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SYLLABI/SYNOPSIS
FIRST DIVISION
[G.R. No. 127598. January 27, 1999]
MANILA ELECTRIC COMPANY, petitioner, vs. THE HONORABLE SECRETARY
OF LABOR LEONARDO QUISUMBING AND MERALCO EMPLOYEES AND
WORKERS ASSOCIATION (MEWA), respondents.
DECISION
MARTINEZ, J.:
In this petition for certiorari, the Manila Electric Company (MERALCO) seeks
to annul the orders of the Secretary of labor dated August 19, 1996 and
December 28, 1996, wherein the Secretary required MERALCO and its rank
and file union- the Meralco Workers Association (MEWA) to execute a
collective bargaining agreement (CBA) for the remainder of the parties
1992-1997 CBA cycle, and to incorporate in this new CBA the Secretarys
dispositions on the disputed economic and non-economic issues.
MEWA is the duly recognized labor organization of the rank-and-file
employees of MERALCO.
On September 7, 1995, MEWA informed MERALCO of its intention to renegotiate the terms and conditions of their existing 1992-1997 Collective
Bargaining Agreement (CBA) covering the remaining period of two years
starting from December 1, 1995 to November 30, 1997.[1] MERALCO
signified its willingness to re-negotiate through its letter dated October 17,
1995[2] and formed a CBA negotiating panel for the purpose. On November
10, 1995, MEWA submitted its proposal[3] to MERALCO, which, in turn,
presented a counter-proposal. Thereafter, collective bargaining negotiations
proceeded. However, despite the series of meetings between the negotiating
panels of MERALCO and MEWA, the parties failed to arrive at terms and
conditions acceptable to both of them.
On April 23, 1996, MEWA filed a Notice of Strike with the National Capital
Region Branch of the National Conciliation and Mediation Board (NCMB) of
the Department of Labor and Employment (DOLE) which was docketed as
NCMB-NCR-NS-04-152-96, on the grounds of bargaining deadlock and unfair
labor practices. The NCMB then conducted a series of conciliation meetings
but the parties failed to reach an amicable settlement. Faced with the
imminence of a strike, MERALCO on May 2, 1996, filed an Urgent Petition[4]
with the Department of Labor and Employment which was docketed as OSAJ No. 0503[1]96 praying that the Secretary assume jurisdiction over the
labor dispute and to enjoin the striking employees to go back to work.
The Labor Secretary granted the petition through its Order[5] of May 8,

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1996, the dispositive portion of which reads:

WHEREFORE, premises considered, this Office now assumes jurisdiction
over the labor dispute obtaining between the parties pursuant to Article 263
(g) of the Labor Code. Accordingly, the parties are here enjoined from
committing any act that may exacerbate the situation. To speed up the
resolution of the dispute, the parties are also directed to submit their
respective Position Papers within ten (10) days from receipt.
Undersecretary Jose M. Espanol, Jr. is deputized to conduct conciliation
conferences between the parties to bridge their differences and eventually
hammer out a solution that is mutually acceptable. He shall be assisted by the
Legal Service.
SO ORDERED.
Thereafter, the parties submitted their respective memoranda and on August
19, 1996, the Secretary resolved the labor dispute through an Order,[6]
containing the following awards:
ECONOMIC DEMANDS
Wage increase - P2,300.00 for the first year covering the
period from December 1, 1995 to November 30, 1996
- P2,200.00 for the second year covering
the period December 1, 1996 to November 30, 1997.
Red Circle Rate (RCR) Allowance- all RCR allowances (promotional increases
that go beyond the maximum range of a job classification salary) shall be
integrated into the basic salary of employees effective December 1, 1995.
Longevity Allowance- the integration of the longevity allowance into the
basic wage is denied; the present policy is maintained.
Longevity Increase- the present longevity bonus is maintained but the bonus
shall be incorporated into the new CBA.
Sick Leave- MEWAs demand for upgrading is denied; the companys present
policy is maintained. However, those who have not used the sick leave
benefit during a particular year shall be entitled to a one-day sick leave
incentive.
Sick leave reserve- the present reserve of 25 days shall be reduced to 15
days; the employee has the option either to convert the excess of 10 days to
cash or let it remain as long as he wants. In case he opts to let it remain, he
may later on convert it to cash at his retirement or separation.

