Goya, Inc. vs. Goya, Inc. Employees Union-FFW

A voluntary arbitrator has plenary jurisdiction and authority to interpret the CBA and determine the scope of his own authority, including the power to resolve related and incidental issues necessary for a complete and final adjudication of the dispute, even if such issues are not expressly enumerated in the submission agreement, subject only to judicial review; and management prerogative to contract out services, while recognized, is delimited by specific CBA provisions that the parties have agreed upon.

Goya, Inc. is a domestic corporation engaged in the manufacture, importation, and wholesale of food products, operating a factory in Parang, Marikina City. The company maintained a Collective Bargaining Agreement with respondent Goya, Inc. Employees Union-FFW, which since the 1970s had contained provisions defining three categories of employees—probationary, regular, and casual—and a union security clause requiring all regular rank-and-file employees to remain Union members in good standing as a condition of continued employment. The CBA's casual employee category contemplated the hiring of workers for occasional or seasonal work directly connected with regular operations, or for specific projects of limited duration not directly connected with regular operations. From a maintained pool of casual employees, the Company historically hired workers who later became regular employees and Union members.

Sometime in January 2004, Goya, Inc. (Company), a domestic corporation engaged in the manufacture, importation, and wholesale of food products, hired contractual employees from PESO Resources Development Corporation (PESO) to perform temporary and occasional services in its factory in Parang, Marikina City. The Company characterized the engagement of PESO as an exercise of management prerogative to address temporary and occasional operational needs. This hiring prompted the Goya, Inc. Employees Union-FFW (Union) to request a grievance conference, asserting that the contractual workers did not belong to the categories of employees stipulated in the existing Collective Bargaining Agreement (CBA).

When the matter remained unresolved, the grievance was referred to the National Conciliation and Mediation Board (NCMB) for voluntary arbitration. During the hearing on July 1, 2004, the Company and the Union manifested before Voluntary Arbitrator Bienvenido E. Laguesma that amicable settlement was no longer possible, and they agreed to submit for resolution the solitary issue of whether the Company was guilty of unfair labor acts in engaging the services of PESO under the existing CBA, laws, and jurisprudence. Both parties thereafter filed their respective pleadings.

The Union asserted that the hiring of contractual employees from PESO was not a management prerogative and constituted a gross violation of the CBA tantamount to unfair labor practice. It noted that the contractual workers had been assigned to positions previously handled by regular workers and Union members, violating Section 4, Article I of the CBA, which defined three categories of employees: probationary, regular, and casual. The Union averred that these categories had been part of the CBA since the 1970s and that, due to this provision, a pool of casual employees had been maintained from which the Company hired workers who later became regular employees and Union members. With the hiring of contractual employees from PESO, the Union contended it would no longer have probationary and casual employees from which it could obtain additional members, rendering inutile Section 1, Article III (Union Security) of the CBA. The Union further warned that the Company could "import" workers from PESO during an actual strike.

The Company countered that the law expressly allows contracting and subcontracting arrangements through DOLE Order No. 18-02, that the engagement of contractual employees did not prejudice the Union since no employee was terminated and no reduction of working hours or splitting of the bargaining unit occurred, and that Section 4, Article I of the CBA merely defined categories of employees without limiting the Company's right to engage job contractors. On October 26, 2004, Voluntary Arbitrator Laguesma dismissed the ULP charge as purely speculative and lacking factual basis, but found that the engagement of PESO violated the CBA, since the work to be performed—temporary or occasional services—was akin to that of casual employees as defined in the CBA, and the Company should have directly hired casual employees rather than doing so through PESO. The VA directed the Company to observe and comply with its commitment under the CBA pertaining to the hiring of casual employees when necessitated by business circumstances. The Union moved for partial reconsideration, while the Company filed a petition for review before the Court of Appeals under Rule 43, arguing that the VA exceeded his authority by ruling on a matter not covered by the sole issue submitted for arbitration. The CA dismissed the petition on June 16, 2005, finding the VA's ruling interrelated and intertwined with the sole issue. The Company's motion for reconsideration was denied on October 12, 2005. Meanwhile, on July 16, 2009, the Company informed the Court that its stockholders and directors had unanimously voted to shorten its corporate existence until June 30, 2006, and that the three-year liquidation period had expired on June 30, 2009, but it urged the Court to still resolve the case for future guidance.

