BPI Employees Union-Davao City-FUBU vs. Bank of the Philippine Islands

The contracting out of services that are not inherent to the core business of a bank, undertaken without termination or displacement of any employee and without proof of malice or bad faith, is a valid exercise of management prerogative and does not constitute unfair labor practice, even if the outsourced functions were previously performed by union members. A violation of a union shop clause in a CBA is not a gross violation of an economic provision thereof and is therefore not an unfair labor practice under Article 261 of the Labor Code, but a grievance to be resolved under the CBA’s grievance machinery.

BPI Operations Management Corporation (BOMC), a subsidiary of BPI, was created pursuant to Central Bank Circular No. 1388, Series of 1993, to provide support services for banks and financial institutions. A service agreement between BPI and BOMC was first implemented in BPI’s Metro Manila branches, leading to a ULP complaint by the Manila chapter of the union; that complaint was eventually dismissed by the NLRC and the CA. The service agreement was extended to Davao City on January 1, 1996. Following the merger of BPI and Far East Bank and Trust Company (FEBTC) on April 10, 2000, BPI transferred its cashiering function and FEBTC’s cashiering, distribution, and bookkeeping functions to BOMC, together with twelve former FEBTC employees. The petitioner union objected, arguing that these functions belonged to the bargaining unit and that the transfer deprived the union of prospective members and undermined its strength.

• Nature: Rank-and-file employees of BPI-Davao City, represented by the petitioner union, opposed the bank’s transfer of certain functions and personnel to its subsidiary BOMC under a service agreement. The union claimed that the outsourcing violated the CBA’s union shop clause and constituted unfair labor practice.

• The Service Agreement and BOMC: BOMC, a subsidiary of BPI, was created under Central Bank Circular No. 1388, Series of 1993, to provide support services such as check clearing, delivery of bank statements, fund transfers, card production, operations accounting and control, and cash servicing. A service agreement was first implemented in BPI’s Metro Manila branches. No employee was displaced; those performing transferred functions were given other assignments. The Manila union’s ULP complaint over that implementation was ultimately dismissed. The agreement was implemented in Davao City on January 1, 1996.

• Merger and Transfer of Functions: On April 10, 2000, BPI and FEBTC merged, with BPI as the surviving corporation. BPI’s cashiering function and FEBTC’s cashiering, distribution, and bookkeeping functions were thereafter handled by BOMC. Twelve former FEBTC employees were transferred to BOMC to complete its service complement.

• Union’s Objection and Proceedings: The union regarded the transfer as an encroachment on functions rightfully belonging to the bargaining unit. It argued that, by virtue of the merger, the former FEBTC employees would have formed part of the bargaining unit under the CBA’s union shop provision, but their transfer to BOMC removed them from the union’s coverage and reduced the unit’s size. The union’s formal protest and request to submit the matter to the grievance procedure were not considered grievable by BPI; the bank proposed a Labor Management Conference instead. When the conference failed and BPI allegedly ignored the demand for grievance proceedings, the union filed a notice of strike.

• NLRC Resolution: The NLRC upheld the validity of the service agreement as a legitimate exercise of management prerogative. It found that the union presented no evidence of termination or displacement of union members, that BPI had exercised utmost diligence to avoid any such result, and that Department Order No. 10 did not apply because BSP Circular No. 1388 governed.

• Court of Appeals Decision: The CA affirmed the NLRC, emphasizing that the petition raised factual questions beyond the scope of a certiorari review, that the NLRC’s findings were supported by substantial evidence, and that the corporate merger justified BPI’s exercise of business judgment. The CA also held that the union did not automatically become the bargaining agent of the merged employees and that D.O. No. 10 was not applicable to a commercial bank governed by the BSP.

• Violation of CBA and Union Shop Clause: Petitioner argued that the outsourcing of jobs included in the bargaining unit breached the union-shop agreement in the CBA. By transferring former FEBTC employees to BOMC instead of absorbing them into BPI, the number of positions covered by the bargaining unit was decreased, reducing union membership. Petitioner insisted that the CBA covered not only wages and hours but all terms and conditions of work, and that the union shop clause required absorbed employees to join the union as a condition of employment.

• Interference with Right to Self-Organization: Petitioner maintained that BPI’s contracting out of functions formerly performed by union members interfered with, restrained, and coerced employees in the exercise of their right to self-organization, citing Shell Oil Workers’ Union v. Shell Company of the Philippines, Ltd. The reduction of the bargaining unit’s size undermined the union’s strength and amounted to union busting.

