Golden Donuts, Inc. and Leopoldo Prieto vs. NLRC, et al.

A union has no authority to compromise or waive the individual claims of its minority members — including their right to security of tenure and their money claims — without the latter's individual consent or ratification; a compromise agreement so executed is not binding upon, and does not operate as res judicata against, the non-consenting members. The waiver of accrued money claims by workers is a personal right that must be personally exercised, and neither the union's officers nor its majority can waive the accrued rights of a dissenting minority.

Private respondents Agapito Macandog, Leonisa M. Hontiveros, Rosita D. Tamargo, Lucita Tegio and Alma Magtarayo were employees of Golden Donuts, Inc. and members of the Kapisanan ng Manggagawa sa Dunkin Donut-CFW, the labor union holding a collective bargaining agreement with the corporation. That collective bargaining agreement expired on November 16, 1989, and the events in dispute unfolded during the negotiation of its renewal and the resulting strike.

Private respondents Agapito Macandog, Leonisa M. Hontiveros, Rosita D. Tamargo, Lucita Tegio and Alma Magtarayo were employees of Golden Donuts, Inc. and members of the Kapisanan ng Manggagawa sa Dunkin Donut-CFW (KMDD-CFW), the union whose collective bargaining agreement with the corporation expired on November 16, 1989.

During the freedom period, on October 17, 1989, the corporation's Human Resources and Industrial Relations Manager informed the union president that the initial CBA negotiation was set for October 26, 1989, and at the same time requested confirmation of the persons who would constitute the regular members of the union panel in order to avoid any misunderstanding. On that date, notwithstanding the absence of management representative Leopoldo Prieto, Jr. and of the union president, both panels were able to agree on the rules regarding the negotiation, including the time, date and number of days the panels had to meet. At the CBA negotiation of November 7, 1989, the management panel arrived at 1:35 in the afternoon, thirty-five minutes late, prompting the union panel to walk out; despite the management's request to return and proceed with the agenda, the union simply ignored it. The following day, November 8, 1989, management addressed a letter of apology to the union and requested that the CBA negotiation be resumed on November 9, 15 and 17, 1989. On November 9, 1989, union president Florante M. Vicedo replied that while the union shared management's interest in a peaceful negotiation, it had observed that management was taking the CBA negotiation for granted and was not treating it as a priority; the union declared the negotiation in deadlock and declined to attend the scheduled afternoon meeting. The union panel did not appear on November 15 and 17 despite management's letters advising it of the CBA meetings, and a further management letter of November 20, 1989 regarding the resumption of the negotiation proved fruitless. Finally, despite management's open letter of admonition dated November 23, 1989, the union struck on December 18, 1989.

On January 9, 1990, Golden Donuts, Inc. filed a complaint with prayer for preliminary injunction, seeking to have the strike declared illegal and to have all officers of the union and members who participated in the commission of illegal acts dismissed, and praying for actual damages of P500,000.00 and moral and exemplary damages of P300,000.00, plus attorney's fees. The complaint alleged that the strike was illegal because (a) it was started without the union having first exercised its right to collective bargaining, in violation of Article 264(a) of the Labor Code; (b) the strikers barricaded the company premises, barring ingress to and egress from the premises, which resulted in the trapping of officers and employees; (c) the strikers, on December 19, 1989, overturned the company's Isuzu KC-20 van with Plate No. 506 and thereafter smashed its windshield, headlights and side mirrors; (d) the strikers brandished broken Coca-Cola bottles and effectively prevented Ernesto de Castillo, the traffic dispatcher, and his driver, Narciso Urjal, from making any move to pacify the mob; and (e) the strike was effected without any strike vote for the purpose, without the approval of the majority of the membership, and without the same having been reported to the Ministry (now Department) of Labor and Employment. After KMU's Atty. Potenciano Flores was retained as counsel by the union and the strikers, and sensing the gravity of the penalties attendant to the strike resorted to, including the financial award that might be due Golden Donuts, Inc. and the civil liabilities that might thereafter be awarded, said counsel pleaded for a compromise. On July 16, 1990, a compromise agreement was entered into by KMDD-CFW and Golden Donuts, Inc., whereby the parties agreed to withdraw or dismiss with prejudice any and all cases, whether criminal, civil or labor, filed against each other, to execute affidavits of desistance and/or motions to dismiss to ensure the dismissal of those cases, and undertook not to file any other charges or complaints against each other, the act constituting a general waiver or release or quitclaim by them; apart from this, the strikers, 262 in all, were to receive separation pay in the variable amounts stated in the list of workers attached to the agreement.

