The Lion-Tiger Mosquito Killer Case: EXCULPATING THE EMPLOYER FROM A CHARGE OF NON-COMPLIANCE WITH AN ECONOMIC PROVISION OF THE COLLECTIVE BARGAINING AGREEMENT

Francis V. Sobreviñas*

More than two (2) decades ago, our Supreme Court applied a civil law concept in resolving a labor dispute, holding that the Civil Code has always recognized, and continues to recognize, the validity and propriety of contracts and obligations with a fixed or definite period, and imposes no restraints on the freedom of the parties to fix the duration of a contract, whatever its object, be it species, goods or services, except the general admonition against stipulations contrary to law, morals, good customs, public order or public policy. Just four (4) months ago, the same tribunal employed a similar approach when, in another labor litigation, it laid down certain guidelines to determine the employer’s obligation to grant certain benefits. It declared that when the obligation is not sourced from law but from an existing collective bargaining agreement (CBA) between the employer and its employees, an examination of the latter’s provisions becomes necessary in order to ascertain the governing parameters for the said obligation. Consequently, the highest court of the land ruled that the employer is bound to grant its employees separation pay by reason of closure and cessation of business operations albeit Article 297 of the Labor Code exempts employers from granting the same on the ground of serious business losses.

This essay will examine the very recent case of Benson Industries Employees Union – ALU-TUCP, et al. v. Benson Industries, Inc., which is a petition for review on certiorari challenging the decision of the Court of Appeals (CA), that reversed and set aside the decision of the Voluntary Arbitrator and accordingly deleted the award to the petitioners of additional separation pay equivalent to four (4) days of work for every year of service. The facts are as follows: Respondent Benson Industries, Inc. (“respondent Benson”), manufacturer of green coils popularly known as “Lion-Tiger Mosquito Killer,” sent its employees, including individual petitioners, a notice informing them of their intended termination from employment to be effected on March 15, 2008 on the ground of closure and/or cessation of business operations. The petitioner union retaliated by filing a notice of strike with the regional office of the National Conciliation and Mediation Board (NCMB) in Cebu City, claiming that the respondent’s supposed closure was merely a ploy to replace the union members with lower paid workers and, as a result, increase its profit at their expense. Fortunately, the parties reached an amicable settlement pursuant to which petitioners accepted respondent’s payment of separation pay, computed at 15 days for every year of service.

Later on, petitioners demanded payment of additional separation pay at the rate of four (4) days for every year of service on the basis of the CBA stating that respondent shall pay to any employee who is terminated from the service “without any fault attributable to him, a ‘separation pay’ equivalent to not less than … 19 days for every year of service based upon the latest rate of pay of the employee/laborer concerned.” Respondent denied the claim, asserting that the separation pay extended to them was already more than what the law requires. Unable to resolve the matter, the parties proceeded to voluntary arbitration, wherein the validity of respondent’s closure was likewise an arbitrable issue.

In his decision, the Arbitrator ruled in favor of the petitioners and ordered respondent to pay each of them separation benefits “in an amount equivalent to four (4) days for every year of service based on the latest rate of pay of the (individual petitioner) concerned subject to whatever legally valid deductions chargeable against (said individual petitioner) whenever applicable.”

The Arbitrator reasoned that in computing the amount of separation benefits due to petitioners, the basis should be the provision of the existing CBA between the Company and the Union which explicitly states that if the employees are terminated through no fault of their own, they should be awarded separation benefits at the rate of 19 days for every year of service. Arbitrator Legaspi also resolved that the provision of the CBA should be given effect because it expresses the latest agreement of the Union and the Company, not to mention the fact that it gives more benefits to the employees. Significantly, while the Arbitrator did find adequate proof to support respondent’s position that it was indeed in a state of insolvency, thereby justifying its closure and/or cessation of business operations on the ground of serious business losses and/or financial reverses, he still decreed payment of the four (4) extra days. Hence, respondent elevated the case to the CA.

Reversing the Arbitrator’s ruling and deleting the award of additional separation benefits equivalent to four (4) days of work for every year of service, the CA held that despite the express provision of the CBA stating that respondent should pay its employees who were terminated without their fault separation benefits equivalent to at least 19 days pay for every year of service, respondent cannot be compelled to do so considering its current financial status.

Dissatisfied, petitioners went up to the Supreme Court following denial of their Motion for Reconsideration.

The Supreme Court found for the employees, holding that “[t]he petition is impressed with merit.” While acknowledging that a complete cessation of business operations and/or an actual locking-up of the doors of the establishment due to serious financial losses is an authorized cause for termination, aimed at preventing further financial drain upon an employer who cannot any more pay its employees since business has already stopped, the high tribunal proceeded to explain that when the obligation to pay separation benefits is not sourced from law (in this case, Article 297 of the Labor Code) but from contract, namely, the parties’ CBA, an examination of the provision of said document becomes necessary in order to determine the governing parameters for the obligation.

