Inguillo vs. First Philippine Scales, Inc.

A dismissal pursuant to a valid union security clause is substantively valid where the clause is applicable, the union requests its enforcement, and sufficient evidence supports the union's decision to expel the employee; however, the employer must still observe the two-notice and hearing requirements of procedural due process, and non-compliance renders the employer liable for nominal damages rather than invalidating the dismissal.

First Philippine Scales, Inc. (FPSI) is a domestic corporation engaged in the manufacturing of weighing scales, and its employees were represented by First Philippine Scales Industries Labor Union (FPSILU) under a collective bargaining agreement containing a union security clause. Petitioners Zenaida Bergante and Herminigildo Inguillo were assemblers and FPSILU members. The Labor Code does not expressly list enforcement of a union security clause as a ground for termination, but such dismissals are recognized in Philippine labor jurisprudence.

First Philippine Scales, Inc. (FPSI), a domestic corporation engaged in the manufacturing of weighing scales, employed Zenaida Bergante and Herminigildo Inguillo as assemblers on August 15, 1977 and September 10, 1986, respectively. In 1991, FPSI and First Philippine Scales Industries Labor Union (FPSILU) entered into a Collective Bargaining Agreement (CBA) for a period of five years, from September 12, 1991 to September 12, 1996. On September 19, 1991, FPSILU members ratified the CBA in a document entitled RATIPIKASYON NG KASUNDUAN, and Bergante and Inguillo, who were FPSILU members, signed the said document.

During the lifetime of the CBA, Bergante, Inguillo, and several FPSI employees joined another union, the Nagkakaisang Lakas ng Manggagawa (NLM), affiliated with KATIPUNAN. NLM-KATIPUNAN subsequently filed with the Department of Labor and Employment an intra-union dispute against FPSILU and FPSI. The Med-Arbiter decided in favor of FPSILU and ordered the officers and members of NLM-KATIPUNAN to return ₱90,000.00 in union dues erroneously collected from employees. Upon finality of the Med-Arbiter's Decision, a Writ of Execution was issued to collect the amount from NLM-KATIPUNAN. When no amount was recovered, notices of garnishment were issued to United Coconut Planters Bank (Kalookan City Branch) and to FPSI to hold for FPSILU the earnings of Domingo Grutas, Jr. and Inguillo, formerly FPSILU's President and Secretary for Finance, respectively, to the extent of ₱13,032.18. As a result, ₱5,140.55 was collected, ₱1,695.72 of which came from Grutas's salary and ₱3,444.83 from Inguillo's salary.

On March 29, 1996, the executive board and members of FPSILU addressed a document dated March 18, 1996, denominated as "Petisyon," to FPSI's general manager, Amparo Policarpio, seeking the termination of Domingo Grutas, Yolanda Tapang, Shirley Tapang, Gerry Trinidad, Gilbert Lucero, Inguillo, Bergante, and Vicente Go. The grounds stated were: (1) disloyalty to the Union by separating from it and affiliating with a rival union, NLM-KATIPUNAN; (2) dereliction of duty by failing to call periodic membership meetings and to give financial reports; (3) depositing Union funds in the names of Grutas and former Vice-President Yolanda Tapang instead of in the name of FPSILU, care of the President; (4) causing damage to FPSI by deliberately slowing down production and preventing the Union from even attempting to ask for an increase in benefits; and (5) poisoning the minds of the rest of the members of the Union so that they would be enticed to join the rival union.

On May 13, 1996, Inguillo filed with the NLRC a complaint against FPSI and/or Policarpio for illegal withholding of salary and damages. On May 16, 1996, respondents terminated the services of the employees mentioned in the "Petisyon." The following day, two separate complaints for illegal dismissal, reinstatement, and damages were filed against respondents by NLM-KATIPUNAN, Grutas, Trinidad, Bergante, Yolanda Tapang, Go, Shirley Tapang, and Lucero, on the one hand, and by Inguillo, on the other. Both complaints were consolidated with Inguillo's prior complaint for illegal withholding of salary, which was pending before Labor Arbiter Manuel Manansala. After the preliminary mandatory conference, some complainants agreed to amicably settle their cases, and the Labor Arbiter issued an Order dated October 1, 1996, dismissing with prejudice the complaints of Go, Shirley Tapang, Yolanda Tapang, Grutas, and Trinidad. Lucero also settled after receiving his settlement money and executing a Quitclaim and Release in favor of FPSI and Policarpio. Bergante and Inguillo, the remaining complainants, were directed to submit their respective position papers, after which their complaints were submitted for resolution on February 20, 1997.

