Case Summary (G.R. No. 151966)
Procedural Posture and Key Dates
Certification election: 1994 (DEU certified exclusive bargaining agent). Dormancy of union followed. September 28, 2004: Esplana purportedly reactivated DEU and submitted officers, CBA proposals and ground rules. March 10, 2005: Secretary of Labor assumed jurisdiction over the dispute. March 14, 2005: Digitel filed petition to cancel union registration. March 31, 2006: NLRC decision dismissed unfair labor practice charge but declared dismissal of certain employees illegal. July 13 and August 19, 2005: Secretary of Labor ordered Digitel to commence CBA negotiations. June 18, 2008: Court of Appeals consolidated and resolved the appeals below. Supreme Court disposition: petition denied; NLRC and CA rulings affirmed or modified and remanded for computation.
Applicable Law and Constitutional Basis
The Court’s analysis and disposition are grounded in the 1987 Constitution (right to self‑organization and collective bargaining) and the Labor Code with its implementing rules. Key statutory and regulatory provisions applied include Article 106 (definition and prohibition of labor‑only contracting), Article 248(c) (unfair labor practices, contracting out to interfere with organizational rights), Article 263 (assumption of jurisdiction), Article 279 and related provisions on remedies for illegal dismissal, and the Omnibus Rules Implementing the Labor Code (notably Rule VIII‑A, Sec. 5 and Sec. 7 on labor‑only contracting and its consequences). Jurisprudence interpreting these provisions was heavily relied upon.
Core Facts
DEU was certified in 1994 and collective bargaining commenced but reached a deadlock. The union subsequently became dormant. In 2004 Esplana and officers sought to resume bargaining. Digiserv filed an Establishment Termination Report indicating cessation of business, affecting about 100 employees, of whom 42 were alleged union members; many accepted separation pay and only 13 remained contesting dismissal. Digitel demanded proof of union compliance with internal election and membership rules. Digitel filed for cancellation of DEU registration on several grounds (failure to file reports, misrepresentation of officers, mixed composition of members, and inclusion of non‑Digitel employees), but the Regional Director and the Bureau of Labor Relations dismissed the petition for lack of merit.
Orders of the Secretary of Labor and Subsequent Challenges
The Secretary of Labor ordered Digitel to commence collective bargaining negotiations with DEU and certified issues for compulsory arbitration (including unfair labor practice allegations) under assumption orders issued during the strike notices. Digitel contested the Secretary’s orders, arguing prejudice by the pending cancellation petition and filed petitions before the Court of Appeals, and ultimately sought review before the Supreme Court.
NLRC and Court of Appeals Findings
The NLRC (January 31, 2006) dismissed the unfair labor practice charge but declared the dismissal of thirteen (13) employees illegal and ordered reinstatement with full backwages. On appeal, the Court of Appeals consolidated petitions, affirmed the Secretary’s orders directing bargaining, sustained the NLRC’s finding that Digiserv was a labor‑only contractor and that affected employees were Digitel’s employees, modified some remedies (e.g., deletion of a P100,000 fine), and ordered separation pay as an alternative to reinstatement should reinstatement be impractical.
Issues Presented to the Supreme Court
- Whether the Secretary of Labor erred in issuing the assumption order and directing collective bargaining despite the pendency of Digitel’s petition to cancel DEU’s registration; 2) Whether Digiserv was a legitimate contractor or a labor‑only contractor; 3) Whether the affected employees were validly dismissed (i.e., whether retrenchment was lawful and made in good faith).
Legal Analysis — Pendency of Cancellation vs. Duty to Bargain
The Court reaffirmed established doctrine that the pendency of a petition to cancel a union’s certificate of registration does not bar collective bargaining or the mechanics of certification/CBA processes. Precedent holds that, unless the certificate has been revoked, the union retains statutory status as the certified bargaining agent and the employer’s duty to bargain remains. The Court relied on prior decisions (e.g., Trajano and subsequent cases) to conclude that the Secretary did not commit grave abuse of discretion by ordering negotiations despite the cancellation petition.
