the CBA has not been modified to incorporate the giving of full benefits regardless
of the length of service, proof that the grant has not ripened into company practice.
We disagree.
Any benefit and supplement being enjoyed by employees cannot be reduced,
diminished, discontinued or eliminated by the employer.14 The principle of non-
diminution of benefits is founded on the Constitutional mandate to "protect the rights of
workers and promote their welfare,"15 and "to afford labor full protection."16 Said
mandate in turn is the basis of Article 4 of the Labor Code which states that "all doubts
in the implementation and interpretation of this Code, including its implementing rules
and regulations shall be rendered in favor of labor." Jurisprudence is replete with cases
which recognize the right of employees to benefits which were voluntarily given by the
employer and which ripened into company practice. Thus in Davao Fruits Corporation v.
Associated Labor Unions, et al.17 where an employer had freely and continuously
included in the computation of the 13th month pay those items that were expressly
excluded by the law, we held that the act which was favorable to the employees though
not conforming to law had thus ripened into a practice and could not be withdrawn,
reduced, diminished, discontinued or eliminated. In Sevilla Trading Company v.
Semana,18 we ruled that the employer's act of including non-basic benefits in the
computation of the 13th month pay was a voluntary act and had ripened into a company
practice which cannot be peremptorily withdrawn. Meanwhile in Davao Integrated Port
Stevedoring Services v. Abarquez,19 the Court ordered the payment of the cash
equivalent of the unenjoyed sick leave benefits to its intermittent workers after finding
that said workers had received these benefits for almost four years until the grant was
stopped due to a different interpretation of the CBA provisions. We held that the
employer cannot unilaterally withdraw the existing privilege of commutation or
conversion to cash given to said workers, and as also noted that the employer had in
fact granted and paid said cash equivalent of the unenjoyed portion of the sick leave
benefits to some intermittent workers.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy of
freely, voluntarily and consistently granting full benefits to its employees regardless of
the length of service rendered. True, there were only a total of seven employees who
benefited from such a practice, but it was an established practice nonetheless.
Jurisprudence has not laid down any rule specifying a minimum number of years within
which a company practice must be exercised in order to constitute voluntary company
practice.20 Thus, it can be six (6) years,21 three (3) years,22 or even as short as two (2)
years.23 Petitioner cannot shirk away from its responsibility by merely claiming that it
was a mistake or an error, supported only by an affidavit of its manufacturing group
head portions of which read:
5. 13th month pay, bonus, and cash conversion of unused/earned vacation leave, sick
leave and emergency leave are computed and paid in full to employees who rendered
services to the company for the entire year and proportionately to those employees who
rendered service to the company for a period less than one (1) year or twelve (12)
months in accordance with the CBA provision relative thereto.
6. It was never the intention much less the policy of the management to grant the
aforesaid benefits to the employees in full regardless of whether or not the employee
has rendered services to the company for the entire year, otherwise, it would be unjust
and inequitable not only to the company but to other employees as well.24
In cases involving money claims of employees, the employer has the burden of proving
that the employees did receive the wages and benefits and that the same were paid in
accordance with law.25
Indeed, if petitioner wants to prove that it merely erred in giving full benefits, it could
have easily presented other proofs, such as the names of other employees who did not
fully serve for one year and thus were given prorated benefits. Experientially, a perfect
attendance in the workplace is always the goal but it is seldom achieved. There must
have been other employees who had reported for work less than a full year and who, as
a consequence received only prorated benefits. This could have easily bolstered
petitioner's theory of mistake/error, but sadly, no evidence to that effect was presented.
IN VIEW HEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. SP No. 85089 dated 29 September 2005 is and its Resolution dated 9 December
2005 are hereby AFFIRMED.
SO ORDERED.
Quisumbing, J., Chairperson, , Carpio-Morales, Velasco, Jr., JJ., concur.
Brion, J., Separate Concurring Opinion.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 74156 June 29, 1988
GLOBE MACKAY CABLE AND RADIO CORPORATION, FREDERICK WHITE and
JESUS SANTIAGO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, FFW-GLOBE MACKAY
EMPLOYEES UNION and EDA CONCEPCION, respondents.
Castillo, Laman, Tan & Pantaleon for petitioners.
Edwin D. Dellaban for private respondents.

MELENCIO-HERRERA, J.:
A special civil action for certiorari with a prayer for a Temporary Restraining Order to
enjoin respondents from enforcing the Decision of 10 March 1986 of the National Labor
Relations Commission (NLRC), in NCR Case No. 1-168-85 entitled "FFW-Globe
Mackay Employees Union, et al., vs. Globe Mackay Cable & Radio Corporation, et al.,"
the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision is as it is hereby SET
ASIDE and another one issued:
1. Declaring respondents-appellees (petitioners herein) guilty of illegal deductions of
cost-of-living allowance;
2. Ordering respondents-appellees to pay complainants-appellants their back
allowances reckoned from the time of illegal deduction; and
3. Ordering respondents-appellees from further illegally deducting the allowances of
complainants-appellants.
SO ORDERED.
Presiding Commissioner of the NLRC, Diego P. Atienza, concurred in the result, while
Commissioner Cleto T. Villaltuya dissented and voted to affirm in toto the Labor Arbiter's
Decision.
On 19 May 1986, we issued the Temporary Restraining Order enjoining respondents
from enforcing the assailed Decision. On 2 September 1987, we gave due course to the
petition and required the submittal of memoranda, by the parties, which has been
complied with.
The facts follow:
Wage Order No. 6, which took effect on 30 October 1984, increased the cost-of-living
allowance of non-agricultural workers in the private sector. Petitioner corporation
complied with the said Wage Order by paying its monthly-paid employees the mandated
P3.00 per day COLA. However, in computing said COLA, Petitioner Corporation
multiplied the P 3.00 daily COLA by 22 days, which is the number of working days in the
company.
Respondent Union disagreed with the computation of the monthly COLA claiming that
the daily COLA rate of P3.00 should be multiplied by 30 days to arrive at the monthly
COLA rate. The union alleged furthermore that prior to the effectivity of Wage Order No.
6, Petitioner Corporation had been computing and paying the monthly COLA on the
basis of thirty (30) days per month and that this constituted an employer practice, which
should not be unilaterally withdrawn.
After several grievance proceedings proved futile, the Union filed a complaint against
Petitioner Corporation, its President, F. White, and Vice-President, J. Santiago, for
illegal deduction, underpayment, unpaid allowances, and violation of Wage Order No. 6.
Petitioners White and Santiago were sought to be held personally liable for the money
claims thus demanded.
Labor Arbiter Adelaido F. Martinez sustained the position of Petitioner Corporation by
holding that since the individual petitioners acted in their corporate capacity they should
not have been impleaded; and that the monthly COLA should be computed on the basis
of twenty two (22) days, since the evidence showed that there are only 22 paid days in
a month for monthly-paid employees in the company. His reasoning, inter alia, was as
follows:
To compel the respondent company to use 30 days in a month to compute the
allowance and retain 22 days for vacation and sick leave, overtime pay and other
benefits is inconsistent and palpably unjust. If 30 days is used as divisor, then it must be
used for the computation of all benefits, not just the allowance. But this is not fair to
complainants, not to mention that it will contravene the provision of the parties' CBA.
On appeal, the NLRC reversed the Labor Arbiter, as heretofore stated, and held that
Petitioner Corporation was guilty of illegal deductions, upon the following
considerations: (1) that the P3.00 daily COLA under Wage Order No. 6 should be paid
and computed on the basis of thirty (30) days instead of twenty-two (22) days since
workers paid on a monthly basis are entitled to COLA on Saturdays, Sundays and legal
holidays "even if unworked;" (2) that the full allowance enjoyed by Petitioner
Corporation's monthly-paid employees before the CBA executed between the parties in
1982 constituted voluntary employer practice, which cannot be unilaterally withdrawn;
and (3) that petitioners White and Santiago were properly impleaded as respondents in
the case below.
Hence, this Petition, anchored on the charge of grave abuse of discretion by the NLRC.
We are constrained to reverse the reversal.
Section 5 of the Rules Implementing Wage Orders Nos. 2, 3, 5 and 6 uniformly read as
follows:
Section 5. Allowance for Unworked Days.
All covered employees shall be entitled to their daily living allowance during the days
that they are paid their basic wage, even if unworked. (Emphasis supplied)
The primordial consideration, therefore, for entitlement to COLA is that basic wage is
being paid. In other words, the payment of COLA is mandated only for the days that the
employees are paid their basic wage, even if said days are unworked. So that, on the
days that employees are not paid their basic wage, the payment of COLA is not
mandated. As held in University of Pangasinan Faculty Union vs. University of
Pangasinan, L-63122, February 20, 1984, 127 SCRA 691):
... it is evident that the intention of the law is to grant ECOLA upon the payment of basic
wages. Hence, we have the principle of 'No Pay, No ECOLA.
Applied to monthly-paid employees if their monthly salary covers all the days in a
month, they are deemed paid their basic wages for all those days and they should be
entitled to their COLA on those days "even if unworked," as the NLRC had opined.
Peculiar to this case, however, is the circumstance that pursuant to the Collective
Bargaining Agreement (CBA) between Petitioner Corporation and Respondent Union,
the monthly basic pay is computed on the basis of five (5) days a week, or twenty two
(22) days a month. Thus, the pertinent provisions of that Agreement read:
Art. XV(a)—Eight net working hours shall constitute the regular work day for five days.
Art. XV(b)—Forty net hours of work, 5 working days, shall constitute the regular work
week.
Art. XVI, Sec. 1(b)—All overtime worked in excess of eight net hours daily or in excess
of 5 days weekly shall be computed on hourly basis at the rate of time and one half.
The Labor Arbiter also found that in determining the hourly rate of monthly paid
employees for purposes of computing overtime pay, the monthly wage is divided by the
number of actual work days in a month and then, by eight (8) working hours. If a
monthly-paid employee renders overtime work, he is paid his basic salary rate plus one-
half thereof. For example, after examining the specimen payroll of employee Jesus L.
Santos, the Labor Arbiter found:
the employee Jesus L. Santos, who worked on Saturday and Sunday was paid base
pay plus 50% premium. This is over and above his monthly basic pay as supported by
the fact that base pay was paid. If the 6th and 7th days of the week are deemed paid
even if unworked and included in the monthly salary, Santos should not have been paid
his base pay for Saturday and Sunday but should have received only the 50% overtime
premium.
Similarly, the specimen payrolls of employees, Dennis Dungon and Rene Sanvictores,
showed that in computing the vacation and sick leaves of the employees, Petitioner
Corporation consistently used twenty-two (22) days.
Under the peculiar circumstances obtaining, therefore, where the company observes a
5-day work week, it will have to be held that the COLA should be computed on the basis
of twenty two (22) days, which is the period during which the monthly-paid employees of
Petitioner Corporation receive their basic wage. The CBA is the law between the parties
and, if not acceptable, can be the subject of future re-negotiation.
2) Payment in full by Petitioner Corporation of the COLA before the execution of the
CBA in 1982 and in compliance with Wage Orders Nos. 1 (26 March 1981) to 5 (11
June 1984), should not be construed as constitutive of voluntary employer practice,
which cannot now be unilaterally withdrawn by petitioner. To be considered as such, it
should have been practiced over a long period of time, and must be shown to have
been consistent and deliberate. Adequate proof is wanting in this respect. The test of
long practice has been enunciated thus:
... Respondent Company agreed to continue giving holiday pay knowing fully well that
said employees are not covered by the law requiring payment of holiday pay.' (Oceanic
Pharmacal Employees Union [FFW] vs. Inciong, L-50568, November 7, 1979, 94 SCRA
270). (Emphasis ours)
Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the
implementation of the Wage Orders. It was only when the Rules Implementing Wage
Order No. 4 were issued on 21 May 1984 that a formula for the conversion of the daily
allowance to its monthly equivalent was laid down, thus:
Section 3. Application of Section 2--
xxx xxx xxx
(a) Monthly rates for non-agricultural workers covered Under PDs 1614, 1634, 1678 and
1713:
xxx xxx xxx
(3) For workers who do not work and are not considered paid on Saturdays and
Sundays:
P60 + P90 + P60 + (P2.00 x 262) divided by 12 = P 253.70 (Emphasis ours)
As the Labor Arbiter had analyzed said formula:
Under the aforecited formula/guideline, issued for the first time, when applied to a
company like respondent which observes a 5-day work week (or where 2 days in a
week, not necessarily Saturday and Sunday, are not considered paid), the monthly
equivalent of a daily allowance is arrived at by multiplying the daily allowance by 262
divided by 12. This formula results in the equivalent of 21.8 days in a month.
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for
erroneous application of the law. Payment may be said to have been made by reason of
a mistake in the construction or application of a "doubtful or difficult question of law."
(Article 2155, 1 in relation to Article 2154 2 of the Civil Code). Since it is a past error that
is being corrected, no vested right may be said to have arisen nor any diminution of
benefit under Article 100 of the Labor Code3 may be said to have resulted by virtue of
the correction.
With the conclusions thus reached, there is no further need to discuss the liability of the
officers of Petitioner Corporation.
WHEREFORE, certiorari is granted, the Decision of the National Labor Relations
Commission, dated 10 March 1986, is SET ASIDE, and the Decision of the Labor
Arbiter, dated 9 May 1985, is hereby REINSTATED. The Temporary Restraining Order
heretofore issued is hereby made permanent.
SO ORDERED.
 SECOND DIVISION
G.R. Nos. 174040-41 : September 22, 2010
INSULAR HOTEL EMPLOYEES UNION-
NFL, Petitioner, v. WATERFRONT INSULAR HOTEL
DAVAO, Respondent.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari,1cralaw under Rule 45 of the Rules
of Court, seeking to set aside the Decision2cralaw dated October 11, 2005, and the
Resolution3cralaw 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 Decision4cralaw dated the April 5, 2004 of the Accredited
Voluntary Arbitrator Rosalina L. Montejo (AVA Montejo).nad
The facts of the case, as culled from the records, are as
follows:chanroblesvirtuallawlibrar
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 Operations5cralaw 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 letter6cralaw 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:chanroblesvirtuallawlibrar
xxx
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 x7cralaw
In another letter8cralaw dated November 10, 2000, Rojas reiterated the Union's desire
to help respondent, to wit:chanroblesvirtuallawlibrar
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. 9cralaw
In another letter10cralaw 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:chanroblesvirtuallawlibrar
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.11cralaw
In a handwritten letter12cralaw 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,
Rojas stated 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 Manifesto13cralaw 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 Agreement14cralaw (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-and-file
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"15cralaw 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
Mediation16cralaw 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 Agreement17cralawwherein 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,18cralaw raising the following
grounds:chanroblesvirtuallawlibrar
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.19cralaw
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. 20cralaw
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. 21cralaw Cullo then filed
an Opposition22cralaw where the same was captioned:chanroblesvirtuallawlibrar
NATIONAL FEDERATION OF LABOR
And 79 Individual Employees, Union Members,
Complainants,
-versus-
Waterfront Insular Hotel Davao,
Respondent.
In said Opposition, Cullo reiterated that the complainants were not representing IHEU-
NFL, to wit:chanroblesvirtuallawlibrar
xxx
1. 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).nad 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.23cralaw
On November 11, 2002, AVA Olvida issued a Resolution24cralaw denying respondent's
Motion to Withdraw. On December 16, 2002, respondent filed a Motion for
Reconsideration25cralaw 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/Opposition26cralaw to respondent's Motion for Reconsideration.
Again, Cullo admitted that the case was not initiated by the IHEU-NFL, to
wit:chanroblesvirtuallawlibrar
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).nad 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.27cralaw
On March 18, 2003, AVA Olvida issued a Resolution28cralaw 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:chanroblesvirtuallawlibrar
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 labor-management relationship
like in the case at bar.
The dispositive portion of the March 18, 2003 Resolution of AVA Olvida
reads:chanroblesvirtuallawlibrar
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.29cralaw
On May 9, 2003, respondent filed its Position Paper Ad Cautelam, 30cralaw 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 Union-NFL, Complainant," filed a
Comment31cralaw dated June 5, 2003. On June 23, 2003, respondent filed its
Reply.32cralaw
Later, respondent filed a Motion for Inhibition33cralaw alleging AVA Olvida's bias and
prejudice towards the cause of the employees. In an Order34cralaw 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 letter35cralaw 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 Notice36cralaw 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 Decision37cralaw ruling in favor of Cullo, the
dispositive portion of which reads:chanroblesvirtuallawlibrar
WHEREOF, in view of the all the foregoing, judgment is hereby
rendered:chanroblesvirtuallawlibrar
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 attorney's 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.38cralaw
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 CA-G.R. SP
No. 83657. Both cases were consolidated by the CA.
On October 11, 2005, the CA rendered a Decision39cralaw ruling in favor of respondent,
the dispositive portion of which reads:chanroblesvirtuallawlibrar
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.40cralaw
Aggrieved, Cullo filed a Motion for Reconsideration, which was, however, denied by the
CA in a Resolution41cralaw dated July 13, 2006.
Hence, herein petition, with Cullo raising the following issues for this Court's resolution,
to wit:chanroblesvirtuallawlibrar
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.42cralaw
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.43cralaw
In its Memorandum,44cralaw 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.45cralaw 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
Mediation46cralaw 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,47cralaw 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.48cralaw AVA
Olvida, however, in a Resolution dated March 18, 2003, agreed with respondent that the
proper party-complainant should be INSULAR HOTEL EMPLOYEES UNION-NFL, to
wit:chanroblesvirtuallawlibrar
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.49cralaw
The dispositive portion of the Resolution dated March 18, 2003 of AVA Olvida
reads:chanroblesvirtuallawlibrar
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,
2002.50cralaw
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:chanroblesvirtuallawlibrar
Who may file a notice or declare a strike or lockout or request preventive mediation.
- cralaw
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"51cralaw 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,52cralaw this Court explained that estoppel is the exception rather
than the rule, to wit:chanroblesvirtuallawlibrar
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 rarely-only 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.)53cralaw
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)54cralaw is
instructive:chanroblesvirtuallawlibrar
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:chanroblesvirtuallawlibrar
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).nad 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 Court's pronouncement in Atlas Farms, Inc. v. National Labor Relations
Commission, viz:chanroblesvirtuallawlibrar
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 company shall be referred to the grievance machinery or
voluntary arbitrators. (Emphasis and Underscoring supplied.)55cralaw
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
Employment56cralaw is enlightening, thus:chanroblesvirtuallawlibrar
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 x57cralaw
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:chanroblesvirtuallawlibrar
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. 58cralaw
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 Certification59cralaw 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. RTWPB-X1-08 on the ground that it is a
distressed establishment.60cralawIn said denial, the Board
ruled:chanroblesvirtuallawlibrar
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.61cralaw
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:chanroblesvirtuallawlibrar
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.62cralaw
In its petition before the CA, respondent submitted its audited financial
statements63cralaw 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. 64cralaw
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:chanroblesvirtuallawlibrar
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. NLRC65cralaw is instructive, to
wit:chanroblesvirtuallawlibrar
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. 66cralaw
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,67cralaw this Court
ruled that the right to free collective bargaining, after all, includes the right to suspend it,
thus:chanroblesvirtuallawlibrar
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 labor-management
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 latter's 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 PAL's 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 union's
exercise of its right to collective bargaining. The right to free collective bargaining,
after all, includes the right to suspend it.68cralaw
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." 69cralawAccordingly,
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."70cralaw 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,71cralaw 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:chanroblesvirtuallawlibrar
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.72cralaw
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 re-opening
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.73cralaw Furthermore, Rojas was properly authorized under a Board of
Directors Resolution74cralawto negotiate with respondent, the pertinent portions of
which read:chanroblesvirtuallawlibrar
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:chanroblesvirtuallawlibrar
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.75cralaw
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.76cralaw
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.
 FIRST DIVISION

