Dissension in the Court: August 2010

The following are selected decisions promulgated by the High Court in August 2010 where at least one Justice felt compelled to express his or her dissent from the decision penned by the ponente.

1.         [Union] Shop Talk (Leonardo-De Castro vs. Brion and Carpio)

Apart from the wide-spread paranoia about a possible Y2K global computer cataclysm, one other significant development occurring around the start of the twenty-first century was the merger of two giant banking institutions—Far East Bank and Trust Company (FEBTC) and Bank of the Philippine Islands (BPI)—with BPI being the surviving entity.  One of several legal issues spawned by that merger was the subject matter of Republic of the Philippines vs. Bank of the Philippine Islands penned by Justice Teresita J. Leonardo-De Castro.

At the time of the merger, the BPI Employees Union-Davao Chapter (the “Union”) constituted the exclusive bargaining agent of BPI’s rank and file employees in Davao City.  Their existing collective bargaining agreement (CBA) with BPI included a “Union Shop” clause which read as follows:

Article II:

x     x     x

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

Once the FEBTC-BPI merger took effect, the Union required BPI to implement the Union Shop Clause and compel the former FEBTC employees to join the Union.  BPI took the position that the former FEBTC employees were not covered by the Union Security Clause on the ground that the former FEBTC employees were not new employees who were hired and subsequently regularized, but were absorbed employees “by operation of law” because the “former employees of FEBTC can be considered assets and liabilities of the absorbed corporation.”

While the Voluntary Arbitrator sided with BPI, the Court of Appeals reversed the Voluntary Arbitrator’s decision.  The Court of Appeals held that while there is indeed a distinction between “absorbed” employees and “new” employees, such distinction applied only with respect to recognition of the past service of the “absorbed” employees with their former employer, FEBTC.  However, for purposes of applying the Union Shop Clause, they should be deemed to be “new” employees as otherwise, inequities would arise.

Justice Leonardo-De Castro upheld the position of the Court of Appeals that the Union Shop Clause should be made applicable to the former FEBTC employees that were now BPI employees.  The ponente reminded the litigants of the principles behind, and the validity of, union security clause (of which a union shop clause is one) and likewise pointed out that there is nothing in the CBA that speaks about how one becomes a “regular” BPI employee for purposes of the Union Shop Clause.

Moreover, Justice Leonardo-De Castro added, there is nothing in the Corporation Law and the merger agreement mandating the automatic employment of the employees of the absorbed corporation as regular employees by the surviving corporation in the merger.  Contrary to the assertion of BPI, the former employees of FEBTC are not “assets and liabilities” of FEBTC which are required to be absorbed by BPI by operation of law and it is against public policy to declare the former FEBTC employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI in the Articles of Merger.  In fact, noted Justice Leonardo-De Castro, the Corporation Code does not also mandate the absorption of the employees of the non-surviving corporation by the surviving corporation in the case of a merger.

Unlike chattel, employees may not be unilaterally transferred as employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without the consent of the employee is in violation of an individual’s freedom to contract.

Reiterating that it an inequity would arise if the former FEBTC employees were not made subject of the Union Shop Clause (there being nothing in the Labor Code and other applicable laws or the CBA provision at issue that requires that a new employee has to be of probationary or non-regular status at the beginning of the employment relationship.), the ponente stresses that a union security clause in a CBA should be interpreted to give meaning and effect to its purpose, which is to afford protection to the certified bargaining agent and ensure that the employer is dealing with a union that represents the interests of the legally mandated percentage of the members of the bargaining unit.

In his dissent, among other things, Justice Antonio T. Carpio took exception to the majority decision’s ruling regarding the effect of a merger with respect to the absorption by the surviving corporation of the employees of the non-surviving entity.  In Justice Carpio’s view, based on the Corporation Code, “[u]pon merger, BPI, as the surviving entity, absorbs FEBTC and continues the combined business of the two banks.  BPI assumes the legal personality of FEBTC, and automatically acquires FEBTC’s rights, privileges and powers, as well as its liabilities and obligations.”  Among the obligations and liabilities that BPI assumes is the obligation of FEBTC to continue the employment of the latter’s employees.

