Asia Brewery, Inc. vs. TPMA

In compulsory arbitration before the Secretary of Labor pursuant to Article 263(g) of the Labor Code, the employer's financial statements must be properly audited by an external and independent auditor to be admissible in evidence for purposes of determining the proper wage award; reliance on unaudited financial statements constitutes grave abuse of discretion.

Respondent Tunay Na Pagkakaisa ng mga Manggagawa sa Asia (TPMA) is a legitimate labor organization certified as the sole and exclusive bargaining agent of all regular rank-and-file employees of petitioner Asia Brewery, Inc. (ABI), a company engaged in the manufacture, sale, and distribution of beer, shandy, glass, and bottled water products, employing approximately 1,500 workers with existing distributorship agreements with at least 13 companies. The parties had been negotiating for a new collective bargaining agreement (CBA) for the years 2003-2006 after the old CBA expired in July 2003. After about 18 negotiation sessions, they remained deadlocked on wages and other economic benefits, prompting the union to declare a deadlock and file a notice of strike with the National Conciliation and Mediation Board (NCMB).

Respondent union Tunay Na Pagkakaisa ng mga Manggagawa sa Asia (TPMA) is the sole and exclusive bargaining agent of all regular rank-and-file employees of petitioner Asia Brewery, Inc. (ABI), a company engaged in the manufacture, sale, and distribution of beer, shandy, glass, and bottled water products, employing approximately 1,500 workers. The parties had been negotiating for a new CBA for the years 2003-2006 since the old CBA expired in July 2003. After about 18 negotiation sessions, they remained unable to reconcile their differences on most items, particularly wages and other economic benefits.

On October 21, 2003, the respondent union declared a deadlock. On October 27, 2003, it filed a notice of strike with the NCMB, but the parties still did not come to terms. On November 18, 2003, the union conducted a strike vote in which 768 out of 840 members voted in favor of holding a strike. Two days later, on November 20, 2003, petitioner corporation petitioned the Secretary of DOLE to assume jurisdiction over the labor dispute under Article 263(g) of the Labor Code. The union opposed, arguing that ABI's business was not indispensable to the national interest. On December 19, 2003, Acting Secretary Manuel G. Imson issued an order assuming jurisdiction, enjoining any strike or lockout, and directing the company to submit, among other things, its complete audited financial statements for the past five years certified as to completeness by the Chief Financial Comptroller or Accountant.

While the assumption issue was pending before the CA in two separate petitions filed by the union (CA-G.R. SP Nos. 80839 and 81639), Secretary of Labor Patricia Sto. Tomas resolved the deadlock on January 19, 2004. She granted wage increases of ₱18.00 for the first year, ₱15.00 for the second year, and ₱12.00 for the third year, totaling ₱45.00 over three years, and awarded health care benefits of ₱1,300.00 premium per covered employee with ₱1,800.00 contribution for each union member-dependent. Both parties moved for reconsideration. On February 9, 2004, the parties executed and signed the CBA with a term from August 1, 2003 to July 31, 2006.

On April 1, 2004, the respondent union filed another petition for certiorari before the CA (CA-G.R. SP No. 83168), assailing the arbitral award and imputing grave abuse of discretion to the Secretary of Labor. The petition was verified by Rodrigo Perez, whose authority to represent the union was later challenged by petitioner corporation. On October 6, 2005, the CA rendered its first assailed Decision affirming with modification the arbitral award: it declared the CBA effective August 1, 2003, remanded the wage increase computation to the Secretary of Labor because it was based on unaudited financial statements, and modified the health benefit to ₱1,390.00 per covered employee. After both parties moved for reconsideration, the CA issued an Amended Decision on February 17, 2006, deleting the signing bonus award and remanding the wage increase issue to the Secretary of Labor for definite resolution within one month using externally audited financial statements. Only petitioner corporation appealed to the Supreme Court via the present Petition for Review on Certiorari.

