National Brewery & Allied Industries Labor Union of the Philippines vs. San Miguel Brewery, Inc.

A union agency fee, as a lesser form of union security, cannot be imposed upon employees already in service who are members of another union where a closed-shop agreement itself cannot be applied to them under the Industrial Peace Act; neither quasi-contract nor agency justifies its collection.

National Brewery & Allied Industries Labor Union of the Philippines was the bargaining representative of all regular workers paid on a daily basis and of route helpers of San Miguel Brewery, Inc. The Independent San Miguel Brewery Workers' Association and other non-union workers were among the employees in the bargaining unit. Under the Industrial Peace Act (Republic Act No. 875), employees have the right to self-organization, subject to the proviso in Section 4(a)(4) allowing an employer to agree with a labor organization to require membership as a condition of employment if the labor organization is the representative of the employees under Section 12. The validity of a union agency fee as a form of union security was a question of first impression in the jurisdiction.

National Brewery & Allied Industries Labor Union of the Philippines was the bargaining representative of all regular workers paid on a daily basis and of route helpers of San Miguel Brewery, Inc. On October 2, 1959, it signed a collective bargaining agreement with the company. Article II, Section 4 of the agreement provided that the company would deduct the union agency fee from the wages of workers who were not members of the union, provided those workers authorized the company in writing to make such deductions or, if no such authorization was given, if a competent court directed the company to make the deduction.

On November 17, 1960, the union brought suit in the Court of First Instance of Manila for collection of union agency fees under the bargaining contract. It alleged that it had obtained benefits for all workers in the company and that the defendant Independent San Miguel Brewery Workers' Association refused and still refused to pay the union agency fee, while the defendant company also refused and still refused to deduct the union agency fee from the wages of workers who were not members of the plaintiff union and remit the same to the latter. The union sought to collect P4.00 from each employee.

The complaint was dismissed upon the petition of the defendant San Miguel Brewery Workers' Association. The trial court found no allegation that the P4.00 amount represented the expense incurred by the union in representing each employee. The union's motion for reconsideration was denied, and it appealed to the Supreme Court.

• Union Security under Section 4(a)(4): Petitioner argued that the agency fee agreement was a permissible form of union security under Section 4(a)(4) of the Industrial Peace Act, invoking the principle that "the lesser must of necessity be included in the greater."
• Free Riders: Petitioner contended that nonmembers were "free riders" who should be made to pay for benefits received from the union's collective bargaining efforts.
• Quasi Contract: Petitioner maintained that collection was justified under Article 2142 of the Civil Code because the union had obtained benefits for all workers and nonmembers would otherwise be unjustly enriched at the union's expense.
• Agency: Petitioner argued that collection could be justified on the principle of agency, since the union acted as bargaining agent for all employees in the unit.

• Validity of Agency Fee as Union Security: Whether a union agency fee is a permissible form of union security under Section 4(a)(4) of the Industrial Peace Act, particularly as to employees already in service and members of another union.
• Quasi Contract: Whether the collection of agency fees from nonmembers may be justified under Article 2142 of the Civil Code to prevent unjust enrichment.
• Agency: Whether the collection of agency fees may be justified on the principle of agency.

• Validity of Agency Fee as Union Security: No. The agency fee cannot be imposed on employees already in service and members of another union because a closed-shop agreement cannot be applied to them under the Industrial Peace Act, and the lesser form of union security cannot be imposed where the greater cannot.
• Quasi Contract: No. Benefits under the collective bargaining agreement are extended to nonmembers to avoid discrimination, not as unjust enrichment; the complaint also did not allege that the P4.00 fee represented the expense incurred in representing each employee.
• Agency: No. The bargaining agency created by law between the union and the employees in the unit is without compensation, as shown by the fact that the minority employees voted against the appellant union.

