Benson Industries Employees Union-ALU-TUCP vs. Benson Industries, Inc.

An employer that unqualifiedly covenants in a CBA to pay separation benefits at a fixed rate, irrespective of its financial position, must comply with that stipulation even if it closes due to serious business losses; the Article 297 exemption from separation pay limits only the statutory obligation and does not read an implied condition into the contract.

Benson Industries, Inc. is a domestic corporation engaged in the manufacture of greencoils sold under the brand name Lion-Tiger Mosquito Killer, and its employees were organized into Benson Industries Employees Union-ALU-TUCP, with which it concluded a CBA effective July 1, 2005 to June 30, 2010. Section 1, Article VIII of that CBA bound Benson to pay any employee terminated without fault attributable to him separation pay of not less than 19 days' pay for every year of service based on the latest rate of pay of the employee concerned. The parties had earlier executed a Memorandum of Agreement dated November 20, 2003 whose whereas clauses recited that the Philippines was in a grave economic crisis and that Benson in particular was in grave financial difficulties, hard up meeting its obligations to creditor banks that had threatened to foreclose on its factory, realties, machineries and assets.

Benson Industries, Inc. employed the seventeen petitioners in its manufacture of greencoils sold under the brand name Lion-Tiger Mosquito Killer, and their relations with the company were governed by a collective bargaining agreement with Benson Industries Employees Union-ALU-TUCP effective July 1, 2005 to June 30, 2010. On February 12, 2008, Benson sent its employees, petitioners included, 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. In consequence, the majority of Benson's employees resigned.

Petitioners, through the Union, filed a notice of strike, claiming that the company'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. The strike did not push through, however, because the parties reached an amicable settlement during the conciliation proceedings before the NCMB, whereby petitioners accepted Benson's payment of separation pay computed at 15 days for every year of service, as embodied in their Memorandum of Agreement dated April 9, 2008.

Notwithstanding that settlement, petitioners proffered a claim for additional separation pay at the rate of four days for every year of service, invoking Section 1, Article VIII of the existing CBA, which provides that Benson shall pay to any employee or laborer terminated from the service without any fault attributable to him a separation pay equivalent to not less than nineteen days' pay for every year of service based upon the latest rate of pay of the employee or laborer concerned. Benson opposed the claim, averring that the separation pay already paid to petitioners was already more than what the law requires. The conflict eventually reached an impasse, and the parties referred the issue to voluntary arbitration, where the validity of Benson's closure was likewise brought up.

Before the voluntary arbitrator, Benson maintained that it had ceased operations because of serious business losses and financial reverses. The VA found adequate proof to support Benson's position that it was indeed in a state of insolvency, which justified its closure and/or cessation of business operations on the ground of serious business losses and/or financial reverses, even as it ruled that the CBA's 19-day rate supplied the measure of the separation benefits still owing to petitioners.

• CBA Rate Governs Separation Pay: Petitioners claimed additional separation pay at the rate of four days for every year of service, invoking Section 1, Article VIII of the existing CBA, which fixes separation pay at not less than nineteen days' pay for every year of service for any employee terminated without fault attributable to him.
• Closure as a Ploy: Petitioners claimed, through the Union's notice of strike, that the company'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.

• Payment Exceeded Statutory Requirement: Benson opposed the claim, averring that the separation pay already paid to petitioners was already more than what the law requires.
• Closure Due to Serious Business Losses: Benson maintained that it had closed its establishment and ceased operations due to serious business losses and financial reverses, and that it was in a state of insolvency.

• Separation Pay Under the CBA: Whether the CA correctly deleted the award to petitioners of additional separation benefits equivalent to four days of work for every year of service.

• Separation Pay Under the CBA: No. The CA erred in deleting the award. Where the obligation to pay separation benefits arises not from Article 297 of the Labor Code but from a CBA that unqualifiedly covenants payment irrespective of the employer's financial position, the contract governs and serious business losses do not excuse compliance.