[G.R. Nos. 58094-95. March 15, 1989.]

MAMERTO B. ASIS, Petitioner, v. MINISTER OF LABOR AND

EMPLOYMENT, CENTRAL AZUCARERA DE PILAR, and
EMMANUEL JAVELLANA, Respondents.

Belo, Ermitaño, Abiera & Associates for Petitioner.

Yolanda, Quisumbing-Javellana & Associates for respondent

Emmanuel Q. Javellana.

V. Veloso & Associates for respondent Central Azucarera.

SYLLABUS

1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; NATIONAL LABOR

RELATIONS; APPEAL; PAYMENT OF APPEAL FEE, JURISDICTIONAL. — Payment
of the appeal fee is an essential requirement in the perfection of an appeal (Acda v.
MOLE, 119 SCRA 306, [1982]).

2. ID.; ID.; ID.; ID.; MAY BE ALLOWED DESPITE LATE PAYMENT OF APPEAL FEE.
— Where the fee had been paid, although payment was delayed, the broader interest or
justice and the desired objective of resolving controversies on the merits demanded that
the appeal be given course as, in fact, it was so given by the NLRC. Besides, it was
within the inherent power of the NLRC to have allowed the late payment of the appeal
fee. (Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, 136 SCRA 669, 672)

3. ID.; ID.; EMPLOYMENT; FRINGE BENEFITS ENJOYED BY AN EMPLOYEE MAY

BE WITHDRAWN. — As regards the temporary revocation of the petitioner’s monthly
ration of fuel, suffice it to point out that, as the Solicitor General stresses, this had been
occasioned by force of circumstances affecting the Central’s business. The monthly
ration was not a part of his basic salary, and is not indeed found in any of the
management payroll vouchers pertinent to the petitioner. Moreover, the adverse
consequences of the suspension of the monthly rations had been largely if not entirely
negated by the Central’s undertaking to reimburse the petitioner for his actual
consumption of fuel during the period of suspension.

4. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE DEPUTY MINISTER

OF LABOR SUPPORTED BY SUBSTANTIAL EVIDENCE, GENERALLY AFFIRMED
ON APPEAL. — A review of the record demonstrates that there is substantial evidence
supporting the factual findings of the respondent Deputy Minister. Said findings, as well
as the legal conclusions derived therefrom, cannot be said to have been rendered with
grave abuse of discretion, and will thus be affirmed.

DECISION

NARVASA, J.:

The facts of this case depict a picture that is hardly edifying: avidity trying to wear the
mantle of right. The facts raise a twofold issue: whether a company which has been
haled to court by its own in-house counsel is obliged to continue his employment and
entrust its legal affairs to him, specially when his cause of action has been shown to be
devoid of merit; and whether a firm is bound to retain in its service a personnel manager
who has incited the very employees under his supervision and control to file complaints
against it. Asserting a right to sue his employer for a legitimate grievance without
meriting retaliatory action, the petitioner claims that his dismissal for such conduct or on
the ground, essentially, of loss of confidence, was illegal; and he asks this Court to
annul the judgment of the respondent Commission, which upheld the termination of his
services in respondent company. Said claim finds no support in either the law or the
established facts and must, therefore, be rejected.

The petitioner was appointed Legal Counsel of the Central Azucarera de Pilar. 1 Later,
concurrently with his position as Legal Counsel, he was named Head of its Manpower
and Services Department.chanrobles law library : red

In addition to his basic salaries and other fringe benefits, his employer granted him, and
a few other officials of the company, a monthly ration of 200 liters of gasoline and a
small tank of liquefied petroleum gas (LPG). 2 This monthly ration was temporarily
revoked some five (5) years later as a cost reduction measure of the Central. 3 The
petitioner and the other officials adversely affected moved for reconsideration. Their
plea was denied.

The petitioner then commenced an action against the Central with the Regional Office
of the Ministry of Labor and Employment, seeking restoration of his monthly ration of
gasoline and LPG which, as aforesaid, had been temporarily suspended. The case was
docketed as LRD Case No. 1632.

Shortly afterwards, he filed another action against his employer, docketed as LRD Case
No. 1685, this time complaining against the Central’s memorandum ordaining his relief
(by being placed on leave of absence) as the Central’s Legal Counsel and Head of the
Manpower Services Department, impleaded by the petitioner as co-respondent was
Emmanuel Q. Javellana, the Finance Manager and Comptroller of the Central, who had
signed the memorandum for his relief. 4 The petitioner theorized that he had in effect
been dismissed, illegally. 5

The two cases were jointly heard and decided by the Regional Director. The latter’s
judgment 6 was for the petitioner’s reinstatement to his former positions without loss of
seniority, benefits and other privileges, the payment to him of back wages from date of
his relief up to time of reinstatement, and the delivery to him of the monthly benefits
from the time of their temporary revocation up to actual restoration or, at his option, the
money equivalent thereof. 7

The Deputy Minister of Labor however reversed this decision of the Regional Director,
on appeal taken by the Central; the Deputy Minister ordered the dismissal of the
petitioner’s complaint. 8 The Deputy Minister found that the evidence satisfactorily
established that the Central’s suspension of the petitioner’s and others’ monthly ration
of gasoline and LPG, had been caused by unavoidable financial constraints; that such a
suspension, in line with its conservation and cost-saving policy, did not in truth effect
any significant diminution of said benefits, since the petitioner was nevertheless entitled
to reimbursement of the actual amount of gas consumed; that petitioner had
encouraged his co-employees to file complaints against the Central over the rations
issue, and this, as well as his institution of his own actions, had created an atmosphere
of enmity in the Central, and caused the loss by the Central of that trust and confidence
in him so essential in a lawyer-client relationship as that theretofore existing between
them; and that under the circumstances, petitioner’s discharge as the Central’s Legal
Counsel and Head of the Manpower & Services Department was justified. The Deputy
Minister’s order of dismissal was however subsequently modified, at the petitioner’s
instance, by decreeing the payment to the latter of separation pay equivalent to one
month’s salary for every year of service rendered. 9

The petitioner theories that apart from the fact that the Deputy Minister lacked
jurisdiction to entertain the Central’s appeal from the decision of the Regional Director,
he had gravely abused his discretion in reaching his factual conclusions, pejoratively
described as guesswork and speculation.

The petitioner’s theory of the Deputy Minister’s lack of jurisdiction, founded on the tardy
payment by the Central of the appeal fee of P25.00, is quickly disposed of by simply
adverting to our holding in Del Rosario & Sons Logging Enterprises, Inc. v. NLRC, 10 to
wit:chanrob1es virtual 1aw library

It may be that, as held in Acda v. MOLE, 119 SCRA 306 [1982], payment of the appeal
fee is by no means a mere technicality but is an essential requirement in the perfection
of an appeal. However, where as in this case, the fee had been paid, unlike in the Acda
case, although payment was delayed, the broader interest of justice and the desired
objective of resolving controversies on the merits demanded that the appeal he given
course as, in fact, it was so given by the NLRC. Besides, it was within the inherent
power of the NLRC to have allowed the late payment of the appeal fee.chanrobles law
library : red

As regards the temporary revocation of the petitioner’s monthly ration of fuel, suffice it to
point out that, as the Solicitor General stresses, this had been occasioned by force of
circumstances affecting the Central’s business. The monthly ration was not a part of his
basic salary, and is not indeed found in any of the management payroll vouchers
pertinent to the petitioner. 11 Moreover, the adverse consequences of the suspension of
the monthly rations had been largely if not entirely negated by the Central’s undertaking
to reimburse the petitioner for his actual consumption of fuel during the period of
suspension. These facts are entirely distinct from those obtaining in the case of States
Marine Corporation and Royal Line, Inc. v. Cebu Seamen’s Association, Inc., 12
invoked by petitioner and thus preclude application of the ruling therein laid down to the
case at bar.