In their Position Paper, Bergante and Inguillo claimed that they were not aware of a petition seeking their termination and were not informed of the grounds for their termination. They argued that had they been informed, they would have impleaded FPSILU in their complaints. Inguillo could not think of a valid reason for his dismissal except that he was a very vocal and active member of NLM-KATIPUNAN. Bergante surmised that she was dismissed solely for being Inguillo's sister-in-law and reiterated the absence of a memorandum stating that she committed an infraction of a company rule or regulation or a violation of law that would justify her dismissal. Inguillo also denounced respondents' act of withholding his salary, arguing that he was not a party to the intra-union dispute from which the notice of garnishment arose and that, even assuming he was, his salary was exempt from execution.

Respondents maintained that the dismissal was justified because it was done upon the demand of FPSILU and that FPSI complied in order to avoid a serious labor dispute among its officers and members, which would seriously affect production. They also justified the dismissal as being in accordance with the Union Security Clause in the CBA, the existence and validity of which were not disputed by Bergante and Inguillo, who had affixed their signatures to the document ratifying the CBA. The Labor Arbiter later found that petitioners were former FPSILU members who had disaffiliated and joined NLM-KATIPUNAN while the CBA was in force.

• Validity of Dismissal: Petitioners assailed the legality of their termination based on the Union Security Clause in the CBA between FPSI and FPSILU.
• Lack of Notice and Opportunity: Petitioners claimed that they were not aware of the petition seeking their termination and were not informed of the grounds for their dismissal; had they been informed, they would have impleaded FPSILU in their complaints.
• Absence of Just Cause: Inguillo could not think of a valid reason for his dismissal except that he was a very vocal and active member of NLM-KATIPUNAN, while Bergante surmised that she was dismissed solely for being Inguillo's sister-in-law and noted the absence of any memorandum stating an infraction.
• Illegal Withholding of Salary: Inguillo argued that he was not a party to the intra-union dispute from which the garnishment arose and that, even assuming he was, his salary was exempt from execution.

• Union Security Clause: Respondents maintained that the dismissal was justified because it was made upon the demand of FPSILU and in accordance with the Union Security Clause in the CBA, whose existence and validity petitioners did not dispute.
• Avoidance of Labor Dispute: FPSI complied in order to avoid a serious labor dispute among its officers and members, which would seriously affect production.
• Ratification: Petitioners had signed the document ratifying the CBA and could not deny knowledge of the Union Security Clause.
• Due Process Compliance: Respondents averred that they had furnished the employees concerned, including petitioners, with a copy of FPSILU's "Petisyon," and that Policarpio had a dialogue with them explaining the demand of FPSILU for their termination and the consequences of the "Petisyon."

• Validity of Dismissal under Union Security Clause: Whether the enforcement of the Union Security Clause in the CBA justified petitioners' dismissal from service.
• Procedural Due Process: Whether respondents complied with the requirements of procedural due process in terminating petitioners' employment.
• Nominal Damages: Whether respondents are liable for nominal damages for violation of petitioners' statutory right to due process.

• Validity of Dismissal under Union Security Clause: Yes. The dismissal was substantively valid because all three requisites for enforcing a union security clause were met: the clause was applicable, the union requested its enforcement, and sufficient evidence supported the union's decision to expel petitioners.
• Procedural Due Process: No. The required two written notices and hearing or conference were lacking; the "Petisyon" was not a notice of termination, and the dialogue was not the hearing or conference prescribed by law.
• Nominal Damages: Yes. Because the dismissal was for a cause recognized by prevailing jurisprudence but statutory due process was not observed, the dismissal was not nullified; respondents were liable for ₱30,000.00 nominal damages each under Agabon vs. National Labor Relations Commission.