• Applicability of DOLE Department Order No. 10: Petitioner contended that D.O. No. 10, which regulates permissible contracting or subcontracting activities, should prevail over BSP Circular No. 1388, because the Labor Code and its implementing rules govern employment relationships, while the BSP only regulates banking.

• Management Prerogative Not Absolute: Petitioner acknowledged BPI’s management prerogative but insisted it must be exercised in good faith and in conformity with the law and the CBA, arguing that the outsourcing was arbitrary and malicious.

• Valid Contracting-Out under BSP Circular and Management Prerogative: Respondents defended the service agreement as authorized by CBP Circular No. 1388, adopted in the exercise of management prerogative to streamline operations and focus on core activities, and explicitly recognized in the CBA’s provision granting the bank exclusive rights regarding management and operation of the business.

• No Violation of Union Shop Clause: Respondents argued that the CBA contained no express stipulation guaranteeing the continued existence of any position within the bargaining unit, unlike the CBA in the Shell case, where the company had assured the continued existence of a security guard section. Hence, Shell was not applicable.

• No Unfair Labor Practice: Respondents asserted that not a single union member was terminated, displaced, or suffered diminution of salary or benefits as a result of the service agreement. The union failed to prove bad faith, malice, or anti-union motivation, which are required to establish ULP. The decision to outsource was a justifiable business judgment.

• Premature Claim of Interference with Self-Organization: Respondents contended that the representation of prospective union members depends on the employees’ choice to join the union; thus, the union’s claim of a restraint on the right to self-organization of former FEBTC employees was premature.

• Non-applicability of D.O. No. 10: Respondents argued that, as a commercial bank, BPI’s transactions are subject to the rules and regulations of the Bangko Sentral ng Pilipinas, not to D.O. No. 10.

• Validity of Outsourcing and Management Prerogative: Whether BPI’s act of contracting out cashiering, distribution, and bookkeeping functions to BOMC was a valid exercise of management prerogative and in conformity with the law.

• Unfair Labor Practice and Violation of CBA: Whether the outsourcing of functions previously performed by union members constituted unfair labor practice or a violation of the union shop clause of the CBA.

• Harmonization of D.O. No. 10 and BSP Circular No. 1388: Whether the outsourcing was governed by DOLE Department Order No. 10 or by BSP Circular No. 1388, and whether a conflict between the two existed.

• Interference with Right to Self-Organization: Whether the transfer of twelve former FEBTC employees to BOMC and the alleged reduction of bargaining unit positions interfered with the employees’ right to self-organization.

• Validity of Outsourcing and Management Prerogative: The outsourcing was a valid exercise of management prerogative. Contracting out of services is not illegal per se; it is a business judgment with which courts will not interfere absent proof of malicious or arbitrary action. BPI’s actions were authorized by CBP Circular No. 1388, and no bad faith was demonstrated. The subject functions—cashiering (cash-delivery and deposit pick-up), distribution, and bookkeeping in a processing center—were ancillary, not core banking functions of deposit and lending, and thus permissibly outsourced under both the BSP circular and D.O. No. 10.

• Unfair Labor Practice and Violation of CBA: The alleged violation of the union shop clause did not constitute unfair labor practice. Article 261 of the Labor Code provides that only gross violations of the economic provisions of a CBA are treated as ULP; other violations are mere grievances. The union shop clause is a union security provision, not an economic provision, and any breach thereof, even if flagrant, is not a ULP. Furthermore, no employee was terminated, displaced, or suffered diminution of benefits, and no evidence of anti-union animus was presented.

• Harmonization of D.O. No. 10 and BSP Circular No. 1388: The two issuances complement each other and are not in conflict. Under the principle of interpretare et concordare leges legibus est optimus interpretandi modus, seemingly conflicting laws must be harmonized to form a coherent system. D.O. No. 10 provides a general enumeration of permissible contracting activities, while CBP Circular No. 1388 specifically identifies functions ancillary to banking that may be outsourced. BPI’s outsourcing fell within the permissible scope of both.

• Interference with Right to Self-Organization: The outsourcing did not interfere with the employees’ right to self-organization. The union presented no evidence that its members were terminated or that the exercise of their right to organize was restrained. The transfer of twelve former FEBTC employees to BOMC was not shown to have been motivated by ill will or anti-unionism, and the union’s claim of reduced membership remained unsubstantiated.