A review of the record demonstrates that there is substantial evidence supporting the
factual findings of the respondent Deputy Minister. Said findings, as well as the legal
conclusions derived therefrom, cannot be said to have been rendered with grave abuse
of discretion, and will thus be affirmed. In fine, and as petitioner could not but have
realized from the outset, neither he nor any other employee similarly situated had any
legitimate grievance against the Central.

WHEREFORE, the petition is DISMISSED for lack of merit, with costs against petitioner.
 SECOND DIVISION
[G.R. NO. 155059. April 29, 2005]
AMERICAN WIRE AND CABLE DAILY RATED EMPLOYEES
UNION,Petitioner, v. AMERICAN WIRE AND CABLE CO., INC.
and THE COURT OF APPEALS, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a special civil action for certiorari, assailing the Decision1 of the Special
Eighth Division of the Court of Appeals dated 06 March 2002. Said Decision upheld the
Decision2 and Order3 of Voluntary Arbitrator Angel A. Ancheta of the National
Conciliation and Mediation Board (NCMB) dated 25 September 2001 and 05 November
2001, respectively, which declared the private respondent herein not guilty of violating
Article 100 of the Labor Code, as amended. Assailed likewise, is the Resolution 4 of the
Court of Appeals dated 12 July 2002, which denied the motion for reconsideration of the
petitioner, for lack of merit.
THE FACTS
The facts of this case are quite simple and not in dispute.
American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of
wires and cables. There are two unions in this company, the American Wire and Cable
Monthly-Rated Employees Union (Monthly-Rated Union) and the American Wire and
Cable Daily-Rated Employees Union (Daily-Rated Union).
On 16 February 2001, an original action was filed before the NCMB of the Department
of Labor and Employment (DOLE) by the two unions for voluntary arbitration. They
alleged that the private respondent, without valid cause, suddenly and unilaterally
withdrew and denied certain benefits and entitlements which they have long enjoyed.
These are the following:
A. Service Award;
b. 35% premium pay of an employee's basic pay for the work rendered during Holy
Monday, Holy Tuesday, Holy Wednesday, December 23, 26, 27, 28 and 29;
c. Christmas Party; andcralawlibrary
d. Promotional Increase.
A promotional increase was asked by the petitioner for fifteen (15) of its members who
were given or assigned new job classifications. According to petitioner, the new job
classifications were in the nature of a promotion, necessitating the grant of an increase
in the salaries of the said 15 members.
On 21 June 2001, a Submission Agreement was filed by the parties before the Office for
Voluntary Arbitration. Assigned as Voluntary Arbitrator was Angel A. Ancheta.
On 04 July 2001, the parties simultaneously filed their respective position papers with
the Office of the Voluntary Arbitrator, NCMB, and DOLE.
On 25 September 2001, a Decision5 was rendered by Voluntary Arbitrator Angel A.
Ancheta in favor of the private respondent. The dispositive portion of the said Decision
is quoted hereunder:
WHEREFORE, with all the foregoing considerations, it is hereby declared that the
Company is not guilty of violating Article 100 of the Labor Code, as amended, or
specifically for withdrawing the service award, Christmas party and 35% premium for
work rendered during Holy Week and Christmas season and for not granting any
promotional increase to the alleged fifteen (15) Daily-Rated Union Members in the
absence of a promotion. The Company however, is directed to grant the service award
to deserving employees in amounts and extent at its discretion, in consultation with the
Unions on grounds of equity and fairness.6
A motion for reconsideration was filed by both unions7 where they alleged that the
Voluntary Arbitrator manifestly erred in finding that the company did not violate Article
100 of the Labor Code, as amended, when it unilaterally withdrew the subject benefits,
and when no promotional increase was granted to the affected employees.
On 05 November 2001, an Order8 was issued by Voluntary Arbitrator Angel A. Ancheta.
Part of the Order is quoted hereunder:
Considering that the issues raised in the instant case were meticulously evaluated and
length[i]ly discussed and explained based on the pleadings and documentary evidenc[e]
adduced by the contending parties, we find no cogent reason to change, modify, or
disturb said decision.
WHEREFORE, let the instant MOTION[S] FOR RECONSIDERATION be, as they are
hereby, denied for lack of merit. Our decision dated 25 September 2001 is affirmed "en
toto."9
An appeal under Rule 43 of the 1997 Rules on Civil Procedure was made by the Daily-
Rated Union before the Court of Appeals10 and docketed as CA-G.R. SP No. 68182.
The petitioner averred that Voluntary Arbitrator Angel A. Ancheta erred in finding that
the company did not violate Article 100 of the Labor Code, as amended, when the
subject benefits were unilaterally withdrawn. Further, they assert, the Voluntary
Arbitrator erred in adopting the company's unaudited Revenues and Profitability
Analysis for the years 1996-2000 in justifying the latter's withdrawal of the questioned
benefits.11
On 06 March 2002, a Decision in favor of herein respondent company was promulgated
by the Special Eighth Division of the Court of Appeals in CA-G.R. SP No. 68182. The
decretal portion of the decision reads:
WHEREFORE, premises considered, the present petition is hereby DENIED DUE
COURSE and accordingly DISMISSED, for lack of merit. The Decision of Voluntary
Arbitrator Angel A. Ancheta dated September 25, 2001 and his Order dated November
5, 2001 in VA Case No. AAA-10-6-4-2001 are hereby AFFIRMED and UPHELD.12
A motion for reconsideration13 was filed by the petitioner, contending that the Court of
Appeals misappreciated the facts of the case, and that it committed serious error when
it ruled that the unaudited financial statement bears no importance in the instant case.
The Court of Appeals denied the motion in its Resolution dated 12 July 2002 14 because
it did not present any new matter which had not been considered in arriving at the
decision. The dispositive portion of the Resolution states:
WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.15
Dissatisfied with the court a quo's ruling, petitioner instituted the instant special civil
action for certiorari,16 citing grave abuse of discretion amounting to lack of jurisdiction.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPANY DID NOT
VIOLATE ARTICLE 100 OF THE LABOR CODE, AS AMENDED, WHEN IT
UNILATERALLY WITHDREW THE BENEFITS OF THE MEMBERS OF PETITIONER
UNION, TO WIT: 1) 35% PREMIUM PAY; 2) CHRISTMAS PARTY AND ITS
INCIDENTAL BENEFITS; AND 3) SERVICE AWARD, WHICH IN TRUTH AND IN
FACT SAID BENEFITS/ENTITLEMENTS HAVE BEEN GIVEN THEM SINCE TIME
IMMEMORIAL, AS A MATTER OF LONG ESTABLISHED COMPANY PRACTICE,
WITH THE FURTHER FACT THAT THE SAME NOT BEING DEPENDENT ON
PROFITS.
II
THE COURT OF APPEALS ERRED WHEN IT JUST ACCEPTED HOOK, LINE AND
SINKER, THE RESPONDENT COMPANY'S SELF SERVING AND UNAUDITED
REVENUES AND PROFITABILITY ANALYSIS FOR THE YEARS 1996-2000 WHICH
THEY SUBMITTED TO FALSELY JUSTIFY THEIR UNLAWFUL ACT OF
UNILATERALLY AND SUDDENLY WITHDRAWING OR DENYING FROM THE
PETITIONER THE SUBJECT BENEFITS/ENTITLEMENTS.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE YEARLY SERVICE
AWARD IS NOT DEPENDENT ON PROFIT BUT ON SERVICE AND THUS, CANNOT
BE UNILATERALLY WITHDRAWN BY RESPONDENT COMPANY.
ISSUE
Synthesized, the solitary issue that must be addressed by this Court is whether or not
private respondent is guilty of violating Article 100 of the Labor Code, as amended,
when the benefits/entitlements given to the members of petitioner union were
withdrawn.
THE COURT'S RULING
Before we address the sole issue presented in the instant case, it is best to first discuss
a matter which was raised by the private respondent in its Comment. The private
respondent contends that this case should have been dismissed outright because of
petitioner's error in the mode of appeal. According to it, the petitioner should have
elevated the instant case to this Court through a Petition for Review on Certiorari under
Rule 45, and not through a special civil action for certiorari under Rule 65, of the 1997
Rules on Civil Procedure.17
Assuming arguendo that the mode of appeal taken by the petitioner is improper, there is
no question that the Supreme Court has the discretion to dismiss it if it is defective.
However, sound policy dictates that it is far better to dispose the case on the merits,
rather than on technicality.18
The Supreme Court may brush aside the procedural barrier and take cognizance of the
petition as it raises an issue of paramount importance. The Court shall resolve the
solitary issue on the merits for future guidance of the bench and bar. 19
With that out of the way, we shall now resolve whether or not the respondent company
is guilty of violating Article 100 of the Labor Code, as amended.
Article 100 of the Labor Code provides:
ART. 100. PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS.
'Nothing in this Book shall be construed to eliminate or in any way diminish
supplements, or other employee benefits being enjoyed at the time of promulgation of
this Code.
The petitioner submits that the withdrawal of the private respondent of the 35%
premium pay for selected days during the Holy Week and Christmas season, the
holding of the Christmas Party and its incidental benefits, and the giving of service
awards violated Article 100 of the Labor Code. The grant of these benefits was a
customary practice that can no longer be unilaterally withdrawn by private respondent
without the tacit consent of the petitioner. The benefits in question were given by the
respondent to the petitioner consistently, deliberately, and unconditionally since time
immemorial. The benefits/entitlements were not given to petitioner due to an error in
interpretation, or a construction of a difficult question of law, but simply, the grant has
been a practice over a long period of time. As such, it cannot be withdrawn from the
petitioner at respondent's whim and caprice, and without the consent of the former. The
benefits given by the respondent cannot be considered as a "bonus" as they are not
founded on profit. Even assuming that it can be treated as a "bonus," the grant of the
same, by reason of its long and regular concession, may be regarded as part of regular
compensation.20
With respect to the fifteen (15) employees who are members of petitioner union that
were given new job classifications, it asserts that a promotional increase in their salaries
was in order. Salary adjustment is a must due to their promotion. 21
On respondent company's Revenues and Profitability Analysis for the years 1996-2000,
the petitioner insists that since the former was unaudited, it should not have justified the
company's sudden withdrawal of the benefits/entitlements. The normal and/or legal
method for establishing profit and loss of a company is through a financial statement
audited by an independent auditor.22
The petitioner cites our ruling in the case of Saballa v. NLRC,23 where we held
that financial statements audited by independent auditors constitute the normal method
of proof of the profit and loss performance of the company. Our ruling in the case
of Bogo-Medellin Sugarcane Planters Association, Inc., et al. v. NLRC, et al.24 was
likewise invoked. In this case, we held:
'The Court has previously ruled that financial statements audited by independent
external auditors constitute the normal method of proof of the profit and loss
performance of a company.
On the matter of the withdrawal of the service award, the petitioner argues that it is the
employee's length of service which is taken as a factor in the grant of this benefit, and
not whether the company acquired profit or not.25
In answer to all these, the respondent corporation avers that the grant of all subject
benefits has not ripened into practice that the employees concerned can claim a
demandable right over them. The grant of these benefits was conditional based upon
the financial performance of the company and that conditions/circumstances that
existed before have indeed substantially changed thereby justifying the discontinuance
of said grants. The company's financial performance was affected by the recent political
turmoil and instability that led the entire nation to a bleeding economy. Hence, it only
necessarily follows that the company's financial situation at present is already very
much different from where it was three or four years ago.26
On the subject of the unaudited financial statement presented by the private
respondent, the latter contends that the cases cited by the petitioner indeed uniformly
ruled that financial statements audited by independent external auditors constitute the
normal method of proof of the profit and loss performance of a company. However,
these cases do not require that the only legal method to ascertain profit and loss is
through an audited financial statement. The cases only provide that an audited financial
statement is the normal method.27
The respondent company likewise asseverates that the 15 members of petitioner union
were not actually promoted. There was only a realignment of positions.28
From the foregoing contentions, it appears that for the Court to resolve the issue
presented, it is critical that a determination must be first made on whether the
benefits/entitlements are in the nature of a bonus or not, and assuming they are so,
whether they are demandable and enforceable obligations.
In the case of Producers Bank of the Philippines v. NLRC29 we have characterized what
a bonus is, viz:
A bonus is an amount granted and paid to an employee for his industry and loyalty
which contributed to the success of the employer's business and made possible the
realization of profits. It is an act of generosity granted by an enlightened employer to
spur the employee to greater efforts for the success of the business and realization of
bigger profits. The granting of a bonus is a management prerogative, something given
in addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus is
not a demandable and enforceable obligation, except when it is made part of the wage,
salary or compensation of the employee.
Based on the foregoing pronouncement, it is obvious that the benefits/entitlements
subjects of the instant case are all bonuses which were given by the private respondent
out of its generosity and munificence. The additional 35% premium pay for work done
during selected days of the Holy Week and Christmas season, the holding of Christmas
parties with raffle, and the cash incentives given together with the service awards are all
in excess of what the law requires each employer to give its employees. Since they are
above what is strictly due to the members of petitioner-union, the granting of the same
was a management prerogative, which, whenever management sees necessary, may
be withdrawn, unless they have been made a part of the wage or salary or
compensation of the employees.
The consequential question therefore that needs to be settled is if the subject
benefits/entitlements, which are bonuses, are demandable or not. Stated another way,
can these bonuses be considered part of the wage or salary or compensation making
them enforceable obligations?chanroblesvirtualawlibrary
The Court does not believe so.
For a bonus to be enforceable, it must have been promised by the employer and
expressly agreed upon by the parties,30 or it must have had a fixed amount31 and had
been a long and regular practice on the part of the employer.32
The benefits/entitlements in question were never subjects of any express agreement
between the parties. They were never incorporated in the Collective Bargaining
Agreement (CBA). As observed by the Voluntary Arbitrator, the records reveal that
these benefits/entitlements have not been subjects of any express agreement between
the union and the company, and have not yet been incorporated in the CBA. In fact, the
petitioner has not denied having made proposals with the private respondent for the
service award and the additional 35% premium pay to be made part of the CBA. 33
The Christmas parties and its incidental benefits, and the giving of cash incentive
together with the service award cannot be said to have fixed amounts. What is clear
from the records is that over the years, there had been a downtrend in the amount given
as service award.34 There was also a downtrend with respect to the holding of the
Christmas parties in the sense that its location changed from paid venues to one which
was free of charge,35 evidently to cut costs. Also, the grant of these two aforementioned
bonuses cannot be considered to have been the private respondent's long and regular
practice. To be considered a "regular practice," the giving of the bonus should have
been done over a long period of time, and must be shown to have been consistent and
deliberate.36 The downtrend in the grant of these two bonuses over the years
demonstrates that there is nothing consistent about it. Further, as held by the Court of
Appeals:
Anent the Christmas party and raffle of prizes, We agree with the Voluntary Arbitrator
that the same was merely sponsored by the respondent corporation out of generosity
and that the same is dependent on the financial performance of the company for a
particular year'37
The additional 35% premium pay for work rendered during selected days of the Holy
Week and Christmas season cannot be held to have ripened into a company practice
that the petitioner herein have a right to demand. Aside from the general averment of
the petitioner that this benefit had been granted by the private respondent since time
immemorial, there had been no evidence adduced that it had been a regular practice.
As propitiously observed by the Court of Appeals:
. . . [N]otwithstanding that the subject 35% premium pay was deliberately given and the
same was in excess of that provided by the law, the same however did not ripen into a
company practice on account of the fact that it was only granted for two (2) years and
with the express reservation from respondent corporation's owner that it cannot
continue to rant the same in view of the company's current financial situation. 38
To hold that an employer should be forced to distribute bonuses which it granted out of
