BDO Unibank, Inc. vs. Nerbes

An employee's intentional refusal to comply with a lawful and reasonable return-to-work order does not constitute willful disobedience warranting dismissal where the refusal is grounded on a good-faith belief—supported by the CBA and applicable labor regulations—that the employee is entitled to union leave, such that the conduct lacks the wrongful and perverse attitude required under Article 282(a) of the Labor Code.

Respondents Nestor N. Nerbes and Armenia F. Suravilla were rank-and-file employees of Equitable PCI Bank (now BDO Unibank, Inc.) and members of the Equitable PCI Bank Employees Union (EPCIBEU), the sole and exclusive bargaining representative of the bank's rank-and-file employees. The parties' Collective Bargaining Agreement contained a provision—Section 10(d)(3), Article IV—allowing the union President and Executive Vice President to go on full-time leave for the duration of their term to devote their time to maintaining industrial peace. Separately, Rule XV, Section 5 of Department Order No. 09, Series of 1997, issued by the Department of Labor and Employment, governs the assumption of office by proclaimed winners in union elections and provides that winners "may assume their positions immediately" upon resolution of election protests.

Respondents Nestor N. Nerbes and Armenia F. Suravilla were employees of Equitable PCI Bank (now BDO Unibank, Inc.) and members of the Equitable PCI Bank Employees Union (EPCIBEU), the sole and exclusive bargaining representative of the bank's rank-and-file employees. On February 4, 2004, an election of union officers was held under the supervision of the DOLE-NCR Labor Relations Division. Nerbes and Suravilla won as President and Executive Vice President, respectively, and were proclaimed as winners through a Resolution issued by the OIC Regional Director of DOLE-NCR on March 19, 2004, which effectively dismissed the protest of the losing candidates.

After taking their oath on March 22, 2004, Nerbes and Suravilla notified the bank of their decision to exercise their privilege under Section 10(d)(3), Article IV of the CBA, which allows the union President and Executive Vice President to go on full-time leave for the duration of their term. They anchored their right to immediately assume their positions on Rule XV, Section 5 of Department Order No. 09, Series of 1997, which provides that upon resolution of the protest, the winners "may assume their positions immediately." Nerbes took his leave beginning March 22, 2004, while Suravilla took hers beginning April 1, 2004. On that same date, the losing candidates appealed the DOLE-NCR's Resolution to the Bureau of Labor Relations (BLR).

Because of the pendency of that appeal, the bank disapproved Nerbes and Suravilla's union leaves and directed them to refrain from being absent and to report back to work. They failed to comply. On May 28, 2004, the bank issued show-cause memoranda directing them to explain why no disciplinary action should be imposed for violation of the bank's Code of Conduct on attendance and punctuality, and obedience and cooperation. Nerbes was additionally asked to explain alleged falsification of a public document and perjury, stemming from his submission of a position paper in a separate unfair labor practice complaint he had filed against the bank, purportedly signed by his lawyer who later denied the signature. After administrative hearings, the bank found Nerbes and Suravilla guilty of serious misconduct and willful disobedience on October 22, 2004 and imposed the penalty of dismissal.

Meanwhile, in the BLR proceedings, the losing candidates' appeal was initially dismissed but, on motion for reconsideration, the BLR reversed itself in its November 4, 2004 Decision, nullified the February 4, 2004 election, and ordered a special election held on April 13, 2005, in which Nerbes and Suravilla's opponents were proclaimed winners. Nerbes and Suravilla then filed a complaint for ULP, illegal dismissal, and money claims before the Labor Arbiter. The Labor Arbiter found their dismissal to be a valid exercise of management prerogative but, because their defiance was "anchored on law," ordered their reinstatement with one year backwages or separation pay at their option. The NLRC reversed and dismissed the complaint. The CA annulled the NLRC ruling and reinstated the Labor Arbiter's Decision, finding that while the return-to-work order was lawful, the employees' refusal was not attended by a wrongful and perverse attitude and the penalty of dismissal was disproportionate. During the pendency of the Supreme Court petition, the bank and Suravilla entered into a Compromise Agreement under which Suravilla received ₱3,487,512.77 as separation pay in full satisfaction of all claims, prompting the bank to move for withdrawal of the petition as to Suravilla. Counsel Atty. Emmanuel R. Jabla moved to intervene, alleging that the compromise was executed without his knowledge and seeking payment of a 10% contingent fee on the amount received by Suravilla.

