Blaquera vs. Alcala

Administrative Orders regulating the grant and amount of productivity incentive benefits to government employees are valid exercises of the President's constitutional power of control over executive departments, and a government-owned and controlled corporation created by special charter whose employees are covered by Civil Service Law is excluded from the coverage of RA 6971 (Productivity Incentives Act of 1990), which applies only to private business enterprises and GOCCs incorporated under the general corporation law.

Petitioners in G.R. Nos. 109406, 110642, 111494, and 112056 are officials and employees of several government departments and agencies who were paid incentive benefits for calendar year 1992 pursuant to Executive Order No. 292 (the Administrative Code of 1987) and the Omnibus Rules Implementing Book V thereof. Petitioner in G.R. No. 119597 is the Association of Dedicated Employees of the Philippine Tourism Authority (ADEPT), an association of employees of the Philippine Tourism Authority (PTA), a government-owned and controlled corporation created under Presidential Decree No. 189, as amended by PD 564, whose officials and employees are subject to Civil Service Law. The legal framework governing the dispute includes EO 292's employee suggestions and incentive award system, RA 6971 (the Productivity Incentives Act of 1990), RA 6758 (the Salary Standardization Law), and two executive issuances — Administrative Order No. 268 (issued February 21, 1992, by President Aquino) and Administrative Order No. 29 (issued January 19, 1993, by President Ramos) — which respectively granted and regulated productivity incentive benefits for government personnel.

Petitioners in G.R. Nos. 109406, 110642, 111494, and 112056 are officials and employees of various government departments and agencies who were paid productivity incentive benefits for calendar year 1992 pursuant to EO 292 and the Omnibus Rules Implementing Book V thereof. The benefits were granted by their respective department or agency heads in amounts that varied across agencies. On February 21, 1992, President Aquino issued Administrative Order No. 268, which granted each official and employee of the government productivity incentive benefits in a maximum amount equivalent to thirty percent of one month's basic salary (but not less than ₱2,000) for those who had rendered at least one year of service as of December 31, 1991. Section 7 of AO 268 prohibited heads of agencies, including governing boards of government-owned or controlled corporations and financial institutions, from authorizing or granting productivity incentive benefits or similar allowances for calendar year 1992 and future years without prior presidential approval, pending a comprehensive study by the Office of the President in coordination with the Civil Service Commission and the Department of Budget and Management.

Notwithstanding this prohibition, some government offices, agencies, and government-owned or controlled corporations granted productivity incentive benefits in varying nomenclature and amounts without proper authorization or coordination with the Office of the President. On January 19, 1993, President Ramos issued Administrative Order No. 29, which authorized the grant of productivity incentive benefits for calendar year 1992 in the maximum amount of ₱1,000 per employee and reiterated the prohibition under Section 7 of AO 268 against granting such benefits without prior presidential approval. Section 4 of AO 29 directed all departments, offices, and agencies that had authorized payment of CY 1992 productivity incentive benefits in excess of the prescribed amount to immediately cause the return or refund of the excess within a period of six months, commencing fifteen days after the issuance of the order. In compliance, the heads of the departments and agencies concerned — the herein respondents — caused the deduction from petitioners' salaries or allowances of the amounts needed to cover the alleged overpayments. To prevent further deductions, petitioners filed the petitions for certiorari and prohibition before the Supreme Court.

In G.R. No. 119597, the factual background differs but the petition poses a common issue. The petitioner, ADEPT, is an association of employees of the Philippine Tourism Authority, a government-owned and controlled corporation created under Presidential Decree No. 189, as amended by PD 564. PTA's officials and employees are subject to Civil Service Law, rules, and regulations. PTA employees were granted a productivity incentive bonus for calendar year 1992 pursuant to RA 6971, the Productivity Incentives Act of 1990. The Corporate Auditor disallowed the bonus on the ground that it was prohibited under AO 29. The disallowance was appealed to the Commission on Audit, which denied the appeal in its Decision of March 6, 1995, ruling that PTA is excluded from RA 6971's coverage because it is a GOCC created in pursuance of state policy whose employees are covered by Civil Service Law, and that RA 6971 pertains to private sector agencies whose employees are governed by the Labor Code. ADEPT then filed a petition for certiorari before the Supreme Court.

