De La Salle University vs. DLSUEA

A company's financial capability to grant wage increases must be determined on the basis of financial statements duly audited by independent and credible external auditors, not on a proposed budget, because a proposed budget does not reflect the true financial condition of a company and its use would be susceptible to abuse by employers seeking to avoid granting salary increases and fringe benefits.

Dela Salle University and the Dela Salle University Employees Association–National Federation of Teachers and Employees Union (DLSUEA-NAFTEU), representing regular non-academic rank-and-file employees, were parties to a collective bargaining agreement (CBA) effective from December 23, 1986 to December 22, 1989. During the freedom period preceding the CBA's expiration, the Union initiated negotiations for a new CBA, which proved unsuccessful on several issues. After conciliation-mediation proceedings before the National Conciliation and Mediation Board resolved five of eleven disputed issues, the parties executed a partial CBA and submitted the remaining six unresolved issues to voluntary arbitration before Buenaventura Magsalin. The parties' relationship was governed by the Labor Code's framework on collective bargaining, union security, and management prerogatives.

On December 23, 1986, Dela Salle University and the Dela Salle University Employees Association–National Federation of Teachers and Employees Union (DLSUEA-NAFTEU), composed of regular non-academic rank-and-file employees, entered into a collective bargaining agreement with a three-year term expiring December 22, 1989. During the freedom period—sixty days before the CBA's expiration—the Union initiated negotiations with the University for a new CBA. These negotiations proved unsuccessful, prompting the Union to file a Notice of Strike with the National Conciliation and Mediation Board, National Capital Region. After several conciliation-mediation meetings, five of the eleven issues raised in the Notice of Strike were resolved, and the parties executed a partial CBA.

On March 18, 1991, the parties entered into a Submission Agreement identifying the remaining six unresolved issues for arbitration: (1) scope of the bargaining unit, (2) union security clause, (3) security of tenure, (4) salary increases for the second and third years of the CBA, (5) indefinite union leave, reduction of the union president's workload, special leave, and (6) duration of the agreement. The parties appointed Buenaventura Magsalin as voluntary arbitrator, who rendered his decision on January 19, 1993.

The voluntary arbitrator ruled that computer operators assigned at the Computer Services Center should be included in the bargaining unit, finding their duties clerical and routinary rather than confidential, and similarly included discipline officers as rank-and-file employees based on the nature of their job. As to the College of St. Benilde, the voluntary arbitrator found it had a personality separate and distinct from the University and excluded its employees from the bargaining unit. On union security, the arbitrator directed the inclusion of a union shop clause in addition to the existing maintenance of membership clause. On retrenchment, the arbitrator upheld management's prerogative to select employees for lay-off or transfer, rejecting the Union's proposed "last-in-first-out" method. On salary increases, the arbitrator ruled that based on the University's proposed budget for SY 1992-93, the University could no longer be required to grant a second round of increases. On union leave and related benefits, the arbitrator rejected the Union's demands for deloading of the union president, indefinite union leave with pay, and special leave benefits. On CBA duration, the arbitrator respected the original intention of the parties as expressed in their November 19, 1990 agreement, with economic provisions to be reopened after the third year.

Both parties filed motions for reconsideration, which the voluntary arbitrator declined to entertain pursuant to existing rules and jurisprudence governing voluntary arbitration cases. The University and the Union thereafter filed separate petitions for certiorari before the Supreme Court, assailing the arbitrator's decision as having been rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. The Solicitor General, in his consolidated Comment on behalf of the voluntary arbitrator, agreed with the arbitrator on all points except the exclusion of College of St. Benilde employees, opining that sufficient evidence existed to treat the University and the College as one entity.

