Ferrer vs. NLRC

A union security or closed shop clause in a CBA is valid but not self-operating; before dismissing an employee upon the union’s request, the employer must reasonably satisfy itself through its own inquiry that the union did not act arbitrarily or capriciously, and must accord the employee the twin requirements of notice and hearing. Consequently, a dismissal carried out without such process is illegal, and the dismissed employee is entitled to reinstatement with full backwages under Article 279 of the Labor Code, as amended by Republic Act No. 6715.

Petitioners Alex Ferrer, Rafael Ferrer, Henry Diaz, Domingo Bancolita, and Gil de Guzman were regular and permanent piece workers of Occidental Foundry Corporation (OFC), a company in Malanday, Valenzuela, Metro Manila under the management of Hui Kam Chang, and were members of SAMAHAN, the local union affiliated with the Federation of Free Workers (FFW). OFC and SAMAHAN were parties to a collective bargaining agreement effective October 1, 1988 to September 30, 1991, which contained a union security clause governing continued employment and dismissal for failure to retain membership in good standing. The dispute arose against the Labor Code’s security of tenure provisions, as amended by Republic Act No. 6715, and the rules governing union security, procedural due process in termination, and backwages.

The individual petitioners — Alex Ferrer, Rafael Ferrer, Henry Diaz, Domingo Bancolita, and Gil de Guzman — were regular and permanent employees of Occidental Foundry Corporation (OFC) in Malanday, Valenzuela, Metro Manila, which was under the management of Hui Kam Chang. As piece workers, their earnings ranged from P110 to P140 a day, and they had been employed by OFC for about ten years at the time of their dismissal in 1989. They were members of the Samahang Manggagawa ng Occidental Foundry Corporation-FFW (SAMAHAN), the local union affiliated with the Federation of Free Workers (FFW). On January 5, 1989, SAMAHAN and OFC entered into a collective bargaining agreement (CBA) effective for the period October 1, 1988 to September 30, 1991. Article II, Section 1 of the CBA provided that all permanent and regular factory workers who were members in good standing, or who thereafter became members, shall as a condition of continued employment maintain their membership in the union in good standing for the duration of the agreement. Section 3 provided that failure to retain membership in good standing shall be a ground for dismissal upon written request by the union, accompanied by a verified carbon original of the Board Resolution signed by at least a majority of its officers or directors.

On May 6, 1989, Alex Ferrer and SAMAHAN filed with the Department of Labor and Employment (DOLE) a complaint for the expulsion from SAMAHAN of officers Genaro Capitle (president), Jesus Tumagan (vice-president), Godofredo Pacheco (auditor), and Marcelino Pacheco (board member) in Case No. NCR-00-M-89-11-01, founded on the officers’ alleged inattentiveness to the economic demands of the workers. On September 4, 1989, petitioners Diaz and Alex Ferrer withdrew the petition. On September 10, 1989, petitioners conducted a special election of officers of SAMAHAN. The election was later questioned by the FFW. The elected set of officers tried to dissuade OFC from remitting union dues to the officers led by Capitle who were allied with the FFW. Later, Romulo Erlano, one of the officers elected at the special election, manifested to the DOLE that he was no longer objecting to the remittance of union dues to the officers led by Capitle. Petitioners’ move to stage a strike based on economic demands was also later disowned by members of SAMAHAN.

The intraunion squabble came to a head when, on September 11, 1989, a resolution expelling petitioners from SAMAHAN was issued by the union officials headed by Capitle, together with board members George Ignas, Pio Domingo, and Jaime Baynado. No hearing was conducted by SAMAHAN to look into petitioners’ explanation of their moves to oust the union leadership under Capitle or their subsequent affiliation with FEDLU. The following day, Capitle sent OFC a letter dated September 12, 1989, addressed to Hui Kam Chang, requesting the dismissal of Alex Ferrer, Gil de Guzman, Henry Diaz, Domingo Bancolita, and Rafael Ferrer, Jr. on the ground of failure to retain membership in good standing, in compliance with Article II, Section 3 of the union security clause. Attached to the letter was a verified carbon original of the Board Resolution of the union signed by a majority of its officers or directors. Although petitioners received the letter weeks after its date, they had learned of their dismissal by September 13, 1989, when they sent a letter to the Federation of Democratic Labor Unions (FEDLU), volunteering to be admitted as members and requesting that FEDLU represent them before the DOLE in the complaint they intended to file against SAMAHAN, the FFW, and the company for illegal dismissal, reinstatement, and other benefits in accordance with law. Thereafter, on various dates, petitioners sent individual letters to Hui Kam Chang professing innocence of the charges and pleading for reinstatement, but the letters elicited no response.