kindness is to penalize him for his past generosity.39
Having thus ruled that the additional 35% premium pay for work rendered during
selected days of the Holy Week and Christmas season, the holding of Christmas parties
with its incidental benefits, and the grant of cash incentive together with the service
award are all bonuses which are neither demandable nor enforceable obligations of the
private respondent, it is not necessary anymore to delve into the Revenues and
Profitability Analysis for the years 1996-2000 submitted by the private respondent.
On the alleged promotion of 15 members of the petitioner union that should warrant an
increase in their salaries, the factual finding of the Voluntary Arbitrator is revealing, viz:
'Considering that the Union was unable to adduce proof that a promotion indeed
occur[ed] with respect to the 15 employees, the Daily Rated Union's claim for
promotional increase likewise fall[s] there being no promotion established under the
records at hand.40
WHEREFORE, in view of all the foregoing, the assailed Decision and Resolution of the
Court of Appeals dated 06 March 2002 and 12 July 2002, respectively, which affirmed
and upheld the decision of the Voluntary Arbitrator, are hereby AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 198783 April 15, 2013
ROYAL PLANT WORKERS UNION, Petitioner,
vs.
COCA-COLA BOTTLERS PHILIPPINES, INC.-CEBU
PLANT, Respondent.
DECISION
MENDOZA, J.:
Assailed in this petition is the May 24, 2011 Decision1 and the September 2, 2011
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 05200, entitled Coca-Cola
Bottlers Philippines, Inc.-Cebu Plant v. Royal Plant Workers Union, which nullified and
set aside the June 11, 2010 Decision3 of the Voluntary Arbitration Panel (Arbitration
Committee) in a case involving the removal of chairs in the bottling plant of Coca-Cola
Bottlers Philippines, Inc. (CCBPI).
The Factual and Procedural
Antecedents
The factual and procedural antecedents have been accurately recited in the May 24,
2011 CA decision as follows:
Petitioner Coca-Cola Bottlers Philippines, Inc. (CCBPI) is a domestic corporation
engaged in the manufacture, sale and distribution of softdrink products. It has several
bottling plants all over the country, one of which is located in Cebu City. Under the
employ of each bottling plant are bottling operators. In the case of the plant in Cebu
City, there are 20 bottling operators who work for its Bottling Line 1 while there are 12-
14 bottling operators who man its Bottling Line 2. All of them are male and they are
members of herein respondent Royal Plant Workers Union (ROPWU).
The bottling operators work in two shifts. The first shift is from 8 a.m. to 5 p.m. and the
second shift is from 5 p.m. up to the time production operations is finished. Thus, the
second shift varies and may end beyond eight (8) hours. However, the bottling
operators are compensated with overtime pay if the shift extends beyond eight (8)
hours. For Bottling Line 1, 10 bottling operators work for each shift while 6 to 7 bottling
operators work for each shift for Bottling Line 2.
Each shift has rotations of work time and break time. Prior to September 2008, the
rotation is this: after two and a half (2 ½) hours of work, the bottling operators are given
a 30-minute break and this goes on until the shift ends. In September 2008 and up to
the present, the rotation has changed and bottling operators are now given a 30-minute
break after one and one half (1 ½) hours of work.
In 1974, the bottling operators of then Bottling Line 2 were provided with chairs upon
their request. In 1988, the bottling operators of then Bottling Line 1 followed suit and
asked to be provided also with chairs. Their request was likewise granted. Sometime in
September 2008, the chairs provided for the operators were removed pursuant to a
national directive of petitioner. This directive is in line with the "I Operate, I Maintain, I
Clean" program of petitioner for bottling operators, wherein every bottling operator is
given the responsibility to keep the machinery and equipment assigned to him clean
and safe. The program reinforces the task of bottling operators to constantly move
about in the performance of their duties and responsibilities.
With this task of moving constantly to check on the machinery and equipment assigned
to him, a bottling operator does not need a chair anymore, hence, petitioner’s directive
to remove them. Furthermore, CCBPI rationalized that the removal of the chairs is
implemented so that the bottling operators will avoid sleeping, thus, prevent injuries to
their persons. As bottling operators are working with machines which consist of moving
parts, it is imperative that they should not fall asleep as to do so would expose them to
hazards and injuries. In addition, sleeping will hamper the efficient flow of operations as
the bottling operators would be unable to perform their duties competently.
The bottling operators took issue with the removal of the chairs. Through the
representation of herein respondent, they initiated the grievance machinery of the
Collective Bargaining Agreement (CBA) in November 2008. Even after exhausting the
remedies contained in the grievance machinery, the parties were still at a deadlock with
petitioner still insisting on the removal of the chairs and respondent still against such
measure. As such, respondent sent a Notice to Arbitrate, dated 16 July 2009, to
petitioner stating its position to submit the issue on the removal of the chairs for
arbitration. Nevertheless, before submitting to arbitration the issue, both parties availed
of the conciliation/mediation proceedings before the National Conciliation and Mediation
Board (NCMB) Regional Branch No. VII. They failed to arrive at an amicable settlement.
Thus, the process of arbitration continued and the parties appointed the chairperson
and members of the Arbitration Committee as outlined in the CBA. Petitioner and
respondent respectively appointed as members to the Arbitration Committee Mr. Raul
A. Kapuno, Jr. and Mr. Luis Ruiz while they both chose Atty. Alice Morada as
chairperson thereof. They then executed a Submission Agreement which was accepted
by the Arbitration Committee on 01 October 2009. As contained in the Submission
Agreement, the sole issue for arbitration is whether the removal of chairs of the
operators assigned at the production/manufacturing line while performing their duties
and responsibilities is valid or not.
Both parties submitted their position papers and other subsequent pleadings in
amplification of their respective stands. Petitioner argued that the removal of the chairs
is valid as it is a legitimate exercise of management prerogative, it does not violate the
Labor Code and it does not violate the CBA it contracted with respondent. On the other
hand, respondent espoused the contrary view. It contended that the bottling operators
have been performing their assigned duties satisfactorily with the presence of the
chairs; the removal of the chairs constitutes a violation of the Occupational Health and
Safety Standards, the policy of the State to assure the right of workers to just and
humane conditions of work as stated in Article 3 of the Labor Code and the Global
Workplace Rights Policy.
Ruling of the Arbtration Committee
On June 11, 2010, the Arbitration Committee rendered a decision in favor of the Royal
Plant Workers Union (the Union) and against CCBPI, the dispositive portion of which
reads, as follows:
Wherefore, the undersigned rules in favor of ROPWU declaring that the removal of the
operators chairs is not valid. CCBPI is hereby ordered to restore the same for the use of
the operators as before their removal in 2008.4
The Arbitration Committee ruled, among others, that the use of chairs by the operators
had been a company practice for 34 years in Bottling Line 2, from 1974 to 2008, and 20
years in Bottling Line 1, from 1988 to 2008; that the use of the chairs by the operators
constituted a company practice favorable to the Union; that it ripened into a benefit after
it had been enjoyed by it; that any benefit being enjoyed by the employees could not be
reduced, diminished, discontinued, or eliminated by the employer in accordance with
Article 100 of the Labor Code, which prohibited the diminution or elimination by the
employer of the employees’ benefit; and that jurisprudence had not laid down any rule
requiring a specific minimum number of years before a benefit would constitute a
voluntary company practice which could not be unilaterally withdrawn by the employer.
The Arbitration Committee further stated that, although the removal of the chairs was
done in good faith, CCBPI failed to present evidence regarding instances of sleeping
while on duty. There were no specific details as to the number of incidents of sleeping
on duty, who were involved, when these incidents happened, and what actions were
taken. There was no evidence either of any accident or injury in the many years that the
bottling operators used chairs. To the Arbitration Committee, it was puzzling why it took
34 and 20 years for CCBPI to be so solicitous of the bottling operators’ safety that it
removed their chairs so that they would not fall asleep and injure themselves.
Finally, the Arbitration Committee was of the view that, contrary to CCBPI’s position,
line efficiency was the result of many factors and it could not be attributed solely to one
such as the removal of the chairs.
Not contented with the Arbitration Committee’s decision, CCBPI filed a petition for
review under Rule 43 before the CA.
Ruling of the CA
On May 24, 2011, the CA rendered a contrasting decision which nullified and set aside
the decision of the Arbitration Committee. The dispositive portion of the CA decision
reads:
WHEREFORE, premises considered, the petition is hereby GRANTED and the
Decision, dated 11 June 2010, of the Arbitration Committee in AC389-VII-09-10-2009D
is NULLIFIED and SET ASIDE. A new one is entered in its stead SUSTAINING the
removal of the chairs of the bottling operators from the manufacturing/production line.5
The CA held, among others, that the removal of the chairs from the
manufacturing/production lines by CCBPI is within the province of management
prerogatives; that it was part of its inherent right to control and manage its enterprise
effectively; and that since it was the employer’s discretion to constantly develop
measures or means to optimize the efficiency of its employees and to keep its
machineries and equipment in the best of conditions, it was only appropriate that it
should be given wide latitude in exercising it.
The CA stated that CCBPI complied with the conditions of a valid exercise of a
management prerogative when it decided to remove the chairs used by the bottling
operators in the manufacturing/production lines. The removal of the chairs was solely
motivated by the best intentions for both the Union and CCBPI, in line with the "I
Operate, I Maintain, I Clean" program for bottling operators, wherein every bottling
operator was given the responsibility to keep the machinery and equipment assigned to
him clean and safe. The program would reinforce the task of bottling operators to
constantly move about in the performance of their duties and responsibilities. Without
the chairs, the bottling operators could efficiently supervise these machineries’
operations and maintenance. It would also be beneficial for them because the working
time before the break in each rotation for each shift was substantially reduced from two
and a half hours (2 ½ ) to one and a half hours (1 ½) before the 30-minute break. This
scheme was clearly advantageous to the bottling operators as the number of resting
periods was increased. CCBPI had the best intentions in removing the chairs because
some bottling operators had the propensity to fall asleep while on the job and sleeping
on the job ran the risk of injury exposure and removing them reduced the risk.
The CA added that the decision of CCBPI to remove the chairs was not done for the
purpose of defeating or circumventing the rights of its employees under the special
laws, the Collective Bargaining Agreement (CBA) or the general principles of justice and
fair play. It opined that the principles of justice and fair play were not violated because,
when the chairs were removed, there was a commensurate reduction of the working
time for each rotation in each shift. The provision of chairs for the bottling operators was
never part of the CBAs contracted between the Union and CCBPI. The chairs were not
provided as a benefit because such matter was dependent upon the exigencies of the
work of the bottling operators. As such, CCBPI could withdraw this provision if it was not
necessary in the exigencies of the work, if it was not contributing to the efficiency of the
bottling operators or if it would expose them to some hazards. Lastly, the CA explained
that the provision of chairs to the bottling operators cannot be covered by Article 100 of
the Labor Code on elimination or diminution of benefits because the employee’s
benefits referred to therein mainly involved monetary considerations or privileges
converted to their monetary equivalent.
Disgruntled with the adverse CA decision, the Union has come to this Court praying for
its reversal on the following GROUNDS
I
THAT WITH DUE RESPECT, THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT A PETITION FOR REVIEW UNDER RULE 43 OF THE
RULES OF COURT IS THE PROPER REMEDY OF CHALLENGING BEFORE SAID
COURT THE DECISION OF THE VOLUNTARY ARBITRATOR OR PANEL OF
VOLUNTARY ARBITRATORS UNDER THE LABOR CODE.
II
THAT WITH DUE RESPECT, THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN NULLIFYING AND SETTING ASIDE THE DECISION OF THE PANEL
OF VOLUNTARY ARBITRATORS WHICH DECLARED AS NOT VALID THE
REMOVAL OF THE CHAIRS OF THE OPERATORS IN THE MANUFACTURING
AND/OR PRODUCTION LINE.
In advocacy of its positions, the Union argues that the proper remedy in challenging the
decision of the Arbitration Committee before the CA is a petition for certiorari under Rule
65. The petition for review under Rule 43 resorted to by CCBPI should have been
dismissed for being an improper remedy. The Union points out that the parties agreed
to submit the unresolved grievance involving the removal of chairs to voluntary
arbitration pursuant to the provisions of Article V of the existing CBA. Hence, the
assailed decision of the Arbitration Committee is a judgment or final order issued under
the Labor Code of the Philippines. Section 2, Rule 43 of the 1997 Rules of Civil
Procedure, expressly states that the said rule does not cover cases under the Labor
Code of the Philippines. The judgments or final orders of the Voluntary Arbitrator or
Panel of Voluntary Arbitrators are governed by the provisions of Articles 260, 261, 262,
262-A, and 262-B of the Labor Code of the Philippines.
On the substantive aspect, the Union argues that there is no connection between
CCBPI’s "I Operate, I Maintain, I Clean" program and the removal of the chairs because
the implementation of the program was in 2006 and the removal of the chairs was done
in 2008. The 30-minute break is part of an operator’s working hours and does not make
any difference. The frequency of the break period is not advantageous to the operators
because it cannot compensate for the time they are made to stand throughout their
working time. The bottling operators get tired and exhausted after their tour of duty even
with chairs around. How much more if the chairs are removed?
The Union further claims that management prerogatives are not absolute but subject to
certain limitations found in law, a collective bargaining agreement, or general principles
of fair play and justice. The operators have been performing their assigned duties and
responsibilities satisfactorily for thirty (30) years using chairs. There is no record of poor
performance because the operators are sitting all the time. There is no single incident
when the attention of an operator was called for failure to carry out his assigned tasks.
CCBPI has not submitted any evidence to prove that the performance of the operators
was poor before the removal of the chairs and that it has improved after the chairs were
removed. The presence of chairs for more than 30 years made the operators awake
and alert as they could relax from time to time. There are sanctions for those caught
sleeping while on duty. Before the removal of the chairs, the efficiency of the operators
was much better and there was no recorded accident. After the removal of the chairs,
the efficiency of the operators diminished considerably, resulting in the drastic decline of
line efficiency.
Finally, the Union asserts that the removal of the chairs constitutes violation of the
Occupational Health and Safety Standards, which provide that every company shall
keep and maintain its workplace free from hazards that are likely to cause physical
harm to the workers or damage to property. The removal of the chairs constitutes a
violation of the State policy to assure the right of workers to a just and humane condition
of work pursuant to Article 3 of the Labor Code and of CCBPI’s Global Workplace
Rights Policy. Hence, the unilateral withdrawal, elimination or removal of the chairs,
which have been in existence for more than 30 years, constitutes a violation of existing
practice.
The respondent’s position
CCBPI reiterates the ruling of the CA that a petition for review under Rule 43 of the
Rules of Court was the proper remedy to question the decision of the Arbitration
Committee. It likewise echoes the ruling of the CA that the removal of the chairs was a
legitimate exercise of management prerogative; that it was done not to harm the bottling
operators but for the purpose of optimizing their efficiency and CCBPI’s machineries
and equipment; and that the exercise of its management prerogative was done in good
faith and not for the purpose of circumventing the rights of the employees under the
special laws, the CBA or the general principles of justice and fair play.
The Court’s Ruling
The decision in this case rests on the resolution of two basic questions. First, is an
appeal to the CA via a petition for review under Rule 43 of the 1997 Rules of Civil
Procedure a proper remedy to question the decision of the Arbitration Committee?
Second, was the removal of the bottling operators’ chairs from CCBPI’s
production/manufacturing lines a valid exercise of a management prerogative?