• Valid Dismissal for Willful Disobedience: Petitioner bank argued that it validly dismissed Nerbes and Suravilla because they committed serious misconduct and willful disobedience when they failed to return to work despite orders for them to do so, the disapproval of their union leave being premised on the pendency of the election appeal before the BLR.
• Withdrawal as to Suravilla: Petitioner moved for the withdrawal of its petition with respect to Suravilla in view of their Compromise Agreement, under which Suravilla received ₱3,487,512.77 and released the bank from all claims arising from or related to the petition.

• Entitlement to Union Leave: Respondents Nerbes and Suravilla countered that as duly elected union officers, they were entitled to full-time union leave under the CBA, and that Department Order No. 09 allowed them to immediately assume their positions upon resolution of the election protests, with the appeal to the BLR not staying the execution of their proclamation as it was not the appeal contemplated under the Department Order.
• Counsel's Right to Fees: Movant-intervenor Atty. Jabla alleged that the Compromise Agreement was wrung from Suravilla without his knowledge and consent, depriving him of his contingent fee of 10% of all money recovered, and prayed that the bank and Suravilla be held solidarily liable for his professional fee equivalent to 10% of the settlement amount, or ₱348,751.27, with a lien upon all judgments for payment of money.

• Willful Disobedience: Whether Nerbes and Suravilla's refusal to report to work despite the bank's order constitutes disobedience of such a willful character as to justify their dismissal from service.
• Compromise Agreement and Withdrawal: Whether there is merit in the bank's motion to withdraw its petition with respect to Suravilla.
• Attorney's Fees and Intervention: Whether the motion for intervention to protect attorney's rights can prosper and, if so, how much counsel is entitled to recover.

• Willful Disobedience: No. While the employees' refusal to return to work was intentional, it was not characterized by a wrongful and perverse attitude, being grounded on a good-faith belief in their entitlement to union leave under the CBA and Department Order No. 09; the penalty of dismissal was therefore disproportionate.
• Compromise Agreement and Withdrawal: Yes. The Compromise Agreement between the bank and Suravilla was found to be in order and not contrary to law, morals, good customs, or public policy, warranting judicial approval and the grant of the motion to withdraw.
• Attorney's Fees and Intervention: Yes. The motion for intervention prospered; Suravilla was ordered to pay counsel ₱348,751.27, equivalent to 10% of the settlement amount, as reasonable compensation. The bank was not held solidarily liable, there being no proof of connivance with Suravilla to deprive counsel of his fees.

• Willful Disobedience: Under Article 282(a) (now Article 296) of the Labor Code, serious misconduct or willful disobedience of lawful orders in connection with work is a just cause for dismissal. Valid dismissal on the ground of willful disobedience requires the concurrence of twin requisites: (1) the employee's conduct must have been willful or intentional, characterized by a wrongful and perverse attitude; and (2) the order violated must have been reasonable, lawful, made known to the employee, and pertaining to the duties he was engaged to discharge. The Court agreed with the CA that the bank's return-to-work order was reasonable and lawful, and that Nerbes and Suravilla's refusal was intentional. However, their refusal was not attended by a wrongful and perverse attitude. At the time they notified the bank of their intent to avail of union leave, they had already been proclaimed winners and taken their oaths of office. Under the CBA, which has the force of law between the parties, they were entitled to union leave as duly elected officers. The bank itself tacitly recognized this entitlement by continuing to pay their full salaries from March 22, 2004 until June 15, 2004 despite their absence. Their belief that the BLR appeal could not stay their immediate proclamation was not entirely baseless, as a doubtful or difficult question of law may be the basis of good faith. Moreover, the penalty of dismissal was harsh and severe: the employees had no prior record of offense or irregularity, and the penalty must be commensurate with the gravity of the offense. Termination was thus a disproportionately heavy penalty.

• Compromise Agreement and Withdrawal: It is settled that a client may enter into a compromise agreement with the adverse party to terminate litigation before judgment, and if the agreement is in order and not contrary to law, morals, good customs, and public policy, its judicial approval is proper. There being no impediment to approval, the Court approved the Compromise Agreement and granted the bank's motion to withdraw the petition as to Suravilla.