• Permissible Contracting Under Law: The Company argued that the law expressly allows contracting and subcontracting arrangements through DOLE Order No. 18-02, and that its engagement of contractual employees was a valid exercise of management prerogative not prohibited by law.
• No Prejudice to the Union: The Company maintained that the engagement of contractual employees did not in any way prejudice the Union, since not a single employee was terminated, and it did not result in a reduction of working hours or a reduction or splitting of the bargaining unit.
• CBA Merely Defines Categories: The Company contended that Section 4, Article I of the CBA merely provides for the definition of the categories of employees and does not put a limitation on its right to engage the services of job contractors or its management prerogative to address temporary or occasional needs in its operation.
• VA Exceeded Authority: The Company argued that the Voluntary Arbitrator exceeded his power, which was expressly granted and limited by both parties, in ruling that the engagement of PESO was not in keeping with the intent and spirit of the CBA, as such ruling was not covered by the sole issue submitted for arbitration.
• Mootness Due to Corporate Dissolution: The Company manifested that its corporate existence had been shortened to June 30, 2006, and the liquidation period had expired on June 30, 2009, rendering the case moot and academic, though it urged the Court to resolve the case for future guidance.

• CBA Violation: The Union asserted that the hiring of contractual employees from PESO is not a management prerogative and constitutes a gross violation of the CBA tantamount to unfair labor practice, as the contractual workers were assigned to positions previously handled by regular workers and Union members.
• Undermining Union Security: The Union argued that with the hiring of contractual employees, it would no longer have probationary and casual employees from which it could obtain additional Union members, rendering inutile Section 1, Article III (Union Security) of the CBA.
• Threat of Union Busting: The Union advanced that sustaining the Company's position would weaken and ultimately destroy the Union, as the Company could resort to retrenchment or retirement of employees and not fill vacant regular positions through hiring contractual workers from PESO, and could even "import" workers from PESO during an actual strike.

• Scope of Voluntary Arbitrator's Authority: Whether the Voluntary Arbitrator exceeded his authority in ruling that the engagement of PESO was not in keeping with the intent and spirit of the CBA, when the sole issue submitted for arbitration was whether the Company was guilty of unfair labor practice.
• Validity of Management Prerogative vs. CBA Limitations: Whether the Company's engagement of contractual employees through PESO was a valid exercise of management prerogative notwithstanding the specific CBA provisions on categories of employees.
• Mootness: Whether the case should be dismissed as moot and academic due to the Company's corporate dissolution and the expiration of its liquidation period.

• Scope of Voluntary Arbitrator's Authority: No. The VA did not exceed his authority; the ruling on CBA violation was interrelated and intertwined with the sole issue of ULP submitted for arbitration, as a complete and final adjudication necessarily required resolving whether the Company violated the CBA without being guilty of ULP.
• Validity of Management Prerogative vs. CBA Limitations: No. While outsourcing falls within the concept of management prerogative, the exercise thereof is limited by specific CBA provisions agreed upon by the parties; Section 4, Article I of the CBA, read in conjunction with Section 1, Article III on union security, delimits the Company's prerogative to hire contractual employees through a third-party provider.
• Mootness: No. The Court resolved the case despite the supervening event of corporate dissolution, as the issue called for clarification of a legal principle for future guidance of the bench and the bar.

• Scope of Voluntary Arbitrator's Authority: The Court confirmed that the VA ruled on a matter covered by the sole issue submitted for voluntary arbitration. The CA did not commit serious error in sustaining the ruling that the hiring of contractual employees from PESO was not in keeping with the intent and spirit of the CBA, as the VA's opinion was germane to—or, in the CA's words, "interrelated and intertwined with"—the sole issue. Relying on Ludo & Luym Corporation vs. Saornido, the Court reaffirmed that a voluntary arbitrator has plenary jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his own authority, subject only to certiorari jurisdiction. Since arbitration is the final resort for the adjudication of disputes, the arbitrator can assume the power to make a final settlement. A complete and final adjudication of the dispute necessarily called for resolution of the related and incidental issue of whether the Company violated the CBA without being guilty of ULP, as ULP is committed only if there is a gross violation of the agreement. The Company's invocation of Sections 4 and 5, Rule IV and Section 5, Rule VI of the Revised Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings was therefore out of order.