• Validity of Agency Fee as Union Security: Section 3 of Republic Act No. 875 guarantees employees the right to self-organization, and Section 4(a)(4) permits an employer to agree with a labor organization to require membership as a condition of employment if the labor organization is the representative of the employees under Section 12. The only question was whether the agency fee agreement was a permissible form of union security under Section 4(a)(4). In General Motors Corp., 130 NLRB 481, the National Labor Relations Board held that any union-security agreement, including an agency shop, interferes with the employees' right to refrain from assisting a labor organization and encourages membership, and is unlawful unless saved by the proviso to Section 8(a)(3) of the National Labor Relations Act, which permits an agreement requiring membership. No other provision specifically legalizes an agency-shop arrangement. The basic principle applied here: where the parties are not free to require employees to be union members as a condition of employment, they cannot require a lesser form of union security, for one cannot waive a right he does not have. Although the Philippines has no right-to-work law, the same principle governs. Under Section 4(a)(4), a closed-shop agreement may validly be entered into, but it cannot be applied to employees who, like those in this case, are already in service and are members of another union. Because a closed shop cannot be applied to them, neither may an agency fee, as a lesser form of union security, be imposed upon them. The union's claim that nonmembers are "free riders" was answered by the concurring opinion in General Motors: the limits on permissible encouragement of union membership restrict unions to agreements explicitly requiring membership, such as a permitted union shop or maintenance of membership contract. The benefits of the collective bargaining agreement accrue to all employees because withholding them from nonmembers would discriminate against them, and Section 12 makes the majority union the exclusive representative of all employees.
• Quasi Contract: Article 2142 of the Civil Code provides that certain lawful, voluntary and unilateral acts give rise to a quasi-contract so that no one shall be unjustly enriched or benefited at the expense of another. The benefits that accrue to nonmembers by reason of a collective bargaining agreement cannot be termed unjust enrichment because they are extended to them precisely to avoid discrimination among employees. Moreover, there was no allegation in the complaint that the P4.00 amount represented the expense incurred by the union in representing each employee; the benefits extended to nonmembers are merely incidental.
• Agency: When a union acts as the bargaining agent, it assumes the responsibility imposed by law to represent not only its members but all employees in the appropriate bargaining unit. Article 1875 of the Civil Code states that agency is presumed to be for compensation unless there is proof to the contrary. There can be no better proof that the agency created by law between the bargaining representative and the employees in the unit is without compensation than the fact that the minority employees voted against the appellant union.

• Union Agency Fee as a Lesser Form of Union Security — An agency fee is a union-security arrangement requiring nonmembers to pay a fee to the union. Under the Industrial Peace Act, where a closed-shop agreement cannot be applied to employees already in service and members of another union, an agency fee cannot be imposed on them either; the lesser form of union security cannot be imposed where the greater form cannot. The argument that the lesser is included in the greater was rejected because one cannot waive a right he does not have.
• Closed-Shop Agreement under Section 4(a)(4) of Republic Act No. 875 — Section 4(a)(4) allows an employer to make an agreement with a labor organization to require membership as a condition of employment if the labor organization is the representative of the employees under Section 12. A closed-shop agreement may validly be entered into under this provision, but it cannot be applied to employees already in service and members of another union.
• Exclusive Bargaining Representative — Under Section 12 of Republic Act No. 875, the labor organization designated or selected by the majority of employees in an appropriate collective bargaining unit is the exclusive representative of all employees in the unit for collective bargaining. The benefits of a collective bargaining agreement are extended to all employees regardless of union membership because withholding them from nonmembers would discriminate against them; this does not justify collecting agency fees from nonmembers.
• Quasi-Contract and Unjust Enrichment — Article 2142 of the Civil Code creates a quasi-contract from certain lawful, voluntary and unilateral acts to prevent unjust enrichment. Benefits received by nonmembers under a collective bargaining agreement are not unjust enrichment because they are extended to avoid discrimination among employees, and no showing was made that the agency fee equaled the expense incurred in representing each employee.
• Agency Presumed for Compensation — Article 1875 of the Civil Code presumes agency to be for compensation unless there is proof to the contrary. The bargaining agency created by law between the union and the employees in the unit is without compensation; the minority employees' vote against the union is proof that the agency was not compensated.
• Free Rider Argument — The contention that nonmembers are "free riders" who should pay for benefits received does not justify an agency fee where the law does not permit the greater union-security arrangement; the permissible agreements are those explicitly requiring membership, such as a permitted union shop or maintenance of membership contract.