Out of the 262 striking force, only the five aforenamed complainants disagreed and did not receive the amount due them, arguing that the compromise agreement was entered into by their counsel and the president of the union without their individual consent and/or authority and that the same was not approved nor ratified by the majority of the union membership. Hence, the complaints were filed in September 1990.

The Labor Arbiter found that private respondents were bound by the compromise agreement entered into by the union with petitioners, but also found no evidence showing that private respondents committed any illegal act during the strike.

• Majority Rule Within the Union: Petitioners argued that a preponderant majority of the union members — 257 out of 262 — having agreed to a compromise settlement whereby they would be paid separation pay in exchange for the dismissal of the criminal and unfair labor practice cases filed against them, the union was authorized to waive and compromise even the claims of those who did not consent to the terms of such compromise agreement.
• Binding Effect on Non-Consenting Members: Petitioners claimed that the compromise agreement is binding on union members including those who did not consent thereto, such as private respondents.

• Lack of Union Authority: Private respondents claimed that the union had no authority to waive or compromise their individual rights and that they were not bound by the compromise agreement entered into by the union with petitioners.
• Absence of Individual Consent and Ratification: Private respondents argued that the compromise agreement was entered into by their counsel and the president of the union without their individual consent and/or authority, and that the same was not approved nor ratified by the majority of the union membership.

• Union Authority to Compromise: Whether a union may compromise or waive the rights to security of tenure and money claims of its minority members without the latter's consent.
• Res Judicata: Whether the compromise agreement entered into by the union with petitioner company, which has not been consented to nor ratified by respondents minority members, has the effect of res judicata upon them.
• Entitlement to Monetary Benefits: Whether, as a consequence of a negative ruling on the foregoing issues, private respondents are entitled to the monetary benefits subject of their individual complaints.

• Union Authority to Compromise: No. Even if a clear majority of the union members agreed to a settlement with the employer, the union has no authority to compromise the individual claims of members who did not consent to such settlement, absent the special authority required by Rule 138, Section 23 of the 1964 Revised Rules of Court.
• Res Judicata: No. A compromise agreement is a contract perfected by mere consent and cannot bind or affect third persons who are not parties to it; the requirement of identity of parties not being satisfied as to private respondents, the judgment approving the agreement cannot have the effect of res judicata upon them.
• Entitlement to Monetary Benefits: Yes. Private respondents are entitled to reinstatement and back wages, the Labor Arbiter having found no evidence that they committed any illegal act during the strike, so that petitioners' failure to reinstate them after the settlement amounted to illegal dismissal; the award of separation pay must be deleted.

• Union Authority to Compromise: Rule 138, Section 23 of the 1964 Revised Rules of Court requires a special authority before an attorney may compromise his client's litigation, and the authority to compromise cannot lightly be presumed but should be duly established by evidence. In this case, the minority union members did not authorize the union to compromise their individual claims; absent a showing of the union's special authority to compromise the individual claims of private respondents for reinstatement and back wages, there was no valid waiver of those rights, and private respondents, not having authorized the union to represent them, were not bound by the terms of the agreement. The Court relied on Kaisahan ng mga Manggagawa sa La Campana vs. Sarmiento, where it was explicitly declared that money claims due to laborers cannot be the object of settlement or compromise effected by a union or counsel without the specific individual consent of each laborer concerned, the beneficiaries being the individual complainants themselves, and the union being able only to assist them but not to decide for them. That ruling was re-affirmed in General Rubber and Footwear Corp. vs. Drilon, which held that the waiver of accrued money claims by workers and employees must be regarded as a personal right that must be personally exercised, and that for a waiver thereof to be legally effective the individual consent or ratification of the workers or employees involved must be shown; neither the officers nor the majority of the union had any authority to waive the accrued rights pertaining to the dissenting minority members, even under a collective bargaining agreement providing for a "union shop." The same considerations of public policy that impelled the ruling in La Campana were held equally compelling, the members of the union needing the protective shield of the doctrine not only vis-à-vis their employer but also, at times, vis-à-vis the management of their own union, and at other times even against their own imprudence or impecuniousness.
• Res Judicata: A compromise is governed by the basic principle that the obligations arising therefrom have the force of law between the parties, and it is basically a contract perfected by mere consent, consent being manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract under Article 1319 of the Civil Code. A compromise agreement is not valid when a party in the case has not signed the same, or when someone signs for and in behalf of such party without authority to do so. In SMI Fish Industries, Inc. vs. NLRC, the Court declared that where the compromise agreement was signed by only three of the five respondents, the non-signatories cannot be bound by that amicable settlement, since a compromise agreement is a contract and cannot affect third persons who are not parties to it. Private respondents were not parties to the compromise agreement; hence, the judgment approving such agreement cannot have the effect of res judicata upon them, the requirement of identity of parties not being satisfied. A judgment upon a compromise agreement has all the force and effect of any other judgment, and is therefore conclusive only upon the parties thereto and their privies. Viewed in light of these principles, private respondents are not bound by the compromise agreement entered into by the union without their consent; they have not waived their right to security of tenure, nor can they be barred from entitlement to their individual claims.
• Entitlement to Monetary Benefits: Since the Labor Arbiter found no evidence showing that private respondents committed any illegal act during the strike, petitioners' failure to reinstate them after the settlement of the strike amounts to illegal dismissal, entitling them to the twin reliefs of reinstatement and back wages under Article 279 of the Labor Code. The burden is on the employer to prove that the termination was after due process and for a valid or authorized cause; the two requisites in Philippine jurisdiction to constitute a valid dismissal are (a) the existence of a cause expressly stated in Article 282 of the Labor Code and (b) the observance of due process, including the opportunity given the employee to be heard and defend himself. However, the separation pay must be deleted, as private respondents are entitled to reinstatement and back wages and there is no showing of strained relations as would prevent their reinstatement.