• Validity of Dismissal under Union Security Clause: The Labor Code does not expressly list enforcement of a union security clause as a ground for termination, but such dismissals are recognized in Philippine jurisdiction. A union security clause is a generic term covering closed shop, union shop, maintenance of membership, or any other agreement imposing upon employees the obligation to acquire or retain union membership as a condition affecting employment. The CBA's Article II required all bona fide union members and those later becoming members to maintain membership in FPSILU as a condition of continued employment, and allowed the Union Directorate and/or FPSILU Executive Council to recommend suspension or dismissal for causes including acts of disloyalty, voluntary resignation or abandonment, joining another labor union, and non-payment of dues. In enforcing the clause, the employer need only determine and prove: (1) the union security clause is applicable; (2) the union is requesting enforcement of the union security provision in the CBA; and (3) there is sufficient evidence to support the union's decision to expel the employee from the union or company. All requisites were met. The clause was a valid CBA provision whose existence and validity were not questioned; petitioners were among the 93 employees who signed the ratification document and could not deny knowledge of it. FPSILU recommended dismissal after petitioners failed to maintain membership, citing not only their joining a rival union but also dereliction of duty, depositing union funds in individual names, causing damage to FPSI by slowing production, preventing the Union from seeking increased benefits, and poisoning members' minds. The recommendation was supported by evidence: petitioners were undisputedly former FPSILU members; Inguillo had been Secretary of Finance, which explained why his salary was garnished to satisfy the Med-Arbiter's judgment ordering NLM-KATIPUNAN to return erroneously collected dues; their signatures ratified the CBA; they disaffiliated and joined NLM-KATIPUNAN, which worked against FPSILU's interests; and they recruited other employees and collected union dues. FPSI was therefore justified in enforcing the Union Security Clause.

• Procedural Due Process: While dismissal under a union security clause is valid, it is not without condition; untrammeled enforcement would encourage arbitrary dismissal and abuse by the employer. Dismissals under such clauses are valid and legal only if due process—notice and hearing prior to dismissal—is observed, and enforcement must not be characterized by arbitrariness. Due process under the Labor Code has substantive and procedural aspects. Procedural due process requires two written notices: the first apprises the employee of the specific causes or grounds for termination and directs him to submit a written explanation within a reasonable period; the second informs him of the employer's decision to dismiss after considering all circumstances and establishing the grounds. A hearing or conference must also be afforded, where the employee can explain, present evidence, and rebut evidence, personally or through counsel; an actual hearing is not required so long as there is an opportunity to be heard. Here, the two notices were lacking. The records contained no notice showing even substantial compliance. Respondents relied on the copy of FPSILU's "Petisyon," but that document was only a recommendation by the Union upon which the employer may base its decision; it was not a notice of termination. The CBA allowed FPSILU only to recommend suspension or dismissal, and did not bind FPSI outright to terminate once the Union recommended. Even if the "Petisyon" were treated as a first notice, it contained only general descriptions that would not enable employees to intelligently prepare their explanation and defenses, and it did not direct them to submit a written explanation within a reasonable period. Even if treated as a second notice, it did not state that the employer had considered all circumstances and that the grounds in the first notice had been established. After the claimed dialogue, the employees were simply told not to report for work. Petitioners consistently denied being notified of specific charges or given any memorandum. As for the hearing requirement, Policarpio's claim of a dialogue was self-serving; the records did not show that petitioners were given an opportunity to present evidence. The dialogue merely discussed the amount of financial assistance the employees would accept and the amount respondents would give; it was not an amicable settlement and not the hearing or conference prescribed by law. Non-compliance with the two-notice rule is tantamount to deprivation of the right to due process.

• Nominal Damages: The dismissal was for a cause recognized by prevailing jurisprudence, so the absence of statutory due process did not nullify it or render it illegal or ineffectual. Under Agabon vs. National Labor Relations Commission, the employer is liable for nominal damages for violating the employee's statutory right to due process. Accordingly, respondents were ordered to indemnify Bergante and Inguillo ₱30,000.00 each as nominal damages. This vindicates the employee's right to due process without overturning the valid substantive ground for dismissal.

