Shell Oil Workers' Union vs. Shell Company of the Philippines

A management prerogative to contract out services or abolish a work section is limited by the terms of an existing collective bargaining agreement; where the CBA expressly covers the affected positions, dissolution of that section during the agreement's lifetime constitutes unfair labor practice, and a strike called in response is valid. Violence attending an otherwise valid unfair labor practice strike does not render the entire strike illegal; liability for violent acts is individual, not collective, unless force is pervasive, widespread, and deliberately resorted to as a matter of policy.

Shell Company of the Philippines, Ltd. operated a Pandacan Installation staffed in part by a security guard section whose members belonged to the bargaining unit represented by Shell Oil Workers' Union. As early as 1964, Shell had studied the dissolution of that section and the contracting out of security services to an outside agency, projecting annual savings of ₱96,000 plus further economies from eliminated overtime and administrative expenses. In July 1966, management and the Union jointly consulted on the matter, and at that stage no serious opposition was apparent provided the dissolution were carried out gradually and in close consultation with the Union. On August 26, 1966, the parties executed a collective bargaining agreement effective August 1, 1966 to December 31, 1969, which expressly included the security guard section in its coverage—both in the body of the agreement and in appendices setting forth wage schedules, premium pay, and night compensation for those positions.

Shell Company of the Philippines, Ltd. maintained a security guard section at its Pandacan Installation, the guards forming part of the bargaining unit represented by Shell Oil Workers' Union. As early as 1964, a company study had recommended dissolving that section and contracting security services to an outside agency, projecting annual savings of ₱96,000 plus further economies from eliminated overtime and administrative expenses. Implementation was originally scheduled for 1965. In July 1966, management and the Union jointly consulted on the proposed dissolution; at that stage there appeared to be no serious opposition, provided the change were carried out gradually and in close consultation with the Union, with an offer of cooperation so long as a scheme for retirement or redeployment of the affected guards was followed.

On August 26, 1966, the parties executed a collective bargaining agreement effective August 1, 1966 to December 31, 1969, containing the usual grievance procedure and no-strike clauses. The agreement expressly included the security guard section within its coverage of rank-and-file personnel regularly employed by the company at the Pandacan Installation. Specific reference to the security guard positions appeared in the wage schedule for hourly-rated categories in an appendix, and another appendix set forth the regular remuneration, premium pay, and night compensation for those positions.

Notwithstanding the CBA, Shell Company proceeded with its plan to dissolve the security guard section and replace it with an outside agency. This was communicated to the Union in a panel-to-panel meeting on May 3, 1967. The Union countered with an offer to reduce the guards' working days from six to five per week, but Shell Company rejected the proposal as unusual and impracticable. Two days later, at a Union meeting, a majority of the members indicated that replacement of company guards by a private security agency would trigger a strike; when the strike vote was taken, 226 of 243 members approved the motion.

On the afternoon of May 24, 1967, notices of reassignment effective at 8:00 a.m. the following morning were handed to the affected guards. That evening, at a Union meeting attended by ten officers and a majority of the members, it was agreed viva voce that implementation of the circular dissolving the security section would be met with an immediate strike. At 7:30 a.m. on May 25, 1967, the strike was declared when security guards from an outside agency attempted to pass through the main gate and were blocked by the picket line. Conciliation efforts by the Department of Labor proved unsuccessful. The Presidential certification to the CIR issued on June 27, 1967. During the strike, acts of violence occurred on the evening of June 14 and on the mornings of June 15 and 16, 1967 in Manila; molotov bombs exploded and streets were obstructed with wooden planks containing protruding nails. Physical injuries were also reported at Shell branches in Iloilo City and Bacolod on unspecified dates. Except for those few specified days, the strike was otherwise conducted peacefully.

The CIR rendered its decision on August 5, 1967, finding no unfair labor practice, holding the dissolution within management prerogative, and declaring the strike illegal for non-compliance with statutory requisites, lack of justifiable purpose, and the violence that attended it. The CIR dismissed the eighteen security guards and all thirteen officers of the Union and penalized ten individuals with loss of employment for acts of violence.

