Cruz vs. PAFLU

A sale of a business enterprise executed in bad faith to evade collective bargaining with the employees' duly chosen exclusive representative constitutes an unfair labor practice; the Court of Industrial Relations' finding of bad faith, supported by substantial evidence, is conclusive, and a buyer who participates in the bad-faith sale is liable as a tort-feasor for reinstatement and back wages.

Quality Container Factory was a joint business venture of the spouses Catalina V. Tan and Victor Tan, engaged in the manufacture and sale of tin cans and employing hired workers. Its workers organized a labor union that became affiliated with the Philippine Association of Free Labor Unions (PAFLU). Carlos Cruz was the vendee whose liability for the factory's labor obligations was at issue. The Industrial Peace Act (Republic Act No. 875) governed the dispute, establishing a regime of free collective bargaining, making the majority-chosen labor organization the exclusive bargaining representative, and defining unfair labor practices.

Quality Container Factory was a joint business venture of the spouses Catalina V. Tan and Victor Tan, engaged in the manufacture and sale of tin cans and employing hired workers. In January 1961, the workers formed a union, elected its officers, and registered it with the Department of Labor. On February 28, 1961, the factory received from the complaining union a notice of its existence with an attached collective bargaining proposal. After a series of unreasonable delays in discussing or negotiating the possibility of a collective bargaining contract, a management-inspired petition was filed with the Court of Industrial Relations, docketed as Case No. 894-MC. Despite the protest lodged by the Philippine Transport and General Workers Organization, the Philippine Association of Free Labor Unions (PAFLU) emerged with a clear majority and was declared the winning collective bargaining representative of the Quality Container Factory Workers.

On June 14, 1963, after the certification issue was decided, the complainant union proposed to continue negotiations to possibly finalize a collective bargaining contract with management. Less than a month later, on July 11, 1963, the factory was sold to Carlos Cruz. In the proceedings below, Mrs. Tan testified that she adequately informed the buyer of the existence of the complainant union, while Carlos Cruz testified that the matter was never discussed in the preliminary talks prior to the sale. The Court of Industrial Relations found it impossible to lend credence to both contradictory narrations. Although the sale appeared without flaw in all its phases and all its elements were present to clothe it with validity, the motive was never disclosed.

The Court of Industrial Relations found no evidence that business was lean, that the former owners wanted to retire from trade, or that they were branching out into other business fields. From the outset of the union's organization, management found a foe it would not recognize. In Case No. 894-MC, the company claimed an existing collective bargaining contract with another union but never produced it. Evidence strongly insinuated that the company supported a stand adverse to the workers' sentiments, and further hinted that during the pendency of the protest in the certification case, the company financed the presentation of witnesses to testify against the union. The labor dispute was at its height and still mounting at the time the sale was made.

The Court of Industrial Relations concluded that the sale was executed not for any other cause but to rid the company of its labor problems, and that all phases of the evidence pointed to this. It found the transaction tainted by bad faith and constituting unfair labor practice.

• Absence of Bad Faith: Petitioners Catalina V. Tan, Victor Tan, and Carlos Cruz contended that the Court of Industrial Relations' conclusion that the sale was tainted by bad faith should not be sustained, arguing that the law had not been ignored and that the verdict was not offensive to reason or common sense.
• Reinstatement and Back Wages: The Tan spouses and Cruz assigned as error the order of reinstatement of the members of complainant Union and the award of back wages, maintaining that such relief was without foundation.
• In Personam Labor Contracts: Petitioner Cruz argued that labor contracts are in personam and not enforceable against a transferee of an enterprise, there being no previous employer-employee relationship between the new owner and the complaining employees; he relied on Visayan Transportation Co. vs. Java.

• Evasion of Collective Bargaining: Respondent Union claimed that the sale of the Quality Container Factory was designed to avoid bargaining collectively with it as the duly chosen representative of the employees and thus constituted unfair labor practice.

• Bad Faith and Unfair Labor Practice: Whether the Court of Industrial Relations' finding that the sale of the Quality Container Factory was tainted by bad faith and constituted unfair labor practice designed to avoid collective bargaining should be sustained.
• Reinstatement and Back Wages: Whether the Court of Industrial Relations properly ordered the reinstatement of the members of respondent Union with full back wages.
• Transferee Liability / In Personam Contracts: Whether labor contracts being in personam are not enforceable against Carlos Cruz as transferee of the enterprise, absent a previous employer-employee relationship with the complaining employees.