Legal Analysis — Labor‑Only Contracting and Relevant Tests
Labor‑only contracting is prohibited; the Implementing Rules specify two principal indicia: (i) the contractor lacks substantial capital or investment directly related to the job/service, and the workers perform activities directly related to the principal’s main business; or (ii) the purported contractor lacks the right to control the workers’ performance. The Court reviewed evidence showing (a) Digiserv’s minimal paid‑up capital (subscribed and paid amounts far below authorized capital) with no substantial investment; (b) Digiserv’s stated primary purpose was manpower services; (c) the affected employees performed customer service/traffic operator functions directly related to Digitel’s telecommunications business and had performed such duties since before Digiserv’s incorporation; and (d) control over personnel functions (shared HR, accounting, audit, legal departments; issuance of service awards and commendations bearing Digitel officers’ signatures) pointed to Digitel’s control over the employees. On these factual bases the Court sustained the NLRC and CA findings that Digiserv was a labor‑only contractor and, under the Implementing Rules, Digitel was the principal employer and jointly liable.
Legal Analysis — Validity of Dismissal and Retrenchment Elements
The Court applied settled standards for retrenchment (as articulated in Waterfront Cebu City Hotel v. Jimenez): five elements must be met for valid retrenchment, notably (1) necessity to prevent substantial business losses, (2) one‑month written notice to employees and DOLE, (3) payment of prescribed separation pay, (4) good faith in retrenchment (not to defeat security of tenure), and (5) fair criteria in selecting who to dismiss. The Court found that only the first three elements were met in form (notice, offer of separation pay, claimed business reasons), but concluded the retrenchment lacked good faith. Bad faith was inferred from the timing of Digiserv’s closure while an assumption order was in effect, the contemporaneous incorporation of I‑tech (with similar business purpose and connection to Digitel management),
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Case Citation and Court
- Second Division, Supreme Court of the Philippines; G.R. Nos. 184903-04; Decision promulgated October 10, 2012; reported at 697 Phil. 132.
- Decision authored by Justice Perez; concurring opinions by Carpio (Chairperson), Brion, Del Castillo, and Perlas‑Bernabe, JJ.
Nature of the Case
- Petition for review on certiorari filed by Digital Telecommunications Philippines, Inc. (Digitel) seeking reversal of:
- 18 June 2008 Decision of the Court of Appeals (Tenth Division) in CA‑G.R. SP No. 91719 (affirming DOLE Secretary’s order directing Digitel to commence collective bargaining negotiations with the Digitel Employees Union), and
- the Court of Appeals disposition in CA‑G.R. SP No. 94825 (affirming NLRC finding of illegal dismissal of certain Digiserv employees and ordering reliefs).
- The petition assails DOLE assumption and bargaining orders, NLRC findings regarding labor‑only contracting, employer‑employee relationship and illegal dismissal, and CA rulings affirming and modifying reliefs.
Factual Background — Union Certification, Dormancy and Revival
- In 1994, by virtue of a certification election, the Digitel Employees Union (Union) became the exclusive bargaining agent of Digitel’s rank‑and‑file employees.
- Collective bargaining negotiations commenced in 1994 but resulted in a bargaining deadlock; the Union threatened to strike.
- An Acting Labor Secretary (Bienvenido E. Laguesma) assumed jurisdiction and directed the parties to execute a collective bargaining agreement (CBA), but no CBA was ever concluded.
- Over time some Union members abandoned their employment; the Union became dormant.
- Ten years later, on 28 September 2004, Arceo Rafael A. Esplana, purporting to be President of the Union, sent Digitel a letter with a list of officers, CBA proposals and ground rules. The listed officers included Esplana (President) and other named respondents.
- Digitel demanded proof of compliance with the Union’s Constitution and By‑laws regarding membership and election of officers before it would negotiate.
Factual Background — Events Leading to Labor Dispute and Assumption
- 4 November 2004: Esplana and his group filed a petition for Preventive Mediation before the National Conciliation and Mediation Board alleging Digitel’s violation of the duty to bargain.
- 25 November 2004: Esplana filed a notice of strike.
- 10 March 2005: Labor Secretary Patricia A. Sto. Tomas issued an Order assuming jurisdiction over the labor dispute and directing compliance with appropriate measures.