• Union's Lack of Authority to Waive Individual Claims — A labor union, even when acting through counsel and even with the concurrence of a preponderant majority of its members, cannot compromise or waive the individual claims of minority members without the latter's specific individual consent. The union may assist its members but cannot decide for them, and the authority to compromise cannot lightly be presumed but must be duly established by evidence, consistent with the requirement of a special authority under Rule 138, Section 23 of the 1964 Revised Rules of Court. The Court applied this doctrine to invalidate the union-executed compromise as to the five dissenting respondents.
• Waiver of Money Claims as a Personal Right — The waiver of money claims, particularly accrued money claims, by workers and employees is a personal right that must be personally exercised; for a waiver to be legally effective, the individual consent or ratification of the workers or employees involved must be shown. Neither the officers nor the majority of the union may waive the accrued rights of dissenting minority members, even under a collective bargaining agreement providing for a "union shop." The doctrine rests on public policy and on the recognition that union members need protection not only against their employer but also against their own union's management and even against their own imprudence or impecuniousness.
• Compromise as a Contract Requiring Consent — A compromise is basically a contract perfected by mere consent, consent being manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. A compromise agreement is not valid when a party in the case has not signed the same, or when someone signs for and in behalf of such party without authority to do so. Because a compromise is a contract, it cannot affect third persons who are not parties to it; obligations arising from a compromise have the force of law between the parties.
• Res Judicata and Identity of Parties — A judgment upon a compromise agreement has all the force and effect of any other judgment and is conclusive only upon the parties thereto and their privies. Where the non-signatories to a compromise were not parties to it, the judgment approving the agreement cannot operate as res judicata against them because the requirement of identity of parties is not satisfied.
• Requisites of a Valid Dismissal — Two requisites must concur to constitute a valid dismissal in Philippine jurisdiction: (a) the existence of a cause expressly stated in Article 282 of the Labor Code, and (b) the observance of due process, including the opportunity given the employee to be heard and defend himself. The burden is on the employer to prove that the termination was after due process and for a valid or authorized cause.
• Reinstatement and Back Wages; Deletion of Separation Pay — An employee illegally dismissed is entitled to the twin reliefs of reinstatement and back wages. Separation pay is not awarded in lieu of reinstatement where reinstatement is proper and there is no showing of strained relations as would prevent it; accordingly, an award of separation pay must be deleted.

• "Money claims due to laborers cannot be the object of settlement or compromise effected by a union or counsel without the specific individual consent of each laborer concerned. The beneficiaries are the individual complainants themselves. The union to which they belong can only assist them but cannot decide for them." — This is the Court's canonical formulation of the controlling rule, quoted from Kaisahan ng mga Manggagawa sa La Campana vs. Sarmiento and made the first pillar of the ruling invalidating the union-executed compromise as to the dissenting minority.
• "The waiver of money claims, which in this case were accrued money claims, by workers and employees must be regarded as a personal right, that is, a right that must be personally exercised. For a waiver thereof to be legally effective, the individual consent or ratification of the workers or employees involved must be shown. Neither the officers nor the majority or the union had any authority to waive the accrued rights pertaining to the dissenting minority members, even under a collective bargaining agreement which provided for a 'union shop'." — Quoted from General Rubber and Footwear Corp. vs. Drilon, this passage supplies the rationale that defeats petitioners' reliance on the agreement of 257 of 262 union members.
• "A compromise agreement is not valid when a party in the case has not signed the same or when someone signs for and in behalf of such party without authority to do so." — This states the contractual ground on which the Court denied the compromise agreement any binding effect upon private respondents and, consequently, any res judicata effect.
• "The burden is on the employer to prove that the termination was after due process, and for a valid or authorized cause. For the two requisites in our jurisdiction to constitute a valid dismissal are: (a) the existence of a cause expressly stated in Article 282 of the Labor Code; and (b) the observance of due process, including the opportunity given the employee to be heard and defend himself." — This passage sets out the burden of proof and the two requisites of a valid dismissal, on which the finding of illegal dismissal and the award of reinstatement and back wages rest.