• Authority of Union Representative: Petitioner argued that Rodrigo Perez, who verified the petition in CA-G.R. SP No. 83168, lacked authority to represent the union because the union president Jose Manuel Miranda did not call for and preside over the meeting when the authorizing resolution was adopted, as required by the union's constitution and by-laws. Petitioner further contended that the resolution was adopted on March 23, 2004 but the petition was filed on April 1, 2004, only nine days later, whereas the union's constitution and by-laws provide that board decisions become effective only after two weeks from issuance. Petitioner also cited two labor cases allegedly divesting Perez of authority.
• Admissibility of Unaudited Financial Statements: Petitioner contended that although its financial statements were not audited by an external and independent auditor, they were duly signed and certified by its chief financial officer, submitted to various government agencies, and should thus be considered official and public documents constituting substantial compliance with the Secretary of Labor's order. Petitioner further argued that the union did not object to the financial statements and even used them in formulating its own arguments, and that the Secretary of Labor's decision was not solely based on the financial statements but also considered CBA history, costing of proposals, and wages in similarly situated bargaining units.
• Health Benefits Modification: Petitioner claimed it never agreed to the ₱1,390.00 premium payment, asserting that its final offer was only ₱1,300.00 per covered employee, as borne out by the minutes of the October 17, 2003 CBA negotiations.
• Unrealistic Union Demands: Petitioner claimed that the union's demands on wage increase were unrealistic and would cause the company to close shop.

• Assumption of Jurisdiction: Respondent union opposed the Secretary of Labor's assumption of jurisdiction, reasoning that petitioner corporation's business was not indispensable to the national interest.
• Arbitral Award Deficiencies: Respondent union moved for reconsideration of the Secretary of Labor's January 19, 2004 Decision on the ground that the ruling lacked evidentiary proof to sufficiently justify the wage award.
• Health Benefits: Respondent union pleaded before the CA for the award of ₱1,390.00 premium payment per covered employee, effectively waiving its earlier proposal for renegotiation of the premium payment on the second and third years of the CBA.

• Authority of Union Representative: Whether the CA erred when it failed to dismiss CA-G.R. SP No. 83168 despite the alleged lack of authority of Rodrigo Perez to institute it.
• Remand of Wage Increase Issue: Whether the CA erred when it remanded to the Secretary of Labor the issue on wage increase.
• Health Benefits Modification: Whether the CA erred when it awarded ₱1,390.00 as premium payment for each covered employee.

• Authority of Union Representative: No. The authority of Rodrigo Perez to file the petition before the CA was not sufficiently refuted, the Secretary's Certificate having established the board's unanimous resolution authorizing him, and the union president having raised no contest.
• Remand of Wage Increase Issue: No. The remand was proper because the Secretary of Labor gravely abused her discretion in relying on unaudited financial statements, which are inadmissible self-serving documents, and in employing a disapproved "middle ground" approach without indicating the actual data upon which the wage award was based.
• Health Benefits Modification: No. The modification was proper because the minutes of the October 17, 2003 CBA negotiations showed that both parties had previously agreed to a minimum of ₱1,390.00 premium payment per covered employee, and the Secretary of Labor gravely abused her discretion in reducing the award below that agreed amount.

• Authority of Union Representative: The Secretary's Certificate attached to the petition in CA-G.R. SP No. 83168 stated that the union's board of directors held a special meeting on March 23, 2004 and unanimously passed a resolution authorizing Perez to file the petition. While petitioner claimed the proper procedure for calling the meeting was not followed, it presented no proof to establish the same. The union president Miranda, who allegedly did not call for and preside over the meeting, did not come forward to contest the validity of the resolution or Secretary's Certificate. Petitioner's claim that the resolution was still ineffective at the time of filing was unsubstantiated: a fair reading of Article VIII, Section 2 of the union's constitution and by-laws showed that the two-week notice requirement referred to decisions of the board regarding laws or rules governing the union, not to resolutions granting authority to individuals to represent the union in court cases. Even assuming the provisions applied, the union's continuing silence from adoption through filing and up to the present proceedings indicated implied ratification of any defect. As to the two labor cases cited by petitioner, examination showed they did not affect Perez's legal capacity: the first involved an annulment of recall elections and the second involved an illegal strike declaration, but both their material facts and decisions occurred after the petition was already filed with the CA on April 1, 2004, and neither nullified the authority granted to Perez in the March 23, 2004 resolution.