• Attorney's Fees and Intervention: On considerations of equity and fairness, the Court disapproves of clients compromising cases behind their attorneys' backs to unreasonably reduce or nullify stipulated contingent fees. The approval of the compromise does not affect counsel's right to compensation. Atty. Jabla adequately represented Suravilla before the LA, NLRC, CA, and the Supreme Court. Despite the absence of a written fee agreement, his entitlement to reasonable compensation was ascertainable under Section 24, Rule 138 of the Rules of Court and Canon 20, Rule 20.01 of the Code of Professional Responsibility. Considering the time spent, the extent of services, the importance of the subject matter, the amount involved, and the contingency of compensation, 10% of the settlement amount—₱348,751.27—was reasonable. However, the bank could not be held solidarily liable absent proof of connivance with Suravilla to deprive counsel of his fees, as required under the doctrine in Malvar vs. Kraft Foods Philippines, Inc.

• Twin Requisites of Willful Disobedience — Valid dismissal on the ground of willful disobedience requires: (1) the employee's assailed conduct must have been willful or intentional, the willfulness being characterized by a wrongful and perverse attitude; and (2) the order violated must have been reasonable, lawful, made known to the employee, and must pertain to the duties which he had been engaged to discharge. The Court found the first requisite unmet: although the refusal was intentional, it was not attended by a wrongful and perverse attitude because it was grounded on a good-faith interpretation of the CBA and Department Order No. 09.

• Proportionality of Penalty — Not every case of insubordination or willful disobedience warrants dismissal; the penalty must be commensurate with the gravity of the offense. Where an employee has served for a considerable length of time with an untainted record, dismissal is too severe a penalty even if a just cause exists. The Court applied this by noting that Nerbes and Suravilla had no prior charges, rendering termination disproportionately heavy.

• Good Faith as Defense to Willful Disobedience — A doubtful or difficult question of law may be the basis of good faith, such that an employee's refusal to comply with an order, though intentional, does not constitute willful disobedience if anchored on an honest belief in a legal entitlement. The Court applied this by recognizing that Nerbes and Suravilla's belief in their entitlement to union leave under the CBA and Department Order No. 09 was not completely bereft of basis.

• Protection of Attorney's Right to Compensation — A client may not compromise a case behind counsel's back to defeat counsel's right to a contingent fee. The approval of a compromise agreement does not void counsel's entitlement to adequate and reasonable compensation. The right to attorney's fees is safeguarded by the Court even where no written agreement exists, with compensation determined under Section 24, Rule 138 of the Rules of Court and the factors in Canon 20, Rule 20.01 of the Code of Professional Responsibility. The opposing party may be held solidarily liable only if shown to have connived with the client to deprive counsel of fees.

• Full Backwages and Separation Pay in Lieu of Reinstatement — An illegally dismissed employee is entitled to reinstatement without loss of seniority rights and full backwages computed from the time compensation was withheld until actual reinstatement, without conditions or limitations. Where reinstatement is no longer feasible due to the lapse of a considerable period, separation pay in lieu of reinstatement is proper. The Court awarded Nerbes separation pay equivalent to one month salary per year of service computed up to the date of dismissal, and directed the LA to recompute full backwages from dismissal until finality of the decision.

• "In this case, Nerbes and Suravilla's failure to report for work despite the disapproval of their application for leave was clearly intentional. However, though their refusal to do so may have been intentional, such was not characterized by a wrongful and perverse attitude or with deliberate disregard of their duties as such." — This passage articulates the ratio decidendi on the willful disobedience issue, distinguishing intentional conduct from conduct attended by the wrongful and perverse attitude required for valid dismissal.

• "a doubtful or difficult question of law may be the basis of good faith. As to which interpretation is correct is beside the point and, hence, should be addressed at a more appropriate forum at a proper time." — This formulation establishes that good-faith reliance on a debatable legal proposition negates the perverse attitude element of willful disobedience, a principle frequently cited in subsequent labor jurisprudence.

• "On considerations of equity and fairness, the Court disapproves of the tendencies of clients compromising their cases behind the backs of their attorneys for the purpose of unreasonably reducing or completely setting to naught the stipulated contingent fees." — Quoted from Malvar vs. Kraft Foods Philippines, Inc., this passage defines the Court's policy of protecting attorneys' contingent fees against compromise agreements executed without counsel's participation, and was applied directly in this case to grant intervention.

• "Instead of limiting the payment of backwages to just one year and awarding separation pay in lieu of both the reinstatement aspect and the payment of backwages, the correct award, as is consistent with prevailing jurisprudence, is reinstatement and the payment of full backwages from the time of dismissal until finality of the decision." — This passage corrects the CA's erroneous award of limited backwages and separation pay in lieu of both reinstatement and backwages, reaffirming the proper reliefs for illegally dismissed employees.