• Bad Faith and Unfair Labor Practice: Yes. The Court of Industrial Relations' finding of bad faith was supported by substantial evidence and is conclusive; the sale was designed to evade collective bargaining and constituted unfair labor practice.
• Reinstatement and Back Wages: Yes. The Industrial Peace Act authorizes the Court of Industrial Relations to order reinstatement with or without back pay; the award is subject to deduction of wages actually earned elsewhere.
• Transferee Liability / In Personam Contracts: No. Cruz cannot escape liability on the in personam theory because he was a party responsible for the damage as a tort-feasor in the bad-faith sale.

• Bad Faith and Unfair Labor Practice: The Court of Industrial Relations' factual determinations, if supported by substantial evidence on the record, are conclusive under the Industrial Peace Act. The Court recognized the wide discretion enjoyed by the Court of Industrial Relations in labor disputes and its conclusions are generally accepted unless there is abuse of discretion or a rank failure to observe constitutional and statutory limitations. The evidence showed that the union was organized in January 1961, served a notice and collective bargaining proposal on February 28, 1961, and won certification as the exclusive bargaining representative in Case No. 894-MC. On June 14, 1963, after certification, the union proposed to continue negotiations; less than a month later, on July 11, 1963, the factory was sold to Cruz. No evidence showed business losses, retirement, or branching out. The company opposed the union, claimed an existing collective bargaining contract with another union but never produced it, and financed witnesses against the union. The labor dispute was at its height when the sale was made. The Court of Industrial Relations found the sale simulated to rid management of labor problems, and the contradictory testimonies of Mrs. Tan and Cruz on disclosure did not establish good faith. The sale had all elements except the motive, which was never disclosed. The statutory scheme of free collective bargaining would be frustrated if a sale could evade the employer's duty to bargain with the exclusive representative. The Tan spouses failed to bargain with PAFLU, an unfair labor practice, compounded by discrimination in tenure or condition of employment. Cruz's connivance was elicited, and the Court of Industrial Relations properly refused to countenance the resulting dismissal. The finding was not repugnant to law.
• Reinstatement and Back Wages: The Industrial Peace Act empowers the Court of Industrial Relations to take such affirmative action as will effectuate its policies, including reinstatement of employees with or without back pay. Under the doctrine in East Asiatic Company, Ltd. vs. Court of Industrial Relations, an illegally dismissed employee is entitled to the whole amount of salaries or wages plus all other benefits, bonuses, and general increases to which he would have been normally entitled had he not been dismissed and had not stopped working. The employer may deduct the salaries or wages the employee would have earned in his old employment on the corresponding days he was actually gainfully employed elsewhere with an equal or higher salary or wage; if the salary or wage in the other employment was less, the employer may deduct only what was actually earned. This reconciles the statutory command with the equitable concept of deduction. The decision under review, as thus construed, was free from the alleged infirmity.
• Transferee Liability / In Personam Contracts: Cruz relied on Visayan Transportation Co. vs. Java for the proposition that labor contracts are in personam and not enforceable against a transferee of an enterprise absent a previous employer-employee relationship. The Court found no need to inquire into the applicability of that decision if the facts were otherwise and no bad faith could be imputed to Cruz. Here, however, Cruz was in the position of a tort-feasor, having been a party responsible for the damage inflicted on the members of respondent Union, and therefore could not justly escape liability. The Court did not discount the criticism to which the Visayan Transportation Company case had been subjected insofar as it would ignore the binding force of a collective bargaining contract upon the sale of an enterprise when the vendee is the successor-in-interest of the vendor, but the bad-faith participation of Cruz sufficed to dispose of the assigned error.

• Conclusiveness of CIR factual findings — Under the Industrial Peace Act, factual determinations of the Court of Industrial Relations, if supported by substantial evidence on the record, shall be conclusive. The Court also recognized the wide discretion of the Court of Industrial Relations in labor disputes; its conclusions, factual and legal, are generally accepted unless there is abuse of discretion or a rank failure to observe constitutional and statutory limitations. Applied: the finding that the sale was tainted by bad faith was affirmed.
• Unfair labor practice by sale to evade collective bargaining — A sale of a business enterprise executed in bad faith to avoid bargaining collectively with the employees' duly chosen exclusive representative constitutes an unfair labor practice. The Court applied this to the Tan spouses' failure to bargain and the sale to Cruz.
• Exclusive bargaining representative — The labor organization designated or selected by the majority of employees in an appropriate collective bargaining unit is the exclusive representative of all employees for collective bargaining as to rates of pay, wages, hours, and other conditions of employment. The employer's refusal to bargain with such representative is an unfair labor practice. Applied: PAFLU was certified as the exclusive representative, and the Tan spouses failed to bargain with it.
• Reinstatement and back wages; deduction of earnings elsewhere — The Court of Industrial Relations may order reinstatement with or without back pay. An illegally dismissed employee is entitled to the whole amount of salaries or wages plus benefits, bonuses, and general increases, but the employer may deduct wages actually earned in other employment on corresponding days if equal or higher; if lower, only the actual amount earned may be deducted. Applied: the reinstatement and back-wage order was affirmed as so construed.
• Transferee liability and tort-feasor exception — Labor contracts are generally in personam and may not be enforceable against a transferee of an enterprise absent a previous employer-employee relationship, but a buyer who participates in a bad-faith sale designed to evade labor obligations is in the position of a tort-feasor and is liable for the damage inflicted on the employees. Applied: Cruz could not escape liability.