• Separation Pay Under the CBA: Closure of business is a reversal of the employer's fortune, a complete cessation of operations and/or actual locking-up of the establishment usually due to financial losses, and the Labor Code treats it as an authorized cause for termination aimed at preventing further financial drain on an employer who cannot anymore pay its employees. As recompense, the employer must pay separation benefits, except when the closure is due to serious business losses. Article 297 (formerly Article 283) of the Labor Code embodies this rule, requiring separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, only "in cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses." The exemption, however, pertains only to the employer's obligation under Article 297, because the law's express parameter itself limits the payment to closures not due to serious losses; as explained in Cama vs. Joni's Food Services, Inc., the law does not obligate an employer to pay separation benefits when the closure is due to serious losses, for to require an employer to be generous when it is no longer in a position to do so would be unduly oppressive, unjust, and unfair to it. When the obligation to pay separation benefits is not sourced from law but from contract, such as an existing CBA between the employer and its employees, the CBA's provisions must be examined to determine the governing parameters. For a similar exemption to obtain against a contract, the tenor of the parties' agreement ought to be similar to the law's tenor; but when the parties agree to deviate therefrom and unqualifiedly covenant the payment of separation benefits irrespective of the employer's financial position, the obligatory force of that contract prevails and its terms must be carried out to their full effect. Obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith, and the parties are bound by the stipulations, clauses, terms and conditions they agreed to, subject only to the limitation that these are not contrary to law, morals, public order or public policy; where the CBA's terms are clear and there is no doubt as to the contracting parties' intention, the literal meaning of its stipulations prevails, as held in Honda Phils., Inc. vs. Samahan ng Malayang Manggagawa sa Honda. Here, it was undisputed that a CBA governed the relations of Benson and the Union from July 1, 2005 to June 30, 2010, and equally undisputed that Benson agreed to and was obligated under Section 1, Article VIII thereof to pay employees terminated without fault separation benefits at 19 days for every year of service. The whereas clauses of the parties' Memorandum of Agreement dated November 20, 2003 showed that Benson had been fully aware of its distressed financial condition even at the time of the previous CBA (July 1, 2000 to June 30, 2005), reciting that the country was in a grave economic crisis and that Benson was in grave financial difficulties and hard up meeting obligations to creditor banks that had threatened foreclosure of its factory, realties, machineries and assets; Benson itself admitted in its Comment that it was already saddled with bank loans as early as 1997 and had been unable to service its loan obligations. Yet nothing on record discounted the fact that it still unqualifiedly and freely agreed to the separation pay provision in the 2005-2010 CBA notwithstanding that condition. The SC therefore disagreed with the CA: the postulation that Benson had closed its establishment due to serious business losses cannot be accepted as an excuse to clear itself of liability, since serious business losses is not, unlike Article 297 of the Labor Code, an exculpatory parameter under the CBA. Benson, with full knowledge of its financial situation, freely and voluntarily entered the agreement, and having failed to show that the provision is contrary to law, morals, public order or public policy, or that it can be interpreted as one with a condition that the parties contemplated non-payment in the event of closure due to serious business losses, the SC was constrained to reinstate the VA decision. Lepanto Ceramics, Inc. vs. Lepanto Ceramics Employees Association is analogous: the employer there was held liable for Christmas bonus benefits because the grant was voluntarily and unqualifiedly agreed upon in the CBA despite its full awareness of its distressed financial position, the provision being unqualified and not made dependent on the company's financial standing, with the principle of non-diminution of benefits resting on the constitutional mandate to protect workers. Eastern Telecommunications Philippines, Inc. vs. Eastern Telecoms Employees Union reached a similar disposition, holding that parties to a contract are presumed to have assumed the risks of unfavorable developments, that business losses in a given year were not unforeseen given continuous prior losses, and that mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation. The CA's reliance on Galaxie Steel Workers Union (GSWU-NAFLU-KMU) vs. NLRC and Cama was misplaced because no CBA was involved in those cases, so the payment of separation benefits in view of the employer's serious business losses was not in order there; North Davao Mining Corporation vs. NLRC was speciously applied because the payment there was not sourced from a contractual CBA obligation but merely from a unilateral company practice deemed an act of generosity on the employer's part. Finding no cogent reason for Benson not to comply with its obligations under the CBA, and considering that the interpretation of any law or provision affecting labor should be in favor of labor, the SC reversed the CA and reinstated the VA decision.