• Remand of Wage Increase Issue: Petitioner admitted it submitted unaudited financial statements to the Secretary of Labor, which were then used as one of the bases for fixing the wage award. In Restaurante Las Conchas vs. Llego, the Court ruled that unaudited financial statements are mere self-serving declarations and inadmissible in evidence even if the employees did not object to their presentation. In Uichico vs. NLRC, the Court held that financial statements without the signature of a certified public accountant or audit by an independent auditor are "nothing but self-serving documents which ought to be treated as a mere scrap of paper devoid of any probative value." While those cases involved proof of losses in business closure or retrenchment, the Court saw no reason why the same rule should not apply to the determination of the proper wage award in compulsory arbitration under Article 263(g). In MERALCO vs. Quisumbing, the Court expounded on the standard of reasonableness in reviewing the Secretary of Labor's arbitral award and the factors to consider in wage determination, including the company's capacity to pay. The Secretary of Labor gravely abused her discretion by relying on unaudited financial statements, violating her own December 19, 2003 order requiring submission of complete audited financial statements, and potentially resulting in a wage award based on an inaccurate and biased picture of the company's capacity to pay. Petitioner offered no reason for its failure to submit audited financial statements, casting further doubt on the veracity of the unaudited ones. The Secretary of Labor also paid lip service to the Meralco guidelines: she failed to indicate the actual data upon which the wage award was based, appeared to utilize the disapproved "middle ground" approach, and did not discuss in detail factors such as actual and projected net operating income, impact of the wage increase, previous CBAs, and industry trends. The contending parties were effectively precluded from seeking review because of the general but unsubstantiated statement that the award was based on bargaining history, trends, and industry trends. This fell short of the requirement of administrative due process obligating the decision-maker to adjudicate the rights of the parties in such a manner that they can know the issues involved and the reasons for the decision, as laid down in Ang Tibay vs. Court of Industrial Relations.

• Health Benefits Modification: A review of the minutes of the October 17, 2003 CBA negotiations showed that the issue of premium payments underwent several proposals and counter-proposals. Petitioner's last proposal was to allot ₱1,390.00 as premium payment per covered employee provided it would not shoulder the premium payments of the employee's dependents. The union accepted the proposal provided the premium payment would be renegotiated on the second and third years of the CBA. Both parties thus agreed at a minimum that the premium payment would be ₱1,390.00 per covered employee, with the remaining point of contention being whether renegotiation could occur in the second and third years. The Secretary of Labor's reduction of the award to ₱1,300.00, which was below the minimum of ₱1,390.00 previously agreed upon, constituted grave abuse of discretion. In the proceedings before the CA, the union only pleaded for the award of ₱1,390.00, effectively waiving its proposal on renegotiation.

• Requirement of Externally Audited Financial Statements — Financial statements submitted by an employer to justify its financial position must be audited by an external and independent auditor to be admissible in evidence. Unaudited financial statements are mere self-serving declarations devoid of probative value, inadmissible even in the absence of objection from the opposing party. This rule applies not only to cases of business closure or retrenchment but equally to the determination of the proper wage award in compulsory arbitration under Article 263(g) of the Labor Code.

• Standard of Reasonableness in Reviewing Arbitral Awards — The extent of judicial review over the Secretary of Labor's arbitral award is not limited to a determination of grave abuse in the manner of the Secretary's exercise of statutory powers; the Court is entitled to review the substance of the award when grave abuse of discretion is alleged. The appropriate standard is reasonableness — the absence of arbitrariness, the exercise of proper discretion, and the observance of due process. The Secretary must consider available objective facts including bargaining history, trends and amounts of arbitrated and agreed wage awards, previous CBAs, and industry trends. Affordability or capacity to pay should be taken into account but cannot be the sole yardstick.

• Disapproval of the "Middle Ground" Approach — Merely finding the midway point between the demands of the company and the union and "splitting the difference" is a simplistic solution that fails to recognize that the parties may already be at the limits of the wage levels they can afford. It may lead to the danger that neither party will engage in principled bargaining, as the company may keep its position artificially low while the union presents an artificially high position, expecting a "Solomonic" solution. This approach promotes a "play safe" attitude leading to more deadlocks than successfully negotiated CBAs.