University's Arguments (G.R. No. 109002):

• Confidential Employee Status: Petitioner University argued that computer operators at the Computer Services Center and discipline officers were confidential employees, processing vital and confidential data including student records, faculty records, payroll data, and labor relations information, and should therefore be excluded from the bargaining unit.
• Prior CBA Exclusion: The University maintained that the parties had already agreed in the 1986 CBA to exclude all positions in the Computer Services Center and discipline officers from the bargaining unit, and that this prior agreement should bar renegotiation for their inclusion.
• Discipline Officers as Management Alter Egos: The University contended that discipline officers were clearly alter egos of management, performing tasks inherent in management such as enforcing discipline, acting as peace officers, conducting investigations, and being privy to highly confidential information.
• Union Shop Unconstitutional: The University averred that a union shop clause was unjust, oppressive, and repugnant to democratic principles and the constitutionally guaranteed freedom of individuals to join or not join an association, as well as their right to security of tenure.
• Management Prerogative in Retrenchment: The University asserted that while the Constitution recognizes workers' participation in policy and decision-making processes, this does not automatically entitle the Union to dictate how an employer should choose employees affected by retrenchment; the employer retains the prerogative to determine the reasonable basis for selection.
• Financial Incapacity for Wage Increases: The University argued that its proposed budget for SY 1992-93 could not sufficiently cope with the Union's demand for salary increases, and that it could no longer be required to grant a second round of increases without exhausting its coffers for other legitimate institutional needs.

Union's Arguments (G.R. No. 110072):

• Piercing the Veil of Corporate Fiction: Petitioner Union asserted that the veil of corporate fiction of the College of St. Benilde should be pierced, as sufficient basis existed to consider the University and the College as one entity, with the latter being a mere integral part of the former.
• Last-In-First-Out Method: The Union relied on social justice and equity to support its proposal for the "last-in-first-out" method of lay-off, submitting that the University's prerogative to select employees is limited by law or agreement, especially where its exercise might result in loss of employment.
• Financial Capability Assessment: The Union argued that the voluntary arbitrator failed to consider the University's financial statements to factually determine its capability to grant proposed salary increases over and above the 70% share in incremental tuition proceeds, and erred in giving weight to the University's proposed budget, which was merely an estimate.
• 70% Incremental Tuition Proceeds as Sole Source: The Union challenged the ruling that the 70% share in incremental tuition proceeds is the only source of salary increases and fringe benefits.
• Deloading and Leave Benefits: The Union argued that the voluntary arbitrator failed to equate the position of the union president with that of the president of the Faculty Association and failed to appreciate the equal rights of union members and faculty for professional advancement and the desirable effects of institutionalizing special leave and workload reduction benefits.

• Validity of Union Shop: Respondent Union countered that the Labor Code, specifically Article 248(e), recognizes the validity of a union shop agreement, expressly providing that nothing in the Code or any other law shall prevent the parties from requiring membership in a recognized collective bargaining agent as a condition for employment.
• Solicitor General's Position on CSB: The Solicitor General, on behalf of the voluntary arbitrator, agreed with the arbitrator's decision on all points except the College of St. Benilde issue, arguing that sufficient evidence justified treating the University and CSB as one entity, including coordinated admissions, shared personnel policies, shared purchasing, shared security programs, and University officials' own claims that CSB athletes represented the University.

• Bargaining Unit Scope (Computer Operators and Discipline Officers): Whether the computer operators assigned at the University's Computer Services Center and the University's discipline officers are confidential employees who should be excluded from the bargaining unit of rank-and-file employees.
• Bargaining Unit Scope (College of St. Benilde): Whether the employees of the College of St. Benilde should be included in the bargaining unit of the University's rank-and-file employees, notwithstanding the College's separate juridical personality.
• Union Shop Clause: Whether a union shop clause should be included in the parties' collective bargaining agreement in addition to the existing maintenance of membership clause.
• Last-In-First-Out Method: Whether the denial of the Union's proposed "last-in-first-out" method of laying-off employees in cases of retrenchment was proper.
• Salary Increases: Whether the voluntary arbitrator committed grave abuse of discretion in ruling, on the basis of the University's proposed budget, that the University could no longer be required to grant a second round of wage increases for school years 1991-92 and 1992-93.
• Union President Deloading and Leave Benefits: Whether the denial of the Union's proposals on deloading of the union president, improved leave benefits, and indefinite union leave with pay was proper.
• Multi-Sectoral Committee: Whether the finding that the multi-sectoral committee in the University is the legitimate group which determines and scrutinizes annual salary increases and fringe benefits of employees was correct.
• 70% Incremental Tuition Proceeds: Whether the ruling that the 70% share in the incremental tuition proceeds is the only source of salary increases and fringe benefits of the employees was proper.

