Federation of Free Workers vs. Inciong

The 30-day period in Section 6 of the implementing rules of P.D. No. 1123 for distressed employers to apply for exemption is merely directory, not mandatory, so the Secretary of Labor may approve applications filed beyond it absent grave abuse of discretion.

The Federation of Free Workers is a registered labor organization and the certified collective bargaining agent of the rank-and-file employees of Allied Sugar Centrals Company, a registered partnership. P.D. No. 1123 required private employers to pay an across-the-board P60.00 increase in their existing monthly emergency allowance, effective May 1, 1977, and authorized the Secretary of Labor to issue rules allowing distressed employers to be exempted while in that condition in the interest of development and employment. The Secretary issued implementing rules on May 1, 1977, including Section 6 on applications for exemption.

Allied Sugar Centrals Company, a registered partnership, employed the rank-and-file workers represented by the Federation of Free Workers. In May 1977, the company prepared to pay the P60.00 increase in emergency living allowance required by P.D. No. 1123, but it decided against payment and aborted the plan.

On August 2, 1977, the Federation wrote to the Secretary of Labor inquiring whether the company had filed an application for exemption under Section 6 of the implementing rules and requesting a copy if one had been filed. On August 30, 1977, Chairman Rachel Fidelino of the Wage Commission replied that there was no application in the company’s name in their records.

On September 27, 1977, more than 100 days after the rules took effect, the company filed with the Wage Commission its application for exemption from paying the P60.00 increase under P.D. No. 1123. The application was accompanied by some financial statements. In support, the company stressed that it had suffered substantial losses from operations during fiscal years 1974-1975 and 1975-1976, and that paying the increase would adversely affect its financial position and could lead to an inevitable shutdown. On October 19, 1977, the company submitted its income tax return for the fiscal year concerned, a sworn statement on the total number of employees, and other pertinent information.

Sometime thereafter, Chairman Fidelino submitted her report to the Secretary of Labor recommending approval of the application. On November 21, 1977, Acting Secretary Amado Inciong wrote to the company that its application was approved for one year effective May 1, 1977; the letter recited that the approval was final and unappealable. A notice of the approval order was sent to both the president of the Federation and the company.

On December 2, 1977, Chairman Fidelino received a letter from the Federation dated November 17, 1977 again inquiring whether the company had any application; she did not reply. On December 15, 1977, the Federation filed with the Office of the Secretary a motion for reconsideration seeking reversal of the approval on the grounds that the exemption was discriminatory and that the company was not in an unsound financial condition.

On March 3, 1978, the company filed another application for exemption, this time for 1978. In a letter to the Secretary dated May 31, 1978, the Federation opposed the application and reiterated its objection to the 1977 exemption for the same reasons. On June 5, 1978, Chairman Fidelino overruled the opposition and motion for reconsideration, which had stressed that the company did not appear to be in a distressed financial condition as observed by a financial analyst of the Commission. On June 9, 1978, Acting Secretary Inciong issued an order approving the second application for 1978 for one year effective May 1 thereof; the approval also recited that it was final and unappealable. The Federation then filed this petition seeking annulment of the approval orders.

• Grave Abuse of Discretion: Petitioner argued that the Acting Secretary and Chairman Fidelino committed grave abuse of discretion amounting to loss of jurisdiction in approving both exemption applications and sought annulment of the orders.
• Late Filing of First Application: Petitioner argued that the first application was filed beyond the 30-day reglementary period in Section 6 of the rules implementing P.D. No. 1123.
• Lack of Verification: Petitioner argued that the first application was not under oath as required by Section 6 of the same rules.
• Lack of Supporting Documents: Petitioner argued that the first application was not supported by the documents required under Section 6.
• No Basis for Recommendation: Petitioner argued that Chairman Fidelino had no basis for recommending approval of the applications.
• Due Process: Petitioner argued that it was not afforded the opportunity to be heard in its opposition to the applications, in violation of the due process clause of the Constitution.
• Non-Service of Documents: Petitioner argued that it was never served copies of the pertinent documents relating to the approval of both applications.
• Bad Faith and Unfair Labor Practice: Petitioner argued that the first application was tainted with bad faith and unfair labor practice on the part of the private respondent.
• Financial Capacity: Petitioner argued that the private respondent was in a financial position to pay the additional emergency allowance mandated by P.D. No. 1123.
• Corporate Personality: Petitioner argued that the private respondent was using its corporate personality to avoid paying the additional emergency allowance.

• Exhaustion of Administrative Remedies: Respondents argued that petitioner did not exhaust all administrative remedies before seeking judicial review, because the rulings of the Acting Secretary of Labor could still be elevated to the President of the Philippines for review.

