United Polyresins, Inc. vs. Pinuela

A union security clause in a CBA cannot serve as a valid basis for terminating an employee where the grounds invoked for expulsion from the union are not authorized by the union's own Constitution. Where the provisions cited govern only the impeachment and recall of union officers—not expulsion from membership—the dismissal is without just cause and therefore illegal.

Petitioner United Polyresins, Inc. (UPI) is a domestic corporation operating in San Pedro, Laguna, with petitioners Ernesto Uy Soon, Jr. and Julito Uy Soon as its corporate officers. Respondent Marcelino Pinuela was employed by UPI in 1987 and became president of the rank-and-file labor union, Polyresins Rank and File Association (PORFA), in May 2005, serving until the end of 2007. The CBA between UPI and PORFA contained a union security clause providing that employees who cease to be PORFA members in good standing by reason of resignation or expulsion shall not be retained in UPI's employ. The CBA also contained a provision under which UPI extended a ₱300,000 interest-free loan to the union, due on December 31, 2007, with personal accountability of all officers and members in case of non-payment.

Respondent Marcelino Pinuela was employed by United Polyresins, Inc. (UPI) in 1987. He became a member of the rank-and-file labor union, Polyresins Rank and File Association (PORFA), and was elected its president in May 2005, with a term slated to run until the end of 2007. The CBA then in force between UPI and PORFA contained a union security clause providing that employees who cease to be PORFA members in good standing by reason of resignation or expulsion shall not be retained in UPI's employ. The CBA likewise provided for a ₱300,000 interest-free loan from UPI to the union, due and payable on December 31, 2007, with all officers and members personally accountable in case of non-payment.

Upon assuming the union presidency, respondent wrote the former president, Geoffrey Cielo, to turn over the union's records, documents, and financial statements. Cielo surrendered bank account documents showing an available balance of ₱78,723.60 and submitted a financial report indicating ₱208,623.60 in cash and ₱159,500.00 in receivables. Finding discrepancies between the bank documents and Cielo's report that the latter could not explain, the union's Executive Committee, headed by respondent, resolved to hire a certified public accountant to audit the union's finances. The accountant's December 1, 2005 report concluded that the union's finances, income, and disbursements for 2003 and 2004 were not properly documented, recorded, or reported, and recommended corrective measures including seminars on bookkeeping and the installation of accounting and internal control systems.

During respondent's term as PORFA president, UPI automatically deducted union membership dues and loan payments from the salaries of PORFA members, totaling ₱2,402,533.43, and regularly turned these over to PORFA in the form of fifty-eight crossed checks payable to the union, which were then deposited and credited to PORFA's account. On December 8, 2007, several days before the ₱300,000 loan became due, petitioners met with respondent and other union officers to discuss the proposed new CBA. Petitioners stated that the new CBA would not be discussed until the ₱300,000 was returned. Respondent explained that the union had only ₱78,723.60, the amount originally turned over by Cielo. Petitioners threatened to deduct ₱1,500.00 from each union member's salary if the amount was not returned.

On January 7, 2008, respondent filed a complaint before the National Conciliation and Mediation Board, claiming petitioners refused to bargain collectively. During the NCMB conferences, petitioners raised the non-payment of the ₱300,000 and insisted on its payment, again threatening salary deductions. Because of the recurring impasse, union members began demanding a special election of officers and accused respondent and the other officers of mismanagement and lack of accountability. Special elections were held in March 2008, and a new set of officers was elected.

On March 29, 2008, the new officers conducted an investigation into the union's depleted bank account. Respondent attended and admitted that the union had no more funds, as they were "utilized in the prosecution of cases during his incumbency." He failed to make a formal turnover of documents to the new president and was required to surrender union documents at the next meeting. On April 8, 2008, another inquiry was held focusing on respondent's continued failure to account for the union's bank accounts, documents, and deposits, and his failure to formally turn over union papers. After the meeting, respondent and the new officers proceeded to the bank, where they discovered that the PORFA account had already been closed.

On April 10, 2008, the new set of union officers issued a resolution expelling respondent from PORFA for seven violations, including the absence of annual financial statements, unposted checks, a zero-balance closed account, no receipts for operational expenses, inability to return the ₱300,000 loan, and inability to explain where agency fees and union dues were used. The officers held that these violations constituted an infringement of Article XV, Section 1, paragraphs (e) and (f) of the union's Constitution, prohibiting misappropriation of union funds and property and willful violation of union rules. On April 11, 2008, PORFA communicated respondent's expulsion to petitioners, and on April 14, 2008, petitioners issued a letter of termination to respondent, effective immediately.