• Violation of the Collective Bargaining Agreement: Petitioner argued that the eighteen security guards affected were part of the bargaining unit and covered by the existing collective bargaining contract, and that their transfers and eventual dismissals were illegal as they violated the existing contract. Petitioner prayed for reinstatement with full back wages from the time of dismissal up to actual reinstatement.
• Unfair Labor Practice: Petitioner maintained that Shell Company, having expressly included the security guard section in the CBA, was bound by that stipulation and could not dissolve the section without violating the agreement, thereby committing unfair labor practice.
• Validity of the Strike: Petitioner contended that the strike was a legitimate response to the company's unfair labor practice and was therefore valid, notwithstanding the violence that attended it on isolated occasions.

• Management Prerogative: Respondent Company argued that in contracting out security service and redeploying the eighteen guards, it was merely performing its legitimate prerogative to adopt the most efficient and economical method of operation, and that such a decision fell within the scope of management rights.
• Business Justification: Respondent maintained that the action was motivated by business considerations in line with past established practice, that the guards were transferred to other sections with increases in pay (except for four) and with transfer bonuses, and that the action was taken after notice to and discussion with the Union.
• Illegality of the Strike: Respondent argued that the strike was illegal because the statutory requisites for staging an economic strike were not complied with, its purpose was not justifiable, and it was carried out with violence.
• Justified Dismissal: Respondent contended that the dismissal of the eighteen guards was justified because they wilfully refused to obey the transfer order, and that the termination of the union officers' employment was warranted by the illegality of the strike.

• Management Prerogative vs. Collective Bargaining Agreement: Whether the dissolution of the security guard section and contracting out of security services, otherwise within management prerogative, was barred by the existing collective bargaining agreement that expressly covered those positions.
• Validity of the Strike: Whether the strike called by the Union on May 25, 1967 was legal, given that it was prompted by the company's alleged violation of the CBA and was attended by acts of violence on certain days.
• Propriety of Wholesale Dismissal: Whether the dismissal of all security guards and all union officers was a proper sanction, particularly where the strike was found to be a valid unfair labor practice strike.

• Management Prerogative vs. Collective Bargaining Agreement: No. The CBA constituted a bar to the exercise of management prerogative to dissolve the security guard section, because the agreement expressly covered those positions in its body and appendices, assuring security of tenure during the contract's lifetime.
• Validity of the Strike: No, the strike was not illegal. It was a valid unfair labor practice strike, as Shell Company's violation of the CBA constituted unfair labor practice; sporadic acts of violence on a few days did not render the entire strike illegal, and liability for such acts is individual, not collective.
• Propriety of Wholesale Dismissal: No. The wholesale dismissal of all union officers could not stand, as it was premised on the illegality of the strike, which was reversed; such a drastic measure would weaken the Union and frustrate the policy of the Industrial Peace Act to encourage unionization. Individual liability for serious acts of violence was sustained as to specific persons.

• Management Prerogative vs. Collective Bargaining Agreement: While management retains the freedom to promote efficiency and economy, including the determination of whether services should be performed by its own personnel or contracted to outside agencies, that prerogative is circumscribed by the terms of an existing collective bargaining agreement. Here, the CBA executed on August 26, 1966 expressly included the security guard section—not only in the body of the agreement but in appendices detailing wage schedules, premium pay, and night compensation. This inclusion constituted an assurance of security of tenure at least during the lifetime of the agreement. Shell Company had studied the dissolution as early as 1964 and had jointly consulted with the Union in July 1966, yet proceeded to execute the CBA without reserving the right to dissolve the section. It could not then rely on general provisions in the CBA declaratory of management prerogatives to override the specific stipulation covering the guards. One party to a contract may be released only with the consent of the other; the Union's right to object, once exercised, must be respected throughout the contract's duration.