• Directory Nature of 30-Day Period: Whether the 30-day period in Section 6 of the implementing rules of P.D. No. 1123 for filing an exemption application is mandatory, such that the first application filed beyond it was invalid.
• Verification of Application: Whether the first application’s lack of oath, if true, invalidated the approval.
• Supporting Financial Documents: Whether the first application was not supported by the documents required under Section 6.
• Basis for Recommendation: Whether Chairman Fidelino had no basis for recommending approval of the applications.
• Due Process: Whether petitioner was denied due process because it was not afforded an opportunity to be heard in its opposition to the applications.
• Service of Documents: Whether petitioner’s non-receipt of copies of pertinent documents relating to the approvals invalidated the approvals.
• Bad Faith and Unfair Labor Practice: Whether the first application was tainted with bad faith and unfair labor practice.
• Financial Capacity: Whether private respondent was in a financial position to pay the additional emergency allowance, contrary to the agencies’ finding of distress.
• Corporate Personality: Whether private respondent used its corporate personality to avoid paying the additional emergency allowance.
• Exhaustion of Administrative Remedies: Whether the petition was barred by petitioner’s failure to exhaust administrative remedies before seeking judicial review.

• Directory Nature of 30-Day Period: No. The 30-day period is merely directory; P.D. No. 1123 set no deadline, and approval of late applications is within the Secretary of Labor’s discretion absent grave abuse.
• Verification of Application: No. Assuming the application was not under oath, the defect was cured by financial statements and report certified by public accountants under their professional oath.
• Supporting Financial Documents: No. The first application was accompanied by a financial statement for 1975 and a financial report for 1976.
• Basis for Recommendation: No. The applications were accompanied by pertinent documents, and financial statements were later submitted for the Wage Commission’s consideration.
• Due Process: No. Petitioner was given the opportunity to contest the first approval through a motion for reconsideration and actually opposed the second application.
• Service of Documents: No. The claim was unsubstantiated, and the law and implementing rules do not require notice to employees of such application.
• Bad Faith and Unfair Labor Practice: No. A change of mind does not amount to bad faith, which cannot be presumed; unfair labor practice is beyond the petition’s scope and belongs to the NLRC.
• Financial Capacity: No. The Wage Commission and DOLE are better positioned to assess financial distress, and their recommendations are respected absent grave abuse.
• Corporate Personality: No. Private respondent is a registered commercial partnership, not a corporate entity, so piercing the corporate veil does not apply.
• Exhaustion of Administrative Remedies: No. The approvals stated they were final and unappealable, and under qualified political agency the Secretary’s official acts are presumptively the President’s unless disapproved.

• Directory Nature of 30-Day Period: The SC interpreted Section 6’s use of “may apply” as permissive, not mandatory. It noted that P.D. No. 1123 did not set a deadline for exemption applications and allowed distressed employers to seek exemption while in that condition; the law’s purpose was to balance employer viability and employee pecuniary rights. A liberal construction of the 30-day period was in accord with that purpose because an employer distressed immediately after the period is no different from one distressed before it. The implementing rules should echo, not subvert, the enabling law. Approval of late applications was thus addressed to the Secretary’s discretion, and petitioner did not show grave abuse.
• Verification of Application: Even assuming the first application was not under oath, the SC held the infirmity was cured by the financial statement and report submitted to the Wage Commission, which were certified by public accountants under their professional oath. The verification of the financial statements and report was more important under the circumstances because they demonstrated financial distress more comprehensively than the application. The SC nevertheless emphasized that verification should be complied with and reminded litigants of the requirement.
• Supporting Financial Documents: The SC found petitioner failed to show that the first application lacked the required financial documents. The application was accompanied by a financial statement for 1975 and a financial report for 1976.
• Basis for Recommendation: The SC rejected the claim that Chairman Fidelino had no basis for recommending approval. The applications were accompanied by pertinent documents, and financial statements were later submitted for the Wage Commission’s consideration.
• Due Process: The SC held petitioner was not denied due process. Petitioner was given the opportunity to contest the first approval when it sought reconsideration in 1977, and it actually opposed the second application in 1978. The right to due process is not denied when an aggrieved party is given the opportunity to be heard.
• Service of Documents: The SC found the claim unsubstantiated. It also held that the law and implementing rules do not require notice to employees of such application.
• Bad Faith and Unfair Labor Practice: The SC held that whatever reason prompted private respondent to change its mind was of no moment; a change of mind does not automatically amount to bad faith, and bad faith cannot be presumed. Private respondent had the right to avail of P.D. No. 1123 if it believed it was covered. The unfair labor practice issue was beyond the scope of the petition from the Wage Commission and should be ventilated before the NLRC.
• Financial Capacity: The SC deferred to the Wage Commission and DOLE, which are in a better position to assess financial distress due to their expertise. Absent grave abuse of discretion, their recommendations will be respected. Public respondents stressed that in 1977 and 1978 the sugar industry was in financial straits due to the worldwide decline in the price of sugar.
• Corporate Personality: The SC held there was no cogent basis for the allegation that private respondent used its corporate personality to avoid responsibility under the Decree. Private respondent is a registered commercial partnership, not a corporate entity, so the doctrine of piercing the corporate veil is not applicable.
• Exhaustion of Administrative Remedies: The SC rejected the exhaustion argument because the Acting Secretary’s approvals stated they were final and unappealable. It also applied the doctrine of qualified political agency: absent a constitutional or statutory provision to the contrary, official acts of a Department Secretary are deemed the acts of the President unless disapproved or reprobated by the latter. Since no grave abuse of discretion appeared, certiorari could not issue.