• Substantive Due Process: Petitioners maintained that substantive due process was observed, that respondent was apprised of the charges against him and given the opportunity to refute them, and that the evidence pointed to the conclusion that he misappropriated the union's funds and was unable to explain the dissipation thereof.
• Procedural Due Process: Petitioners argued that respondent was accorded procedural due process during the investigations conducted jointly by management and the union, and that he was made aware of the charges before termination.
• Validity of Dismissal: Petitioners contended that respondent's dismissal was valid under the union security clause of the CBA, based on substantial proof, and in accord with the pronouncement in Cariño vs. National Labor Relations Commission, where dismissal of an employee was upheld on the basis of union security and expulsion clauses contained in the CBA and the union's Constitution.
• Monetary Claims: Petitioners argued that since the dismissal was valid, respondent was not entitled to his monetary claims.

• Insufficiency of Evidence: Respondent maintained that the CA did not err in finding that the evidence against him was insufficient to support the charges of misappropriation, and that he had shown adequate explanation about the union funds that came into his possession, citing the CPA's audit showing the union had only ₱34,344.25 when he took over.
• Procedural Due Process Violation: Respondent argued that the CA correctly ruled that his right to procedural due process was violated when he was not properly informed of the charges against him, particularly the lack of a proper first notice.
• Entitlement to Monetary Claims: Respondent maintained that because he was illegally dismissed, he was entitled to backwages, separation pay, and 13th month pay.

• Validity of Grounds for Expulsion: Whether Article XV, Section 1, paragraphs (e) and (f) of the PORFA Constitution, which prohibit misappropriation of union funds and willful violation of union rules, constitute valid grounds for expulsion from union membership and, consequently, for termination of employment under the union security clause.
• Applicability of Precedent: Whether Cariño vs. National Labor Relations Commission is applicable to the case, given the absence of expulsion provisions in the PORFA Constitution and the CBA.
• Relevance of the ₱300,000 Loan: Whether the ₱300,000 loan extended by UPI to PORFA may serve as a ground for terminating respondent's employment.

• Validity of Grounds for Expulsion: No. Article XV, Section 1, paragraphs (e) and (f) of the PORFA Constitution govern the impeachment and recall of union officers, not expulsion from union membership, and therefore do not constitute just cause for termination under the union security clause.
• Applicability of Precedent: No. Cariño vs. National Labor Relations Commission is inapplicable because in that case the employee was terminated on the basis of existing suspension and expulsion provisions in the CBA and rules on discipline in the union's Constitution, which are absent in PORFA's Constitution.
• Relevance of the ₱300,000 Loan: No. The ₱300,000 loan is immaterial as a ground for termination; under Article 248(d) of the Labor Code, the employer's extension of financial support to a labor organization constitutes unfair labor practice.

• Validity of Grounds for Expulsion: The PORFA Constitution's Article XV, Section 1, paragraphs (e) and (f) expressly pertain to "impeachment and recall" of union officers, as made clear by Section 2(e) of the same Article, which provides that officers impeached shall ipso facto be considered resigned or ousted from office and shall no longer be elected or appointed to any position in the union. The effect of a finding of guilt under these provisions is removal from office, not expulsion from membership. A review of the PORFA Constitution reveals that the only provision authorizing removal from the union is Article X, Section 6, on the ground of failure to pay union dues, special assessments, fines, and other mandatory charges. Grounds for disqualification from membership under Article IV—being a subversive, having been convicted of a crime involving moral turpitude, or not being an employee of the company—do not apply either, since although respondent was eventually charged with estafa, he had not been convicted. Because the grounds invoked did not authorize expulsion from the union, the termination of respondent's employment under the union security clause was without just cause.

• Applicability of Precedent: In Cariño vs. National Labor Relations Commission, the dismissal was upheld because existing suspension and expulsion provisions were contained in the CBA and rules on discipline were found in the union's Constitution. No such provisions exist in PORFA's Constitution, nor has it been shown that similar stipulations exist in the parties' CBA. The factual and legal premises of Cariño are therefore absent.

• Relevance of the ₱300,000 Loan: The ₱300,000 loan extended by UPI to PORFA cannot serve as a ground for terminating respondent's employment because, under Article 248(d) of the Labor Code, it is unlawful for an employer to initiate, dominate, assist, or otherwise interfere with the formation or administration of any labor organization, including the giving of financial or other support to it. The loan constitutes unfair labor practice. Furthermore, it is an unfair labor practice for a labor organization to cause or attempt to cause an employer to terminate an employee on any ground other than the usual terms and conditions under which membership or continuation of membership is made available to other members, pursuant to Article 249(b) of the Labor Code.

