Pampanga Bus Company, Inc. vs. Pambusco Employees' Union, Inc.

The Court of Industrial Relations cannot compel an employer to preferentially hire union members, as doing so violates the employer's constitutional freedom of contract and liberty under the due-process clause; the right to collective bargaining merely grants the opportunity to negotiate and does not authorize state compulsion to enter into collective agreements.

Pampanga Bus Company, Inc. is the employer, and Pambusco Employees' Union, Inc. is the labor organization representing its workforce. The dispute arose under the framework of Commonwealth Act No. 103 and Commonwealth Act No. 213, statutes designed to promote industrial peace and regulate labor relations by establishing the Court of Industrial Relations and granting labor organizations the right to collective bargaining. These statutory grants, however, had to be construed within the constitutional limits of personal liberty and private property protected by the due-process clause.

On May 31, 1939, the Court of Industrial Relations issued an order directing Pampanga Bus Company, Inc. to recruit new employees or laborers it might need to replace dismissed union members from the Pambusco Employees' Union, Inc. The order included a proviso that if the union failed to provide employees possessing the necessary qualifications, the company could employ any other persons it desired. In substance and effect, this order compelled the company, against its will, to employ union members preferentially in its service. The company appealed this order to the Supreme Court, challenging the authority of the industrial court to mandate the preferential hiring of union members.

• Authority of the CIR: Whether the Court of Industrial Relations has the authority to compel an employer to preferentially hire members of a labor union.
• Freedom of Contract: Whether an order compelling preferential hiring of union members violates the employer's constitutional right to freedom of contract and liberty under the due-process clause.

• Authority of the CIR: No. The Court of Industrial Relations has no authority to issue a compulsory order directing an employer to preferentially hire union members against its will.
• Freedom of Contract: Yes, it violates the employer's constitutional rights. The general right to make a contract is an essential part of liberty protected by the due-process clause, and collective bargaining must remain voluntary on both sides.

• Authority of the CIR: The order issued by the Court of Industrial Relations, while ostensibly framed as a replacement mechanism, in substance and effect compelled the company to employ union members preferentially against its will. Commonwealth Act No. 213 grants labor organizations the right to collective bargaining, which denotes negotiations looking toward a collective agreement. This provision merely grants the right to bargain and impliedly recognizes the employer's liberty to enter or not into collective agreements. There is no provision in the law compelling such agreements, and a fundamental curtailment of freedom cannot be loosely brushed aside.
• Freedom of Contract: The general right to make a contract in relation to one's business is an essential part of the liberty of citizens protected by the due-process clause. The right of an employer to purchase labor from any person it chooses is equal to the right of a laborer to sell his labor to whomever he chooses. Compelling an employer to give work against its will is oppression. While freedom of contract may be limited by the police power to promote industrial peace (as seen in provisions against discharging employees for union activities), these laws do not compel agreements or interfere with the normal exercise of the employer's right to select or discharge employees, provided it is not done to intimidate or coerce. Thus, the order violated the constitutional guarantee of freedom of contract.

• Freedom of Contract in Labor Relations — The right to make a contract in relation to one's business is protected by the due-process clause. The right of an employer to purchase labor from any person it chooses is equal to the right of an employee to sell his labor. The State cannot compel an employer to hire union members against its will, as this constitutes oppression. While the police power can limit this freedom to promote industrial peace (e.g., prohibiting dismissal for union activities), it cannot force collective bargaining agreements or interfere with the normal exercise of the right to select employees, absent intimidation or coercion.
• Voluntary Nature of Collective Bargaining — Collective bargaining denotes negotiations looking toward a collective agreement. The law granting the right to collective bargaining impliedly recognizes the employer's liberty to enter or not into such agreements. Collective bargaining is not bargaining at all unless it is voluntary on both sides.

• "If the employer can compel the employee to work against the latter's will, this is servitude. If the employee can compel the employer to give him work against the employer's will, this is oppression." — This passage defines the constitutional equality of rights between employer and employee regarding the freedom of contract, establishing the foundational rationale for invalidating compulsory hiring orders.
• "Whatever may be the advantages of 'collective bargaining,' it is not bargaining at all, in any just sense, unless it is voluntary on both sides." — Quoting from Hitchman Coal & Co. vs. Mitchell, this articulates the core doctrine that collective bargaining must be voluntary, precluding any state compulsion to enter into such agreements.

• Mills vs. United States Printing Co. — Cited for the proposition that compelling an employer to give work against its will is oppression, establishing the equality of constitutional rights between employer and employee.
• Hitchman Coal & Co. vs. Mitchell — Cited to emphasize that collective bargaining must be voluntary on both sides and that employers are free to make non-membership in a union a condition of employment as part of constitutional rights.
• National Labor Relations Board vs. Jones & Laughlin Steel Corporation — Cited to show that the Wagner Act (after which local labor provisions were patterned) does not compel agreements between employers and employees, nor does it interfere with the normal exercise of the employer's right to select or discharge employees, absent intimidation or coercion.

• Due-Process Clause, 1935 Constitution — Applied to protect the general right to make a contract in relation to one's business as an essential part of the liberty of the citizens.
• Section 21, Commonwealth Act No. 103 — Makes it unlawful for an employer to discharge or discriminate against an employee for testifying in an investigation or proceeding. Cited as a valid exercise of police power limiting the employer's right to discharge.
• Section 5, Commonwealth Act No. 213 — Penalizes intimidating or coercing employees to prevent them from joining a labor organization, or dismissing them for union membership. Cited as a valid police power limitation, but noted not to compel hiring or collective agreements.
• Section (unspecified), Commonwealth Act No. 213 — Confers upon labor organizations the right to collective bargaining. Construed as merely granting the right to negotiate, impliedly recognizing the employer's liberty to refuse to enter into collective agreements.

Avanceña, C.J., Villa-Real, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.