• Administrative Due Process in Labor Arbitration — The decision-maker in compulsory arbitration must adjudicate the rights of the parties in such a manner that they can know the various issues involved and the reasons for the decision rendered. A general but unsubstantiated statement that a wage award was based on certain factors, without indicating the actual data, figures, or evidence relied upon, falls short of this requirement and precludes meaningful review.

• "In cases of compulsory arbitration before the Secretary of Labor pursuant to Article 263(g) of the Labor Code, the financial statements of the employer must be properly audited by an external and independent auditor in order to be admissible in evidence for purposes of determining the proper wage award." — This is the opening pronouncement of the decision, stating the core legal rule that governs the case and extends the audited-financial-statements requirement from retrenchment/closure cases to wage determination in compulsory arbitration.

• "The Statement of Profit and Losses submitted by Crispa, Inc. to prove its alleged losses, without the accompanying signature of a certified public accountant or audited by an independent auditor, are nothing but self-serving documents which ought to be treated as a mere scrap of paper devoid of any probative value." — This quotation from Uichico vs. NLRC, adopted by the Court, defines the canonical formulation of the rule on unaudited financial statements and was applied to wage determination in compulsory arbitration.

• "Merely finding the midway point between the demands of the company and the union, and 'splitting the difference' is a simplistic solution that fails to recognize that the parties may already be at the limits of the wage levels they can afford." — This passage from MERALCO vs. Quisumbing, quoted in the decision, articulates the Court's disapproval of the "middle ground" approach in wage determination and explains why it promotes artificial bargaining positions rather than principled negotiation.

• "Verily, we cannot countenance this procedure because this could unduly deprive labor of its right to a just share in the fruits of production and provide employers with a means to understate their profitability in order to defeat the right of labor to a just wage." — This passage states the policy rationale for requiring audited financial statements: preventing employers from understating profitability to defeat labor's right to a just wage, grounded in Article XIII, Section 3 of the Constitution.

• Restaurante Las Conchas vs. Llego, 372 Phil. 697 (1999) — Controlling precedent followed. Established that unaudited financial statements are mere self-serving declarations and inadmissible in evidence even if the employees did not object to their presentation. Applied by analogy to wage determination in compulsory arbitration.

• Uichico vs. National Labor Relations Commission, 339 Phil. 242 (1997) — Followed. Held that financial statements without the signature of a certified public accountant or audit by an independent auditor are self-serving documents devoid of probative value. The Court quoted this case's formulation of the rule extensively.

• MERALCO vs. Sec. Quisumbing, 361 Phil. 845 (1999) — Controlling precedent followed. Established the standard of reasonableness for judicial review of the Secretary of Labor's arbitral award, the factors to consider in wage determination, and the disapproval of the "middle ground" approach. The Court found that the Secretary of Labor paid lip service to the guidelines laid down in this case.

• Ang Tibay vs. Court of Industrial Relations, 69 Phil. 635 (1940) — Cited for the doctrine of administrative due process, requiring the decision-maker to adjudicate the rights of the parties in such a manner that they can know the various issues involved and the reasons for the decision rendered.

• Article 263(g), Labor Code — Authorizes the Secretary of Labor to assume jurisdiction over a labor dispute causing or likely to cause a strike or lockout in an industry indispensable to the national interest, and to decide it or certify the same to the Commission for compulsory arbitration. The provision was invoked by petitioner corporation and served as the statutory framework within which the audited-financial-statements requirement was applied.

• Article XIII, Section 3, 1987 Constitution — Provides that the State shall regulate relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth. The Court invoked this provision as the constitutional basis for requiring audited financial statements, to prevent employers from understating profitability and defeating labor's right to a just wage.

• DOLE Advisory No. 1, Series of 2004 — Contained guidelines in resolving bargaining deadlocks. The CA found that the Secretary of Labor's computation of the wage increase was done in contravention of this advisory.

Justice Antonio T. Carpio (Chairperson), Justice Jose Portugal Perez, Justice Jose Catral Mendoza, and Justice Estela M. Perlas-Bernabe concurred in the decision. No separate concurring opinions were written.