7K Corporation vs. Albarico

A voluntary arbitrator may assume jurisdiction over issues necessarily implied by, and integral to the resolution of, the issues expressly submitted in the parties' Submission Agreement, including the legality of dismissal when the claim for separation pay is premised on an allegation of illegal dismissal, and the award of backwages flowing from such a finding.

Respondent Eddie Albarico was a regular employee of petitioner 7K Corporation, a company selling water purifiers, having started as a salesman in 1990 and risen through promotions to acting team field supervisor. After his termination in April 1993, the parties executed a Submission Agreement dated 19 April 1993 before the National Conciliation and Mediation Board (NCMB), framing the issue for voluntary arbitration as whether Albarico was entitled to separation pay and a reserved sales commission. The Labor Code provides that while labor arbiters have original and exclusive jurisdiction over termination disputes under Article 217, voluntary arbitrators may, upon agreement of the parties, hear and decide all other labor disputes under Article 262, including termination disputes.

Respondent Eddie Albarico began working for petitioner 7K Corporation, a company selling water purifiers, as a salesman in 1990. His performance was strong enough that his employment was regularized and he received several promotions — from salesman to senior sales representative, then to acting team field supervisor. In 1992, he was awarded the President's Trophy for being one of the company's top water purifier specialist distributors.

In April 1993, the chief operating officer of 7K Corporation terminated Albarico's employment, allegedly for poor sales performance. Albarico stopped reporting for work and submitted his money claims against the corporation for arbitration before the NCMB. The parties executed a Submission Agreement dated 19 April 1993, which framed the issue for voluntary arbitration as whether Albarico was entitled to separation pay and the sales commission reserved for him by the corporation.

While the NCMB arbitration was pending, Albarico filed a separate Complaint for illegal dismissal with money claims before the Arbitration Branch of the NLRC, seeking overtime pay, holiday compensation, commission, and food and travelling allowances. The labor arbiter decided the complaint in Albarico's favor, awarding separation pay in lieu of reinstatement, backwages, and attorney's fees. On appeal, the NLRC vacated the labor arbiter's Decision for forum shopping, since the NCMB arbitration case was still pending. The NLRC explicitly stated that the dismissal was without prejudice to the pending NCMB case. No appeal was taken from the NLRC Decision, and it became final.

On 17 September 1997, petitioner filed its Position Paper in the NCMB arbitration case, denying that Albarico was terminated and claiming he had voluntarily stopped reporting for work after a verbal reprimand, thus abandoning his employment. Albarico made an oral manifestation that he was adopting the position paper he had submitted to the labor arbiter, in which he claimed illegal dismissal. On 12 January 2005, nearly twelve years after the filing of the NCMB case, both parties appeared at a hearing. Albarico manifested willingness to settle based on the labor arbiter's decision, while petitioner counter-manifested willingness to pay only the separation pay and sales commission as specified in the Submission Agreement. The records do not clearly reveal what transpired thereafter.

On 18 November 2005, the NCMB voluntary arbitrator rendered a Decision finding 7K Corporation liable for illegal dismissal. The arbitrator found that Albarico's promotions, salary increases, and awards belied the claim of poor performance, and that the immediate filing of a complaint for illegal dismissal with a prayer for reinstatement negated any abandonment. The arbitrator also found that Albarico was dismissed without due process. Reinstatement being no longer feasible due to strained relations, the arbitrator awarded separation pay of ₱8,912 (two years at ₱4,456 per year), backwages of ₱90,804, and attorney's fees. Petitioner appealed to the CA, which affirmed the voluntary arbitrator's Decision but eliminated the attorney's fees award for lack of justification. Petitioner's Motion for Partial Reconsideration was likewise denied, prompting the present Petition.

• Exclusive Jurisdiction of Labor Arbiter: Petitioner argued that under Article 217 of the Labor Code, original and exclusive jurisdiction over termination disputes is lodged solely with the labor arbiter of the NLRC, and thus the voluntary arbitrator had no jurisdiction.
• Limitation by Submission Agreement: Petitioner contended that assuming the voluntary arbitrator had jurisdiction, his authority was strictly limited to the issues expressly stated in the Submission Agreement — entitlement to separation pay and sales commission — and that the arbitrator exceeded his jurisdiction by ruling on the legality of dismissal and awarding backwages.
• Separation Pay Without Illegal Dismissal: Petitioner asserted that separation pay may be awarded even absent a finding of illegal dismissal, and therefore the CA erred in concluding that the claim for separation pay was necessarily premised on an allegation of illegal dismissal.