• Kaisahan ng mga Manggagawa sa La Campana vs. Sarmiento, 133 SCRA 220, 235-236 [1984] — Controlling precedent. The Court quoted it at length for the rule that money claims due to laborers cannot be the object of settlement or compromise effected by a union or counsel without the specific individual consent of each laborer concerned, and that the union can only assist but cannot decide for them.
• General Rubber and Footwear Corp. vs. Drilon, 169 SCRA 808, 815 [1989] — Reaffirmed La Campana. Held that the waiver of accrued money claims by workers and employees is a personal right that must be personally exercised, and that neither the union's officers nor its majority could waive the accrued rights of dissenting minority members even under a "union shop" provision.
• SMI Fish Industries, Inc. vs. NLRC, 213 SCRA 444, 448 [1992] — Applied. Where the compromise agreement was signed by only three of the five respondents, the non-signatories cannot be bound by the amicable settlement, a compromise agreement being a contract that cannot affect third persons who are not parties to it.
• Quiban vs. Butalid, 189 SCRA 107, 119 [1990] — Cited for the rule that a compromise agreement is not valid when a party in the case has not signed the same or when someone signs for and in behalf of such party without authority to do so.
• Binamira vs. Ogan-Occena, 148 SCRA 677, 683 [1987] — Cited for the principle that a compromise, once approved by final orders of the court, has the force of res judicata between the parties and should not be disturbed except for vices of consent or forgery.
• Republic vs. Sandiganbayan, 226 SCRA 314, 321 [1993] — Cited for the basic principle that a compromise is governed by the rule that the obligations arising therefrom have the force of law between the parties.
• University of the Philippines vs. Court of Appeals, 218 SCRA 728, 737-738 [1993] — Cited for the requirement of identity of parties, which private respondents' non-participation in the compromise agreement left unsatisfied.
• United Housing Corp. vs. Dayrit, 181 SCRA 285, 293 [1990] — Cited for the rule that a judgment upon a compromise agreement has all the force and effect of any other judgment and is therefore conclusive only upon the parties thereto and their privies.
• Asia World Recruitment, Inc. vs. National Labor Relations Commission (2nd Division), G.R. No. 113363, August 24, 1999 — Cited for the rule that the burden is on the employer to prove that the termination was after due process and for a valid or authorized cause.
• Santos, Jr. vs. NLRC, 287 SCRA 117, 125 [1998] — Cited for the two requisites of a valid dismissal: the existence of a cause expressly stated in Article 282 of the Labor Code and the observance of due process.
• Salafranca vs. Philamlife (Pamplona) Village Homeowners Association, Inc., 300 SCRA 469 [1998], with Capili vs. NLRC, 270 SCRA 488-495 [1997] and Fernandez vs. NLRC, 281 SCRA 423, 438 [1997] — Cited in support of deleting the award of separation pay where the employee is entitled to reinstatement and back wages and no strained relations are shown.

• Rule 138, Section 23, 1964 Revised Rules of Court — Requires a special authority before an attorney may compromise his client's litigation. Applied to hold that the union, acting through counsel, needed special authority to compromise the individual claims of private respondents and that such authority, not having been shown, left no valid waiver of their rights to reinstatement and back wages.
• Article 1319, Civil Code — Provides that consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Cited to characterize the compromise agreement as a contract perfected by mere consent, thereby making applicable the rule that a contract cannot bind third persons who are not parties to it.
• Article 279, Labor Code — Embodies the security of tenure of employees. Cited as the basis for the twin reliefs of reinstatement and back wages awarded to private respondents upon the finding that their non-reinstatement amounted to illegal dismissal.
• Article 282, Labor Code — Enumerates the just causes for termination of employment by the employer. Cited as the first of the two requisites of a valid dismissal, which the employer bears the burden of proving.
• Article 264(a), Labor Code — Cited in the company's complaint as one of the grounds for the illegality of the strike, namely, that the strike was started without the union having first exercised its right to collective bargaining.

Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago, JJ., concur. No separate concurring opinions are reflected in the text.