• Validity of the Strike: Because Shell Company's dissolution of the security guard section violated the existing CBA, it committed unfair labor practice, as established in Republic Savings Bank vs. Court of Industrial Relations and reiterated in Security Bank Employees Union vs. Security Bank and Trust Company: non-compliance with the terms of a collective bargaining agreement constitutes unfair labor practice, the duty to bargain imposing on the parties the obligation to live up to the agreement's terms. A strike called to counteract what is clearly outlawed by the Industrial Peace Act bears the impress of validity. It is not even required that an unfair labor practice in fact be committed; it suffices if the Union entertained such a belief in good faith as the inducing factor, per Ferrer vs. Court of Industrial Relations. The statutory notice-of-strike requirement need not be complied with in an unfair labor practice strike. As to violence, sporadic acts occurring on a few specified days out of a month-long strike do not suffice to stamp the entire strike with illegality. Responsibility for violent acts is individual, not collective, unless force is pervasive, widespread, and deliberately resorted to as a matter of policy. Here, except on those few days, the strike was conducted peacefully.

• Propriety of Wholesale Dismissal: The premise for the wholesale dismissal of all union officers was the illegality of the strike; since that premise was reversed, the penalty was unwarranted. Wholesale termination of all officers would leave the Union leaderless, weakening the organization and frustrating the policy of the Industrial Peace Act to encourage unionization. New leaders emerging under such circumstances might be less vigorous in prosecuting labor's claims, mindful that a mistaken move could mean discharge. That would render the right to self-organization illusory and neglect the constitutional command of protection to labor. However, individual liability for serious acts of violence was sustained as to Gregorio Bacsa (Union President), Conrado Peña (Assistant Auditor), Ernesto Crisostomo, Ricardo Pagsibigan, and Daniel Barraquel, who were legally penalized with dismissal. Five others—Nestor Samson, Jose Rey, Romeo Rosales, Antonio Labrador, and Sesinando Romero—were reinstated but denied back pay for committing acts of violence not serious in character.

• Limitation of Management Prerogative by Collective Bargaining Agreement — Management retains the freedom to determine whether services should be performed by its own personnel or contracted to outside agencies, including the prerogative to promote efficiency and economy. However, where a collective bargaining agreement expressly covers specific positions or work sections, the employer is bound by those stipulations for the duration of the agreement and cannot exercise its prerogative to abolish or contract out those positions without violating the CBA. One party may be released from a stipulation only with the consent of the other; the right to object, once exercised, must be respected. In this case, Shell Company's inclusion of the security guard section in the CBA—both in the body and in appendices detailing wages and compensation—barred it from dissolving that section during the contract's lifetime.

• Unfair Labor Practice Strike — A strike called to counteract an employer's unfair labor practice is valid. Non-compliance with the terms of a collective bargaining agreement constitutes unfair labor practice, the duty to bargain being a continuous process that imposes on the parties the obligation to live up to the agreement's terms. It is not even required that an unfair labor practice in fact be committed; it suffices if the union entertained such a belief in good faith as the inducing factor for the strike. The statutory notice-of-strike requirement need not be complied with in an unfair labor practice strike.

• Individual Liability for Violence in a Strike — Violence attending an otherwise valid strike does not render the entire strike illegal, and liability for violent acts is individual, not collective, unless force is pervasive, widespread, and deliberately resorted to as a matter of policy. Sporadic acts of violence on a few days out of a month-long strike do not suffice to stamp the strike with illegality. Those guilty of serious acts of violence may be penalized with loss of employment, but the wholesale dismissal of all union officers based solely on the strike's alleged illegality is unwarranted and would frustrate the policy of encouraging unionization.

• "In this particular case though, what was stipulated in an existing collective bargaining contract certainly precluded Shell Company from carrying out what otherwise would have been within its prerogative if to do so would be violative thereof." — This passage states the ratio decidendi: management prerogative yields to specific stipulations in an existing CBA, establishing the controlling rule that contractual obligations bind the employer during the agreement's lifetime.

• "It is not even required that there be in fact an unfair labor practice committed by the employer. It suffices, if such a belief in good faith is entertained by labor, as the inducing factor for staging a strike." — This formulation, quoted from the present Chief Justice's earlier opinion, articulates the doctrine that the validity of an unfair labor practice strike depends on the union's good-faith belief, not on an actual adjudicated finding of unfair labor practice.