• Violation of EO 292: Petitioners argued that AO 29 and AO 268 violate the provisions of EO 292 (the Administrative Code of 1987), which is a law and therefore prevails over executive issuances, rendering the administrative orders null and void.
• Usurpation of CSC Authority: Petitioners asserted that AO 29 and AO 268 unlawfully usurp the constitutional authority granted solely to the Civil Service Commission to adopt measures to strengthen the merit and rewards system and to promulgate rules, regulations, and standards governing the incentive awards system of the civil service.
• Unconstitutional Impairment of Contractual Obligation: Petitioners contended that the forced refund of incentive pay constitutes an unconstitutional impairment of a contractual obligation.
• Personal Liability of Officials: Petitioners maintained that, assuming the grant of productivity incentive benefits was invalid, the refund should be the personal liability of the officials directly responsible therefor in accordance with Section 9 of AO 268.
• Coverage of RA 6971 (ADEPT): Petitioner ADEPT contended that the PTA is a government-owned and controlled corporation performing proprietary functions and therefore falls within the coverage of RA 6971, and that the Secretary of Labor and Employment and the Secretary of Finance exceeded their authority in issuing the Supplemental Rules Implementing RA 6971, which excluded GOCCs created in pursuance of state policy from the law's coverage.

• Validity of AO 29 and AO 268: Whether Administrative Order Nos. 29 and 268 are violative of the provisions of EO 292 and hence null and void.
• Encroachment on CSC Authority: Whether AO 29 and AO 268 unlawfully usurp the constitutional authority granted solely to the Civil Service Commission to administer the incentive awards system.
• Impairment of Contractual Obligation: Whether the forced refund of incentive pay constitutes an unconstitutional impairment of a contractual obligation.
• Personal Liability of Officials: Whether the refund of the incentive benefits, if required, should be the personal liability of the officials directly responsible for the grant.
• Coverage of RA 6971: Whether the Philippine Tourism Authority, a government-owned and controlled corporation with an original charter, is within the coverage of RA 6971 (the Productivity Incentives Act of 1990).

• Validity of AO 29 and AO 268: No. AO 29 and AO 268 were issued in the valid exercise of the President's constitutional power of control over executive departments under Section 17, Article VII of the 1987 Constitution, and did not violate EO 292.
• Encroachment on CSC Authority: No. The President did not encroach upon the Civil Service Commission's authority; the administrative orders merely regulated the grant and amount of incentive benefits, which is an executive function involving the sound management and effective utilization of government financial resources.
• Impairment of Contractual Obligation: No. The incentive pay or benefit is in the nature of a bonus, which is not a demandable or enforceable obligation, and the acts involved are governmental rather than proprietary.
• Personal Liability of Officials: No. Absent a showing of bad faith or malice, public officers are not personally liable for damages resulting from the performance of official duties, and every public official is entitled to the presumption of good faith.
• Coverage of RA 6971: No. The PTA, being a government-owned and controlled corporation with an original charter whose employees are covered by Civil Service Law, is not within the coverage of RA 6971, which applies only to private business enterprises and GOCCs incorporated under the general corporation law.

• Validity of AO 29 and AO 268: The 1987 Constitution vests in the President the power of control over all executive departments, bureaus, and offices, and the duty to ensure that the laws be faithfully executed. Control means the power of an officer to alter, modify, or set aside what a subordinate officer had done and to substitute the former's judgment for the latter's. When the President issued AO 29 limiting the amount of incentive benefits, enjoining heads of government agencies from granting incentive benefits without prior approval, and directing the refund of excess amounts, he was exercising this power of control by modifying the acts of subordinate agency heads who had granted incentive benefits without appropriate clearance, resulting in the uneven distribution of government resources. The WHEREAS clauses of both AO 268 and AO 29 demonstrate that the President acted to regulate the grant of productivity incentive benefits and to prevent discontentment, dissatisfaction, and demoralization among government personnel caused by the unilateral and uncoordinated grant of varying amounts. EO 292 itself authorizes the President or the head of each department or agency to incur necessary expenses for the honorary recognition of subordinate officers and employees, indicating that the determination of the amount of incentives is an executive prerogative. The doctrine that in interpreting statutes, that which will avoid a finding of unconstitutionality is to be preferred further supports the validity of the administrative orders.