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Vacation Leave - MEWAs demand for upgrading denied & the companys
present policy is maintained which must be incorporated into the new CBA
but scheduled vacation leave may be rounded off to one full day at a time in
case of a benefit involving a fraction of a day.
Union Leave- of MEWAs officers, directors or stewards assigned to perform
union duties or legitimate union activity is increased from 30 to 40 Mondays
per month.
Maternity, Paternity and Funeral leaves- the existing policy is to be maintained
and must be incorporated in the new CBA unless a new law granting
paternity leave benefit is enacted which is superior to what the company has
already granted.
Birthday Leave - unions demand is granted. If birthday falls on the employees
rest day or on a non-working holiday, the worker shall be entitled to go on
leave with pay on the next working day.
Group Hospitalization & Surgical Insurance Plan (GHSIP) and Health
Maintenance Plan (HMP)- present policy is maintained insofar as the cost
sharing is concerned- 70% for the Company and 30% for MEWA.
Health Maintenance Plan (HMP) for dependents - subsidized dependents
increased from three to five dependents.
Longevity Bonus- is increased from P140.00 to P200.00 for every year of
service to be received by the employee after serving the Company for 5
years.
Christmas Bonus and Special Christmas Grant- MEWAs demand of one
month salary as Christmas Bonus and two months salary as Special
Christmas Grant is granted and to be incorporated in the new CBA.
Midyear Bonus- one months pay to be included in the CBA.
Anniversary Bonus - unions demand is denied.
Christmas Gift Certificate - company has the discretion as to whether it will
give it to its employees.
Retirement Benefits:
a. Full retirement-present policy is maintained;
b. one cavan of rice per month is granted to retirees;

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c. special retirement leave and allowance-present policy is maintained;

d. HMP coverage for retirees- HMP coverage is granted to retirees who have
not reached the age of 70, with MERALCO subsidizing 100% of the monthly
premium; those over 70 are entitled to not more than 30 days of
hospitalization at the J.F. Cotton Hospital with the company shouldering the
entire cost.
e. HMP coverage for retirees dependents is denied
f. Monthly pension of P3,000.00 for each retiree is denied.
g. Death benefit for retirees beneficiaries is denied.
Optional retirement - unions demand is denied; present policy is maintained;
employee is eligible for optional retirement if he has rendered at least 18
years of service.
Dental, Medical and Hospitalization Benefits- grant of all the allowable
medical, surgical, dental and annual physical examination benefits, including
free medicine whenever the same is not available at the JFCH.
Resignation benefits- unions demand is denied.
Night work- union demand is denied but present policy must be incorporated
in CBA.
Shortswing- work in another shift within the same day shall be considered as
the employees work for the following day and the employee shall be given
additional four (4) hours straight time and the applicable excess time
premium if he works beyond 8 hours in the other shift.
High Voltage allowance- is increased from P45.00 to P55.00 to be given to
any employee authorized by the Safety Division to perform work on or near
energized bare lines & bus including stockman drivers & crane operators
and other crew members on ground.
High Pole Allowance- is increased from P30.00 to P40.00 to be given to those
authorized to climb poles up to at least 60 ft. from the ground. Members of
the team including stockman drivers, crane operators and other crew
members on the ground, are entitled to this benefit.
Towing Allowance- where stockmen drive tow trailers with long poles and
equipment on board, they shall be entitled to a towing allowance of P20.00
whether they perform the job on regular shift or on overtime.

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Employees Cooperative- a loan of P3 M seed money is granted to the

proposed establishment of a cooperative, payable in twenty (20) years
starting one year from the start of operations.
Holdup Allowance- the union demand is denied; the present policy shall be
maintained.
Meal and Lodging Allowance- shall be increased effective December 1, 1995
as follows:
Breakfast - from P25.00 to P35.00
Lunch - from P35.00 to P45.00
Dinner - from P35.00 to P45.00
Lodging - from P135.00 to P180.00 a night in all MERALCO franchise areas
Payroll Treatment for Accident while on Duty- an employee shall be paid his
salary and allowance if any is due plus average excess time for the past 12
months from the time of the accident up to the time of full recovery and
placing of the employee back to normal duty or an allowance of P2,000.00,
whichever is higher.
Housing and Equity Assistance Loan- is increased to P60,000.00; those who
have already availed of the privilege shall be allowed to get the difference.
Benefits for Collectors:
a. Company shall reduce proportionately the quota and monthly average
product level (MAPL) in terms of equivalent bill assignment when an
employee is on sick leave and paid vacation leave.
b. When required to work on Saturdays, Sundays and holidays, an employee
shall receive P60.00 lunch allowance and applicable transportation allowance
as determined by the Company and shall also receive an additional
compensation to one day fixed portion in addition to lunch and
transportation allowance.
c. The collector shall be entitled to an incentive pay of P25.00 for every
delinquent account disconnected.
d. When a collector voluntarily performs other work on regular shift or
overtime, he shall be entitled to remuneration based on his computed hourly
compensation and the reimbursement of actually incurred transportation
expenses.
e. Collectors shall be provided with bobcat belt bags every year