• Union Security Clause — A generic term covering closed shop, union shop, maintenance of membership, or any agreement imposing upon employees the obligation to acquire or retain union membership as a condition affecting employment. In this case, the CBA's Article II contained such a clause; the Court held it was a valid provision and that FPSI was justified in enforcing it.
• Requisites for Enforcing a Union Security Clause — The employer needs only to determine and prove: (1) the union security clause is applicable; (2) the union is requesting enforcement of the union security provision in the CBA; and (3) there is sufficient evidence to support the union's decision to expel the employee from the union or company. All three were met.
• Closed-Shop Agreement — An enterprise in which, by agreement between employer and employees or their representatives, no person may be employed in any or certain agreed departments unless he or she is, becomes, and, for the duration of the agreement, remains a member in good standing of a union entirely comprised of or of which the employees in interest are a part. The CBA's union security clause was described as a closed-shop arrangement.
• Union Shop — All new regular employees are required to join the union within a certain period as a condition for their continued employment.
• Maintenance of Membership Shop — Employees who are union members as of the effective date of the agreement, or who thereafter become members, must maintain union membership as a condition for continued employment until they are promoted or transferred out of the bargaining unit or the agreement is terminated.
• Two Aspects of Due Process in Labor Dismissals — Substantive due process asks whether the termination was based on the Labor Code or prevailing jurisprudence; procedural due process concerns the manner of dismissal. Procedural due process requires two written notices and a hearing or conference, or at least an opportunity to be heard. In this case, substantive due process was satisfied by the valid union security clause, but procedural due process was not.
• Two-Notice Rule — The first written notice must contain the specific causes or grounds for termination and a directive that the employee may submit a written explanation within a reasonable period. The second written notice must indicate that all circumstances involving the charge have been considered and that grounds have been established to justify termination. The "Petisyon" did not satisfy either notice.
• Agabon Doctrine — Where the dismissal is for a cause recognized by prevailing jurisprudence, the absence of statutory due process does not nullify the dismissal or render it illegal or ineffectual; the employer is liable for nominal damages. The Court awarded ₱30,000.00 each to petitioners.
• CBA as Law Between the Parties — CBA stipulations authorizing dismissal are of equal import as statutory provisions on dismissal under the Labor Code, since a CBA is the law between the company and the union, and compliance is mandated by the policy to protect labor. FPSI was enforcing such a stipulation.
• Due Process Limitation on Union Security Clauses — The enforcement of union security clauses is authorized by law only if not characterized by arbitrariness and always with due process; the right of an employee to be informed of charges and to a reasonable opportunity to present his side is not wiped away by a union security or union shop clause. The Court applied this to find a procedural violation.

• "In terminating the employment of an employee by enforcing the Union Security Clause, the employer needs only to determine and prove that: (1) the union security clause is applicable; (2) the union is requesting for the enforcement of the union security provision in the CBA; and (3) there is sufficient evidence to support the union's decision to expel the employee from the union or company." — This passage states the three requisites for validly enforcing a union security clause, which the Court found were all satisfied.
• "Nonetheless, while We uphold dismissal pursuant to a union security clause, the same is not without a condition or restriction. For to allow its untrammeled enforcement would encourage arbitrary dismissal and abuse by the employer, to the detriment of the employees. Thus, to safeguard the rights of the employees, We have said time and again that dismissals pursuant to union security clauses are valid and legal, subject only to the requirement of due process, that is, notice and hearing prior to dismissal." — This passage defines the due process limitation on union security clauses and is central to the Court's ruling that procedural due process was violated.
• "In fine, We hold that while Bergante and Inguillo's dismissals were valid pursuant to the enforcement of Union Security Clause, respondents however did not comply with the requisite procedural due process. As in the case of Agabon v. National Labor Relations Commission, where the dismissal is for a cause recognized by the prevailing jurisprudence, the absence of the statutory due process should not nullify the dismissal or render it illegal, or ineffectual. Accordingly, for violating Bergante and Inguillo's statutory rights, respondents should indemnify them the amount of ₱30,000.00 each as nominal damages." — This is the ratio decidendi on the validity of the dismissal, the procedural violation, and the award of nominal damages.
• "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 collective bargaining agreement." — This passage, quoted from Carino vs. National Labor Relations Commission, anchors the rule that union security clauses do not dispense with due process.