The Court sustains the ruling of the CA on both issues.
Regarding the first issue, the Union insists that the CA erred in ruling that the recourse
taken by CCBPI in appealing the decision of the Arbitration Committee was proper. It
argues that the proper remedy in challenging the decision of the Voluntary Arbitrator
before the CA is by filing a petition for certiorari under Rule 65 of the Rules of Court, not
a petition for review under Rule 43.
CCBPI counters that the CA was correct in ruling that the recourse it took in appealing
the decision of the Arbitration Committee to the CA via a petition for review under Rule
43 of the Rules of Court was proper and in conformity with the rules and prevailing
jurisprudence.
A Petition for Review
under Rule 43 is the
proper remedy
CCBPI is correct. This procedural issue being debated upon is not novel. The Court has
already ruled in a number of cases that a decision or award of a voluntary arbitrator is
appealable to the CA via a petition for review under Rule 43. The recent case of
Samahan Ng Mga Manggagawa Sa Hyatt (SAMASAH-NUWHRAIN) v. Hon. Voluntary
Arbitrator Buenaventura C. Magsalin and Hotel Enterprises of the Philippines6 reiterated
the well-settled doctrine on this issue, to wit:
In the case of Samahan ng mga Manggagawa sa Hyatt-NUWHRAIN-APL v.
Bacungan,7 we repeated the well-settled rule that a decision or award of a voluntary
arbitrator is appealable to the CA via petition for review under Rule 43. We held that:
"The question on the proper recourse to assail a decision of a voluntary arbitrator has
already been settled in Luzon Development Bank v. Association of Luzon Development
Bank Employees, where the Court held that the decision or award of the voluntary
arbitrator or panel of arbitrators should likewise be appealable to the Court of Appeals,
in line with the procedure outlined in Revised Administrative Circular No. 1-95 (now
embodied in Rule 43 of the 1997 Rules of Civil Procedure), just like those of the quasi-
judicial agencies, boards and commissions enumerated therein, and consistent with the
original purpose to provide a uniform procedure for the appellate review of adjudications
of all quasi-judicial entities.
Subsequently, in Alcantara, Jr. v. Court of Appeals, and Nippon Paint Employees
Union-Olalia v. Court of Appeals, the Court reiterated the aforequoted ruling. In
Alcantara, the Court held that notwithstanding Section 2 of Rule 43, the ruling in Luzon
Development Bank still stands. The Court explained, thus:
‘The provisions may be new to the Rules of Court but it is far from being a new law.
Section 2, Rules 42 of the 1997 Rules of Civil Procedure, as presently worded, is
nothing more but a reiteration of the exception to the exclusive appellate jurisdiction of
the Court of Appeals, as provided for in Section 9, Batas Pambansa Blg. 129, as
amended by Republic Act No. 7902:
(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities,
boards or commissions, including the Securities and Exchange Commission, the
Employees’ Compensation Commission and the Civil Service Commission, except
those falling within the appellate jurisdiction of the Supreme Court in accordance with
the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442,
as amended, the provisions of this Act and of subparagraph (1) of the third paragraph
and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of
1948.’
The Court took into account this exception in Luzon Development Bank but,
nevertheless, held that the decisions of voluntary arbitrators issued pursuant to the
Labor Code do not come within its ambit x x x."
Furthermore, Sections 1, 3 and 4, Rule 43 of the 1997 Rules of Civil Procedure, as
amended, provide:
"SECTION 1. Scope. - This Rule shall apply to appeals from judgments or final orders of
the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or
authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions.
Among these agencies are the x x x, and voluntary arbitrators authorized by law.
xxxx
SEC. 3. Where to appeal. - An appeal under this Rule may be taken to the Court of
Appeals within the period and in the manner therein provided, whether the appeal
involves questions of fact, of law, or mixed questions of fact and law.
SEC. 4. Period of appeal. - The appeal shall be taken within fifteen (15) days from
notice of the award, judgment, final order or resolution, or from the date of its last
publication, if publication is required by law for its effectivity, or of the denial of
petitioner’s motion for new trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. x x x. (Emphasis supplied.)’
Hence, upon receipt on May 26, 2003 of the Voluntary Arbitrator’s Resolution denying
petitioner’s motion for reconsideration, petitioner should have filed with the CA, within
the fifteen (15)-day reglementary period, a petition for review, not a petition for certiorari.
On the second issue, the Union basically claims that the CCBPI’s decision to unilaterally
remove the operators’ chairs from the production/manufacturing lines of its bottling
plants is not valid because it violates some fundamental labor policies. According to the
Union, such removal constitutes a violation of the 1) Occupational Health and Safety
Standards which provide that every worker is entitled to be provided by the employer
with appropriate seats, among others; 2) policy of the State to assure the right of
workers to a just and humane condition of work as provided for in Article 3 of the Labor
Code;8 3) Global Workplace Rights Policy of CCBPI which provides for a safe and
healthy workplace by maintaining a productive workplace and by minimizing the risk of
accident, injury and exposure to health risks; and 4) diminution of benefits provided in
Article 100 of the Labor Code.9
Opposing the Union’s argument, CCBPI mainly contends that the removal of the subject
chairs is a valid exercise of management prerogative. The management decision to
remove the subject chairs was made in good faith and did not intend to defeat or
circumvent the rights of the Union under the special laws, the CBA and the general
principles of justice and fair play.
Again, the Court agrees with CCBPI on the matter.
A Valid Exercise of
Management Prerogative
The Court has held that management is free to regulate, according to its own discretion
and judgment, all aspects of employment, including hiring, work assignments, working
methods, time, place, and manner of work, processes to be followed, supervision of
workers, working regulations, transfer of employees, work supervision, lay-off of
workers, and discipline, dismissal and recall of workers. The exercise of management
prerogative, however, is not absolute as it must be exercised in good faith and with due
regard to the rights of labor.10
In the present controversy, it cannot be denied that CCBPI removed the operators’
chairs pursuant to a national directive and in line with its "I Operate, I Maintain, I Clean"
program, launched to enable the Union to perform their duties and responsibilities more
efficiently. The chairs were not removed indiscriminately. They were carefully studied
with due regard to the welfare of the members of the Union. The removal of the chairs
was compensated by: a) a reduction of the operating hours of the bottling operators
from a two-and-one-half (2 ½)-hour rotation period to a one-and-a-half (1 ½) hour
rotation period; and b) an increase of the break period from 15 to 30 minutes between
rotations.
Apparently, the decision to remove the chairs was done with good intentions as CCBPI
wanted to avoid instances of operators sleeping on the job while in the performance of
their duties and responsibilities and because of the fact that the chairs were not
necessary considering that the operators constantly move about while working. In short,
the removal of the chairs was designed to increase work efficiency. Hence, CCBPI’s
exercise of its management prerogative was made in good faith without doing any harm
to the workers’ rights.
The fact that there is no proof of any operator sleeping on the job is of no moment.
There is no guarantee that such incident would never happen as sitting on a chair is
relaxing. Besides, the operators constantly move about while doing their job. The
ultimate purpose is to promote work efficiency.
No Violation of Labor Laws
The rights of the Union under any labor law were not violated. There is no law that
requires employers to provide chairs for bottling operators. The CA correctly ruled that
the Labor Code, specifically Article 13211 thereof, only requires employers to provide
seats for women. No similar requirement is mandated for men or male workers. It must
be stressed that all concerned bottling operators in this case are men.
There was no violation either of the Health, Safety and Social Welfare Benefit provisions
under Book IV of the Labor Code of the Philippines. As shown in the foregoing, the
removal of the chairs was compensated by the reduction of the working hours and
increase in the rest period. The directive did not expose the bottling operators to safety
and health hazards.
The Union should not complain too much about standing and moving about for one and
one-half (1 ½) hours because studies show that sitting in workplaces for a long time is
hazardous to one’s health. The report of VicHealth, Australia,12 disclosed that
"prolonged workplace sitting is an emerging public health and occupational health issue
with serious implications for the health of our working population. Importantly, prolonged
sitting is a risk factor for poor health and early death, even among those who meet, or
exceed, national13 activity guidelines." In another report,14 it was written:
Workers needing to spend long periods in a seated position on the job such as taxi
drivers, call centre and office workers, are at risk for injury and a variety of adverse
health effects.
The most common injuries occur in the muscles, bones, tendons and ligaments,
affecting the neck and lower back regions. Prolonged sitting:
● reduces body movement making muscles more likely to pull, cramp or strain when
stretched suddenly, causes fatigue in the back and neck muscles by slowing the blood
supply and puts high tension on the spine, especially in the low back or neck, and
● causes a steady compression on the spinal discs that hinders their nutrition and can
contribute to their premature degeneration.
Sedentary employees may also face a gradual deterioration in health if they do not
exercise or do not lead an otherwise physically active life. The most common health
problems that these employees experience are disorders in blood circulation and
injuries affecting their ability to move. Deep Vein Thrombosis (DVT), where a clot forms
in a large vein after prolonged sitting (eg after a long flight) has also been shown to be a
risk.
Workers who spend most of their working time seated may also experience other, less
specific adverse health effects. Common effects include decreased fitness, reduced
heart and lung efficiency, and digestive problems. Recent research has identified too
much sitting as an important part of the physical activity and health equation, and
suggests we should focus on the harm caused by daily inactivity such as prolonged
sitting.
Associate professor David Dunstan leads a team at the Baker IDI in Melbourne which is
specifically researching sitting and physical activity. He has found that people who
spend long periods of time seated (more than four hours per day) were at risk of:
● higher blood levels of sugar and fats,
● larger waistlines, and
● higher risk of metabolic syndrome
regardless of how much moderate to vigorous exercise they had.
In addition, people who interrupted their sitting time more often just by standing or with
light activities such as housework, shopping, and moving about the office had healthier
blood sugar and fat levels, and smaller waistlines than those whose sitting time was not
broken up.
Of course, in this case, if the chairs would be returned, no risks would be involved
because of the shorter period of working time. The study was cited just to show that
there is a health risk in prolonged sitting.
No Violation of the CBA
The CBA15 between the Union and CCBPI contains no provision whatsoever requiring
the management to provide chairs for the operators in the production/manufacturing line
while performing their duties and responsibilities. On the contrary, Section 2 of Article 1
of the CBA expressly provides as follows:
Article I
SCOPE
SECTION 2. Scope of the Agreement. All the terms and conditions of employment of
employees and workers within the appropriate bargaining unit (as defined in Section 1
hereof) are embodied in this Agreement and the same shall govern the relationship
between the COMPANY and such employees and/or workers. On the other hand, all
such benefits and/or privileges as are not expressly provided for in this Agreement but
which are now being accorded, may in the future be accorded, or might have previously
been accorded, to the employees and/or workers, shall be deemed as purely voluntary
acts on the part of the COMPANY in each case, and the continuance and repetition
thereof now or in the future, no matter how long or how often, shall not be construed as
establishing an obligation on the part of the COMPANY. It is however understood that
any benefits that are agreed upon by and between the COMPANY and the UNION in
the Labor-Management Committee Meetings regarding the terms and conditions of
employment outside the CBA that have general application to employees who are
similarly situated in a Department or in the Plant shall be implemented. [emphasis and
underscoring supplied]
As can be gleaned from the aforecited provision, the CBA expressly provides that
benefits and/or privileges, not expressly given therein but which are presently being
granted by the company and enjoyed by the employees, shall be considered as purely
voluntary acts by the management and that the continuance of such benefits and/or
privileges, no matter how long or how often, shall not be understood as establishing an
obligation on the company’s part. Since the matter of the chairs is not expressly stated
in the CBA, it is understood that it was a purely voluntary act on the part of CCBPI and
the long practice did not convert it into an obligation or a vested right in favor of the
Union.
No Violation of the general principles
of justice and fair play
The Court completely agrees with the CA ruling that the removal of the chairs did not
violate the general principles of justice and fair play because the bottling operators’
working time was considerably reduced from two and a half (2 ½) hours to just one and
a half (1 ½) hours and the break period, when they could sit down, was increased to 30
minutes between rotations. The bottling operators’ new work schedule is certainly
advantageous to them because it greatly increases their rest period and significantly
decreases their working time. A break time of thirty (30) minutes after working for only
one and a half (1 ½) hours is a just and fair work schedule.
No Violation of Article 100
of the Labor Code
The operators’ chairs cannot be considered as one of the employee benefits covered in
Article 10016 of the Labor Code. In the Court’s view, the term "benefits" mentioned in
the non-diminution rule refers to monetary benefits or privileges given to the employee
with monetary equivalents.
Such benefits or privileges form part of the employees’ wage, salary or compensation
making them enforceable obligations.
This Court has already decided several cases regarding the non-diminution rule where
the benefits or privileges involved in those cases mainly concern monetary
considerations or privileges with monetary equivalents. Some of these cases are:
Eastern Telecommunication Phils. Inc. v. Eastern Telecoms Employees Union, 17 where
the case involves the payment of 14th, 15th and 16th month bonuses; Central
Azucarera De Tarlac v. Central Azucarera De Tarlac Labor Union-NLU,18 regarding the
13th month pay, legal/special holiday pay, night premium pay and vacation and sick
leaves; TSPIC Corp. v. TSPIC Employees Union,19 regarding salary wage increases;
and American Wire and Cable Daily Employees Union vs. American Wire and Cable
Company, Inc.,20 involving service awards with cash incentives, premium pay,
Christmas party with incidental benefits and promotional increase.
In this regard, the Court agrees with the CA when it resolved the matter and wrote:
Let it be stressed that the aforequoted article speaks of non-diminution of supplements
and other employee benefits. Supplements arc privileges given to an employee which
constitute as extra remuneration besides his or her basic ordinary earnings and wages.
From this definition, We can only deduce that the other employee benefits spoken of by
Article 100 pertain only to those which are susceptible of monetary considerations.
Indeed, this could only be the most plausible conclusion because the cases tackling
Article 100 involve mainly with monetary considerations or privileges converted to their
monetary equivalents.
xxxx
Without a doubt, equating the provision of chairs to the bottling operators Ds something
within the ambit of "benefits'' in the context of Article 100 of the Labor Code is unduly
stretching the coverage of the law. The interpretations of Article 100 of the Labor Code
do not show even with the slightest hint that such provision of chairs for the bottling
operators may be sheltered under its mantle.21
Jurisprudence recognizes the exercise of management prerogatives. Labor Jaws also
discourage interference with an employer's judgment in the conduct of its business. For
this reason, the Court often declines to interfere in legitimate business decisions of
employers. The law must protect not only the welfare of the employees, but also the
right of the employers.22
WHEREFORE, the petition is DENIED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 78261-62 March 8, 1989
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HON. LABOR ARBITER ARIEL C. SANTOS, PHILIPPINE
ASSOCIATION OF FREE LABOR UNIONS (PAFLU-RMC
CHAPTER) and its members, MICHAEL PENALOSA, ET AL.,
SAMAHANG DIWANG MANGGAGAWA SA RMC-FFW
CHAPTER, and its members, JAIME ARADA, ET
AL., respondents.
The Chief Legal Counsel for petitioner DBP.
Pablo B. Castillon for private respondents.
Reynaldo B. Aralar & Associates for the Arada respondents.
Sisenando R. Villaluz, Jr. for individual respondents.