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f. Collectors cash bond shall be deposited under his capital contribution to

MESALA.
g. Collectors quota and MAPL shall be proportionately reduced during
typhoons, floods, earthquakes and other similar force majeure events when
it is impossible for a collector to perform collection work.
Political Demands:
a. Scope of the collective bargaining unit- the collective bargaining unit shall
be composed of all regular rank-and-file employees hired by the company in
all its offices and operative centers throughout its franchise area and those it
may employ by reason of expansion, reorganization or as a result of
operational exigencies.
b. Union recognition and security i. The union shall be recognized by the Company as sole and exclusive
bargaining representative of the rank-and-file employees included in the
bargaining unit. The Company shall agree to meet only with Union officers
and its authorized representatives on all matters involving the Union and all
issues arising from the implementation and interpretation of the new CBA.
ii. The union shall meet with the newly regularized employees for a period
not to exceed four (4) hours, on company time, to acquaint the new regular
employees of the rights, duties and benefits of Union membership.
iii. The right of all rank-and-file employees to join the union shall be
recognized in accordance with the maintenance of membership principle as
a form of union security.
c. Transfer of assignment and job securityi. No transfer of an employee from one position to another shall be made if
motivated by considerations of sex, race, creed, political and religious belief,
seniority or union activity.
ii. If the transfer is due to the reorganization or decentralization, the distance
from the employees residence shall be considered unless the transfer is
accepted by the employee. If the transfer is extremely necessary, the
transfer shall be made within the offices in the same district.
iii. Personnel hired through agencies or contractors to perform the work
done by covered employees shall not exceed one month. If extension is
necessary, the union shall be informed. But the Company shall not

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permanently contract out regular or permanent positions that are necessary

in the normal operation of the Company.
d. Check off Union Dues- where the union increases its dues as approved by
the Board of Directors, the Company shall check off such increase from the
salaries of union members after the union submits check off authorizations
signed by majority of the members. The Company shall honor only those
individual authorizations signed by the majority of the union members and
collectively submitted by the union to the Companys Salary Administration.
e. Payroll Reinstatement- shall be in accordance with Article 223, p. 3 of the
Labor Code.
f. Union Representation in Committees- the union is allowed to participate in
policy formulation and in the decision-making process on matters affecting
their rights and welfare, particularly in the Uniform Committee, the Safety
Committee and other committees that may be formed in the future.
Signing Bonus- P4,000.00 per member of the bargaining unit for the
conclusion of the CBA
Existing benefits already granted by the Company but which are not
expressly or impliedly repealed in the new agreement shall remain subsisting
and shall be included in the new agreement to be signed by the parties
effective December 1, 1995.
On August 30, 1996, MERALCO filed a motion for reconsideration[7] alleging
that the Secretary of Labor committed grave abuse of discretion amounting
to lack or excess of jurisdiction:
1. in awarding to MEWA a package that would cost at least P1.142 billion, a
package that is grossly excessive and exorbitant, would not be affordable to
MERALCO and would imperil its viability as a public utility affected with
national interest.
2. in ordering the grant of a P4,500.00 wage increase, as well as a new and
improved fringe benefits, under the remaining two (2) years of the CBA for
the rank-and-file employees.
3. in ordering the incorporation into the CBA of all existing employee
benefits, on the one hand, and those that MERALCO has unilaterally granted
to its employees by virtue of voluntary company policy or practice, on the
other hand.
4. in granting certain political demands presented by the union.