• Encroachment on CSC Authority: While the 1987 Constitution designates the Civil Service Commission as the central personnel agency of the Government, tasked to strengthen the merit and rewards system, EO 292 itself decentralizes personnel functions, delegating authority to departments, offices, and agencies. Section 35 of EO 292 provides that the government-wide employee suggestions and incentive awards system shall be administered under rules, regulations, and standards promulgated by the Commission, but that it is the President or the head of each department or agency who is authorized to incur the necessary expenses involved in the honorary recognition of employees. The function of fixing the amount of incentives belongs to the President or his duly empowered alter ego, not to the Commission. Sound management and effective utilization of the financial resources of government are basically executive functions. AO 29 and AO 268 did not revoke the privilege of employees to receive incentive benefits; they merely regulated the grant and amount thereof. The Judiciary, Civil Service Commission, Commission on Audit, Commission on Elections, and Office of the Ombudsman, which enjoy fiscal autonomy, are not covered by the amounts fixed by the President.

• Impairment of Contractual Obligation: Not all contracts entered into by the government operate as a waiver of its non-suability; a distinction must be made between its sovereign and proprietary acts. The acts involved in this case are governmental, not proprietary. Furthermore, the incentive pay or benefit is in the nature of a bonus, which is not a demandable or enforceable obligation. The constitutional prohibition against impairment of contractual obligations therefore does not apply.

• Personal Liability of Officials: Absent a showing of bad faith or malice, public officers are not personally liable for damages resulting from the performance of official duties. Every public official is entitled to the presumption of good faith in the discharge of official duties, and absent any showing of bad faith or malice, there is likewise a presumption of regularity. The officials and chiefs of offices concerned disbursed the incentive benefits in the honest belief that the amounts given were due to the recipients, and the latter accepted the same confident that they deserved such benefits. No indicia of bad faith could be detected under the attendant facts and circumstances.

• Coverage of RA 6971: Section 3 of RA 6971 provides that the Act shall apply to all business enterprises, including government-owned and controlled corporations performing proprietary functions. The Supplemental Rules Implementing RA 6971, issued by the Secretary of Labor and Employment and the Secretary of Finance pursuant to Section 10 of the law, clarified that the coverage extends only to GOCCs "which are established solely for business or profit or gain and accordingly excluding those created, maintained or acquired in pursuance of a policy of the state, enunciated in the Constitution or by law, and those whose officers and employees are covered by the Civil Service." The PTA was created under PD 189 to implement the policies and programs of the Department of Tourism, and Section 21 of the same decree provides that its officials and employees are subject to Civil Service Law. While the PTA performs both governmental and proprietary functions, its powers and functions are predominantly governmental. More importantly, the legislative intent behind RA 6971, as gleaned from its other provisions — which reference collective bargaining agents, collective bargaining agreements, the right to strike or lockout, and the National Conciliation and Mediation Board of the Department of Labor and Employment — reveals that the law was intended to apply only to private corporations and GOCCs incorporated under the general corporation law. Employees of government corporations created by special charters have neither the right to strike nor the right to bargain collectively under the Labor Code, because the terms and conditions of government employment are fixed by law. Section 1, Rule X of the Omnibus Rules Implementing Book V of EO 292 already provides an incentive award system for GOCCs with original charters, confirming that Congress enacted RA 6971 to address the same concern for officials and employees of GOCCs incorporated under the general corporation law. The power of administrative officials to promulgate rules in the implementation of a statute is necessarily limited to what is provided for in the legislative enactment, and the Supplemental Rules accord with the intendment and provisions of RA 6971.