- During the pendency of the dispute, Digitel Service, Inc. (Digiserv), a non‑profit enterprise engaged in call center servicing, filed an Establishment Termination Report stating it would cease operations; closure reportedly affected at least 100 employees, of whom 42 were Union members.
- In reaction, Esplana and his group filed another notice of strike alleging union‑busting, illegal lockout and violation of the assumption order.
- 23 May 2005: Secretary of Labor ordered the second notice of strike subsumed by the prior Assumption Order.
Procedural History — Cancellation Petition and Administrative Decisions
- 14 March 2005: Digitel filed a petition with the Bureau of Labor Relations (BLR) seeking cancellation of the Union’s registration on grounds of:
- failure to file required reports (1994–2004);
- misrepresentation of alleged officers;
- membership composed of rank‑and‑file, supervisory and managerial employees;
- substantial number of union members are not Digitel employees.
- 11 May 2005: Regional Director of DOLE dismissed the cancellation petition for lack of merit:
- Declared lack of jurisdiction over reportorial non‑compliance;
- Found Digitel failed to show misrepresentation or inclusion of non‑Digitel employees;
- Held that inclusion of supervisory/managerial employees with rank‑and‑file is no longer ground for cancellation of registration.
- Digitel’s appeal to the BLR was dismissed for lack of merit by Resolution dated 9 March 2007, affirming the 11 May 2005 decision.
DOLE Secretary Orders (13 July 2005 and 19 August 2005)
- 13 July 2005 Order by Secretary of Labor directed:
- Digitel to commence collective bargaining negotiations with DEU without further delay; and
- The unfair labor practice issues (union‑busting, illegal termination/lockout and violation of assumption) including return‑to‑work aspects of the 10 March and 3 June 2005 orders be certified for compulsory arbitration to the NLRC.
- Digitel moved for reconsideration arguing the pending cancellation petition was a prejudicial question preventing bargaining.
- 19 August 2005: Acting Secretary Manuel G. Imson denied reconsideration and reaffirmed the 13 July 2005 Order, again directing parties to commence bargaining.
Petition to the Court of Appeals — CA‑G.R. SP No. 91719 and CA‑G.R. SP No. 94825
- 14 October 2005: Digitel filed CA‑G.R. SP No. 91719 challenging the 13 July and 19 August DOLE orders, alleging grave abuse of discretion for ordering bargaining while union legitimacy was pending.
- Unfair labor practice issues were certified to the NLRC per DOLE order.
- 31 January 2006: NLRC Decision dismissed the unfair labor practice charge against Digitel but declared dismissal of 13 Digiserv employees illegal and ordered their reinstatement with full backwages up to reinstatement.
- Four employees were later excluded from entitlement because they executed quitclaims.
- 9 June 2006: Digitel filed CA‑G.R. SP No. 94825 challenging the NLRC decision and contending Digiserv employees were not Digitel employees and thus not subject to relief.
Court of Appeals Ruling (18 June 2008)
- The Court of Appeals consolidated the two petitions and ruled:
- CA‑G.R. SP No. 91719: Petition dismissed; DOLE’s July 13, 2005 Order and August 19, 2005 Resolution affirmed in toto (with costs).
- CA‑G.R. SP No. 94825: Petition partially granted; the NLRC dispositions modified as follows:
- Digitel ordered to reinstate and pay full backwages to the nine affected employees; if reinstatement no longer feasible, to pay separation pay equivalent to one (1) month pay, or one‑half (1/2) month pay for every year of service, whichever is higher.
- The Php100,000.00 fine imposed on Digitel was deleted.
- The Court of Appeals sustained NLRC findings that Digiserv was engaged in labor‑only contracting and that Digiserv employees were actually employees of Digitel.
- Digitel’s motion for reconsideration before the CA was denied in a Resolution dated 9 October 2008.
Issues Raised in the Supreme Court Petition
- Digitel advanced three principal issues for review:
- Whether the Secretary of Labor erred in issuing the assumption order and directing bargaining despite the pendency of the petition for cancellation of the Union registration;
- Whether Digiserv is a legitimate contractor (as opposed to a labor‑only contractor);
- Whether the dismissal of the affected employees was valid (i.e., whether retrenchment/closure was va