• Bargaining Unit Scope (Computer Operators and Discipline Officers): No, grave abuse of discretion was not committed. The computer operators and discipline officers are not confidential employees and were correctly included in the bargaining unit of rank-and-file employees, their duties being clerical and non-confidential in nature.
• Bargaining Unit Scope (College of St. Benilde): No, grave abuse of discretion was not committed. The College of St. Benilde has a separate juridical personality, and no sufficient evidence was shown to justify piercing the veil of corporate fiction; its employees were correctly excluded from the University's bargaining unit.
• Union Shop Clause: No, grave abuse of discretion was not committed. A union shop clause is a valid form of union security recognized by the Labor Code and consistent with constitutional policy to promote unionism and collective bargaining.
• Last-In-First-Out Method: No, grave abuse of discretion was not committed. The University, in the exercise of management prerogative, has the right to adopt valid and equitable grounds as basis for terminating or transferring employees, including performance, qualifications, and competence.
• Salary Increases: Yes, grave abuse of discretion was committed. The voluntary arbitrator erred in relying on the University's proposed budget rather than externally audited financial statements to determine the University's financial capability to grant wage increases.
• Union President Deloading and Leave Benefits: No, grave abuse of discretion was not committed. There was no justifiable reason for granting the Union's demands for deloading of the union president, improved leave benefits, and indefinite union leave with pay.
• Multi-Sectoral Committee: No, grave abuse of discretion was not committed. The voluntary arbitrator did not gravely abuse his discretion in finding the multi-sectoral committee to be the group responsible for determining wage increases, though any such determination must still be based on duly audited financial statements.
• 70% Incremental Tuition Proceeds: Deemed unnecessary and irrelevant to resolve, in view of the rulings on the salary increase issue and the absence of evidence that the University held incremental tuition fee proceeds from which any wage increase could be satisfied.

• Bargaining Unit Scope (Computer Operators and Discipline Officers): The express exclusion of computer operators and discipline officers from the bargaining unit in the 1986 CBA did not bar renegotiation for their future inclusion, because during the freedom period the parties may not only renew the existing CBA but may also propose and discuss modifications or amendments thereto. On the merits, the service record of a computer operator revealed duties that were basically clerical and non-confidential in nature. While the University argued that these employees had access to vital information regarding the University's operations, access to such information did not necessarily make them confidential employees. As to discipline officers, based on the nature of their duties, they were not confidential employees and therefore properly belonged to the rank-and-file bargaining unit. The Court agreed with the Solicitor General's careful examination of the service records.

• Bargaining Unit Scope (College of St. Benilde): The Court affirmed the voluntary arbitrator's finding that the College of St. Benilde has a personality separate and distinct from the University. Despite the Union's arguments and the Solicitor General's position that the two institutions should be treated as one entity based on coordinated admissions, shared personnel policies, shared purchasing, and other operational links, the Court found no sufficient evidence to justify piercing the veil of corporate fiction. The two educational institutions maintain their own separate juridical personality, and the employees of the College of St. Benilde were therefore correctly excluded from the University's rank-and-file bargaining unit.

• Union Shop Clause: The Court affirmed the inclusion of a union shop provision in addition to the existing maintenance of membership clause. The University's reliance on Victoriano vs. Elizalde Rope Workers' Union was misplaced, as that case recognized that the right to refrain from joining labor organizations is limited and is withdrawn by operation of law where a labor union and an employer have agreed on a closed shop. Article 248(e) of the Labor Code expressly provides that nothing in the Code or any other law shall prevent the parties from requiring membership in a recognized collective bargaining agent as a condition for employment. A union shop clause is a valid form of union security consistent with the constitutional policy to promote unionism and collective bargaining.