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5. in ordering the CBA to be effective December 1995 instead of August 19,

1996 when he resolved the dispute.
MERALCO filed a supplement to the motion for reconsideration on
September 18, 1995, alleging that the Secretary of Labor did not properly
appreciate the effect of the awarded wages and benefits on MERALCOs
financial viability.
MEWA likewise filed a motion asking the Secretary of Labor to reconsider its
Order on the wage increase, leaves, decentralized filing of paternity and
maternity leaves, bonuses, retirement benefits, optional retirement, medical,
dental and hospitalization benefits, short swing and payroll treatment. On its
political demands, MEWA asked the Secretary to rule its proposal to institute
a Code of Discipline for its members and the unions representation in the
administration of the Pension Fund.
On December 28, 1996, the Secretary issued an Order[8] resolving the
parties separate motions, the modifications of the August 19, 1996 Order
being highlighted hereunder:
1) Effectivity of Agreement - December 1, 1995 to November 30, 1997.
Economic Demands
2) Wage Increase:
First year - P2,200.00 per month;
Second year - P2,200.00 per month.
3) Integration of Red Circle Rate (RCR) and Longevity Allowance into Basic
Salary -the RCR allowance shall be integrated into the basic salary of
employees as of August 19, 1996 (the date of the disputed Order).
4) Longevity Bonus - P170 per year of service starting from 10 years of
continuous service.
5) Vacation Leave - The status quo shall be maintained as to the number of
vacation leave but employees scheduled vacation may be taken one day at a
time in the manner that this has been provided in the supervisory CBA.
6) Sick Leave Reserve - is reduced to 15 days, with any excess payable at the
end of the year. The employee has the option to avail of this cash conversion
or to accumulate his sick leave credits up to 25 days for conversion to cash
at retirement or separation from the service.
7) Birthday Leave - the grant of a day off when an employees birthday falls

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on a non-working day is deleted.

8) Retirement Benefits for Retirees - The benefits granted shall be effective
on August 19, 1996, the date of the disputed order up to November 30,
1997, which is the date the CBA expires and shall apply to those who are
members of the bargaining unit at the time the award is made.
One sack of rice per quarter of the year shall be given to those retiring
between August 19, 1996 and November 30, 1997.
On HMP Coverage for Retirees- The parties maintain the status quo, that is,
with the Company complying with the present arrangement and the
obligations to retirees as is.
9) Medical, Dental and Hospitalization Benefits - The cost of medicine
unavailable at the J.F. Cotton Hospital shall be in accordance with
MERALCOs Memorandum dated September 14, 1976.
10) GHSIP and HMP for Dependents - The number of dependents to be
subsidized shall be reduced from 5 to 4 provided that their premiums are
proportionately increased.
11) Employees Cooperative - The original award of P3 million pesos as seed
money for the proposed Cooperative is reduced to P1.5 million pesos.
12) Shortswing - the original award is deleted.
13) Payroll Treatment for Accident on Duty - Company ordered to continue
its present practice on payroll treatment for accident on duty without need
to pay the excess time the Union demanded.
Political Demands:
14) Scope of the collective bargaining unit - The bargaining unit shall be
composed of all rank and file employees hired by the Company in
accordance with the original Order.
15) Union recognition and security - The incorporation of a closed shop
form of union security in the CBA; the Company is prohibited from
entertaining individuals or groups of individuals only on matters that are
exclusively within the domain of the union; the Company shall furnish the
union with a complete list of newly regularized employees within a week
from regularization so that the Union can meet these employees on the
Unions and the employees own time.
16) Transfer of assignment and job security - Transfer is a prerogative of the

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10

Company but the transfer must be for a valid business reason, made in good
faith and must be reasonably exercised. The CBA shall provide that No
transfer of an employee from one position to another, without the
employees written consent, shall be made if motivated by considerations of
sex, race, creed, political and religious belief, age or union activity.
17) Contracting Out - The Company has the prerogative to contract out
services provided that this move is based on valid business reasons in
accordance with law, is made in good faith, is reasonably exercised and,
provided further that if the contracting out involves more than six months,
the Union must be consulted before its implementation.
18) Check off of union dues
In any increase of union dues or contributions for mandatory activities, the
union must submit to the Company a copy of its board resolution increasing
the union dues or authorizing such contributions;
If a board resolution is submitted, the Company shall deduct union dues
from all union members after a majority of the union members have
submitted their individual written authorizations. Only those check-off
authorizations submitted by the union shall be honored by the Company.
With respect to special assessments, attorneys fees, negotiation fees or any
other extraordinary fees, individual authorizations shall be necessary before
the company may so deduct the same.
19) Union Representation in Committees - The union is granted
representation in the Safety Committee, the Uniform Committee and other
committees of a similar nature and purpose involving personnel welfare,
rights and benefits as well as duties.
Dissatisfied, petitioner filed this petition contending that the Secretary of
Labor gravely abused his discretion:
1). . . in awarding wage increases of P2,200.00 for 1996 and P2,200.00 for
1997;
2) . . . in awarding the following economic benefits:
a. Two months Christmas bonus;
b. Rice Subsidy and retirement benefits for retirees;
c. Loan for the employees cooperative;
d. Social benefits such as GHSIP and HMP for dependents, employees
cooperative and housing equity assistance loan;
e. Signing bonus;