• "To avoid rendering illusory the recognition of the right to strike, responsibility in such a case should be individual and not collective. A different conclusion would be called for, of course, if the existence of force while the strike lasts is pervasive and widespread, consistently and deliberately resorted to as a matter of policy." — This passage defines the doctrine of individual—not collective—liability for violence during a strike, distinguishing sporadic violence from pervasive, deliberate force as a matter of policy.

• "Such a drastic blow to a labor organization, leaving it leaderless, has serious repercussions. The immediate effect is to weaken the Union." — This passage explains why wholesale dismissal of all union officers is impermissible, tying the reasoning to the constitutional policy of protection to labor and the statutory policy of encouraging unionization.

• Republic Savings Bank vs. Court of Industrial Relations, L-20303, Sept. 27, 1967, 21 SCRA 226 — Controlling precedent establishing that non-compliance with the terms of a collective bargaining agreement constitutes unfair labor practice, as the duty to bargain is a continuous process imposing on the parties the obligation to live up to the agreement's terms. Followed and applied in this case to hold Shell Company's CBA violation to be unfair labor practice.
• Security Bank Employees Union vs. Security Bank and Trust Company, L-28536, April 30, 1968, 23 SCRA 503 — Reiterated the doctrine from Republic Savings Bank that collective bargaining does not end with the execution of an agreement and that non-compliance with the CBA constitutes unfair labor practice. Followed.
• Ferrer vs. Court of Industrial Relations, L-24267, May 31, 1966, 17 SCRA 352 — Established that a strike called to offset what workers were warranted in believing in good faith to be unfair labor practices is not illegal, and that strikers do not thereby lose their employee status. Followed and applied to uphold the validity of the Union's strike.
• Cromwell Commercial Co., Inc. vs. Cromwell Commercial Employees and Laborers Union, L-19177, Feb. 20, 1967, 19 SCRA 398 — Cited for the proposition that the legality of a strike follows as a corollary from a finding that the employer failed to abide by the terms of the CBA. Followed.
• Rex Taxicab Company vs. Court of Industrial Relations, 70 Phil. 621 (1940) — Cited for the principle, articulated by Justice Laurel, that a strike is not a forbidden weapon and that employees may strike before being enjoined by the Court of Industrial Relations. Followed as historical support for the legitimacy of strikes.
• Insular Life Assurance Co., Ltd. Employees Association vs. Insular Life Assurance Co., Ltd, L-25291, January 30, 1971, 37 SCRA 244 — Recognized that picketing is "inherently explosive," supporting the Court's view that sporadic violence does not automatically render a strike illegal. Followed.
• Fibreboard Corp. vs. National Labor Relations Board, 379 US 203 (1964) — Cited via Chief Justice Warren's opinion for the proposition that contracting-out decisions are matters suitable for resolution within the collective bargaining framework and that peaceful accommodation of conflicting interests is best achieved through collective negotiation. Persuasive foreign authority.

• Section 3, Republic Act No. 875 (Industrial Peace Act) — Provides that employees shall have the right to self-organization and to engage in concerted activities for the purpose of collective bargaining and mutual aid or protection. Applied to affirm the legitimacy of the strike as a form of concerted activity protected by law.
• Section 10, Republic Act No. 875 (Industrial Peace Act) — Authorizes the President to certify labor disputes to the Court of Industrial Relations. The dispute in this case was certified pursuant to this provision on June 27, 1967.
• Section 14, Republic Act No. 875 (Industrial Peace Act) — Requires that before an employer may lock out or employees may strike, a notice of intention must be filed with the Conciliation Service thirty days prior. The Court held this requirement need not be complied with in an unfair labor practice strike.
• Article XIV, Section 6, Constitution (1935, as amended) — Provides that the State shall afford protection to labor and regulate relations between labor and capital. Relied upon to underscore the State's obligation to protect labor and the impermissibility of measures that would render the right to self-organization illusory.

Concepcion, C.J., Zaldivar, Teehankee, Villamor, and Makasiar, JJ., concurred. Barredo, J., filed a concurring opinion, the text of which is not included in the provided source. Castro, J., took no part.