He observed that under the CBA, the BPI employees required to acquire or maintain union membership as a condition for their continued employment are (1) the union members at the time of the effectivity of the CBA and (2) the “new employees” who were hired during the effectivity of the CBA.  Non-union BPI employees at the time of the effectivity of the CBA were not, and are still not, required to join the Union.

The former employees of FEBTC should not be treated in the same way as “new employees” for purposes of the Union Shop Clause.  At the time new employees are hired by BPI, they knew that they were required to join the Union within 30 days from regularization as a condition for continued employment with BPI.  This is not the case with the absorbed employees who, upon the merger, are immediately regularized and made permanent employees of BPI; they are immediately given the same permanent status as old employees of BPI.

Therefore, In the same way that an existing non-union BPI employee is given the constitutional right to choose whether or not to join the Union, an absorbed employee should be equally given the same right.  And this right must be conferred to the absorbed employee upon the effectivity of the merger between FEBTC and BPI.

Justice Arturo D. Brion observed that the majority decision appears to consider only the purely labor law aspect of the case in determining the relationships among BPI, FEBTC and the absorbed employees.  However, he believed that “[m]ore than anything else, however, the issues before us are rooted in the corporate merger that took place; thus, the first priority in resolving the issues before us should be to consider and analyze the nature and consequences of the BPI-FEBTC merger–essentially a matter under the Corporation Code.  On the basis of this analysis, the application of labor law can follow.”

He pointed out that under Section 76 of the Corporation Code, in a merger or consolidation, no liquidation of the assets of the dissolved corporations takes place, and the surviving or consolidated corporation assumes ipso jure the liabilities of the dissolved corporations, regardless of whether the creditors consented to the merger or consolidation. “In a total merger, the merged corporation transfers everything – figuratively speaking, its “body and soul” – to the surviving corporation. This was what happened in the BPI-FEBTC merger.“

Included among those that the surviving corporation takes over are the obligations of the non-surviving corporation under the employment contracts it entered into with its employees. “In the BPI-FEBTC situation, these employment contracts are part of the obligations that the merging parties have to account and make provisions for under the Constitution and the Corporation Code; in the absence of any clear agreement, these employment contracts subsist, subject to the right of the employees to reject them as they cannot be compelled to render service but can only be made to answer in damages if the rejection constitutes a breach.”

Accordingly, Justice Brion likewise took the position that the absorbed FEBTC employees are not “new employees” as contemplated in the Union Shop Clause. What is clearly a requirement for the application of the Union Shop Clause is the grant of regular status, or, to those recently given regular employment and who, by necessary implication, were hired as non-regular employees and were thereafter accorded regular status.

In contrast with the non-regular employees that the CBA clearly referred to, absorbed FEBTC employees did not undergo the process of waiting for the grant of regular status; their regular employment simply continued from FEBTC to BPI without any break because BPI only succeeded to the role of FEBTC as employer in a merger, where the same employment was maintained and only the employer’s personality changed.

(Bank of the Philippine Islands vs. BPI Employees Union-Davao Chapter-Federation of Unions in BPI Unibank; G.R. No. 164301.  August 18, 2010.  See dissenting opinion of Carpio, J here and dissenting opinion of Brion, J here.)

(author’s note:  This author is pretty much convinced that in a merger, the employees of the non-surviving corporation do become employees of the surviving entity without interruption even as the employees retain the right to resign from that employment and the employer retains the right to terminate the employees to the extent permitted by law.  Thus, on this legal point, he would side with the dissenters. This author is curious as to what ripple legal effects there might be within the labor/management community on account of the pronouncement—or at least that’s how it appears to this author—that in a merger of two corporations, employees of the non-surviving entity are not automatically absorbed into the surviving corporation.)

2.         Local Government Unit Criteria (Carpio vs. Velasco)

The decision of the Supreme Court in League of Cities of the Philippines, et al. vs. Commission on Elections, et al. issued in August 21, 2010 followed a series of prior rulings by the Supreme Court on the same subject matter.