Thus, the Supreme Court reiterated the rule that an employer who closes shop due to serious business losses is exempt from paying separation benefits under Article 297 for the reason that the said provision explicitly requires the performance of said duty only when the closure is not due to serious business losses. Upon the other hand, the obligation subsists when the closure is not due to serious business losses. Therefore, when the parties agree to deviate from the legal provision and “unqualifiedly covenant” the payment of separation benefits irrespective of the employer’s financial position, then the obligatory force of the CBA prevails and the terms should be given full effect.

It is appropriate, at this juncture, to recall the Court’s constant references to the law and contracts as among the five (5) sources of obligations enumerated in Article 1157 of our Civil Code. It is likewise helpful that the Court applied Article 1158 of the same Code, stating that law is an independent source of obligations. Furthermore, it is enlightening that the Court in Benson applied the principle of autonomy of will as expressed in Article 1159 that “[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.” The terms of the contract should, therefore, not be contrary to law, morals, good customs, public policy or public order. If the contract does not violate any of these limitations, it should be given effect, notwithstanding the absence of any legal provision at the time it was entered into which governs it.

Hence, we find illuminating the following pronouncement in Benson:

“When the obligation to pay separation benefits, however, is not sourced from law (particularly, Article 297 of the Labor Code), but from contract, such as an existing collective bargaining agreement between the employer and its employees, an examination of the latter’s provisions becomes necessary in order to determine the governing parameters for the said obligation. To reiterate, an employer which closes shop due to serious business losses is exempt from paying separation benefits under Article 297 of the Labor Code for the reason that the said provision explicitly requires the same only when the closure is not due to serious business losses; conversely, the obligation is maintained when the employer’s closure is not due to serious business losses. For a similar exemption to obtain against a contract, such as a CBA, the tenor of the parties’ agreement ought to be similar to the law’s tenor. When the parties, however, agree to deviate therefrom, and unqualifiedly covenant the payment of separation benefits irrespective of the employer’s financial position, then the obligatory force of that contract prevails and its terms should be carried out to its full effect. Verily, it is fundamental that obligations arising from contracts have the force of law between the contracting parties and thus should be complied with in good faith, and parties are bound by the stipulations, clauses, terms and conditions they have agreed to, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. Hence, if the terms of a CBA are clear and there is no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.”

The Court thereafter cited Honda Philippines, Inc. v. Samahan ng Malayang Manggagawa sa Honda where it was held that as in all contracts, the parties in a CBA may establish such stipulations, clauses, terms and conditions as they may deem convenient provided these are not contrary to law, morals, good customs, public order or public policy. Thus, where the CBA is clear and unambiguous, it becomes the law between the parties and compliance therewith is mandated by the express policy of the law. Of late, in Wesleyan University-Philippines v. Wesleyan University Philippines Faculty and Staff Association, the Court reiterated that a CBA is a contract entered into by an employer and a legitimate labor organization concerning the terms and conditions of employment and like any other contract, it has the force of law between the parties and, thus, should be complied with in good faith. Unilateral changes or suspensions in the implementation of the provisions of the CBA, therefore, cannot be allowed without the consent of both parties.

In Benson, the Court took particular note of the fact that the respondent had been fully aware of its distressed financial condition even at the time of the previous CBA (effective from July 1, 2000 to June 30, 2005), and that the latter was already saddled with very heavy financial obligations as early as 1997, and yet “it still unqualifiedly and freely agreed to the separation pay provision in the July 1, 2005 to June 30, 2010 CBA, its distressed financial condition notwithstanding.”

Contesting the CA’s finding, the Supreme Court earnestly expostulated:

“Thus, in view of the foregoing, the Court disagrees with the CA in negating Benson’s obligation to pay petitioners their full separation benefits under the said agreement. The postulation that Benson had closed its establishment and ceased operations due to serious business losses cannot be accepted as an excuse to clear itself of any liability since the ground of serious business losses is not, unlike Article 297 of the Labor Code, considered as an exculpatory parameter under the aforementioned CBA. Clearly, Benson, with full knowledge of its financial situation, freely and voluntarily entered into such agreement with petitioners. Hence, having failed to show that the subject CBA provision on separation benefits is contrary to law, morals, public order or public policy, or that the same can be interpreted as one with a condition – for instance, that the parties actually contemplated non-payment of separation benefits in the event of closure due to serious business losses – the Court is constrained to reinstate the October 24, 2008 VA Decision ordering Benson to pay each of the petitioners separation benefits in “an amount equivalent to four (4) days for every year of service based on the latest rate of pay of the [individual petitioner] concerned, subject to whatever legally valid deductions chargeable against [said individual petitioner], whenever applicable.”

