SMTFM-UWP vs. NLRC

The Court held that an employer does not commit unfair labor practice for bad faith bargaining or discrimination by implementing government-mandated wage increases through a graduated scheme to avoid wage distortion, where the union's proposal for automatic across-the-board implementation was discussed but deliberately deferred and never incorporated into the final Collective Bargaining Agreement. The CBA is the law between the parties, and proposals not embodied therein cannot be enforced.

Petitioner Samahang Manggagawa sa Top Form Manufacturing — United Workers of the Philippines (SMTFM) was the certified collective bargaining agent for the rank-and-file employees of private respondent Top Form Manufacturing Philippines, Inc. During CBA negotiations on February 27, 1990, the union proposed that any future government-mandated wage increases be implemented on an across-the-board basis. The minutes reflect that management expressed its "sincerity" based on a past practice, but the union itself decided to "defer" the proposal. A CBA was subsequently executed without this proposal. In late 1990, the Regional Tripartite Wages and Productivity Board-NCR issued Wage Orders Nos. 01 and 02, granting daily wage increases of P17.00 and P12.00, respectively. Private respondent implemented these orders by granting the full increase only to lower-paid employees and graduated increases to higher-paid employees, a scheme it claimed was necessary to avoid wage distortion. The union demanded across-the-board implementation, citing the employer's prior promise, and later filed a complaint for unfair labor practice.

• Nature of the Action: The union filed a complaint alleging the employer committed unfair labor practice (ULP) under Article 247 of the Labor Code, specifically "bargaining in bad faith," and violated Article 100 of the Labor Code (prohibition against diminution of benefits) and the CBA.
• The Alleged Promise: During CBA negotiations on February 27, 1990, the union proposed that future government-mandated wage increases be implemented across-the-board. The meeting minutes show management referenced its past practice of granting a P25.00 increase across-the-board under R.A. 6727. The union, however, decided to "defer" its own proposal. In a joint affidavit, union members claimed they dropped the proposal in reliance on management's "promise and assurance" to continue the practice.
• Implementation of Wage Orders: Upon issuance of Wage Order No. 01 (P17.00 increase) and Wage Order No. 02 (P12.00 increase), the employer implemented a graduated scheme: employees earning P125.00/day or less (under Order No. 01) and P140.00/day or less (under Order No. 02) received the full increase; higher-paid employees received scaled-down increases (P6.99-P14.30 and P6.00-P10.00, respectively). The employer justified this as necessary to prevent wage distortion.
• Union's Demand and Employer's Refusal: The union later demanded across-the-board implementation, citing the employer's prior "pledge of sincerity." The employer refused, maintaining its position to avoid wage distortion.
• Lower Court Findings: The Labor Arbiter found no bad faith bargaining, noting the union itself deferred the proposal. He held the single instance of an across-the-board increase under R.A. 6727 did not establish a company practice and that the graduated implementation was justified to prevent wage distortion. The NLRC affirmed.

• Petitioner argued that private respondent committed unfair labor practice by bargaining in bad faith. It contended that the employer's "promise" during negotiations to implement future government-mandated increases across-the-board, reflected in the meeting minutes, constituted a binding commitment.
• Petitioner asserted that the employer's refusal to honor this promise and its graduated implementation of Wage Orders Nos. 01 and 02 constituted discrimination against employees.
• Petitioner claimed the employer violated Section 5, Article XVII of the CBA (which required compliance with all labor laws) and Article 100 of the Labor Code (prohibition against diminution of benefits), as the new scheme allegedly withdrew a previously enjoyed benefit.
• Petitioner contended the implementation caused a significant wage distortion.

• Respondent countered that there was no agreement to implement future wage increases across-the-board, as evidenced by the union's decision to defer its own proposal and the absence of such a stipulation in the final CBA.
• Respondent maintained that its implementation of the wage orders was in full compliance with the law and was designed specifically to avoid wage distortion.
• Respondent argued that the union's belated demand, made after the CBA was signed and the wage orders implemented, could not retroactively create a binding obligation or constitute bad faith.
• Respondent asserted that no previously existing benefit was diminished, as the prior across-the-board increase under R.A. 6727 was an isolated act and not an established company practice.

• Procedural Issues: N/A
• Substantive Issues:
  • Whether private respondent committed unfair labor practice through bad faith bargaining and discrimination in implementing Wage Orders Nos. 01 and 02.
  • Whether private respondent violated the CBA and Article 100 of the Labor Code.
  • Whether the implementation of the wage orders resulted in a significant wage distortion.