• "The only question here is whether such an agreement is a permissible form of union security under Section 4(a)(4) as contended by the union." — Frames the central issue on the validity of the agency fee as a union-security arrangement under the Industrial Peace Act.
• "For although a closed-shop agreement may validly be entered into under Section 4 (a) (4) of the Industrial Peace Act (National Labor Union v. Aguinaldo's Echague, Inc., 51 O.G. p. 2899, We held that the same cannot be made to apply to employees who, like the employees in this case, are already in the service and are members of another union. (Freeman Shirt Mfg. Co. v. Court of Industrial Relations, G.R. No. L-16561, January 28, 1961.) Hence, if a closed shop agreement cannot be applied to these employees, neither may an agency fee, as a lesser form of union security, be imposed upon them." — States the ratio decidendi: because the greater union security cannot apply to these employees, the lesser agency fee cannot be imposed.
• "But the benefits that accrue to nonmembers by reason of a collective bargaining agreement can hardly be termed "unjust enrichment" because, as already pointed out, the same are extended to them precisely to avoid discrimination among employees." — Rejects the quasi-contract theory by explaining that benefits extended to nonmembers are not unjust enrichment.
• "There can be no better proof that the agency created by law between the bargaining representative and the employees in the unit is without compensation than the fact that these employees in the minority voted against the appellant union." — Rejects the agency theory by holding that the statutory bargaining agency is without compensation.

• General Motors Corp., 130 NLRB 481 — The National Labor Relations Board decision relied upon by the Court; it held that an agency-shop arrangement is unlawful unless saved by the proviso permitting agreements requiring membership, and that where parties cannot require membership, they cannot require a lesser union security.
• National Labor Union vs. Aguinaldo's Echague, Inc., 51 O.G. 2899 — Cited for the proposition that a closed-shop agreement may validly be entered into under Section 4(a)(4) of the Industrial Peace Act.
• Freeman Shirt Mfg. Co. vs. Court of Industrial Relations, G.R. No. L-16561, January 28, 1961 — Held that a closed-shop agreement cannot be applied to employees already in service and members of another union; the Court used this to bar the lesser agency fee.
• International Oil Factory Workers Union (FFW) vs. Martinez, et al., G.R. No. L-15560, Dec. 31, 1960 — Cited for the rule that benefits of a collective bargaining agreement are extended to all employees regardless of union membership to avoid discrimination, and that such benefits are not unjust enrichment.

• Section 3, Republic Act No. 875 (Industrial Peace Act) — Guarantees employees the right to self-organization and to form, join or assist labor organizations of their own choosing. The Court recognized this as a fundamental right yielding only to the proviso in Section 4(a)(4).
• Section 4(a)(4), Republic Act No. 875 — Allows an employer to make an agreement with a labor organization to require membership as a condition of employment if the labor organization is the representative of the employees under Section 12. The Court held this did not authorize an agency fee for employees already in service and members of another union.
• Section 12, Republic Act No. 875 — Provides that the labor organization designated or selected by the majority of employees in an appropriate collective bargaining unit is the exclusive representative of all employees in the unit for collective bargaining. The Court used this to explain the union's duty to represent all employees and why benefits extend to nonmembers.
• Article 2142, Civil Code — Provides that certain lawful, voluntary and unilateral acts give rise to a quasi-contract to prevent unjust enrichment. The Court held it did not justify collecting agency fees from nonmembers.
• Article 1875, Civil Code — Presumes agency to be for compensation unless there is proof to the contrary. The Court held the bargaining agency created by law was without compensation.
• Sections 7 and 8(a)(1) and (3), National Labor Relations Act (U.S.) — Cited in the discussion of General Motors Corp. as analogous to Sections 3 and 4 of the Industrial Peace Act; Section 7 protects the right to refrain from union activities, and Section 8(a)(3)'s proviso permits agreements requiring membership. The Court used the analogy to reject the agency fee.

Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon, and Makalintal, JJ., concurred. Reyes, J.B.L., J., reserved his vote. Bengzon, C.J., and Barrera, J., took no part.