Contending that their dismissal was without cause and in utter disregard of their right to due process, petitioners, through FEDLU, filed a complaint for illegal dismissal and unfair labor practice before the NLRC against Hui Kam Chang, OFC, Macedonio S. Velasco as representative of the FFW, the FFW, and the SAMAHAN officers headed by Capitle. After the case was ventilated through position papers and other documents, Labor Arbiter Eduardo J. Carpio rendered a decision on April 5, 1990 dismissing the complaint. The labor arbiter found that OFC was merely complying with the mandatory provisions of the CBA, which he described as the law between the company and the union. He ruled that all that was necessary for compliance was a written request of the union for dismissal of employees who failed to retain membership in good standing; the company need not inquire via formal investigation why and how the complainants failed to retain membership, because the union’s request carried a legal presumption that it was born out of a formal inquiry by the union. He further held that where a valid closed shop or similar agreement is in force, the employer shall refuse to employ any person unless he is a member of the majority union and shall dismiss employees who fail to retain membership in the majority union, and that this must be deemed a just cause recognized by law and jurisprudence. The labor arbiter concluded that the dismissal was an exercise of legitimate management prerogative and not unfair labor practice. On the liability of SAMAHAN and the FFW, he opined that since there was no employer-employee relationship between petitioners and the respondent unions, the complaint against them had no factual and legal bases, because petitioners should not have confused expulsion from union membership with their subsequent employment termination.

Petitioners appealed to the NLRC on the grounds that there was prima facie evidence of abuse of discretion on the part of the labor arbiter and that he committed serious errors in his findings of fact. On June 20, 1991, the NLRC Second Division rendered a decision affirming in toto the labor arbiter’s decision; the decision was penned by Commissioner Rustico L. Diokno and concurred in by Presiding Commissioner Edna Bonto-Perez and Commissioner Domingo H. Zapanta. Petitioners’ motion for reconsideration was denied, prompting them to file the present petition for certiorari. The labor arbiter and the NLRC both found that OFC had merely complied with the CBA’s union security clause and that the company was not required to conduct its own investigation into the union’s charge that petitioners failed to maintain membership in good standing.

• Procedural Due Process: Petitioners contended that their dismissal was without cause and in utter disregard of their right to due process, because OFC summarily dismissed them without conducting an investigation into the veracity of SAMAHAN-FFW’s allegation that they violated the CBA.
• Grave Abuse of Discretion: Petitioners maintained that the NLRC gravely abused its discretion in affirming the labor arbiter’s decision, which was allegedly in defiance of elementary principles of procedural due process; on appeal they cited prima facie evidence of abuse of discretion and serious errors in findings of fact.
• Illegal Dismissal and Unfair Labor Practice: Petitioners, through FEDLU, filed a complaint for illegal dismissal and unfair labor practice, seeking reinstatement and other benefits in accordance with law.

• Grave Abuse of Discretion / Procedural Due Process: Whether the NLRC gravely abused its discretion in affirming the labor arbiter’s decision dismissing the complaint despite petitioners’ summary dismissal from employment without an investigation by OFC into the veracity of the SAMAHAN-FFW allegation that they violated the CBA.
• Union Security Clause Implementation: Whether a union security or closed shop clause in a CBA authorizes the employer to dismiss employees solely upon the union’s written request, without independent inquiry or hearing, consistent with procedural due process.
• Liability for Procedural Due Process Violation: Whether OFC and SAMAHAN should solidarily indemnify petitioners for violation of their right to procedural due process under Rule XIV, Sections 2, 5, and 6 of the rules implementing Batas Pambansa Blg. 130.
• Backwages: Whether illegally dismissed employees are entitled to full backwages beyond the three-year period fixed by the Mercury Drug Rule under Article 279 of the Labor Code, as amended by Republic Act No. 6715.

• Grave Abuse of Discretion / Procedural Due Process: Yes. The NLRC gravely abused its discretion; the dismissal was illegal because petitioners were summarily dismissed without the required notice and hearing or any company investigation into the union’s charge. The decision appealed from was set aside.
• Union Security Clause Implementation: No. A closed shop or union security clause is valid, but it is not self-operating and does not eliminate procedural due process; the employer must reasonably satisfy itself by its own inquiry that the union did not act arbitrarily or capriciously before dismissing the employee.
• Liability for Procedural Due Process Violation: No solidary indemnity is proper here. Under Rule XIV, Sections 2, 5, and 6 of the rules implementing Batas Pambansa Blg. 130, such indemnity may be imposed only where the termination is justified; because the dismissal was illegal, the damages are in the form of back wages.
• Backwages: Yes. Under Article 279 of the Labor Code, as amended by Republic Act No. 6715, an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement; the Mercury Drug Rule’s three-year limitation no longer applies.