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f. Integration of the Red Circle Rate Allowance

g. Sick leave reserve of 15 days
h. The 40-day union leave;
i. High pole/high voltage and towing allowance;
and
j. Benefits for collectors
3) . . . in expanding the scope of the bargaining unit to all regular rank and file
employees hired by the company in all its offices and operating centers and
those it may employ by reason of expansion, reorganization or as a result of
operational exigencies;
4) . . . in ordering for a closed shop when his original order for a maintenance
of membership arrangement was not questioned by the parties;
5) . . . in ordering that Meralco should consult the union before any
contracting out for more than six months;
6) . . . in decreeing that the union be allowed to have representation in policy
and decision making into matters affecting personnel welfare, rights and
benefits as well as duties;
7) . . . in ruling for the inclusion of all terms and conditions of employment in
the collective bargaining agreement;
8) . . . in exercising discretion in determining the retroactivity of the CBA;
Both MEWA and the Solicitor General; on behalf of the Secretary of Labor,
filed their comments to the petition. While the case was also set for oral
argument on Feb 10, 1997, this hearing was cancelled due to MERALCO not
having received the comment of the opposing parties. The parties were
instead required to submit written memoranda, which they did. Subsequently,
both petitioner and private respondent MEWA also filed replies to the
opposing parties Memoranda, all of which We took into account in the
resolution of this case.
The union disputes the allegation of MERALCO that the Secretary abused his
discretion in issuing the assailed orders arguing that he acted within the
scope of the powers granted him by law and by the Constitution. The union
contends that any judicial review is limited to an examination of the
Secretarys decision-making/discretion - exercising process to determine if
this process was attended by some capricious or whimsical act that
constitutes grave abuse; in the absence of such abuse, his findings considering that he has both jurisdiction and expertise to make them - are
valid.

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The unions position is anchored on two premises:

First, no reviewable abuse of discretion could have attended the Secretarys
arbitral award because the Secretary complied with constitutional norms in
rendering the dispute award. The union posits that the yardstick for
comparison and for the determination of the validity of the Secretarys
actions should be the specific standards laid down by the Constitution itself.
To the union, these standards include the State policy on the promotion of
workers welfare,[9] the principle of distributive justice,[10] the right of the
State to regulate the use of property,[11] the obligation of the State to
protect workers, both organized and unorganized, and insure their
enjoyment of humane conditions of work and a living wage, and the right of
labor to a just share in the fruits of production.[12]
Second, no reversible abuse of discretion attended the Secretarys decision
because the Secretary took all the relevant evidence into account, judiciously
weighed them, and rendered a decision based on the facts and law. Also, the
arbitral award should not be reversed given the Secretarys expertise in his
field and the general rule that findings of fact based on such expertise is
generally binding on this Court.
To put matters in proper perspective, we go back to basic principles. The
Secretary of Labors statutory power under Art. 263 (g) of the Labor Code to
assume jurisdiction over a labor dispute in an industry indispensable to the
national interest, and, to render an award on compulsory arbitration, does
not exempt the exercise of this power from the judicial review that Sec. 1,
Art. 8 of the Constitution mandates. This constitutional provision states:
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the government.
Under this constitutional mandate, every legal power of the Secretary of
Labor under the Labor Code, or, for that matter, any act of the Executive,
that is attended by grave abuse of discretion is subject to review by this
Court in an appropriate proceeding. To be sure, the existence of an
executive power alone - whether granted by statute or by the Constitution cannot exempt the executive action from judicial oversight, interference or
reversal when grave abuse of discretion is, or is alleged to be, present. This is
particularly true when constitutional norms are cited as the applicable
yardsticks since this Court is the final interpreter of the meaning and intent
of the Constitution.[13]
The extent of judicial review over the Secretary of Labors arbitral award is