• CBA as Law Between the Parties — A CBA is the negotiated contract between a legitimate labor organization and the employer concerning wages, hours of work and all other terms and conditions of employment in a bargaining unit; where its terms are clear and unambiguous, it becomes the law between the parties and compliance is mandated by the express policy of the law. The SC applied this to hold Benson bound by the 19-day separation pay rate it had freely stipulated.
• Contractual Separation Pay vs. Statutory Separation Pay — The Article 297 exemption from separation pay for closures due to serious business losses operates only against the statutory obligation. When the obligation is sourced from a contract such as a CBA, the CBA's provisions supply the governing parameters; for the same exemption to obtain against the contract, the tenor of the parties' agreement must be similar to the law's tenor.
• Unqualified Covenant Prevails Over the Employer's Financial Position — Where the parties deviate from the statutory tenor and unqualifiedly covenant the payment of separation benefits irrespective of the employer's financial position, the obligatory force of the contract prevails and its terms must be carried out to their full effect. Requisites for the employer's escape are absent here: no showing that the stipulation is contrary to law, morals, public order or public policy, and no showing that the parties contemplated non-payment in the event of closure due to serious business losses.
• Presumption of Voluntariness and Knowledge in Entering a CBA — Absent proof that consent was vitiated by fraud, mistake or duress, an employer is presumed to have entered the CBA voluntarily, with full knowledge of its contents and awareness of its commitments; it is likewise presumed to have assumed the risks of unfavorable developments, so mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation.
• Non-Diminution of Benefits — Any benefit and supplement being enjoyed by employees cannot be reduced, diminished, discontinued or eliminated by the employer; the principle is founded on the constitutional mandate to protect the rights of workers and to afford labor full protection.
• Liberal Construction in Favor of Labor — The interpretation of any law or provision affecting labor should be interpreted in favor of labor, a principle the SC invoked in justifying reversal of the CA and reinstatement of the VA decision.

• "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." — The ratio of the decision: it marks the dividing line between the statutory obligation, which the Article 297 exemption reaches, and a contractual undertaking, which it does not.
• "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." — The direct application to the facts, disposing of Benson's principal defense in one sentence.
• "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." — Quoted from Honda Phils., Inc. vs. Samahan ng Malayang Manggagawa sa Honda; the canonical formulation of the CBA-as-law doctrine applied to the case.
• "To require an employer to be generous when it is no longer in a position to do so, in our view, would be unduly oppressive, unjust, and unfair to the employer." — Quoted from Cama vs. Joni's Food Services, Inc.; states the policy rationale behind the Article 297 exemption, which the SC confined to the statutory obligation.

• Cama vs. Joni's Food Services, Inc., 469 Phil. 223 (2004) — Cited for the policy distinction between closures due to serious business losses and those which are not; its ruling was confined to the statutory obligation under Article 297 and distinguished as inapplicable where a CBA supplies the obligation.
• Honda Phils., Inc. vs. Samahan ng Malayang Manggagawa sa Honda, G.R. No. 145561, June 15, 2005, 460 SCRA 186 — Controlling precedent for the rule that a clear and unambiguous CBA is the law between the parties and compliance is mandated by law.
• Lepanto Ceramics, Inc. vs. Lepanto Ceramics Employees Association, G.R. No. 180866, March 2, 2010, 614 SCRA 63 — Held analogous: an employer was held liable for unqualified CBA-granted Christmas bonus benefits despite its full awareness of its distressed financial position, the SC stressing the non-diminution of benefits.
• Eastern Telecommunications Philippines, Inc. vs. Eastern Telecoms Employees Union, G.R. No. 185665, February 8, 2012, 665 SCRA 516 — Followed for the same disposition: parties are presumed to have assumed the risks of unfavorable developments, and mere pecuniary inability does not discharge a contractual obligation.
• Galaxie Steel Workers Union (GSWU-NAFLU-KMU) vs. NLRC, 535 Phil. 675 (2006) — Distinguished; no CBA was involved, so the Article 297 parameters governed and separation pay was not in order.
• North Davao Mining Corporation vs. NLRC, G.R. No. 112546, March 13, 1996, 254 SCRA 721 — Distinguished as speciously applied by the CA; the separation benefits there were not sourced from a contractual CBA obligation but from a unilateral company practice treated as an act of generosity.
• Sangwoo Philippines, Inc. vs. Sangwoo Philippines, Inc. Employees Union – Olalia, G.R. No. 173154 and G.R. No. 173229, December 9, 2013 — Cited for the rule that closure of business is an authorized cause for termination and that separation benefits are due except when the closure is due to serious business losses.

• Article 297 (formerly Article 283), Labor Code, as amended — Governs closure of establishment and reduction of personnel; treats closure as an authorized cause and requires separation pay equivalent to one month pay or at least one-half month pay for every year of service, whichever is higher, only in cases of closure or cessation of operations not due to serious business losses or financial reverses. Applied as the statutory baseline that Benson's CBA exceeded, and read as limiting the exemption to the statutory obligation.
• Article 1157, Civil Code — Declares that obligations arise from law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts. Cited to establish that the separation pay obligation in this case arose from contract, not law, and therefore had to be measured by the CBA.
• Article 4, Labor Code — Requires that all doubts in the implementation and interpretation of the Labor Code and its implementing rules be resolved in favor of labor. Invoked in support of reversing the CA and reinstating the VA decision.