• Grave Abuse of Discretion / Procedural Due Process: The CBA is the law between the company and the union, and compliance is mandated by the policy to protect labor; a closed shop provision is a valid union security measure and is not a restriction on the right or freedom of association. However, in implementing the CBA, both parties must see to it that no right is violated or impaired. The union’s own constitution and by-laws required that any member may be expelled temporarily or permanently by three-fourths of the Executive Board, and only after hearing the member’s case, on grounds such as acts contrary to union policy or acts that may dissolve the union. No hearing (“pandinig”) was ever conducted by SAMAHAN to look into petitioners’ explanation of their moves to oust the union leadership under Capitle or their subsequent affiliation with FEDLU. While petitioners’ actions might have precipitated divisiveness and later showed disloyalty to the union, SAMAHAN should have observed its own constitution and by-laws by giving petitioners an opportunity to air their side; only after investigation and finding of violation should disciplinary measures have been imposed. The company aggravated the situation by taking for granted that SAMAHAN had conducted an inquiry and treating the closed shop provision as self-operating; upon receipt of the union’s notice, OFC summarily dismissed petitioners. The labor arbiter and NLRC shared the erroneous view that the company need not inquire via formal investigation. Citing Cariño, the company should have given petitioners an opportunity to explain their side and should have reasonably satisfied itself by its own inquiry that the union had not acted arbitrarily and capriciously. The twin requirements of notice and hearing are essential in employment-termination cases; the employee must be notified of the employer’s intent to dismiss and the reason, and must be afforded an opportunity to answer and defend before dismissal. Observance of company rules to the letter is not mandatory, and even if no formal hearing is conducted, due process is met where a chance to explain is accorded. Here, there was no investigation at all. Employment, profession, trade, or calling is a property right, and wrongful interference gives rise to an actionable wrong; the right to labor is property within constitutional guarantees and cannot be deprived without due process. The law recognizes the employer’s right to dismiss in warranted cases but frowns on arbitrariness. Management prerogative is not absolute and is subject to limitations in law, the CBA, and general principles of fair play and justice. Thus, the dismissal was illegal and the NLRC gravely abused its discretion in affirming it.
• Union Security Clause Implementation: The union security clause allowed dismissal for failure to retain membership in good standing upon written request by the union, accompanied by a verified carbon original of the Board Resolution signed by at least a majority of officers or directors. But the clause did not authorize the company to dismiss employees without due process. The employer must reasonably satisfy itself by its own inquiry that the union had not been merely acting arbitrarily and capriciously in expelling the employee. The union’s failure to observe its own constitution and by-laws, coupled with OFC’s failure to conduct any independent inquiry, rendered the dismissal invalid. The alleged acts of sowing disunity or disloyalty to union officials could have been dealt with as a disciplinary matter within the union, but they did not justify dismissal from employment without a hearing. Petitioners’ application with FEDLU after learning of their termination was an act of self-preservation and not disloyalty to SAMAHAN; SAMAHAN is a different entity from FFW, and petitioners did not form a union distinct from SAMAHAN. The right of a local union to disaffiliate from a federation, absent a provision preventing disaffiliation, is legal and consistent with the constitutional guarantee of freedom of association. Therefore, the union security clause could not be used to justify the summary dismissal.
• Liability for Procedural Due Process Violation: Under Rule XIV, Sections 2, 5, and 6 of the rules implementing Batas Pambansa Blg. 130, OFC and SAMAHAN should solidarily indemnify petitioners for violation of their right to procedural due process. However, such penalty may be imposed only where the termination of employment is justified; it is not imposed when the dismissal is illegal. Because the dismissal in this case was illegal, the damages are in the form of back wages, not a separate solidary indemnity.
• Backwages: With the passage of Republic Act No. 6715, effective March 21, 1989, Article 279 of the Labor Code was amended to provide that in cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by the Code; an employee unjustly dismissed from work is entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time compensation was withheld up to actual reinstatement. As implemented by Section 3, Rule 8 of the 1990 New Rules of Procedure of the NLRC, the Mercury Drug Rule, which limited backwages of illegally dismissed workers to three years without deduction or qualification, is no longer applicable. A legally dismissed employee may now be paid backwages, allowances, and other benefits for the entire period out of work, subject to the rule before the Mercury Drug Rule that the employer may deduct any amount the employee earned during the period of illegal termination. Computation of full backwages and presentation of proof of income earned elsewhere after termination and before actual reinstatement should be ventilated in execution proceedings before the Labor Arbiter under Section 3, Rule 8. Since OFC whimsically dismissed petitioners without proper hearing and thus exposed itself to a charge of unfair labor practice, petitioners can receive backwages computed from the moment their compensation was withheld after dismissal in 1989 up to actual reinstatement. The award may extend beyond the three-year period depending on when the employer reinstates them. Article 279 as amended places a heavier burden on the employer, but RA 6715 was enacted precisely to make the employer realize that the employee must be immediately restored to his former position, and that immediate reinstatement is a cost-saving measure in terms of overhead expense and incremental productivity.