Significantly, the CA applied the ruling in North Davao Mining Corp v. National Labor Relations Commission to support reversal of the Arbitrator’s decision. In that case, a corporation had to close in 1992 because in the preceding five (5) years it had been incurring “mind-boggling” losses averaging three billion (P3,000,000,000.00) pesos per year. As of December 31, 1991 (five months before it closed), its total liabilities had exceeded its assets by over P20,000,000,000.00. Rejecting the demand for payment of separation pay “for obvious reasons,” the Court critically concluded that “Article 283 of the Labor Code does not obligate an employer to pay separation benefits when the closure is due to losses.” In the Court’s own words:

“In the instant case however, the company’s practice of giving one month’s pay for every year of service could no longer be continued precisely because the company could not afford it anymore. It was forced to close down on account of accumulated losses of over P20 billion. This could not be said of BISSI. In the case of North Davao, it gave 30-days’ separation pay to its employees when it was still a going concern even if it was already losing heavily. As a going concern, its cash flow could still have sustained the payment of such separation benefits. But when a business enterprise completely ceases operations, i.e., upon its death as a going business concern, its vital lifeblood – its cashflow – literally dries up. Therefore, the fact that less separation benefits were granted when the company finally met its business death cannot be characterized as discrimination. Such action was dictated not by a discriminatory management option but by its complete inability to continue its business life due to accumulated losses. Indeed, one cannot squeeze blood out of a dry stone. Nor water out of parched land.”

With the above ruling, a noted commentator expressed the view that any remaining doubt or confusion on entitlement to separation benefits has been dispelled by the en banc decision in North Davao.

But, as already seen, the Supreme Court disagreed, saying that North Davao and the other decisions invoked by the CA were inapplicable, to wit:

“To quell any doubts, it bears pointing out that the CA’s reliance on Galaxie Steel Workers Union (GSWU-NAFLU-KMU) v. NLRC and Cama v. Joni’s Food Services, Inc. was actually misplaced since no CBA was involved in those cases. As such, consistent with the parameters of Article 297 of the Labor Code as above-discussed, the payment of separation benefits in view of the employer’s serious business losses in those cases was not in order. In the same light, North Davao Mining Corporation v. NLRC was speciously applied by the CA given that the payment of separation benefits in that case was not sourced from a contractual CBA obligation but merely from a unilateral company practice which was deemed as an act of generosity on the part of the employer. It was in this context that the Court held that ‘to require [the company] to continue being generous when it is no longer in a position to do so would certainly be unduly oppressive, unfair and most revolting to the conscience.’ The factual dissimilarity of these cases to Benson and petitioners’ situation therefore precludes the application of the same ruling.”

In other words, the Court found specious the application of the decisions in Galaxie Steel Workers Union (GSWU-NAFLU-KM) v. NLRC and Cama v. Joni’s Food Services, Inc. in that they were superficially plausible but actually wrong, there being no CBA involved at all in those cases. What is squarely in point, the Supreme Court expressly emphasized, are the cases of Lepanto Ceramics, Inc. v. Lepanto Ceramics Employees Association and Eastern Telecommunications Philippines, Inc. v. Eastern Telecoms Employees Union. In Lepanto, the employer was held liable for the payment of Christmas bonus benefits, considering that the grant thereof was voluntarily and unqualifiedly agreed upon by the parties under the CBA despite the employer’s full awareness of its distressed financial position. In like manner, the employer in Eastern was well aware of its deteriorating financial condition when it entered into the 2001-2004 CBA Side Agreement with the Union and obliged itself to pay bonuses to the union members. Since the employer had been continuously suffering huge loses from 2000 to 2002, its business losses in 2003 were not exactly unforeseen or unexpected. Consequently, it could not be said that the difficulty in complying with its obligation under the Side Agreement was “manifestly beyond the contemplation of the parties.” As in Benson, the Court concluded that because an obligation arising from a CBA is binding between the contracting parties, having the force of law and to be complied with in good faith, the employer in Eastern cannot back out from the obligation it had freely assumed when it signed the 2001-2004 CBA Side Agreement.

And so, therefore, we can make the following conclusions: first, the pertinent provisions of the Civil Code still predominate and will continue to predominate the contractual relationship of the parties in a CBA. This is evident from the Supreme Court’s unmistakable affirmation that when the obligation under the agreement is not sourced from law but from an existing CBA between the employer and the employees, there is need to scrutinize the provisions so that we can determine the governing parameters for the said obligation; secondly, the Court has been following precedents – an act that undeniably promotes judicial stability which, in turn, brings about predictability and rationality of decisions.

Posted on Jun 1, 2015 in News Updates | 0 comments