• Last-In-First-Out Method: The Court agreed with the voluntary arbitrator that, as an exercise of management prerogative, the University has the right to adopt valid and equitable grounds as basis for terminating or transferring employees. Citing Autobus Workers' Union (AWU) and Ricardo Escanlar vs. National Labor Relations Commission, the Court reiterated that a valid exercise of management prerogative covers work assignment, working methods, transfer of employees, and the discipline, dismissal, and recall of workers. Except as limited by special laws, an employer is free to regulate all aspects of employment according to its own discretion and judgment. The Union's reliance on social justice and equity did not override this prerogative.

• Salary Increases: The voluntary arbitrator committed grave abuse of discretion in relying on the University's proposed budget to determine its financial capability. Citing Caltex Refinery Employees Association (CREA) vs. Jose S. Brillantes, the Court held that the standard proof of a company's financial standing is its financial statements duly audited by independent and credible external auditors. A proposed budget does not reflect the true financial condition of a company, unlike audited financial statements. Moreover, the use of a proposed budget as proof of financial condition would be susceptible to abuse by scheming employers who might feign dire financial condition to avoid granting salary increases and fringe benefits. The issue was therefore remanded for resolution based on the University's externally audited financial statements already submitted by the Union before the voluntary arbitrator.

• Union President Deloading and Leave Benefits: The Court agreed with the voluntary arbitrator's rejection of the Union's demands. Unionism is no valid reason for the reduction of the workload of the union president, and there was no sufficient justification to grant an indefinite leave. The Union and the Faculty Association were not similarly situated technically and professionally, and while professional growth is encouraged for rank-and-file employees, educational advancement would not serve in the same degree as demanded of faculty members. No justifiable reason existed for granting the proposed benefits.

• Multi-Sectoral Committee: The Court found no grave abuse of discretion. During negotiations, the Union demanded 25% and 40% salary increases for the second and third years, respectively, while the University counter-proposed 10% for the third year. After the multi-sectoral committee on budget—composed of students, parents, faculty, administration, and union—met, the University granted across-the-board increases of 11.3% and 19% for the second and third years. While the arbitrator found the committee decided increases based on the University's viability sourced from tuition fees, no finding was made as to the basis of the committee's decision. Assuming the committee was the responsible group, its determination must still be based on duly audited financial statements per the Court's ruling on the salary increase issue.

• 70% Incremental Tuition Proceeds: The Court deemed any determination of this alleged error unnecessary and irrelevant, given the rulings on the preceding salary increase issues and the absence of evidence presented before the voluntary arbitrator that the University held incremental tuition fee proceeds from which any wage increase or fringe benefit could be satisfied.

• Standard of Proof for Financial Capability — The standard proof of a company's financial standing is its financial statements duly audited by independent and credible external auditors, not a proposed budget. A proposed budget does not reflect the true financial condition of a company and its use would be susceptible to abuse by employers feigning dire financial condition to avoid granting salary increases. The Court applied this doctrine by remanding the salary increase issue for resolution based on the University's externally audited financial statements.

• Management Prerogative — A valid exercise of management prerogative covers work assignment, working methods, time, supervision of workers, transfer of employees, work supervision, and the discipline, dismissal and recall of workers. Except as provided for or limited by special laws, an employer is free to regulate, according to its own discretion and judgment, all aspects of employment. The Court applied this doctrine in upholding the University's right to adopt valid and equitable grounds for retrenchment selection, rejecting the Union's proposed "last-in-first-out" method.

• Freedom Period and CBA Renegotiation — During the freedom period (60 days before CBA expiration), parties may not only renew the existing CBA but may also propose and discuss modifications or amendments thereto. A prior CBA provision excluding certain employees from the bargaining unit does not bar renegotiation for their future inclusion. The Court applied this principle in rejecting the University's argument that the 1986 CBA's exclusion of computer operators and discipline officers was binding and precluded renegotiation.

• Union Shop as Valid Union Security — A union shop clause is a valid form of union security recognized by the Labor Code and consistent with constitutional policy to promote unionism and collective bargaining. The right to refrain from joining labor organizations is limited and may be withdrawn by operation of law where the parties have agreed on a union shop or closed shop. The Court applied this doctrine in affirming the inclusion of a union shop clause in addition to the existing maintenance of membership clause.