• Union Security Clause — Requirements for Valid Enforcement — When an employer exercises its power to terminate an employee by enforcing a union security clause, it must determine and prove: (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 decision of the union to expel the employee from the union. In this case, the third requisite was not satisfied because the grounds invoked did not authorize expulsion under the union's own Constitution.

• Distinction Between Impeachment/Recall of Officers and Expulsion from Membership — Provisions in a union Constitution governing impeachment and recall of officers result only in removal from office, not in expulsion from union membership. A union may not expel a member on grounds not authorized by its own Constitution, and an employer may not terminate employment under a union security clause based on an invalid expulsion.

• Employer Financial Support to Union as Unfair Labor Practice — Under Article 248(d) of the Labor Code, it is an unfair labor practice for an employer to initiate, dominate, assist, or otherwise interfere with the formation or administration of any labor organization, including the giving of financial or other support. A loan extended by an employer to a union falls within this prohibition and cannot serve as a legitimate basis for terminating an employee.

• "However, these provisions refer to impeachment and recall of union officers, and not expulsion from union membership. This is made clear by Section 2(e) of the same Article XV, which provides that '(t)he union officers impeached shall "IPSO FACTO" to [sic] be considered resigned or ousted from office and shall no longer be elected nor appointed to any position in the union.' — This passage articulates the ratio decidendi: the grounds invoked for expulsion actually pertained to impeachment and recall of officers, rendering the dismissal without just cause.

• "It was therefore error on the part of PORFA and petitioners to terminate respondent's employment based on Article XV, Section 1, paragraphs (e) and (f) of the union's Constitution. Such a ground does not constitute just cause for termination." — This is the Court's definitive conclusion that the dismissal was illegal for lack of just cause.

• "The matter of respondent's alleged failure to return petitioners' ₱300,000.00 which was lent to PORFA is immaterial as well. It may not be used as a ground to terminate respondent's employment; under the Labor Code, such a contribution by petitioners to PORFA is illegal and constitutes unfair labor practice." — This passage establishes that the employer's loan to the union was itself unlawful under Article 248(d) of the Labor Code and could not validate the dismissal.

• Cariño vs. National Labor Relations Commission, 263 Phil. 877 (1990) — Distinguished. In that case, the employee's dismissal was upheld on the basis of existing suspension and expulsion provisions in the CBA and rules on discipline in the union's Constitution. The Court found Cariño inapplicable because PORFA's Constitution contained no expulsion provisions, only provisions on impeachment and recall of officers.

• Agabon vs. NLRC — Cited by the NLRC in its June 11, 2011 Decision for the proposition that where dismissal is for a cause recognized by prevailing jurisprudence, the absence of statutory due process should not nullify the dismissal, but the employer should indemnify the employee with nominal damages. The Supreme Court did not reach this issue, having found no just cause for dismissal.

• Inguillo case — Cited by the CA for the principle that the right of an employee to be informed of charges against him and to reasonable opportunity to present his side is not wiped away by a union security clause.

• Article 248(d), Labor Code (renumbered pursuant to Republic Act No. 10151) — Prohibits employers from initiating, dominating, assisting, or otherwise interfering with the formation or administration of any labor organization, including the giving of financial or other support. Applied to hold that UPI's ₱300,000 loan to PORFA constituted unfair labor practice and could not serve as a ground for termination.

• Article 249(a), Labor Code (renumbered pursuant to Republic Act No. 10151) — Grants labor organizations the right to prescribe their own rules with respect to the acquisition or retention of membership. Cited to suggest that the union may amend its Constitution to provide for specific rules on the discipline of its members.

• Article 249(b), Labor Code (renumbered pursuant to Republic Act No. 10151) — Prohibits a labor organization from causing or attempting to cause an employer to discriminate against or terminate an employee on any ground other than the usual terms and conditions under which membership or continuation of membership is made available to other members. Applied to hold that the union may not insist on expelling respondent and assisting in his dismissal without just cause.

• Article XV, Section 1(e) and (f), PORFA Constitution — Prohibited misappropriation of union funds and property and willful violation of any provision of the union Constitution, rules, regulations, measures, resolutions, and decisions. Held to govern impeachment and recall of union officers, not expulsion from membership.

• Article X, Section 6, PORFA Constitution — The only provision authorizing removal from the union, on the ground of failure to pay union dues, special assessments, fines, and other mandatory charges.

• Article IV, Section 3, PORFA Constitution — Enumerated grounds for disqualification from union membership: being a subversive, conviction of a crime involving moral turpitude, and not being an employee of the company. Held inapplicable because respondent had not been convicted of estafa.

Maria Lourdes P.A. Sereno (Chief Justice, Chairperson), Teresita J. Leonardo-de Castro, Estela M. Perlas-Bernabe, and Alfredo Benjamin S. Caguioa concurred.