• Validity of Management Prerogative vs. CBA Limitations: The Court distinguished between declaring that an act falls within the concept of management prerogative and acknowledging that such act is a valid exercise thereof. While the VA and CA correctly ruled that the Company's act of contracting out or outsourcing was within the purview of management prerogative, neither held it was a valid exercise, because the CBA provisions agreed upon by the Company and the Union delimit the free exercise of management prerogative pertaining to the hiring of contractual employees. The VA opined that the right of management to outsource is not totally eliminated but merely limited by the CBA, while the CA held that the categories of employees, particularly casual employees, serve as a limitation on the Company's prerogative. The Court held that the CBA is the law between the parties, and where its terms are clear and unambiguous, the literal meaning of the stipulations shall control. Section 4, Article I (categories of employees) must be read in conjunction with Section 1, Article III (union security), as both are interconnected and must be given full force and effect. The exercise of management prerogative is not unlimited; it is subject to limitations found in law, collective bargaining agreement, or the general principles of fair play and justice. Unlike the cases cited by the Company—San Miguel Corporation Employees Union-PTGWO vs. Bersamira, De Ocampo vs. NLRC, Asian Alcohol Corporation vs. NLRC, and Serrano vs. NLRC—this case involved specific CBA provisions that served as restrictions on management prerogative.

• Mootness: The Court acknowledged the supervening event of the Company's permanent cessation of business operations on June 30, 2009, which would ordinarily render the case moot and academic. However, the Company itself urged the Court to resolve the case for future guidance, as the issue called for clarification of a legal principle—specifically, whether the VA is empowered to rule on a matter not covered by the issue submitted for arbitration. The Court elected to brush aside technicality and resolve the petition on the merits, applying exceptions to the mootness doctrine.

• CBA as Law Between the Parties — A collective bargaining agreement is the law between the parties, and they are obliged to comply with its provisions. Where the CBA is clear and unambiguous, it becomes the law between the parties and compliance therewith is mandated by the express policy of the law. If the terms are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of their stipulations shall control. The Court applied this doctrine by holding that Section 4, Article I and Section 1, Article III of the CBA must be read together and given full force and effect, their terms being explicit and not susceptible to any other interpretation.

• Limitations on Management Prerogative — The exercise of management prerogative is not unlimited; it is subject to the limitations found in law, collective bargaining agreement, or the general principles of fair play and justice. The Court applied this by holding that while contracting out services is within the purview of management prerogative, the specific CBA provisions on categories of employees—particularly casual employees—serve as a limitation on the Company's prerogative to outsource parts of its operations when hiring contractual employees.

• Plenary Jurisdiction of the Voluntary Arbitrator — A voluntary arbitrator has plenary jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his own authority, subject only to certiorari jurisdiction of the Supreme Court. Since arbitration is the final resort for the adjudication of disputes, the arbitrator can assume the power to make a final settlement, including the resolution of related and incidental issues necessary for a complete adjudication. The Court applied this by holding that the VA's ruling on CBA violation was interrelated with the sole ULP issue, as ULP is committed only if there is a gross violation of the CBA.

• Exceptions to the Moot and Academic Doctrine — Courts will decide cases otherwise moot and academic if: (1) there is a grave violation of the Constitution; (2) the exceptional character of the situation and paramount public interest is involved; (3) the constitutional issue raised requires formulation of controlling principles to guide the bench, the bar, and the public; or (4) the case is capable of repetition yet evading review. The Court applied this by resolving the petition despite the Company's corporate dissolution, as the issue called for clarification of a legal principle for future guidance.

• "A collective bargaining agreement is the law between the parties" — This passage articulates the fundamental doctrine that the CBA binds the parties as law, and compliance is mandated by express policy, anchoring the Court's holding that the CBA's specific provisions on employee categories delimit management prerogative.

• "the right of the management to outsource parts of its operations is not totally eliminated but is merely limited by the CBA" — This formulation, drawn from the VA's opinion as affirmed by the Court, captures the nuanced ruling that management prerogative to outsource survives but is constrained by the parties' own contractual stipulations.

