Case Summary (G.R. No. 174912)
Factual Background
BOMC, a wholly bank-owned service corporation created under Central Bank/BSP Circular No. 1388, provided bank support services (e.g., check clearing, statement printing and delivery, fund transfers, card production, operations accounting and control, cash servicing). BPI engaged BOMC pursuant to service agreements; initial implementation in Metro Manila did not lead to dismissal of BPI employees, who were reassigned. After the BPI–FEBTC merger (April 10, 2000), certain cashiering, distribution and bookkeeping functions of former FEBTC branches were handled by BOMC, and twelve former FEBTC employees were transferred to BOMC to complete its staff complement. The Union objected, asserting that those functions belonged to the bargaining unit and that outsourcing and transfer deprived the Union of prospective members and reduced its membership under the union-shop clause of the CBA.
Procedural History
The Union pursued internal remedies (grievance demand and Labor-Management Conference), filed a notice of strike with the NCMB, and the dispute was certified by the DOLE Secretary to the NLRC for compulsory arbitration. The NLRC issued resolutions upholding the validity of the BPI–BOMC service agreement and dismissing the unfair labor practice (ULP) charge. The Union sought certiorari relief before the Court of Appeals, which affirmed the NLRC’s resolution (with minor modification). The Union then filed a petition for review on certiorari under Rule 45 to the Supreme Court, assigning errors principally that the CA erred in refusing to treat outsourcing as a violation of the CBA/union-shop clause and in holding that DOLE Department Order No. 10 did not apply.
Issues Presented
- Whether BPI’s outsourcing of cashiering, distribution, bookkeeping and related functions to BOMC, and the transfer of twelve former FEBTC employees to BOMC, violated the Collective Bargaining Agreement (specifically the union-shop clause) and constituted an unfair labor practice or interference with the right to self-organization.
- Whether DOLE Department Order No. 10 (1997) applied to restrict outsourcing in this case, or whether BSP Circular No. 1388 (1993) governed outsourcing by banks.
Parties’ Positions
Union: The Union contended that outsourcing of functions that were part of the existing bargaining unit breached the union-shop clause and diminished the bargaining unit’s positions and membership, thereby interfering with employees’ right to self-organization and amounting to union busting and ULP. The Union relied on precedent (e.g., Shell Oil Workers’ Union v. Shell) and argued DOLE Department Order No. 10 applied to prohibit the contracting out of those functions.
BPI: The bank defended the service agreement as lawful under BSP Circular No. 1388 and grounded in management prerogative to streamline operations and focus on core banking activities. BPI asserted good faith, absence of dismissals or diminution of salaries/benefits, and a CBA clause recognizing management’s exclusive prerogatives (hiring, transfers, etc.). BPI argued the Shell case was distinguishable because the CBA here did not expressly guarantee the continued existence of specific positions.
Applicable Law and Regulatory Framework
Decision date consideration: the Supreme Court’s decision under review is dated July 24, 2013; accordingly, the 1987 Constitution is the constitutional framework applicable to the decision. Primary statutory and regulatory sources considered: Article 261 of the Labor Code (governing treatment of CBA violations as grievances rather than ULPs except for gross violations of economic provisions), DOLE Department Order No. 10, Series of 1997 (guidance on permissible contracting out), BSP/Central Bank Circular No. 1388, Series of 1993 (authorizing bank service corporations and enumerating permissible bank service contracts), Manual of Regulations for Banks (prohibiting outsourcing of inherent banking functions), and jurisprudence cited in the decision (e.g., Shell Oil Workers’ Union v. Shell; Manila Electric Company v. Quisumbing; Alviado v. Procter & Gamble; cases addressing legitimate job contracting and labor-only contracting).
NLRC and Court of Appeals Findings
NLRC (Dec. 21, 2001): Held the BPI–BOMC service agreement valid and a legitimate exercise of management prerogative; dismissed ULP charge for lack of evidence that union members were terminated or that the outsourcing interfered with the right to self-organization; found D.O. No. 10 inapplicable because BSP Circular No. 1388 governed banking transactions.
Court of Appeals: Dismissed the petition on procedural grounds as largely raising factual issues beyond certiorari; affirmed NLRC findings as supported by substantial evidence; modified one enumerative aspect of the NLRC resolution (deleting the BSP Circular’s function list) but otherwise upheld the NLRC’s conclusion that BPI acted within management prerogative and that the Union’s rights were not unlawfully curtailed.