GUTIERREZ, JR., J.:

This petition calls for the interpretation of Article 110 of the Labor Code which gives the
workers preferences as regards wages in case of liquidation or bankruptcy of an
employer's business. Petitioner Development Bank of the Philippines (DBP) maintains
the Article 110 does not apply where there has been an extra-judicial foreclosure
proceeding while the respondents claim otherwise. Labor Arbiter Ariel C. Santos
sustained the private respondent's position. Petitioner DBP has now elevated the case
to us by way of this petition for certiorari.
On November 29,1984, in NLRC-NCR Case No. 2517-84 entitled "Philippine
Association of Free Labor Unions (PAFLU-RMC Chapter) and its Members v. Riverside
Mills Corporation, et al.", Labor Arbiter Manuel Caday awarded separation pay, wage
and/or living allowance increases and 13th month pay to the individual complainants
who comprise some of the respondents in this case.
On March 18, 1985, Labor Arbiter Teodorico Dogelio likewise awarded separation pay,
vacation and sick leave pay and unpaid increases in the basic wage and allowances to
the other private respondents herein in NLRC Case No. NCR-7-2577-84 entitled
"Michael Penalosa, Jose Garcia and Apolinar Ray, et al., v. Riverside Mills Corporation,
et al., and Samahang Diwang Manggagawa sa RMC-FFW Chapter, et al., v. Riverside
Mills Corporation (RMC)." On March 29, 1985, after the judgment had become final and
executory, Dogelio issued a writ of execution directing NLRC Deputy Sheriff Juanita
Atienza to collect the total sum of Eighty Five Million Nine Hundred Sixty One thousand
Fifty-Eight & 70/100 Pesos (P85,961,058.70). The Deputy Sheriff, however, failed to
collect the amount so he levied upon personal and real properties of RMC.
On April 25, 1985, a notice of levy on execution of certain real properties was annotated
on the certificate of title filed with the Register of Deeds of Pasig, Metro Manila, where
all the said properties are situated.
Meanwhile in the other development which led to this case, petitioner DBP obtained a
writ of possession on June 7, 1985 from the Regional Trial Court (RTC) of Pasig of all
the properties of RMC after having extra-judicially foreclosed the same at public auction
earlier in 1983. DBP subsequently leased the said properties to Egret Trading and
Manufacturing Corporation, Rosario Textile Mills and General Textile Mills.
The writ of possession prevented the scheduled auction sale of the RMC properties
which were levied upon by the private respondents. As a result, on June 19, 1985, the
latter filed an incidental petition with the NLRC to declare their preference over the
levied properties. The petition entitled "PAFLU-RMC Chapter and its members, Michael
Penalosa, et al., and the Samahang Diwang Manggagawa sa RMC-FFW Chapter and
its members v. RMC and DBP, et al." was docketed as NLRC Case No. NCR-7-2577-
84. Petitioner DBP filed its position paper and memorandum in answer to the petition.
On October 31, 1985, Dogelio issued an order recognizing and declaring the
respondents' first preference as regards wages and other benefits due them over and
above all earlier encumbrances on the aforesaid properties/assets of said company,
particulary those being asserted by respondent Development Bank of the Philippines.'
(p. 84, Rollo)
The petitioner appealed the order of Dogelio to the NLRC. The latter in turn, set aside
the order and remanded the case to public respondent Labor Arbiter Santos for further
proceedings.
Meanwhile, another set of complainants (who are also named as respondents herein)
filed, on April 7, 1986, a complaint for separation pay, underpayment, damages, etc.,
entitled 'Jaime Arada, et al. v. RMC, DBP, Egret Trading and Manufacturing Corp.,
docketed as NLRC Case No. NCR-4-1278-86." This case was subsequently
consolidated with the case pending before respondent Santos. Accordingly, the latter
conducted several hearings where the parties, particulary DBP, General Textile Mills,
Inc., and Rosario Textile Mills, Inc., were given the opportunity to argue their respective
theories of the case. Eventually, all the parties agreed that the case shall be submitted
for decision after their filing of positions papers and/or memorandums.
On March 31, 1987, public respondent Santos rendered the questioned decision, the
dispositive portion of which reads:
WHEREFORE, it is hereby declared that all the complainants in the above- entitled
cases, as former employees of respondent Riverside Mills Corporation, enjoy first
preference as regards separation pay, unpaid wages and other benefits due them over
and above all earlier encumbrances on all of the assets/properties of RMC specifically
those being asserted by respondent DBP.
As a consequence of the above declaration, the decision dated March 18, 1983 of the
then Hon. Arbiter Teodorico Dogelio should be immediately enforced against DBP who
is hereby directed to pay all the monetary claims of complainants who were former
employees of respondent RMC.
Anent the Arada case, DBP is hereby directed to pay all the amounts as indicated
opposite the names of complainants listed from page I to page 5 of Annex "A" of
complainants' complaint provided that their names are not among those listed in the
Penalosa case.
It is hereby also declared that former employees whose names are not listed in the
complainants' position papers but can prove that they were former employees of RMC
prior to its bankruptcy, should also be paid the same monetary benefits being granted to
herein complainants.
Finally, DBP is hereby ordered to deposit with the National Labor Relations Commission
the proceeds of the sale of the assets of RMC between DBP on one hand and General
Textile Mills, Inc. and/ or Rosario Textile Mills, Inc., on the other hand and that future
payment being made by the latter to the former should be deposited with the National
Labor Relations Commission for proper disposition. (pp. 174-175, Rollo)
Hence, this petition.
Petitioner DBP maintains that the public respondent misinterpreted Article 110 of the
Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code in that the said respondent upheld the existence of the
worker's preference over and above earlier encumbrances on the properties of RMC
despite the absence of any bankruptcy or liquidation proceeding instituted against the
latter. The petitioner argues that there must be a judicial declaration, or at the very least,
a cognizance by an appropriate court or administrative agency of bankruptcy or inability
of the employer to meet its obligations.
On the other hand, the respondents contend that under both Article 110 and its
implementing rule, the claims of the laborers for unpaid wages and other monetary
benefits due them for services rendered prior to bankruptcy enjoy first preference in the
satisfaction of credits against a bankrupt company; that the word "bankruptcy" in the
Labor Code is used in its generic sense, meaning that condition of inability to pay one's
debt; and that Article 110 of the Labor Code is not confined to the situation
contemplated in Articles 2236-2245 of the Civil Code where all the preferred creditors
must necessarily be convened and the import of their claims ascertained.
We apply the rule expressed in Republic v. Peralta (150 SCRA 37 [1988] ), where we
stated:
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits, which provisions
find particular application in insolvency proceedings where the claims of all creditors,
prefer red or non-preferred, may be adjudicated in a binding manner. (Barreto v.
Villanueva, 1 SCRA 288 [ 1961] ). (pp. 44-45)
In the above quoted case, there was a voluntary insolvency proceeding instituted by the
employer. The respondents, however, contend that since in the case at bar there is only
an extra-judicial proceeding, Article 110 is still the only law applicable without regard to
the provisions of the Civil Code.
We do not agree with this contention.
Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules
and Regulations Implementing the Labor Code provide:
Article 110. Worker preference in case of bankruptcy in the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as regards
wages due them for services rendered during the period prior to the bankruptcy or
liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be
paid in full before other creditors may establish any claim to a share in the assets of the
employer.
Article 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the
employee before the declaration of bankruptcy or judicial liquidation of the employer's
business shall be given first preference and shall be paid in full before other creditors
may establish any claim to the assets of the employer.
It is quite clear from the provisions that a declaration of bankruptcy or a judicial
liquidation must be present before the worker's preference may be enforced. Thus,
Article 110 of the Labor Code and its implementing rule cannot be invoked by the
respondents in this case absent a formal declaration of bankruptcy or a liquidation
order. Following the rule in Republic v. Peralta, supra, to hold that Article 110 is also
applicable in extra-judicial proceedings would be putting the worker in a better position
than the State which could only assert its own prior preference in case of a judicial
proceeding. Therefore, as stated earlier, Article 110 must not be viewed in isolation and
must always be reckoned with the provisions of the Civil Code.
There was no issue of judicial vis-a-vis extra-judicial proceedings in the Republic v.
Peralta interpretation of Article 110 but the necessity of a judicial adjudication was
pointed out when we explained the impact of Article 110 on the concurrence and
preference of credits provided in the Civil Code.
We stated:
We come to the question of what impact Article 110 of the Labor Code has had upon
the complete scheme of classification, concurrence and preference of credits in
insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
Labor Code did not sweep away the overriding preference accorded under the scheme
of the Civil Code to tax claims of the government or any subdivision thereof which
constitute a lien upon properties of the Insolvent. ... It cannot be assumed simpliciter
that the legislative authority, by using Article 110 of the words 'first preference' and any
provisions of law to the contrary notwithstanding intended to disrupt the elaborate and
symmetrical structure set up in the Civil Code. Neither can it be assumed casually that
Article 110 intended to subsume the sovereign itself within the term 'other creditors', in
stating that 'unpaid wages shall be paid in full before other creditors may establish any
claim to a share in the assets of employer.' Insistent considerations of public policy
prevent us from giving to 'other creditors a linguistically unlimited scope that would
embrace the universe of creditors save only unpaid employees.
Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in
rem before the concurrence and preference of credits may be applied was explained by
this Court in the case of Philippine Savings Bank v. Lantin (124 SCRA 476 [1983] ). We
said:
The proceedings in the court below do not partake of the nature of the insolvency
proceedings or settlement of a decedent's estate. The action filed by Ramos was only to
collect the unpaid cost of the construction of the duplex apartment. It is far from being a
general liquidation of the estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in
rem which are binding against the whole world. All persons having interest in the subject
matter involved, whether they were notified or not, are equally bound. Consequently, a
liquidation of similar import or 'other equivalent general liquidation must also necessarily
be a proceeding in rem so that all interested persons whether known to the parties or
not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there were no known creditors
other than the plaintiff and the defendant herein', this can not be conclusive. It will not
bar other creditors in the event they show up and present their claim against the
petitioner bank, claiming that they also have preferred liens against the property
involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor of the
bank which is supposed to be indefeasible would remain constantly unstable and
questionable. Such could not have been the intention of Article 2243 of the Civil Code
although it considers claims and credits under Article 2242 as statutory liens. Neither
does the De Barreto case ... .
The claims of all creditors whether preferred or non-preferred, the identification of the
preferred ones and the totality of the employer's asset should be brought into the
picture, There can then be an authoritative, fair, and binding adjudication instead of the
piece meal settlement which would result from the questioned decision in this case.
We, therefore, hold that Labor Arbiter Ariel C. Santos committed grave abuse of
discretion in ruling that the private respondents may enforce their first preference in the
satisfaction of their claims over those of the petitioner in the absence of a declaration of
bankruptcy or judicial liquidation of RMC. There is, of course, nothing in this decision
which prevents the respondents from instituting involuntary insolvency or any other
appropriate proceeding against their employer RMC where respondents' claims can be
asserted with respect to their employer's assets.
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the public
respondent is ANNULLED and SET ASIDE. The Temporary Restraining Order we
issued on May 20, 1987 enjoining the enforcement of the questioned decision is made
PERMANENT. No costs.
SO ORDERED.
 THIRD DIVISION