• Union Security Clause / Closed Shop — A CBA provision for a closed shop is a valid form of union security and is not a restriction on the constitutional right or freedom of association. However, it is not self-operating and must be implemented without violating employees’ rights. In this case, the clause allowed dismissal for failure to retain membership in good standing upon union request, but the Court held that it did not authorize summary dismissal without due process.
• Procedural Due Process in Employment Termination — The twin requirements of notice and hearing are essential in termination cases. The employee must be notified of the employer’s intent to dismiss and the reason, and must be given an opportunity to answer and defend before dismissal. Observance of company rules to the letter is not mandatory; a chance to explain may suffice. Here, no hearing was conducted by the union and no independent inquiry by the company, so due process was violated.
• Employer’s Independent Inquiry under a Union Security Clause — Notwithstanding a union security or union shop clause, the employer must reasonably satisfy itself by its own inquiry that the union has not acted arbitrarily or capriciously in expelling an employee before dismissing him. The company cannot treat the clause as self-operating. OFC failed this duty.
• Management Prerogative — Termination of employment is traditionally a management prerogative, but it is not absolute; it is subject to limitations found in law, the CBA, and general principles of fair play and justice. OFC’s dismissal of petitioners without proper hearing was not a legitimate exercise of management prerogative.
• Security of Tenure and Full Backwages — Under Article 279 of the Labor Code, as amended by RA 6715, an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. The Mercury Drug Rule’s three-year limitation on backwages is no longer applicable. The employer may deduct income earned elsewhere during the illegal termination, to be ventilated in execution proceedings.
• Right to Labor as Property — One’s employment, profession, trade, or calling is a property right; the wrongful interference therewith gives rise to an actionable wrong, and a person cannot be deprived of labor without due process. This supported the finding of illegal dismissal.
• Freedom of Association and Disaffiliation — The right of a local union to disaffiliate from a federation, absent a provision in the federation’s constitution preventing disaffiliation, is legal and consistent with the constitutional guarantee of freedom of association. The Court used this to reject the claim that petitioners’ application with FEDLU constituted disloyalty to SAMAHAN.

• "The right of an employee to be informed of the charges against him and to reasonable opportunity to present his side in a controversy with either the Company or his own Union, is not wiped away by a Union Security Clause or a Union Shop Clause in a CBA. An employee is entitled to be protected not only from a company which disregards his rights but also from his own Union the leadership of which could yield to the temptation of swift and arbitrary expulsion from membership and hence dismissal from his job." — This passage states the ratio decidendi on procedural due process: a union security clause does not eliminate the employee’s right to notice and opportunity to be heard.
• "Notwithstanding the Union's Security Clause in the CBA, the Company should have reasonably satisfied itself by its own inquiry that the Union had not been merely acting arbitrarily and capriciously in impeaching and expelling petitioner Cariño . . ." — Quoted approvingly from Cariño, this passage defines the employer’s independent duty before acting on a union’s expulsion or dismissal request.
• "The need for a company investigation is founded on the consistent ruling of this Court that the twin requirements of notice and hearing which are essential elements of due process must be met in employment-termination cases." — This excerpt anchors the Court’s holding that OFC’s failure to investigate violated the essential requisites of procedural due process.
• "A legally dismissed employee may now be paid his back wages, allowances, and other benefits for the entire period he was out of work subject to the rule enunciated before the Mercury Drug Rule, which is that the employer may, however, deduct any amount which the employee may have earned during the period of his illegal termination." — This passage explains the effect of Article 279 as amended by RA 6715 and the removal of the three-year limitation on backwages.