• Contracting Out as Management Prerogative — The decision to contract out services is a management prerogative that may be exercised regardless of whether the activity is peripheral or core in nature, provided the arrangement does not violate the employees’ right to security of tenure or the benefits to which they are entitled by law, and does not constitute labor-only contracting. To overturn such a decision, there must be proof that management acted maliciously or arbitrarily.

• Article 261 of the Labor Code — ULP for CBA Violations — Only gross violations of the economic provisions of a CBA constitute unfair labor practice. Other violations of a CBA, including those of union security clauses such as a union shop provision, are not ULP but are treated as grievances to be resolved through the CBA’s grievance machinery and voluntary arbitration.

• Harmonization of Laws — Under the maxim interpretare et concordare leges legibus est optimus interpretandi modus, statutes and regulations on the same subject matter must be construed in harmony with one another to form a complete, coherent, and intelligible system. Resort to choosing between conflicting laws is proper only when harmonization is impossible.

• Ancillary vs. Inherent Banking Functions — Banks perform only two inherent functions under the General Banking Law: deposit and loan functions. All others—such as cashiering, distribution, and bookkeeping—are ancillary and may be outsourced, subject to BSP regulations. Outsourcing of inherent banking functions, particularly those involving the servicing of deposit transactions, is prohibited.

• Labor-Only Contracting — Labor-only contracting exists where the contractor or subcontractor does not have substantial capital or investment relating to the job, and the employees perform activities directly related to the main business of the principal; or where the contractor does not exercise the right to control the performance of the work of the contractual employee.

• “Contracting out of services is not illegal per se. It is an exercise of business judgment or management prerogative. Absent proof that the management acted in a malicious or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer.”

• “Clearly, only gross violations of the economic provisions of the CBA are treated as ULP. Otherwise, they are mere grievances.” (citing Article 261, Labor Code)

• “Consistent with the maxim, interpretare et concordare leges legibus est optimus interpretandi modus, a statute should be construed not only to be consistent with itself but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system of jurisprudence.”

• “It is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature. What is of primordial importance is that the service agreement does not violate the employee’s right to security of tenure and payment of benefits to which he is entitled under the law.”

• Shell Oil Workers’ Union v. Shell Company of the Philippines, Ltd., 148-A Phil. 229 (1971) — Distinguished. In that case, the employer had expressly assured in the CBA the continued existence of a security guard section; no such express stipulation existed in BPI’s CBA.

• Manila Electric Company v. Quisumbing, 383 Phil. 47 (2000) — Followed for the principle that management prerogative to contract out is recognized absent malicious or arbitrary exercise.

• Alviado v. Procter & Gamble Phils., Inc., G.R. No. 160506, March 9, 2010 — Followed for the rule that farming out activities is a management prerogative regardless of whether the activity is peripheral or core, and for the elements of labor-only contracting.

• Bustamante v. NLRC, 332 Phil. 833 (1996) — Cited for the effectivity and application of Article 261 of the Labor Code, distinguishing gross violations of CBA economic provisions from other breaches.

• Dreamwork Construction, Inc. v. Janiola, G.R. No. 184861, June 30, 2009 — Followed for the maxim on statutory construction requiring harmonization of laws.

• Article 261, Labor Code of the Philippines — Governs the jurisdiction of voluntary arbitrators and defines that only gross violations of the economic provisions of a CBA are treated as unfair labor practice; other violations are grievances. Applied to reclassify the alleged breach of the union shop clause as a mere grievance, not ULP.

• DOLE Department Order No. 10, Series of 1997 — Permits contracting for works or services not directly related or integral to the main business of the principal. Harmonized with the BSP circular to allow outsourcing of ancillary bank functions.

• Central Bank Circular No. 1388, Series of 1993 (BSP Circular) — Enumerates permissible bank service contracts, including check-clearing processing, delivery of bank statements, and general support services. Authorized BPI’s contracting out of the disputed functions.

• Section 3.1, R.A. No. 8191 (General Banking Law of 2000) — Defines banks and their core functions of deposit and lending. Used to determine that the outsourced functions were not inherent banking activities.

• Article 106, Labor Code — Defines labor-only contracting. Referenced to emphasize that the arrangement was not a prohibited labor-only contract.

Velasco, Jr. (Chairperson), Peralta, Abad, and Leonen, JJ., concurred.