• Directory vs. Mandatory Period — Whether “may” in a statute is mandatory or permissive depends on the apparent intention of the statute as gathered from its context and language. The SC applied this to hold that the 30-day period in Section 6 of the implementing rules of P.D. No. 1123 is merely directory, not mandatory.
• Liberal Construction of Implementing Rules — Implementing rules should echo, not subvert, the purpose of the enabling law. The SC liberally construed the 30-day period to allow distressed employers to seek exemption under P.D. No. 1123 even after the period, because the law did not set a deadline and sought to balance employer viability and employee rights.
• Verification Requirement — Verification should be complied with, but under the circumstances the lack of oath in the application was cured by financial statements and a report certified by public accountants under their professional oath. The verification of the financial statements and report was more important because they demonstrated financial distress more comprehensively.
• Due Process — The right to due process is not denied when an aggrieved party is given the opportunity to be heard. The SC applied this because petitioner sought reconsideration of the first approval and opposed the second application.
• Bad Faith Not Presumed — Bad faith cannot be presumed, and a change of mind does not automatically amount to bad faith. The SC applied this to reject the claim that the first application was tainted with bad faith.
• Deference to Administrative Expertise — The Wage Commission and DOLE are in a better position to assess financial distress due to their expertise. Absent grave abuse of discretion, their recommendations will be respected by the SC.
• Piercing the Corporate Veil — The doctrine of piercing the corporate veil applies to corporate entities, not to a registered commercial partnership. The SC held it inapplicable because private respondent is a registered commercial partnership, not a corporate entity.
• Qualified Political Agency — Absent a constitutional or statutory provision to the contrary, official acts of a Department Secretary are deemed the acts of the President unless disapproved or reprobated by the latter. The SC applied this to reject the exhaustion argument, especially since the approvals stated they were final and unappealable.

• “Although the private respondent admits that the first application was filed beyond the 30 day reglementary period mentioned in Section 6 of the implementing rules, We believe that compliance with the said period is merely directory.” — The SC used this to hold that the 30-day period in Section 6 is not mandatory.
• “The implementing rules should echo, and not subvert, the purpose underlying the enabling law.” — This supported the liberal construction of the 30-day period to match P.D. No. 1123’s purpose.
• “The right to due process is not denied when an aggrieved party was given the opportunity to be heard.” — The SC rejected the union’s due process claim because it had been given opportunities to contest the approvals.
• “The doctrine of piercing the corporate veil is not applicable in this case.” — The SC rejected the claim that private respondent used its corporate personality because it is a registered commercial partnership.

• In re Guarina, 24 Phil. 37, 41 (1913) — Relied on for the rule that whether “may” is mandatory or permissive depends on the apparent intention of the statute as gathered from its context and language.
• Maglasang vs. Ople, 63 SCRA 508 (1975) — Relied on for the rule that the right to due process is not denied when an aggrieved party was given the opportunity to be heard.
• Villena vs. The Secretary of the Interior, 67 Phil. 451, at 463 (1939) — Relied on for the doctrine of qualified political agency, under which official acts of a Department Secretary are presumptively the acts of the President unless disapproved or reprobated.

• Section 4, Presidential Decree No. 1123 — Authorized the Secretary of Labor and the Commissioner of the Budget to issue rules to implement the Decree, including rules allowing distressed employers to be exempted while in such condition in the interest of development and employment. The SC used this as the basis for the exemption and the Secretary’s rule-making authority.
• Section 6, Implementing Rules of P.D. No. 1123 — Required employers to apply for exemption within 30 days from the effectivity of the rules, under oath, with income statements and statements of assets and liabilities for the last two calendar years and other proofs. The SC held the 30-day period directory, the oath defect cured, and the financial documents substantially complied with.
• Section 19, Implementing Rules of P.D. No. 1123 — Provided that the rules took effect on May 1, 1977. This was the date used to measure the 30-day period.
• Rule 65, Rules of Court — The SC treated the petition as one for certiorari under Rule 65 on account of the jurisdictional issues raised, despite its erroneous caption as a petition for certiorari and declaratory relief.
• Due process clause of the Constitution — Petitioner invoked it against the alleged lack of opportunity to be heard. The SC held there was no violation because petitioner was given the opportunity to contest the approvals.