• Alabang Country Club, Inc. vs. NLRC, G.R. No. 170287, February 14, 2008, 545 SCRA 351 — Cited for the requisites for enforcing a union security clause and for the definitions of union shop and maintenance of membership shop.
• Del Monte Philippines, Inc. vs. Saldivar, G.R. No. 158620, October 11, 2006, 504 SCRA 192 — Cited for the rule that CBA stipulations authorizing dismissal have equal import as statutory dismissal provisions and for the definition of closed-shop.
• Caltex Refinery Employees Association (CREA) vs. Brillantes, G.R. No. 123782, September 16, 1997 — Cited for the purpose of a union security clause: to strengthen the contracting union and protect it from the fickleness or perfidy of its members.
• King of Kings Transport vs. Mamac, G.R. No. 166208, June 29, 2007, 526 SCRA 116 — Cited for the three-step procedural due process requirements in dismissal: first notice, hearing or conference, and second notice.
• Carino vs. National Labor Relations Commission, G.R. No. 91086, May 8, 1990, 185 SCRA 177 — Cited for the rule that the right to be informed of charges and to a reasonable opportunity to present one's side is not removed by a union security or union shop clause.
• Agabon vs. National Labor Relations Commission, G.R. No. 158693, November 17, 2004, 442 SCRA 573 — Cited as the controlling rule that a dismissal for a cause recognized by jurisprudence is not nullified by lack of statutory due process; the employer is liable for nominal damages.
• Malayang Samahan ng mga Manggagawa sa M. Greenfield vs. Ramos, G.R. No. 113907, February 28, 2000, 326 SCRA 428 — Cited for the rule that dismissals pursuant to union security clauses are valid only if not arbitrary and always with due process.
• Landtex Industries and William Go vs. Ayson, G.R. No. 150278, August 9, 2007, 529 SCRA 631 — Cited for the two-written-notice requirement and the opportunity-to-be-heard standard.
• Bughaw, Jr. vs. Treasure Island Industrial Corporation, G.R. No. 173151, March 28, 2008, 550 SCRA 307 — Cited for the rule that non-compliance with the two-notice rule is tantamount to deprivation of due process.

• Article 282, Labor Code — Just causes for termination by employer. The Court listed it among the Labor Code provisions under which an employee may be validly terminated, but noted that enforcement of a union security clause, though not mentioned, is recognized in Philippine jurisdiction.
• Article 283, Labor Code — Authorized causes for termination, such as closure of establishment and reduction of personnel. Listed by the Court as a separate statutory ground; not the basis of dismissal here.
• Article 284, Labor Code — Disease as a ground for termination. Listed by the Court; not applicable to this case.
• Article 285, Labor Code — Termination by the employee or resignation. Listed by the Court; not applicable to this case.
• Article II, Union Security Clause, CBA — Required all bona fide union members and those later becoming members to maintain membership in FPSILU as a condition of continued employment; allowed the Union Directorate and/or FPSILU Executive Council to recommend suspension or dismissal for acts of disloyalty, voluntary resignation or abandonment, joining another labor union, non-payment of dues, and similar causes. The Court found this clause applicable and valid, and its enforcement justified the dismissal.
• Rule 45, Rules of Court — The present petition for review was filed under this Rule. The Court denied it.
• Rule 65, Rules of Court — Petitioners filed a petition for certiorari with the Court of Appeals under this Rule; the Court of Appeals dismissed it.
• Section 13, Article VIII, 1987 Constitution — Cited in the Chief Justice's certification that the conclusions were reached in consultation before the case was assigned to the writer of the opinion; it has no bearing on the substantive labor issues.

Consuelo Ynares-Santiago (Chairperson), Antonio T. Carpio, Renato C. Corona, and Antonio Eduardo B. Nachura. Justices Carpio and Corona were designated as additional members per Special Order No. 646 dated May 15, 2009 and Special Order No. 631 dated April 29, 2009, respectively.