• Jurisdiction of Voluntary Arbitrator: Whether the voluntary arbitrator had jurisdiction over a termination dispute, notwithstanding Article 217's grant of original and exclusive jurisdiction to labor arbiters.
• Scope of Submission Agreement: Whether the voluntary arbitrator exceeded his jurisdiction by ruling on the legality of dismissal and awarding backwages, when the Submission Agreement expressly mentioned only entitlement to separation pay and sales commission.

• Jurisdiction of Voluntary Arbitrator: Yes. Voluntary arbitrators may, upon agreement of the parties, assume jurisdiction over termination disputes under Article 262 of the Labor Code, which is an exception to the general rule of labor arbiter jurisdiction under Article 217.
• Scope of Submission Agreement: No, the arbitrator did not exceed jurisdiction. The claim for separation pay was necessarily premised on an allegation of illegal dismissal, making the legality of dismissal an implied issue within the Submission Agreement; backwages as a consequence of illegal dismissal were likewise properly awarded.

• Jurisdiction of Voluntary Arbitrator: Article 217 of the Labor Code grants labor arbiters original and exclusive jurisdiction over termination disputes, but the provision opens with the phrase "Except as otherwise provided under this Code," which refers to exceptions found elsewhere, including Article 262. Article 262 provides that voluntary arbitrators, upon agreement of the parties, may hear and decide all other labor disputes, including unfair labor practices and bargaining deadlocks. In San Jose vs. NLRC, the Court held that the labor disputes under Article 262 can include all those disputes mentioned in Article 217 over which the labor arbiter has original and exclusive jurisdiction. Thus, by agreement of the parties, a voluntary arbitrator may assume jurisdiction over a termination dispute.

• Scope of Submission Agreement: While petitioner correctly noted that separation pay may be awarded in circumstances other than illegal dismissal — such as authorized causes under Article 283, social justice considerations, established company practice, or non-membership in a union — none of those circumstances obtained here. There was no claim that the separation pay issue arose in the context of an authorized cause of termination, nor any allegation of social justice considerations. Even where separation pay is awarded for social justice, the validity of the dismissal must first be resolved. Petitioner itself acknowledged the issue of illegal dismissal in its position paper before the NCMB, and the NLRC had treated the NCMB arbitration case as involving the legality of dismissal — it was the identity of that issue that formed the basis of the NLRC's forum shopping ruling, which petitioner itself invoked in its Motion to Dismiss before the NLRC. Petitioner was thus estopped from claiming the issue of illegal dismissal was not before the NCMB. Deciding entitlement to separation pay without first resolving the legality of dismissal would lead to absurdity, as the arbitrator would have no basis for the award. In Sime Darby Pilipinas, Inc. vs. Deputy Administrator Magsalin, the Court held that a voluntary arbitrator has plenary jurisdiction and authority to interpret an arbitration agreement and determine the scope of his own authority when the agreement is vague. Applying the same principle, the arbitrator correctly assumed that the core issue behind separation pay was the legality of dismissal. As for backwages, these are awarded on grounds of equity as relief restoring income lost by reason of illegal dismissal. In Sime Darby, where the submitted issue was "performance bonus," the arbitrator was held to have authority to determine not only whether the bonus should be granted but also the amount — because the parties had not treated it as a two-tiered issue of which only one aspect was submitted. Similarly, there was no indication that illegal dismissal should be treated as a two-tiered issue requiring separate submission of the backwages question. Since arbitration is a final resort for adjudication of disputes, the arbitrator could assume the power to make a final settlement.

• Jurisdiction of Voluntary Arbitrators over Termination Disputes — Under Article 262 of the Labor Code, voluntary arbitrators may, upon agreement of the parties, hear and decide all other labor disputes, including termination disputes that would otherwise fall under the original and exclusive jurisdiction of labor arbiters under Article 217. The phrase "Except as otherwise provided under this Code" in Article 217 expressly recognizes this exception. The Court relied on San Jose vs. NLRC in applying this doctrine.

• Plenary Authority of Voluntary Arbitrator to Interpret Submission Agreement — A voluntary arbitrator has plenary jurisdiction and authority to interpret an agreement to arbitrate and to determine the scope of his own authority when the agreement is vague, subject only to the certiorari jurisdiction of the Supreme Court. Established in Sime Darby Pilipinas, Inc. vs. Deputy Administrator Magsalin and applied here to hold that the arbitrator could determine that the legality of dismissal was necessarily implied by the claim for separation pay.