Supreme Court’s Analysis and Reasoning
Primordial legal question: whether outsourcing the specified functions and transferring the twelve former FEBTC employees to BOMC complied with law and the CBA. The Court reasoned as follows:
- Article 261 of the Labor Code limits ULP treatment of CBA violations to gross violations of economic provisions; other CBA violations are to be treated as grievances to be resolved under the CBA’s grievance machinery. The Union’s asserted breach concerned recognition and security/union-shop provisions, which are not economic provisions for purposes of Article 261. Thus the alleged violation should be treated as a grievance, not per se a ULP, absent a showing of gross, malicious or flagrant refusal to comply with economic terms.
- The Union did not adduce substantial evidence that BPI terminated union members, reduced salaries or benefits, or otherwise acted in bad faith or with anti-union animus. The NLRC’s factual finding that no union member was displaced or had diminished conditions was supported by evidence and entitled to deference.
- Outsourcing is not illegal per se; it is an exercise of management prerogative and a business judgment. Judicial interference is unwarranted absent proof of malicious, arbitrary action or labor-only contracting.
- Banks operate under sector-specific regulation: BSP Circular No. 1388 expressly authorized bank service corporations to perform enumerated ancillary services (data processing, check-clearing processing, printing/delivery of statements, general support services) provided certain safeguards remain (e.g., no violation of secrecy of deposits; bank remains responsible; service bureau owned by banks). The Court held the outsourced functions (cashiering/cash delivery, deposit pick-up, accounting requirements, clearing processing, distribution, bookkeeping) were ancillary and not inherent banking functions (which are deposit- and loan-related), and therefore permissible under BSP Circular No. 1388 and the Manual of Regulations for Banks.
- Harmonization of DOLE D.O. No. 10 and BSP Circular No. 1388: The Court adopted a harmonizing approach—D.O. No. 10 provides general guidance on permissible contracting out (not directly related/integral to the principal’s main business), while BSP Circular No. 1388 specifically delineates permissible outsourcing for banks. The BSP, as the specialized regulator, is competent to specify which banking functions may be outsourced. The two instruments complement rather than conflict.
- Labor-only contracting analysis: the Court emphasized that a finding of labor-only contracting requires elements such as lack of substantial capital by the contractor and absence of control over work performance by the contractor. Those elements were not established; BOMC was a bank-owned service corporation with legitimate capital and facilities, and BPI’s transfer to BOMC did not amount to mere supplying of workers for the principal’s core activities.
Burden of Proof and Evidence
The Court underscored that the Union bore the burden to prove ULP with substantial evidence. The Union failed to present even “an iota” of evidence of ter
Case Syllabus (G.R. No. 174912)
Title, Citation and Nature of the Case
- Full case title as extracted from the source: BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITY-FUBU), PETITIONER, VS. BANK OF THE PHILIPPINE ISLANDS (BPI), AND BPI OFFICERS CLARO M. REYES, CECIL CONANAN AND GEMMA VELEZ, RESPONDENTS.
- Supreme Court docket: G.R. No. 174912; Decision rendered July 24, 2013; decision penned by Justice Mendoza.
- Nature of the proceeding: Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, challenging Court of Appeals decisions that affirmed National Labor Relations Commission resolutions validating BPI’s contracting out of certain functions to BPI Operations Management Corporation (BOMC).
- Relief sought: Review and reversal of CA and NLRC determinations that upheld BPI’s service agreement and dismissed allegations of unfair labor practice (ULP).
Procedural History
- Initial implementation of BPI–BOMC service agreement in Metro Manila branches; ensuing ULP complaint by BPIEU-Metro Manila-FUBU resulted in labor arbiter decision favoring the union, reversal by NLRC, and denial of certiorari by the Court of Appeals.
- On January 1, 1996, the service agreement was implemented in Davao City; after BPI’s merger with Far East Bank and Trust Company (FEBTC) on April 10, 2000, BOMC took over certain functions previously handled by BPI and FEBTC.
- The Union filed a formal protest on June 14, 2000 and later filed a notice of strike with the NCMB alleging contracting out, violation of duty to bargain, and union busting.
- DOLE Secretary certified the dispute to the NLRC for compulsory arbitration and ordered the parties to refrain from acts aggravating the dispute; hearings occurred and position papers were filed.