[G.R. No. 79351. November 28, 1989.]

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v.

THE HON. SECRETARY OF LABOR, CRESENCIA
DIFONTORUM, ET AL., Respondents.

The Chief Legal Counsel for Petitioner.

Dante P. Sindac for Private Respondents.

SYLLABUS

1. LABOR CODE AND SOCIAL LEGISLATION; PAYMENT OF WAGES; WORKERS’

PREFERENTIAL RIGHT IS AVAILABLE ONLY DURING BANKRUPTCY OR JUDICIAL
LIQUIDATION. — Employees and workers are accorded preferential rights under Article
110 of the Labor Code only during bankruptcy or judicial liquidation proceedings against
the employer. The law is unequivocal and admits of no other construction.

2. ID.; ID.; ID.; RATIONALE. — A preference of credit arises only when there are
insufficient properties and assets to answer in full the debts owing to various creditors. It
lists solely the priority in which the creditors would be paid from the said properties of
the debtor inventoried and appraised during the bankruptcy, insolvency or liquidation
proceedings. Hence, if the debtor is amply able to pay all his creditors, there is no need
to determine who among his creditors have preferential right.

3. ID.; ID.; ID.; PROCEEDINGS ARE IN REM. — The creditor’s preferential right may
be established only in bankruptcy, insolvency and general judicial liquidation
proceedings which are in rem binding against the whole world where all persons having
any interest in the assets of the debtor are given the opportunity to establish their
respective credits.
4. ID.; ID.; ID.; ARTICLE 110 OF THE LABOR CODE ESTABLISHES NOT A LIEN BUT
A PREFERENCE OF CREDIT. — Article 110 of the Labor Code establishes not a lien
but a preference of credit in favor of employees where during bankruptcy, insolvency or
liquidation proceedings against the employer, the employees are given the priority in
having their claims proved therein satisfied.

5. ID.; ID.; ID.; A PREFERENCE OF CREDIT DOES NOT BIND A PARTICULAR

PROPERTY. — Unlike a lien, a preference of credit does not create in favor of the
preferred creditor a charge or proprietary interest upon any particular property of the
debtor. Neither does it vest as a matter of course upon the mere accrual of a money
claim against the debtor. Certainly, the debtor could very well sell, mortgage or pledge
his property, and convey good title thereon, to third parties free from such preference.

DECISION

CORTES, J.:

Petitioner Development Bank of the Philippines seeks the nullification of an order dated
July 29, 1987 and issued by the Undersecretary of Labor and Employment, affirming
that of National Capital Region Officer-in-Charge Romeo A. Young, directing the
petitioner to deliver the properties of Riverside Mills Corporation (RMC) which it had in
its possession to the Ministry (now Department) of Labor and Employment (MOLE) for
proper disposition in Case No. NCR-LSED-7-334-84 pursuant to Article 110 of the
Labor Code.

Labor Case No. NCR-LSED-7-334-84 involves a complaint for illegal dismissal, unfair
labor practice, illegal deductions from salaries and violation of the minimum wage law
filed by private respondents herein against RMC On July 3, 1985, a decision was
rendered by Director Severo M. Pucan of the National Capital Region, MOLE, ordering
RMC to pay private respondents backwages and separation benefits. A corresponding
writ of execution was issued on October 22, 1985 directing the sheriff to collect the
amount of ONE MILLION TWO HUNDRED FIFTY-SIX THOUSAND SIX HUNDRED
SEVENTY-EIGHT PESOS AND SEVENTY SIX CENTAVOS (P1,256,678.76) from
RMC and, in case of failure to collect, to execute the writ by selling the goods and
chattel of RMC not exempt from execution or, in case of insufficiency thereof, the real or
immovable properties of RMC.
However, on May 23, 1986, the writ of execution was returned unserved and
unsatisfied, with the information that the company premises of RMC had been
padlocked and foreclosed by petitioner. It appears that petitioner had instituted extra-
judicial foreclosure proceedings as early as 1983 on the properties and other assets of
RMC as a result of the latter’s failure to meet its obligations on the loans it secured from
petitioner.chanrobles.com : virtual law library

Consequently, private respondents filed with the MOLE a "Motion for Delivery of
Properties of the [RMC] in the Possession of the [DBP] to the [MOLE] for Proper
Disposition," stating that pursuant to Article 110 of the Labor Code, they enjoy first
preference over the mortgaged properties of RMC for the satisfaction of the judgment
rendered in their favor notwithstanding the foreclosure of the same by petitioner as
mortgage creditor [Rollo, pp. 16-17]. Petitioner filed its opposition.

In an order signed by Officer-in-Charge Romeo A. Young and dated December 11,

1986, private respondents’ motion was granted based on the finding that Article 110 of
the Labor Code and the ruling laid down in Philippine Commercial and Industrial Bank v.
Natural Mines and Allied Workers’ (NAMAWU-MIF) [G.R. No. 50402, August 19, 1982,
115 SCRA 873] support the conclusion that private respondents still enjoyed a
preferential lien for the payment of their backwages and separation benefits over the
properties of RMC which were foreclosed by petitioner [Rollo, pp. 21-22].

Petitioner then filed its motion for reconsideration on December 24, 1986 contending
that Article 110 of the Labor Code finds no application in the case at bar for the
following reasons: (1) The properties sought to be delivered have ceased to belong to
RMC in view of the fact that petitioner had foreclosed on the mortgage, and the
properties have been sold and delivered to third parties; (2) The requisite condition for
the application of Article 110 of the Labor Code is not present since no bankruptcy or
insolvency proceedings over RMC properties and assets have been undertaken [Rollo,
pp. 24-28]. In an order dated July 29, 1987, petitioner’s motion for reconsideration was
denied for lack of merit by Undersecretary Dionisio C. dela Serna.

Hence, petitioner filed this special civil action for certiorari with prayer for the issuance
of a writ of preliminary injunction. On August 27, 1987, this Court issued a temporary
restraining order enjoining public respondent from enforcing or carrying out its order
dated July 29, 1987. After considering the allegations made and issues raised in the
petition, comments thereto and reply, the Court, on March 14, 1988, resolved to give
due course to the petition and to require the parties to submit their respective
memoranda. Petitioner and private respondent submitted their memoranda, while public
respondent adopted as its memorandum the comment it had previously submitted.

After a careful study of the various arguments adduced, as well as the legal provisions
and jurisprudence on the matter, the Court finds the petition impressed with merit.
Indeed, the assailed Order suffers from infirmities which must be rectified by the grant of
a writ of certiorari in favor of petitioner.chanrobles law library : red

Firstly, public respondent acted with grave abuse of discretion amounting to lack or
excess of jurisdiction in enforcing private respondents’ right of first preference under
Article 110 of the Labor Code notwithstanding the absence of bankruptcy, liquidation or
insolvency proceedings against RMC.

Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Omnibus Rules
Implementing the Labor Code provide the following:chanrob1es virtual 1aw library

Article 110. WORKER PREFERENCE IN CASE OF BANKRUPTCY. — In the event of

bankruptcy or liquidation of an employer’s business, his workers shall enjoy first
preference as regards wages due them for services rendered during the period prior to
the bankruptcy or liquidation, any provision of law to the contrary notwithstanding.
Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer [Emphasis supplied].

Section 10. PAYMENT OF WAGES IN CASE OF BANKRUPTCY. — Unpaid wages

earned by the employees before the declaration of bankruptcy or judicial liquidation of
the employer’s business shall be given first preference and shall be paid in full before
other creditors may establish any claim to a share in the assets of the employer.

It is clear from the wording of the law that the preferential right accorded to employees
and workers under Article 110 may be invoked only during bankruptcy or judicial
liquidation proceedings against the employer. The law is unequivocal and admits of no
other construction.

Respondents contend that the terms "bankruptcy" or "liquidation" are broad enough to
cover a situation where there is a cessation of the operation of the employer’s business
as in the case at bar. However, this very same contention was struck down as
unmeritorious in the case of Development Bank of the Philippines v. Hon. Labor Arbiter
Ariel C. Santos [G.R. Nos. 78261-62, March 8, 1989] involving a group of RMC
employees which sought to enforce its preference of credit Article 110 against DBP over
certain RMC real properties. In that case, the Court laid down the ruling that Article 110
of the Labor Code, which cannot be viewed in isolation of, and must always be
reckoned with the provisions of the Civil Code on concurrence and preference of
credits, may not be invoked by employees or workers of RMC, like private respondents
herein, in the absence of a formal declaration of bankruptcy or a judicial liquidation
order of RMC.

The rationale for making the application of Article 110 of the Labor Code contingent
upon the institution of bankruptcy or judicial liquidation proceedings against the
employer is premised upon the very nature of a preferential right of credit. A preference
of credit bestows upon the preferred creditor an advantage of having his credit satisfied
first ahead of other claims which may be established against the debtor. Logically, it
becomes material only when the properties and assets of the debtor are insufficient to
pay his debts in full; for if the debtor is amply able to pay his various creditors in full,
how can the necessity exist to determine which of his creditors shall be paid first or
whether they shall be paid out of the proceeds of the sale of the debtor’s specific
property? Indubitably, the preferential right of credit attains significance only after the
properties of the debtor have been inventoried and liquidated, and the claims held by
his various creditors have been established [Kuenzle & Streiff (Ltd.) v. Villanueva, 41
Phil. 611 (1916); Barretto v. Villanueva, G.R. No. L-14938, December 29, 1962, 6
SCRA 928; Philippine Savings Bank v. Lantin, G.R. No. L-33929, September 2, 1983,
124 SCRA 476].chanrobles virtual lawlibrary

In this jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings

provide the only proper venue for the enforcement of a creditor’s preferential right such
as that established in Article 110 of the Labor Code, for these are in rem proceedings
binding against the whole world where all persons having any interest in the assets of
the debtor are given the opportunity to establish their respective credits [Philippine
Savings Bank v. Lantin, supra; Development Bank of the Philippines v. Santos supra].

Secondly, public respondent’s Order directing petitioner to deliver to the MOLE the
properties it had foreclosed from RMC for the purpose of executing the judgment
rendered against RMC in Case No. NCR-LSED 7-334-84 violates the basic rule that the
power of a court or tribunal in the execution of its judgment extends only over properties
unquestionably belonging to the judgment debtor [Special Services Corporation v.
Centro La Paz, G.R. No. L-44100, April 28, 1983, 121 SCRA 748; National Mines and
Allied Workers’ Union v. Vera, G.R. No. L-44230, November 19, 1984, 133 SCRA 295].

It appears on record, and remains undisputed by respondents, that petitioner had extra-
judicially foreclosed the subject properties from RMC as early as 1983 and purchased
the same at public auction, and that RMC had failed to exercise its right to redeem.
Thus, when Officer-in-Charge Young issued on December 11, 1986 the order which
directed the delivery of these properties to the MOLE, RMC had ceased to be the
absolute owner thereof [See Dizon v. Gaborra, G.R. No. L-36821, June 22, 1978, 83
SCRA 688]. Consequently, the order was directed against properties which no longer
belonged to the judgment debtor RMC.