• Presidential Power of Control — The President's power of control over executive departments, bureaus, and offices under Section 17, Article VII of the 1987 Constitution includes the power to alter, modify, or set aside what a subordinate officer had done in the performance of duties and to substitute the judgment of the former for that of the latter. The President can, by virtue of this power, review, modify, alter, or nullify any action or decision of a subordinate in the executive departments, motu proprio and without need of any appeal. In this case, the President validly exercised this power by issuing AO 29 and AO 268 to regulate and cap productivity incentive benefits granted by agency heads without proper authorization, correcting the uneven distribution of government resources.

• Distinction Between Governmental and Proprietary Functions of GOCCs — Government-owned and controlled corporations may perform governmental or proprietary functions or both, depending on the purpose for which they have been created. If the purpose is to obtain special corporate benefits or earn pecuniary profit, the function is proprietary; if it is in the interest of health, safety, and the advancement of public good and welfare affecting the public in general, the function is governmental. The PTA's powers and functions were found to be predominantly governmental, though it also performs proprietary functions.

• GOCCs with Original Charters vs. GOCCs Under the General Corporation Law — Government corporations created by special charters are governed by the Civil Service Law, while those incorporated under the general corporation law are governed by the Labor Code. Employees of government corporations with special charters have neither the right to strike nor the right to bargain collectively under the Labor Code, because the terms and conditions of government employment are fixed by law. This distinction was applied to determine that PTA, a GOCC with an original charter, is excluded from RA 6971's coverage.

• Bonus as Non-Demandable Obligation — An incentive pay or benefit is in the nature of a bonus, which is not a demandable or enforceable obligation. The forced refund of such benefits therefore does not constitute unconstitutional impairment of a contractual obligation.

• Good Faith of Public Officers — Absent a showing of bad faith or malice, public officers are not personally liable for damages resulting from the performance of official duties. Every public official is entitled to the presumption of good faith and the presumption of regularity in the performance of official duties. Because all parties acted in good faith — the officials disbursed the benefits in the honest belief they were due, and the employees accepted them believing they deserved them — the Court declined to countenance the refund of incentive benefits already received.

• Fiscal Autonomy of Constitutional Bodies — The Judiciary, Civil Service Commission, Commission on Audit, Commission on Elections, and Office of the Ombudsman, which enjoy fiscal autonomy under the Constitution, are not covered by the amounts fixed by the President for incentive benefits. Fiscal autonomy means freedom from outside control, including the power and authority to fix rates of compensation not exceeding the highest rates authorized by law.

• "Control means 'the power of an officer to alter or modify or set aside what a subordinate officer had done in the performance of his duties and to substitute the judgment of the former for that of the latter.'" — This passage defines the scope of the President's power of control over executive departments, which the Court held was the constitutional basis for the validity of AO 29 and AO 268.

• "Since the terms and conditions of government employment are fixed by law, government workers cannot use the same weapons employed by workers in the private sector to secure concessions from their employers." — This passage articulates the fundamental distinction between public and private sector employment relations, which underpins the Court's ruling that GOCCs with original charters are excluded from RA 6971.

• "Considering, however, that all the parties here acted in good faith, we cannot countenance the refund of subject incentive benefits for the year 1992, which amounts the petitioners have already received." — This is the operative ruling on the refund issue, holding that good faith on the part of both disbursing officials and receiving employees precludes the recovery of incentive benefits already paid.

• "In the case under scrutiny, the Supplementary Rules Implementing RA 6971 issued by the Secretary of Labor and Employment and the Secretary of Finance accord with the intendment and provisions of RA 6971." — This passage confirms the validity of the implementing rules that excluded GOCCs with original charters from RA 6971's coverage, applying the doctrine that the power to promulgate implementing rules is limited to what the statute provides.

• Social Security System Employees Association vs. Court of Appeals, 175 SCRA 686 — Followed for the proposition that employees of government corporations with original charters are part of the civil service and are prohibited from striking, and that government employees may not resort to strikes, walkouts, or other temporary work stoppages to pressure the government.