• Stanley Fine Furniture vs. Galiano, G.R. No. 190486, November 26, 2014 — Cited for the rule that in a Rule 45 review of a CA decision rendered under Rule 65, the Court's task is to determine whether the CA correctly found the presence or absence of grave abuse of discretion in the NLRC decision, not whether the NLRC decision was correct on the merits.
• Chevron (Phils.), Inc. vs. Galit, G.R. No. 186114, October 7, 2015 — Cited for the exceptions to the general rule that the Supreme Court is not a trier of facts in labor cases, including when findings of fact are conflicting, which justified the Court's independent factual review in this case.
• Micro Sales Operation Network vs. NLRC, G.R. No. 155279, October 11, 2005 — Cited as the source of the twin requisites of willful disobedience: (1) willful or intentional conduct characterized by a wrongful and perverse attitude, and (2) a reasonable, lawful, and known order pertaining to the employee's duties.
• Malvar vs. Kraft Foods Philippines, Inc., G.R. No. 183952, September 9, 2013 — Cited extensively for the doctrine that a client may not compromise a case behind counsel's back to defeat contingent fees, and that the opposing party is solidarily liable only if shown to have connived with the client to deprive counsel of fees. Applied directly to grant intervention and award attorney's fees to Atty. Jabla.
• Bustamante vs. NLRC, 265 Phil. 61 (1996) — Cited for the rule that illegally dismissed employees are entitled to full backwages without conditions or limitations, which the Court used to correct the CA's erroneous limitation of backwages to one year.
• Wenphil Corporation vs. Abing, G.R. No. 207983, April 7, 2014 — Cited for the distinction between backwages (restoring lost income) and separation pay (oriented toward the transitional period before the employee finds replacement employment), supporting the Court's correction of the CA's award.
• Nightowl Watchman & Security Agency, Inc. vs. Lumanan, G.R. No. 212096, October 14, 2015 — Cited for the rule that where a considerable period has lapsed since dismissal, reinstatement is no longer reasonable, justifying the award of separation pay in lieu of reinstatement.

• Article 282(a), Labor Code (now Article 296) — Enumerates serious misconduct or willful disobedience by the employee of the lawful orders of the employer or representative in connection with work as a just cause for termination. The Court applied this provision by analyzing whether the twin requisites of willful disobedience were satisfied, ultimately finding the first requisite unmet.
• Article 279, Labor Code (Security of Tenure) — Provides that an employee unjustly dismissed shall be entitled to reinstatement without loss of seniority rights and full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld until actual reinstatement. The Court applied this to award Nerbes full backwages and, due to the lapse of 13 years, separation pay in lieu of reinstatement.
• Section 24, Rule 138, Rules of Court — Governs the compensation of attorneys, providing that an attorney is entitled to reasonable compensation based on the importance of the subject matter, the extent of services rendered, and the professional standing of the attorney, with a written contract controlling unless unconscionable or unreasonable. Applied to determine Atty. Jabla's fee in the absence of a written agreement.
• Canon 20, Rule 20.01, Code of Professional Responsibility — Enumerates the factors a lawyer shall consider in determining fees: (a) time spent and extent of services; (b) novelty and difficulty of the question involved; (c) importance of the subject matter; (d) skill demanded; (e) probability of losing other employment; (f) customary charges and IBP schedule; (g) amount involved and benefits resulting to the client; (h) contingency or certainty of compensation; (i) character of employment; and (j) professional standing of the lawyer. Applied alongside Section 24, Rule 138 to assess the reasonableness of the 10% contingent fee.
• Section 10(d)(3), Article IV, CBA — Allows the union President and Executive Vice President to go on full-time leave for the duration of their term to devote their time to maintaining industrial peace. The Court found that Nerbes and Suravilla were entitled to this privilege as duly elected officers, and that the bank itself tacitly recognized the entitlement by continuing to pay their salaries.
• Rule XV, Section 5, Department Order No. 09, Series of 1997 — Provides that upon resolution of an election protest, the committee shall immediately proclaim the winners and the latter may assume their positions immediately. The Court found that Nerbes and Suravilla's reliance on this provision as basis for their immediate assumption of office and entitlement to union leave was made in good faith.

Presbitero J. Velasco, Jr. (Chairperson), Lucas P. Bersamin, Francis H. Jardeleza, and Andres B. Reyes, Jr. concurred in the decision. No separate concurring opinions were noted.