However, Respondents, in citing the case of PCIB v. NAMAWU-MIF [supra], argue that
by virtue of Article 110 of the Labor Code, an "automatic first lien" was created in favor
of private respondents on RMC properties — a "lien" which pre-dated the foreclosure of
the subject properties by petitioner, and remained vested on these properties even after
its sale to petitioner and other parties.
There is no merit to this contention. It proceeds from a misconception which must be
corrected.chanrobles lawlibrary : rednad

What Article 110 of the Labor Code establishes is not a lien, but a preference of credit in
favor of employees [See Republic v. Peralta, G.R. No. 56668, May 20, 1987, 150 SCRA
37]. This simply means that during bankruptcy, insolvency or liquidation proceedings
involving the existing properties of the employer, the employees have the advantage of
having their unpaid wages satisfied ahead of certain claims which may be proved
therein.

It bears repeating that a preference of credit points out solely the order in which
creditors would be paid from the properties of a debtor inventoried and appraised during
bankruptcy, insolvency or liquidation proceedings. Moreover, a preference does not
exist in any effective way prior to, and apart from, the institution of these proceedings,
for it is only then that the legal provisions on concurrence and preference of credits
begin to apply. Unlike a lien, a preference of credit does not create in favor of the
preferred creditor a charge or proprietary interest upon any particular property of the
debtor. Neither does it vest as a matter of course upon the mere accrual of a money
claim against the debtor. Certainly, the debtor could very well sell, mortgage or pledge
his property, and convey good title thereon, to third parties free from such preference
[Kuenzle & Streiff v. Villanueva, supra].

Incidentally, the Court is not unmindful of the 1989 amendments to the article introduced
by Section 1, R.A. No. 6715 [March 21, 1989]. Article 110 of the Labor Code as
amended reads:cralawnad

WORKER PREFERENCE IN CASE OF BANKRUPTCY. — In the event of bankruptcy

or liquidation of an employer’s business, his workers shall enjoy first preference as
regards their unpaid wages and other monetary claims, any provision of law to the
contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full
before the claims of the Government and other creditors may be paid. [Amendments
indicated.].

However, these amendments only relate to the scheme of concurrence and preference
of credits; they do not affect the issues heretofore discussed regarding the applicability
of Article 110 to the attendant facts.

WHEREFORE, considering the foregoing, the present petition is hereby GRANTED.

The assailed order dated July 29, 1987 is SET ASIDE and the temporary restraining
order issued by the Court on August 27, 1987 is made PERMANENT.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. 82763-64 March 19, 1990
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR
ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE
FOR NATIONAL DEVELOPMENT, respondents.
The Legal Counsel for petitioner.
Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi for APT.
Pablo B. Castillon for respondent LAND.

MELENCIO-HERRERA, J.:
This Petition for Certiorari addresses itself to the 12 February 1986 Order of the
National Labor Relations Commission directing petitioner Development Bank of the
Philippines (DBP) to remit the sum of P6,292,380.00 "out of proceeds of the foreclosed
properties of Lirag Textile Mills Inc., sold at public auction in order to satisfy the
judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82.
The background facts of these two cases may be summarized as follows:
The complainants in the two cases filed below were former employees of Lirag Textile
Mills, Inc. (LIRAG, for short). LIRAG was a mortgage debtor of DBP. Private respondent
Labor Alliance for National Development (LAND, for brevity) was the bargaining
representative of the more or less 800 former rank and file employees of LIRAG.
Around September 1981, LIRAG started terminating the services of its employees on
the ground of retrenchment. By December of the said year there were already 180
regular employees separated from the service. LIRAG has since ceased operations
presumably due to financial reverses.
In February 1982, Joselito Albay, one of the employees dismissed in September 1981,
filed a complaint before the National Labor Relations Commission (NLRC) against
LIRAG for illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of
180 dismissed members, also filed a Complaint against LIRAG seeking separation pay,
13th month pay, gratuity pay, sick leave and vacation leave pay and emergency
allowance (Case No. 3-2581-82). These two cases were consolidated and jointly heard
by the NLRC. Said complainants have since been joined by supervisors and managers.
In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to
pay the individual complainants. The NLRC (Third Division) affirmed the same on 28
March 1982. That judgment became final and executory.
On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially
foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage obligation.
As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties for
P31,346,462.90. Since DBP was the sole mortgagee, no actual payment was made, the
amount of the bid having been merely credited in partial satisfaction of LIRAG's
indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of the complainants
remained unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was
then entered.
On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment" of
the proceeds of the foreclosure sale.
On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L. Sevilla ordered the
DBP impleaded "in the interest of justice and due process," and required it to intervene.
On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the
Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00
out of the proceeds of the foreclosed properties of LIRAG sold at public auction in order
to satisfy the judgment previously rendered.
DBP sought reconsideration of the above Order on the grounds of NLRC's lack of
jurisdiction over it since it was not a party to the case, and that it was deprived of its
property without due process of law. Public respondent, Labor Arbiter Isabel P.
Ortiguerra denied reconsideration on 25 May 1987. DBP appealed that denial to the
NLRC.
In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the
Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of
LIRAG. On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a
party-petitioner and gave it time within which to file its pleading. It submitted a
Memorandum on 22 November 1989.
It appears that on 21 December 1987, a partial Compromise Agreement was entered
into between APT and LAND (Litex Chapter) whereby APT paid the complainants-
employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past
and present, with respect to all assets of LITEX transferred by DBP to APT." That
amount was received by LAND's local President. Apparently, however, on 25 January
1988, LAND, through its national President, filed its opposition to the Compromise
Agreement for being contrary to law, morals and public policy.
On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and
dismissed the DBP appeal.
DBP is now before us seeking a review and reversal. On 30 January 1989, the Court
resolved to give due course to the petition and to require the parties to submit
simultaneous memoranda. On 1 February 1990, the Court's Second Division referred
the case to the Court en banc, which the latter accepted on the same date.
It is true that DBP was not an original party and that it was ordered impleaded only after
the Writs of Execution were not satisfied because the properties levied upon on
execution had been foreclosed extrajudicially by it. DBP had to be impleaded, however,
for the proper satisfaction of a final judgment. Being an incident in the execution of the
final judgment award, NLRC retained jurisdiction and control over the case and could
issue such orders as were necessary for the implementation of that award. Its inclusion
as a party could not have been accomplished at the earlier stages of the proceedings
because at the time of the filing of the Complaint, private respondents' cause of action
was only against LIRAG.
DBP cannot rightfully contend that it was deprived of due process. It was given the
opportunity to be heard and to present its evidence. It had actually filed its Opposition to
the Motion for Execution and Garnishment filed by LAND on 7 January 1985, and the
Order granting the Motion was issued only after hearing. DBP had also addressed an
appeal to the NLRC. It had submitted, therefore, to the jurisdiction of the NLRC.
Now, for the core issue — whether or not the NLRC gravely abused its discretion in
affirming the Order of the Labor Arbiter granting the Writ of Garnishment out of the
proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in these
cases.
We are constrained to rule in the affirmative.
Article 110 of the Labor Code provides:
Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as regards
wages due them for services rendered during the period prior to the bankruptcy or
liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in
full before other creditors may establish any claim to a share in the assets of the
employer.
In implementation of the foregoing, Section 10, Rule VIII, Book III of the Revised Rules
and Regulations Implementing the Labor Code, as amended, provides:
Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the
employees before the declaration of bankruptcy or judicial liquidation of the employer's
business shall be given first preference and shall be paid in full before other creditors
may establish any claim to a share in the assets of the employer. (Emphasis supplied).
In interpreting the foregoing provisions, the Court, in Development Bank of the
Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989), categorically stated:
It is quite clear from the provision that a declaration of bankruptcy or a judicial
liquidation must be present before the workers preference may be enforced. Thus,
Article 110 of the Labor Code and its implementing rule cannot be invoked by the
respondents in this case absent a formal declaration of bankruptcy or a liquidation
order. . . .
Since then, however, Article 110 has been amended by Republic Act No. 6715 and now
reads as follows:
Sec. 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as
the Labor Code of the Philippines, is hereby further amended to read as follows:
Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or
liquidation of an employer's business, his workers shall enjoy first preference as regards
their unpaid wages and other monetary claims, any provision of law to the contrary
notwithstanding. Such unpaid wages and monetary claims shall be paid in full before
the claims of the Government and other creditors may be paid. (Amendments
emphasized).
The amendment expands worker preference to cover not only unpaid wages but also
other monetary claims to which even claims of the Government must be deemed
subordinate.
Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code has
also been amended by Section 1 of the Rules and Regulations Implementing RA 6715
as approved by the then Secretary of Labor and Employment on 24 May 1989, and now
provides:
Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In
case of bankruptcy or liquidation of the employer's business, the unpaid wages and
other monetary claims of the employees shall be given first preference and shall be paid
in full before the claims of government and other creditors may be paid.
Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been
eliminated. Does this mean then that liquidation proceedings have been done away
with?
We opine in the negative, upon the following considerations:
1. Because of its impact on the entire system of credit, Article 110 of the Labor Code
cannot be viewed in isolation but must be read in relation to the Civil Code scheme on
classification and preference of credits.
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in
isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code
concerning the classification, concurrence and preference of credits, which provisions
find particular application in insolvency proceedings where the claims of all creditors,
preferred or non-preferred, may be adjudicated in a binding manner. . . . Republic
vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37).
2. In the same way that the Civil Code provisions on classification of credits and the
Insolvency Law have been brought into harmony, so also must the kindred provisions of
the Labor Law be made to harmonize with those laws.
3. In the event of insolvency, a principal objective should be to effect an equitable
distribution of the insolvent's property among his creditors. To accomplish this there
must first be some proceeding where notice to all of the insolvents's creditors may be
given and where the claims of preferred creditors may be bindingly adjudicated (De
Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale
therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R.
No. 79351, 28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage of having his
credit satisfied first ahead of other claims which may be established against the debtor.
Logically, it becomes material only when the properties and assets of the debtors are
insufficient to pay his debts in full; for if the debtor is amply able to pay his various
creditors in full, how can the necessity exist to determine which of his creditors shall be
paid first or whether they shall be paid out of the proceeds of the sale the debtor's
specific property? Indubitably, the preferential right of credit attains significance only
after the properties of the debtor have been inventoried and liquidated, and the claims
held by his various creditors have been established (Kuenzle & Streiff (Ltd.) vs.
Villanueva, 41 Phil 611 (1916); Barretto vs. Villanueva, G.R. No. 14938, 29 December
1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983,
124 SCRA 476).
4. A distinction should be made between a preference of credit and a lien. A preference
applies only to claims which do not attach to specific properties. A lien creates a charge
on a particular property. The right of first preference as regards unpaid wages
recognized by Article 110 does not constitute a lien on the property of the insolvent
debtor in favor of workers. It is but a preference of credit in their favor, a preference in
application. It is a method adopted to determine and specify the order in which credits
should be paid in the final distribution of the proceeds of the insolvent's assets. It is a
right to a first preference in the discharge of the funds of the judgment debtor.
In the words of Republic vs. Peralta, supra:
Article 110 of the Labor Code does not purport to create a lien in favor of workers or
employees for unpaid wages either upon all of the properties or upon any particular
property owned by their employer. Claims for unpaid wages do not therefore fall at all
within the category of specially preferred claims established under Articles 2241 and
2242 of the Civil Code, except to the extent that such complaints for unpaid wages are
already covered by Article 2241, number 6: "claims for laborers wages, on the goods
manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and
other workers engaged in the construction, reconstruction or repair of buildings, canals
and other works, upon said buildings, canals and other works, upon said buildings,
canals and other works." To the extent that claims for unpaid wages fall outside the
scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit
of the category of ordinary preferred credits under Article 2244.
5. The DBP anchors its claim on a mortgage credit. A mortgage directly and
immediately subjects the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it was constituted (Article
2176, Civil Code). It creates a real right which is enforceable against the whole world. It
is a lien on an identified immovable property, which a preference is not. A recorded
mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on
classification of credits. The preference given by Article 110, when not falling within
Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific
property, is an ordinary preferred credit although its impact is to move it from second
priority to first priority in the order of preference established by Article 2244 of the Civil
Code (Republic vs. Peralta, supra).
In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or lien of
any kind as security is not permitted to vote in the election of the assignee in insolvency
proceedings unless the value of his security is first fixed or he surrenders all such
property to the receiver of the insolvent's estate.
6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to
mean "absolute preference," the same should be given only prospective effect in line
with the cardinal rule that laws shall have no retroactive effect, unless the contrary is
provided (Article 4, Civil Code). Thereby, any infringement on the constitutional
guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987
Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by
several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect
would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought
to protect itself against by requiring a collateral in the form of real property.
In fine, the right to preference given to workers under Article 110 of the Labor Code
cannot exist in any effective way prior to the time of its presentation in distribution
proceedings. It will find application when, in proceedings such as insolvency, such
unpaid wages shall be paid in full before the "claims of the Government and other
creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors
must be convened, their claims ascertained and inventoried, and thereafter the
preferences determined in the course of judicial proceedings which have for their object
the subjection of the property of the debtor to the payment of his debts or other lawful
obligations. Thereby, an orderly determination of preference of creditors' claims is
assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124
SCRA 476); the adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification,
concurrence and preference of credits in the Civil Code, the Insolvency Law, and the
Labor Code is preserved in harmony.
WHEREFORE, Certiorari is GRANTED, and the assailed Decision of public respondent,
the National Labor Relations Commission (NLRC), dated 25 March 1988, is hereby SET
ASIDE.
The Development Bank of the Philippines, the Asset Privatization Trust, the Labor
Alliance for National Development (LAND), and other creditors who may be so minded,
are hereby directed, within sixty (60) days from notice, to institute involuntary insolvency
proceedings before the proper Court where all the assets of Lirag Textile Mills, Inc., may
be inventoried, the preferences of all its creditors determined, and their claims
discharged in a binding and conclusive manner. No costs.
SO ORDERED.