• Certiorari in Labor Cases — In petitions for certiorari under Rule 65 involving labor cases, factual findings of quasi-judicial agencies supported by substantial evidence are binding on the Court. The sole office of the writ of certiorari is correction of errors of jurisdiction including grave abuse of discretion amounting to lack or excess of jurisdiction; it does not include correction of evaluation of evidence and factual findings. Substantial evidence is such amount of relevant evidence which a reasonable mind will accept as adequate to justify a conclusion.

• "[W]e believe that the standard proof of a company's financial standing is its financial statements duly audited by independent and credible external auditors." — This passage articulates the controlling rule on proof of financial capability in labor arbitration, establishing the evidentiary standard that a proposed budget cannot satisfy.

• "The financial capability of a company cannot be based on its proposed budget because a proposed budget does not reflect the true financial condition of a company, unlike audited financial statements, and more importantly, the use of a proposed budget as proof of a company's financial condition would be susceptible to abuse by scheming employers who might be merely feigning dire financial condition in their business ventures in order to avoid granting salary increases and fringe benefits to their employees." — This passage states the ratio decidendi for the remand of the salary increase issue, explaining why audited financial statements are required rather than budgets.

• "[A] valid exercise of management prerogative is one which, among others, covers: work assignment, working methods, time, supervision of workers, transfer of employees, work supervision, and the discipline, dismissal and recall of workers. Except as provided for, or limited by special laws, an employer is free to regulate, according to his own discretion and judgment, all aspects of employment." — This passage, quoted from Autobus Workers' Union vs. NLRC, defines the scope of management prerogative as applied to retrenchment selection.

• Caltex Refinery Employees Association (CREA) vs. Jose S. Brillantes, 279 SCRA 218 (1997) — Cited for the rule that the standard proof of a company's financial standing is its financial statements duly audited by independent and credible external auditors, and for the procedural rules governing certiorari in labor cases.
• Flores vs. National Labor Relations Commission, 253 SCRA 494 (1996) — Cited for the principle that certiorari under Rule 65 is an extraordinary remedy available only for correction of errors of jurisdiction, not for re-evaluation of evidence or factual findings.
• Victoriano vs. Elizalde Rope Workers' Union, 59 SCRA 54 (1974) — Distinguished; the University's reliance was held misplaced, as the case recognized that the right to refrain from joining labor organizations is limited and may be withdrawn by operation of law where a closed shop or union shop has been agreed upon.
• Autobus Workers' Union (AWU) and Ricardo Escanlar vs. National Labor Relations Commission, 291 SCRA 219 (1998) — Followed for the definition and scope of valid management prerogative covering work assignment, transfer, discipline, dismissal, and recall of workers.
• Saballa vs. National Labor Relations Commission, 260 SCRA 697 (1996) — Cited through CREA vs. Brillantes for the proposition that audited financial statements constitute the normal method of proof of profit and loss performance of a company.

• Article 248(e), Labor Code — Provides that nothing in the Code or any other law shall prevent the parties from requiring membership in a recognized collective bargaining agent as a condition for employment, except for employees already members of another union at the time of signing the CBA. Applied to uphold the validity of the union shop clause.
• Article 211, Labor Code — Declares State policy to ensure the participation of workers in decision and policy-making processes affecting their rights, duties, and welfare. The Union invoked this provision to support its "last-in-first-out" proposal, but the Court found it did not override management prerogative in retrenchment selection.
• Article XIII, Section 3, Constitution — Recognizes the right of workers to participate in policy and decision-making processes affecting their rights and benefits as may be provided by law. The University invoked this provision to argue that worker participation does not entitle the Union to dictate retrenchment selection methods.
• Rule 65, Rules of Court — Governs the extraordinary remedy of certiorari, available only for correction of errors of jurisdiction including grave abuse of discretion amounting to lack or excess of jurisdiction, not for re-evaluation of evidence.

Bellosillo, Mendoza, Quisumbing, and De Leon, Jr., JJ., concurred.