• Procedural: N/A
• Substantive:
  • On Unfair Labor Practice and Bad Faith Bargaining: The Court ruled that no unfair labor practice was committed. The duty to bargain collectively does not compel any party to agree to a proposal. The union's proposal for across-the-board implementation was deferred by the union itself and never incorporated into the CBA, which is the law between the parties. A proposal not embodied in the CBA is not enforceable. The employer's firm stance against the proposal during negotiations did not, by itself, constitute bad faith; it had the right to insist on its position to the point of stalemate. The execution of the CBA negated any charge of bad faith bargaining.
  • On Violation of CBA and Article 100: The Court found no violation. Section 5 of the CBA required compliance with labor laws, which the employer did by implementing the wage orders. Article 100 prohibits the diminution of benefits "being enjoyed at the time of promulgation" of the Labor Code. The employer's prior across-the-board increase under R.A. 6727 was a single act and did not constitute an established "practice" or benefit that was withdrawn.
  • On Wage Distortion: The Court affirmed the factual findings of the Labor Arbiter and the NLRC, which are accorded finality if supported by substantial evidence. Both tribunals found that the employer's graduated implementation was a "meaningful" compliance that prevented wage distortion. The Court found no reason to disturb these findings.

• The CBA as the Law Between the Parties — A Collective Bargaining Agreement is the contract between the exclusive bargaining representative and the employer. Compliance with its terms is mandated by state policy to protect labor. However, only provisions actually embodied in the CBA are binding; proposals discussed during negotiations but not included in the final agreement do not create enforceable obligations.
• Duty to Bargain Collectively — Defined under Article 252 of the Labor Code, this is a mutual obligation to meet and negotiate in good faith. It includes executing a contract incorporating agreements if requested, but it does not compel any party to agree to a proposal or make any concession. Insistence on a bargaining position, even to the point of impasse, does not automatically constitute bad faith.
• Factual Findings of Quasi-Judicial Agencies — The factual findings of the NLRC and Labor Arbiter, particularly on the existence of wage distortion, are accorded respect and finality by the Supreme Court if supported by substantial evidence and devoid of arbitrariness.

• "The CBA is the law between the contracting parties — the collective bargaining representative and the employer-company. Compliance with a CBA is mandated by the expressed policy to give protection to labor."
• "Where a proposal raised by a contracting party does not find print in the CBA, it is not a part thereof and the proponent has no claim whatsoever to its implementation."
• "The duty to bargain does not include the obligation to reach an agreement."
• "With the execution of the CBA, bad faith bargaining can no longer be imputed upon any of the parties thereto. All provisions in the CBA are supposed to have been jointly and voluntarily incorporated therein by the parties."

• Kiok Loy v. NLRC, G.R. No. 54334, January 22, 1986 — Distinguished. In Kiok Loy, the employer's refusal to make any counter-proposal or negotiate at all indicated bad faith. In the present case, negotiations occurred and a CBA was signed, so the precedent did not apply.
• Metropolitan Bank and Trust Company, Inc. v. NLRC — Cited for the principle that the existence of wage distortion is a question of fact for the NLRC, whose findings are accorded finality if supported by substantial evidence.
• Divine Word University of Tacloban v. Secretary of Labor and Employment, G.R. No. 91915, September 11, 1992 — Cited for the rule that adamant insistence on a bargaining position does not establish bad faith, and that bad faith cannot be inferred from insistence on a particular provision unless it is trivial or obviously intolerable.
• Marcopper Mining Corporation v. NLRC, 325 Phil. 618 (1996) — Cited for the doctrines that the CBA is the law between the parties and that CBA provisions should be construed liberally.

• Article 252, Labor Code — Defines the duty to bargain collectively as a mutual obligation to meet and negotiate in good faith, but explicitly states it "does not compel any party to agree to a proposal or make any concession." The Court relied on this to negate the claim that the employer was bound by an unincorporated proposal.
• Article 100, Labor Code (Prohibition against elimination or diminution of benefits) — The Court held this was not violated because the prior across-the-board increase under R.A. 6727 was an isolated act, not an established benefit "being enjoyed at the time of promulgation of this Code."
• Article 247, Labor Code (Unfair Labor Practices) — The charge of ULP for bargaining in bad faith was dismissed based on the finding that no bad faith occurred.

• Chief Justice Andres R. Narvasa
• Justice Santiago M. Kapunan
• Justice Jose C. Purisima