• "declaring that a particular act falls within the concept of management prerogative is significantly different from acknowledging that such act is a valid exercise thereof" — This passage clarifies a critical analytical distinction central to the decision: that an act may be within the scope of management prerogative yet still be invalid if it contravenes CBA provisions.

• "the Voluntary Arbitrator had plenary jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his own authority subject only, in a proper case, to the certiorari jurisdiction of this Court" — This formulation, quoted from Ludo & Luym Corporation vs. Saornido, states the canonical rule on the scope of a voluntary arbitrator's authority, frequently cited in subsequent labor jurisprudence.

• Ludo & Luym Corporation vs. Saornido, G.R. No. 140960, January 20, 2003 — Controlling precedent on the plenary jurisdiction and authority of the voluntary arbitrator to interpret the agreement to arbitrate and determine the scope of his own authority. The Court relied on this case to affirm that the VA did not exceed his authority in ruling on the CBA violation, as it was interrelated with the sole issue submitted for arbitration. The Court distinguished Ludo as fortifying, rather than diminishing, the soundness of the VA Decision.

• Manila Electric Company vs. Quisumbing — Cited by the Court of Appeals for the proposition that contracting out of services is an exercise of business judgment or management prerogative. The Supreme Court acknowledged this principle but clarified that such prerogative is not without limitation.

• Honda Phils., Inc. vs. Samahan ng Malayang Manggagawa sa Honda — Cited for the doctrine that a CBA is the law between the parties and compliance is mandated by express policy of the law, and that where the CBA is clear and unambiguous, its literal meaning controls.

• DOLE Philippines, Inc. vs. Pawis ng Makabayang Obrero, G.R. No. 146650, January 13, 2003 — Cited for the principle that the exercise of management prerogative is not unlimited but subject to limitations found in law, collective bargaining agreement, or the general principles of fair play and justice.

• David vs. Macapagal-Arroyo, G.R. Nos. 171396 et al., May 3, 2006 — Cited for the exceptions to the moot and academic doctrine, under which the Court elected to resolve the case despite the supervening event of corporate dissolution.

• San Miguel Corporation Employees Union-PTGWO vs. Bersamira; De Ocampo vs. NLRC; Asian Alcohol Corporation vs. NLRC; Serrano vs. NLRC — Cases cited by the Company in support of its management prerogative argument; the Court distinguished them on the ground that, unlike those cases, this case involved specific CBA provisions that served as restrictions on management prerogative.

• Section 4, Article I, CBA (Categories of Employees) — Defines three categories of employees: probationary, regular, and casual. The casual employee category covers one hired to perform occasional or seasonal work directly connected with regular operations, or one hired for specific projects of limited duration not directly connected with regular operations. The Court held that since the Company admitted PESO was engaged to perform temporary or occasional services akin to those of casual employees, the Company should have directly hired casual employees rather than through PESO, making the engagement a violation of the CBA.

• Section 1, Article III, CBA (Union Security) — Provides that as a condition of continued employment, all regular rank-and-file employees shall remain members of the Union in good standing, and new employees covered by the appropriate bargaining unit shall automatically become regular employees and remain Union members. The Court held this provision must be read in conjunction with Section 4, Article I, as both are interconnected and must be given full force and effect.

• DOLE Order No. 18-02 — Cited by the Company for the proposition that the law expressly allows contracting and subcontracting arrangements. The Court did not dispute the legality of contracting per se but held that the CBA's specific provisions served as a limitation on the Company's prerogative to outsource.

• Sections 4 and 5, Rule IV and Section 5, Rule VI, Revised Procedural Guidelines in the Conduct of Voluntary Arbitration Proceedings (NCMB, October 15, 2004) — Invoked by the Company to argue that the VA exceeded his jurisdiction by ruling on matters outside the submission agreement. The Court held this invocation was "plainly out of order," as the VA's ruling was covered by the sole issue submitted for arbitration.

Presbitero J. Velasco, Jr. (Chairperson), Roberto A. Abad, Jose Catral Mendoza, and Marvic Mario Victor F. Leonen concurred.