• Lacson-Magallanes Co., Inc. vs. Paño, 21 SCRA 898 — Followed for the principle that the President's duty to execute the law and his control of all executive departments are of constitutional origin, and that he has authority to go over, confirm, modify, or reverse the action taken by his department secretaries.

• Bengzon vs. Drilon, 208 SCRA 133 — Followed to explain the scope of fiscal autonomy enjoyed by the Judiciary, the Constitutional Commissions, and the Ombudsman, and to clarify that these bodies are not covered by the President's directives fixing incentive benefit amounts.

• Alliance of Government Workers vs. Minister of Labor and Employment, 124 SCRA 1 — Followed for the principle that in government employment, the legislature and administrative heads fix the terms and conditions of employment through statutes or administrative circulars, not through collective bargaining agreements.

• PNOC-Energy Development Corporation vs. Leogardo, 175 SCRA 26 — Followed for the distinction between GOCCs created by special charters (governed by Civil Service Law) and those incorporated under the general corporation law (governed by the Labor Code).

• M.H. Wylie vs. Rarang, 209 SCRA 357 — Followed for the principle that not all contracts entered into by the government operate as a waiver of its non-suability, and that a distinction must be made between sovereign and proprietary acts.

• Section 17, Article VII, 1987 Constitution — Provides that the President shall have control of all executive departments, bureaus, and offices and shall ensure that the laws be faithfully executed. This provision was the constitutional basis for the validity of AO 29 and AO 268.

• Section 3, Article IX(B), 1987 Constitution — Defines the Civil Service Commission as the central personnel agency of the Government, tasked to establish a career service and adopt measures to promote morale, efficiency, integrity, responsiveness, progressiveness, and courtesy in the civil service, and to strengthen the merit and rewards system. The Court held that this provision does not preclude the President from regulating the grant and amount of incentive benefits.

• Section 2(1), Article IX(B), 1987 Constitution — Provides that the civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charters. This provision was cited to confirm that PTA employees, as employees of a GOCC with an original charter, are part of the civil service.

• Sections 31, 35, and 36, Chapter 5, Subtitle A, Title I, Book V, EO 292 (Administrative Code of 1987) — Establish the government-wide employee suggestions and incentive awards system, authorizing the President or the head of each department or agency to incur necessary expenses for the honorary recognition of subordinate officers and employees. These provisions were applied to show that the determination of incentive amounts is an executive function.

• Section 1, Rule X, Omnibus Rules Implementing Book V of EO 292 — Requires each department or agency of government, including GOCCs with original charters, to establish its own Employee Suggestions and Incentives Award System. This provision was cited to show that GOCCs with original charters already have an incentive award system under EO 292, confirming that RA 6971 was intended for GOCCs incorporated under the general corporation law.

• Section 3, RA 6971 (Productivity Incentives Act of 1990) — Provides that the Act shall apply to all business enterprises, including government-owned and controlled corporations performing proprietary functions. The Court interpreted this provision, in light of the law's other provisions and implementing rules, as applying only to private business enterprises and GOCCs incorporated under the general corporation law.

• Section 10, RA 6971 — Authorizes the Secretary of Labor and Employment and the Secretary of Finance to jointly promulgate implementing rules and regulations. The Court upheld the Supplemental Rules issued thereunder as consistent with the legislative intent of RA 6971.

• Section 7, AO 268 — Prohibits heads of agencies, including governing boards of GOCCs and financial institutions, from granting productivity incentive benefits for CY 1992 and future years without prior presidential approval. This provision was upheld as a valid exercise of presidential control.

• Sections 1, 2, and 4, AO 29 — Authorizes productivity incentive benefits for CY 1992 in the maximum amount of ₱1,000, reiterates the prohibition under AO 268, and directs the refund of excess amounts. These provisions were upheld as valid exercises of presidential control, though the refund directive was not enforced due to the good faith of all parties.

Narvasa, C.J., Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza, Panganiban, Martinez, and Quisumbing, JJ., concurred. Regalado, J., was on leave.