On 18 November 2008, a majority vote of the Supreme Court en banc struck down 16 Cityhood Laws for violating Section 10, Article X of the 1987 Constitution and the equal protection clause.

On March 31 2009, the Supreme Court En Banc, again by a majority vote, denied the respondents’ first motion for reconsideration.  On April 28, 2009, the Supreme Court En Banc, by a split vote, denied the respondents’ second motion for reconsideration and accordingly, at least according to the ponente of the majority decision, Justice Antonio T. Carpio, the November 18, 2008 decision became final and executory and was recorded, in due course, in the Book of Entries of Judgments on May 21, 2009.

After the finality of the November 18, 2008 decision, however, the Court En Banc reversed the November 18, 2008 decision by upholding the constitutionality of the Cityhood Laws in a decision issued on December 21, 2009, prompting the filing of motions to reconsider and annul that December 21, 2009 decision.

In this ruling, the majority ruled to set aside the December 21, 2009 decision and reinstate the November 18, 2008 decision declaring the Cityhood Laws to be unconstitutional.

The majority decision ruled that the Cityhood Laws, which consisted of a series of legislative enactments that essentially exempted certain municipalities from the generally applicable income requirements set out in the Local Government Code, as amended, were unconstitutional because they violated Section 10, Article X of the Constitution which states:

No province, city, municipality, or barangay shall be created, divided, merged, abolished or its boundary substantially altered, except in accordance with the criteria established in the local government code and subject to approval by a majority of the votes cast in a plebiscite in the political units directly affected.

According to Justice Carpio, per the Constitution, the creation of local government units must follow the criteria established only in the Local Government Code and not in any other law.  Since the Cityhood Laws are laws different from the Local Government Code, then the Cityhood Laws are unconstitutional for having adopted criteria that is not set out in the Local Government Code.

On this point, Justice Presbitero Velasco, the sole dissenter, took the view that the word “code” in Section 10, Article X of the Constitution refers to a law Congress enacts in line with its plenary power to create local political subdivisions. He noted that the December 21, 2009 Decision explained that the only conceivable reason why the Constitution employs the clause “in accordance with the criteria established in the local government code” is to lay stress that it is Congress alone, and no other, which can define, prescribe and impose the criteria.  Thus, the imposition may be effected either in a consolidated set of laws or a single-subject enactment. And provided the imperatives of the equal protection clause are not transgressed, an exemption from the imposition may be allowed, just like the Cityhood Laws each of which contained exemption from the income requirement set out in the amendatory legislation to the Local Government Code.

Said Justice Velasco, “It cannot be emphasized enough that if Congress has the plenary power to create political units, it surely can exercise the lesser power of requiring a menu of criteria and standards for their creation. As it is, the amendatory RA 9009 increasing the codified income requirement from Php20 million to Php100 million is really no different from the enactment of any of the Cityhood Law exempting the unit covered thereby from the codified standards.”

(League of Cities of the Phil. rep by LCP National President Jerry P. Trenas, et al. vs. COMELEC, et al.; G.R. No. 176951/G.R. No. 177499/G.R. No. 178056. August 24, 2010.  See dissenting opinion here.)

(author’s note: First of all, the author notes that the decision involved a disposition of arguments in addition to that which is described above.  However, the author believes a lucid summary of those other arguments necessitates an examination of the earlier decisions and resolutions of the Supreme Court on the same subject matter, which unfortunately this author’s deadline (and his day job) will not permit him to do.  On the contrasting constitutional views expressed by Justices Carpio and Velasco, although this author confesses to not having read the previous related decisions, the feel in this author’s gut points towards favoring the dissent. It seems slightly strange that pieces of legislation passed by Congress are struck down as unconstitutional for a defect which could otherwise be easily addressed by Congress themselves either by the fashioning the same as amendments to the Local Government Code or passing a statute expressly amending the Local Government Code to achieve their desired purpose—it would have taken the same number of affirmative votes to pass those as the Cityhood Laws themselves.  In fact, this author wonders why Congress just didn’t do so.)