• Meycauayan College vs. Drilon, 185 SCRA 50 [1990] — Cited for the rule that a CBA is the law between the company and the union and compliance is mandated by the policy to protect labor.
• Lirag Textile Mill, Inc. vs. Blanco, 109 SCRA 87 [1981] — Cited for the rule that a closed shop provision is a valid form of union security and is not a restriction on the right or freedom of association.
• Cariño vs. NLRC, 185 SCRA 177 [1990] — Distinguished on the facts: in Cariño the erring union official was given a chance to answer before an investigating committee, whereas petitioners were not given any opportunity. Also cited for the employer’s duty to inquire and for procedural due process.
• Kwikway Engineering Works vs. NLRC, 195 SCRA 526 [1991] and Salaw vs. NLRC, 202 SCRA 7 [1991] — Cited for the twin requirements of notice and hearing in employment-termination cases.
• Mendoza vs. NLRC, 195 SCRA 606 [1991] — Cited for the rule that literal observance of company investigation rules is not mandatory; due notice and hearing before dismissal suffice.
• Philippine Airlines, Inc. vs. NLRC, 198 SCRA 748 [1991] — Cited for the rule that due process is met where a chance to explain one’s side was accorded.
• Hellenic Philippine Shipping vs. Siete, 195 SCRA 179 [1991] — Cited for the rule that an employee may be considered illegally dismissed for lack of fair investigation.
• Colegio del Sto. Niño vs. NLRC, 197 SCRA 611 [1991] and Artex Development Co., Inc. vs. NLRC, 187 SCRA 611 [1990] — Cited to strike down as a rejection of due process a situation where there is no investigation at all.
• Callanta vs. Carnation Philippines, Inc., 145 SCRA 268 [1986] and Batangas Laguna Tayabas Bus Co. vs. Court of Appeals, 71 SCRA 470 [1976] — Cited for the rule that employment or labor is a property right protected by constitutional guarantees and cannot be deprived without due process.
• Tropical Hut Employees' Union-CGW vs. Tropical Hut Food Market, Inc., 181 SCRA 173 [1990] — Cited for the rule that dismissing employees under a closed shop provision without proper hearing may expose the employer to unfair labor practice; also cited on freedom of association.
• University of Sto. Tomas vs. NLRC, 190 SCRA 758 [1990] — Cited for the rule that management prerogative is not absolute and is subject to limitations in law, CBA, and fair play and justice.
• Great Pacific Life Assurance Corporation vs. NLRC, 187 SCRA 694 [1990] (citing Wenphil vs. NLRC, 170 SCRA 69 [1989] and Cariño vs. NLRC) — Cited for solidary indemnity for violation of procedural due process where termination is justified; distinguished because the dismissal here was illegal.
• People's Industrial and Commercial Employees and Worker's Org. (FFW) vs. People's Industrial and Commercial Corp., 112 SCRA 440 [1982] — Cited for the right of a local union to disaffiliate from a federation absent a provision preventing disaffiliation.
• Mercury Drug Co., Inc. vs. Court of Industrial Relations, 56 SCRA 694 [1974] — Cited as the rule limiting backwages to three years, held no longer applicable under Article 279 as amended by RA 6715.
• East Asiatic Company, Ltd. vs. Court of Industrial Relations, 40 SCRA 521 [1971] — Cited for the rule that the employer may deduct amounts earned by the employee during the period of illegal termination.

• Article II, Sections 1 and 3, Collective Bargaining Agreement — The union security/closed shop clause required all permanent and regular factory workers who are members in good standing to maintain membership as a condition of continued employment, and allowed dismissal for failure to retain membership upon written request by the union accompanied by a verified carbon original of the Board Resolution signed by at least a majority of officers/directors. The Court held the clause valid but not self-operating; it did not dispense with due process.
• Section 4, SAMAHAN Constitution and By-Laws — Provided that any member may be expelled temporarily or permanently by three-fourths of the Executive Board, and only after hearing the member’s case, on grounds including acts contrary to union policy or acts that may dissolve the union. The Court found no hearing (“pandinig”) was conducted, so the union failed to observe its own procedure.
• Article 279, Labor Code, as amended by Republic Act No. 6715 — Security of tenure provision: in regular employment, the employer shall not terminate services except for just cause or when authorized; an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time compensation was withheld up to actual reinstatement. Applied to award full backwages.
• Section 3, Rule 8, 1990 New Rules of Procedure of the National Labor Relations Commission — Governs computation of full backwages and presentation of proof of income earned elsewhere by the illegally dismissed employee after termination and before actual reinstatement, to be ventilated in execution proceedings before the Labor Arbiter. Cited in connection with the backwages award.
• Rule XIV, Sections 2, 5, and 6, Rules Implementing Batas Pambansa Blg. 130 — Cited as basis for solidary indemnity by OFC and SAMAHAN for violation of procedural due process. The Court held such penalty may be imposed only where termination is justified; because the dismissal was illegal, the damages are in the form of back wages.

Feliciano, Bidin, Davide, Jr., and Romero, JJ., concur.