• Implied Issues in Submission Agreements — When a claim expressly submitted for arbitration (e.g., separation pay) is necessarily premised on an underlying issue not explicitly stated (e.g., illegal dismissal), the voluntary arbitrator may assume jurisdiction over that underlying issue. The arbitrator need not decide entitlement to separation pay "in a vacuum"; the basis for the award must first be resolved. Relatedly, backwages as a consequence of illegal dismissal may be awarded even if not expressly claimed, where the parties did not treat the issue as a two-tiered matter requiring separate submission.

• "the voluntary arbitrator has plenary jurisdiction and authority to interpret an agreement to arbitrate and to determine the scope of his own authority when the said agreement is vague — subject only, in a proper case, to the certiorari jurisdiction of this Court." — This passage articulates the doctrine from Sime Darby as applied to the present case, establishing the arbitrator's authority to determine the scope of issues impliedly included in the Submission Agreement.

• "To think otherwise would lead to absurdity, because the voluntary arbitrator would then be deciding that issue in a vacuum. The arbitrator would have no basis whatsoever for saying that Albarico was entitled to separation pay or not if the issue of the legality of respondent's dismissal was not resolve first." — This passage states the ratio decidendi for why the legality of dismissal was necessarily included in the Submission Agreement: resolving entitlement to separation pay requires first determining whether the dismissal was valid.

• "since arbitration is a final resort for the adjudication of disputes," the voluntary arbitrator in the present case can assume that he has the necessary power to make a final settlement." — This passage supports the conclusion that the arbitrator may award backwages as part of a final settlement of the illegal dismissal issue, even absent an express submission of the backwages question.

• San Jose vs. NLRC, 355 Phil. 759 (1998) — Controlling authority for the proposition that Article 262 allows voluntary arbitrators to assume jurisdiction over termination disputes otherwise falling under labor arbiter jurisdiction under Article 217. Followed.
• Sime Darby Pilipinas, Inc. vs. Deputy Administrator Magsalin, 259 Phil. 658 (1989) — Controlling authority for the doctrine that a voluntary arbitrator has plenary authority to interpret the arbitration agreement and determine the scope of his own jurisdiction when the agreement is vague, and that related issues not expressly limited by the parties may be assumed by the arbitrator. Followed and applied directly to both the legality of dismissal and backwages issues.
• Eastern Paper Mills, Inc. vs. NLRC, 252 Phil. 618 (1989) — Cited for the proposition that separation pay may be awarded for considerations of social justice even when an employee is validly dismissed for a just cause other than serious misconduct or moral turpitude. Distinguished, as no such circumstances obtained here.
• Hinatuan Mining Corporation vs. NLRC, 335 Phil. 1090 (1997) — Cited for the rule that separation pay may be awarded when it has become established company practice to pay the benefit to voluntarily resigning employees. Distinguished.
• United States Lines, Inc. vs. Acting Minister of Labor, 202 Phil. 729 (1982) — Cited for the proposition that separation pay may be awarded to employees validly dismissed for non-membership in a union under a closed-shop agreement. Distinguished.
• Torillo vs. Leogardo, 274 Phil. 758 (1991) — Cited for the principle that backwages are awarded on grounds of equity as relief restoring income lost by reason of illegal dismissal. Applied.
• Ludo vs. Saordino, 443 Phil. 554 (2003) — Cited for the principle that arbitration is a final resort for the adjudication of disputes, supporting the arbitrator's authority to make a final settlement. Applied.

• Article 217, Labor Code — Grants labor arbiters original and exclusive jurisdiction over termination disputes and other claims arising from employer-employee relations, but opens with the proviso "Except as otherwise provided under this Code," which the Court held refers to exceptions including Article 262. Petitioner invoked this article to argue that only labor arbiters had jurisdiction; the Court rejected this argument by reading the proviso.
• Article 262, Labor Code — Provides that voluntary arbitrators, upon agreement of the parties, may hear and decide all other labor disputes, including unfair labor practices and bargaining deadlocks. The Court held that this provision encompasses termination disputes otherwise under Article 217, thereby conferring jurisdiction on the voluntary arbitrator in this case.
• Article 283, Labor Code — Governs termination for authorized causes such as installation of labor-saving devices, redundancy, retrenchment, or closure, and provides for separation pay in such cases. Cited by the Court to illustrate that separation pay may be awarded outside the context of illegal dismissal, but distinguished from the present case where no authorized cause was claimed.

Leonardo-De Castro, J.; Bersamin, J.; Villarama, Jr., J.; Reyes, J. — all concurred in full with no separate concurring opinions.