- NLRC issued a Resolution on December 21, 2001 upholding the service agreement and dismissing ULP charges; subsequent NLRC resolution dated August 23, 2002 is part of the record.
- The Union sought relief in the Court of Appeals via certiorari (Rule 65); CA issued decisions on April 5, 2006 and a resolution on August 17, 2006, affirming NLRC with modification.
- Union filed motion for reconsideration in CA which was denied; petition for review elevated to the Supreme Court, which rendered the decision dated July 24, 2013 denying the petition.
Factual Antecedents — Parties, Entities and Contractual Structure
- BOMC: A subsidiary of the Bank of the Philippine Islands, created pursuant to Central Bank Circular No. 1388, Series of 1993 (CBP Circular No. 1388), engaged primarily in providing and/or handling support services for banks and financial institutions, functioning as an entirely separate and distinct entity from BPI.
- Service Agreement: Implemented initially in Metro Manila and later in Davao City; BOMC provided services including check clearing, delivery of bank statements, fund transfers, card production, operations accounting and control, and cash servicing as contemplated by BSP Circular No. 1388.
- Merger: BPI merged with FEBTC effective April 10, 2000, with BPI as the surviving corporation. Post-merger, BOMC handled cashiering, distribution and bookkeeping functions previously performed by FEBTC, and twelve (12) former FEBTC employees were transferred to BOMC to complete BOMC’s service complement.
- Union: BPI Davao’s rank-and-file collective bargaining representative is BPI Employees Union-Davao City-FUBU (the Union), which objected to function transfers and to the transfer of former FEBTC personnel to BOMC on grounds that those functions and employees were within the bargaining unit.
Union’s Contentions and Claims
- Primary contention: Outsourcing of jobs included in the existing bargaining unit to BOMC breached the union-shop clause of the Collective Bargaining Agreement (CBA) and constituted unfair labor practice.
- Specific grievances:
- Contracting out functions formerly performed by union members interfered with, restrained, or coerced employees in exercising their right to self-organization.
- The transfer of the twelve (12) former FEBTC employees to BOMC reduced the number of positions under the bargaining unit, thereby diminishing the Union’s membership and power.
- The Bank deprived the Union of membership by transferring employees who, by virtue of the merger, would otherwise have been part of the bargaining unit under the union-shop provision.
- The Union alleged violations of duty to bargain and acts of union busting.
- Procedural complaints: BPI refused to treat the Union’s grievance as arbitrable under the CBA and declined to submit the matter to the grievance machinery, offering a Labor-Management Conference instead.
BPI’s Position and Defenses
- Three principal defenses to the validity of the service agreement with BOMC:
- Legality: The service agreement complied with prevailing Central Bank (CBP/BSP) regulations, specifically CBP Circular No. 1388, Series of 1993.
- Management prerogative: Creation of BOMC and contracting out certain functions were legitimate exercises of management prerogative intended to streamline operations and allow BPI to focus on core banking activities.
- CBA recognition: The CBA explicitly recognized the bank’s sole and exclusive prerogatives, including hiring, promotions, transfers and maintaining discipline and efficiency (Section 1, Article IV, “Exclusive Rights and Prerogatives”).
- Distinguishing precedents: BPI argued that Shell Oil Workers’ Union v. Shell Co. case is distinguishable because there was no express CBA assurance in BPI’s CBA guaranteeing the continued existence of positions in the bargaining unit.
- Emphasis on good faith: Outsourcing was undertaken in good faith and pursuant to applicable BSP rules; not a single union member was terminated, salaries and benefits were not diminished, and union membership was not reduced in fact.
- Contention on self-organization claim: Representation of prospective members (former FEBTC employees) is contingent upon the employees’ choice to join the Union; thus, the mere transfer to BOMC did not preempt their right to join.
NLRC and Court of Appeals Findings
- NLRC (December 21, 2001 resolution):
- Upheld validity of the service agreement between BPI and BOMC and dismissed the ULP charge.
- Ruled that BPI’s engagement of BOMC to undertake certain activities was a valid exercise of management prerogative.
- Found no interference with employees’ right to self-organization; the Union presented no evidence that any employees were terminated or that salaries, benefits or privileges were diminished.
- Held that Department Order No. 10 (D.O. No. 10) did not apply because BSP Circular No. 1388 was the applicable rule for commer