• "The labor organization designated or selected for the purpose of collective bargaining by the majority of the employees in an appropriate collective bargaining unit shall be the exclusive representative of all the employees in such unit for the purpose of collective bargaining in respect to rates of pay, wages, hours of employment, or another conditions of employment: ... ." — This states the exclusive-representative rule under the Industrial Peace Act, the statutory basis for the unfair labor practice finding.
• "For respondent Court, according to the Industrial Peace Act, is called upon to 'take such affirmative action as will effectuate [its policies] including reinstatement of employees with or without back pay.'" — This identifies the Court of Industrial Relations' remedial authority for the reinstatement and back-wage order.
• "It is the obligation of the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all other benefits and bonuses and general increases, to which he would have been normally entitled had he not been dismissed and had not stopped working, but it is the right, on the other hand, of the employer to deduct from the total of these, the amount equivalent to the salaries or wages the employee or worker would have earned in his old employment on the corresponding days that he was actually gainfully employed elsewhere with an equal or higher salary or wage, such that if his salary or wage in his other employment was less, the employer may deduct only what has been actually earned." — This is the East Asiatic doctrine on back wages and deductions.
• "It suffices to state that petitioner Cruz is in the position of a tort-feasor having been a party likewise responsible for the damage inflicted on the members of respondent Union and therefore cannot justly escape liability." — This is the ratio for rejecting Cruz's in personam defense and holding the buyer liable.

• National Waterworks and Sewerage Authority vs. NWSA Consolidated Union, L-28694-96, Feb. 28, 1969, 27 SCRA 227 — Cited for the controlling doctrine that the Court of Industrial Relations enjoys wide discretion in labor disputes and its conclusions are accorded acceptance unless there is a rank failure to observe constitutional and statutory limitations. Followed.
• Philippine Land-Air-Sea Labor Union vs. Sy Indong Co. Rice & Corn Mills, L-18476, May 30, 1964, 11 SCRA 277 — Cited as a leading case supporting a finding of bad faith where a business reorganization or sale was designed to evade labor liabilities; the Court found its reasoning applicable.
• East Asiatic Company, Ltd. vs. Court of Industrial Relations, L-29068, August 31, 1971 — Cited for the doctrine on back wages and deduction of wages earned elsewhere; followed in affirming the back-wage award.
• Visayan Transportation Co. vs. Java, 93 Phil. 962 (1953) — Cited by petitioner Cruz for the proposition that labor contracts are in personam and not enforceable against a transferee; the Court did not apply it because Cruz was a tort-feasor, while noting criticism of its broad implications.
• Manila Electric Co. vs. National Labor Union, 70 Phil. 617 (1940) — Cited for the rule that a Court of Industrial Relations finding loses its conclusive character only upon a showing of abuse of discretion. Followed.

• Section 12, paragraph (a), Republic Act No. 875 (Industrial Peace Act) — Provides that the labor organization designated or selected by the majority of employees in an appropriate collective bargaining unit shall be the exclusive representative for collective bargaining as to rates of pay, wages, hours, and other conditions of employment. Applied: PAFLU, having won certification, was the exclusive representative; the Tan spouses' failure to bargain with it was unlawful.
• Section 6, paragraph 6, Republic Act No. 875 — Defines as an unfair labor practice the refusal to bargain collectively with the representatives of employees. Applied: the Tan spouses' refusal to bargain with PAFLU constituted an unfair labor practice.
• Section 6, paragraph 4, Republic Act No. 875 — Defines as an unfair labor practice discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in a labor organization. Applied: the Court found this compounded the refusal to bargain.
• Section 6, Republic Act No. 875 — Provides that factual determinations of the Court of Industrial Relations, if supported by substantial evidence on the record, shall be conclusive. Applied: the bad-faith finding was affirmed as conclusive.
• Industrial Peace Act (Republic Act No. 875) — Authorizes the Court of Industrial Relations to take such affirmative action as will effectuate its policies, including reinstatement of employees with or without back pay. Applied: the reinstatement and back-wage order was upheld, subject to deduction of earnings elsewhere.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Barredo, Villamor, and Makasiar, JJ., concurred. Castro, J., took no part; Teehankee, J., reserved his vote.