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not limited to a determination of grave abuse in the manner of the

secretarys exercise of his statutory powers. This Court is entitled to, and
must - in the exercise of its judicial power - review the substance of the
Secretarys award when grave abuse of discretion is alleged to exist in the
award, i.e., in the appreciation of and the conclusions the Secretary drew
from the evidence presented.
The natural and ever present limitation on the Secretarys acts is, of course,
the Constitution. And we recognize that indeed the constitutional provisions
the union cited are State policies on labor and social justice that can serve as
standards in assessing the validity of a Secretary of Labors actions. However,
we note that these provisions do not provide clear, precise and objective
standards of conduct that lend themselves to easy application. We likewise
recognize that the Constitution is not a lopsided document that only
recognizes the interests of the working man; it too protects the interests of
the property owner and employer as well.[14]
For these reasons - and more importantly because a ruling on the breadth
and scope of the suggested constitutional yardsticks is not absolutely
necessary in the disposition of this case - we shall not use these yardsticks in
accordance with the time-honored practice of avoiding constitutional
interpretations when a decision can be reached using non-constitutional
standards. We have repeatedly held that one of the essential requisites for a
successful judicial inquiry into constitutional questions is that the resolution
of the constitutional question must be necessary in deciding the case.[15]
In this case we believe that the more appropriate and available standard - and
one does not require a constitutional interpretation - is simply the standard
of reasonableness. In laymans terms, reasonableness implies the absence of
arbitrariness;[16] in legal parlance, this translates into the exercise of proper
discretion and to the observance of due process. Thus, the question we have
to answer in deciding this case is whether the Secretarys actions have been
reasonable in light of the parties positions and the evidence they presented.
MEWAs second premise - i.e., that the Secretary duly considered the
evidence presented - is the main issue that we shall discuss at length below.
Additionally, MEWA implied that we should take great care before reading an
abuse of discretion on the part of the Secretary because of his expertise on
labor issues and because his findings of fact deserve the highest respect
from this Court.
This Court has recognized the Secretary of Labors distinct expertise in the
study and settlement of labor disputes falling under his power of
compulsory arbitration.[17] It is also well-settled that factual findings of labor
administrative officials, if supported by substantial evidence, are entitled not
only to great respect but even to finality.[18] We, therefore, have no difficulty

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in accepting the unions caveat on how to handle a Secretary of Labors

arbitral award.
But at the same time, we also recognize the possibility that abuse of
discretion may attend the exercise of the Secretarys arbitral functions; his
findings in an arbitration case are usually based on position papers and their
supporting documents (as they are in the present case), and not on the
thorough examination of the parties contending claims that may be present
in a court trial and in the face-to-face adversarial process that better insures
the proper presentation and appreciation of evidence.[19] There may also be
grave abuse of discretion where the board, tribunal or officer exercising
judicial function fails to consider evidence adduced by the parties.[20] Given
the parties positions on the justiciability of the issues before us, the question
we have to answer is one that goes into the substance of the Secretarys
disputed orders: Did the Secretary properly consider and appreciate the
evidence presented before him?
We find, based on our consideration of the parties positions and the
evidence on record, that the Secretary of Labor disregarded and
misappreciated evidence, particularly with respect to the wage award. The
Secretary of Labor apparently also acted arbitrarily and even whimsically in
considering a number of legal points; even the Solicitor General himself
considered that the Secretary gravely abused his discretion on at least three
major points: (a) on the signing bonus issue; (b) on the inclusion of
confidential employees in the rank and file bargaining unit, and (c) in
mandating a union security closed-shop regime in the bargaining unit.
We begin with a discussion on the wages issue. The focal point in the
consideration of the wage award is the projected net income for 1996 which
became the basis for the 1996 wage award, which in turn - by extrapolation became the basis for the (2nd Year) 1997 award. MERALCO projected that
the net operating income for 1996 was 14.7% above the 1999 level or a total
net operating income of 4.171 Billion, while the union placed the 1996 net
operating income at 5.795 Billion.
MERALCO based its projection on the increase of the income for the first 6
months of 1996 over the same period in 1995. The union, on the other hand,
projected that the 1996 income would increase by 29% to 35% because the
consumption of electric power is at its highest during the last two quarters
with the advent of the Yuletide season. The union likewise relied heavily on a
newspaper report citing an estimate by an all Asia capital financial analyst
that the net operating income would amount to 5.795 Billion.[21]
Based essentially on these considerations, the Secretary made the following
computations and ordered his disputed wage award:

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Projected net operating

Income for 1996 5,795,000,000
Principals and interests 1,426,571,703
Dividends at 1995 rate 1,636,949,000
Net amount left with the Company 2,729,479,297
Add: Tax credit equivalent to 35% of labor cost 231,804,940
Companys net operating income 2,961,284,237
For 1997, the projected income is P7,613,612 which can easily absorb the
incremental increase of P2,200 per month or a total of P4,500 during the last
year of the CBA period.
xxxxxxxxx
An overriding aim is to estimate the amount that is left with the Company
after the awarded wages and benefits and the companys customary
obligations are paid. This amount can be the source of an item not found in
the above computations but which the Company must provide for, that is the amount the company can use for expansion.
Considering the expansion plans stated in the Companys Supplement that
calls for capital expenditures of 6 billion, 6.263 billion and 5.802 billion for
1996, 1997 and 1998 respectively, We conclude that our original award of
P2,300 per month for the first year and P2,200 for the second year will still
leave much by way of retained income that can be used for expansion.[22]
(Underscoring ours.)
We find after considering the records that the Secretary gravely abused his
discretion in making this wage award because he disregarded evidence on
record. Where he considered MERALCOs evidence at all, he apparently
misappreciated this evidence in favor of claims that do not have evidentiary
support. To our mind, the MERALCO projection had every reason to be
reliable because it was based on actual and undisputed figures for the first
six months of 1996.[23] On the other hand, the union projection was based
on a speculation of Yuletide consumption that the union failed to
substantiate. In fact, as against the unions unsubstantiated Yuletide
consumption claim, MERALCO adduced evidence in the form of historical
consumption data showing that a lengthy consumption does not tend to rise
during the Christmas period.[24] Additionally, the All-Asia Capital Report was
nothing more than a newspaper report that did not show any specific
breakdown or computations. While the union claimed that its cited figure is

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based on MERALCOs 10-year income stream,[25] no data or computation of

this 10-year stream appear in the record.
While the Secretary is not expected to accept the company-offered figures
wholesale in determining a wage award, we find it a grave abuse of
discretion to completely disregard data that is based on actual and
undisputed record of financial performance in favor of the third-hand and
unfounded claims the Secretary eventually relied upon. At the very least, the
Secretary should have properly justified his disregard of the company
figures. The Secretary should have also reasonably insured that the figure
that served as the starting point for his computation had some substantial
basis.
Both parties extensely discussed the factors that the decision maker should
consider in making a wage award. While We do not seek to enumerate in this
decision the factors that should affect wage determination, we must
emphasize that a collective bargaining dispute such as this one requires due
consideration and proper balancing of the interests of the parties to the
dispute and of those who might be affected by the dispute. To our mind, the
best way in approaching this task holistically is to consider the available
objective facts, including, where applicable, factors such as the bargaining
history of the company, the trends and amounts of arbitrated and agreed
wage awards and the companys previous CBAs, and industry trends in
general. As a rule, affordability or capacity to pay should be taken into
account but cannot be the sole yardstick in determining the wage award,
especially in a public utility like MERALCO. In considering a public utility, the
decision maker must always take into account the public interest aspects of
the case; MERALCOs income and the amount of money available for
operating expenses - including labor costs - are subject to State regulation.
We must also keep in mind that high operating costs will certainly and
eventually be passed on to the consuming public as MERALCO has bluntly
warned in its pleadings.
We take note of the middle ground approach employed by the Secretary in
this case which we do not necessarily find to be the best method of
resolving a wage dispute. Merely finding the midway point between the
demands of the company and the union, and splitting the difference is a
simplistic solution that fails to recognize that the parties may already be at
the limits of the wage levels they can afford. It may lead to the danger too
that neither of the parties will engage in principled bargaining; the company
may keep its position artificially low while the union presents an artificially
high position, on the fear that a Solomonic solution cannot be avoided. Thus,
rather than encourage agreement, a middle ground approach instead
promotes a play safe attitude that leads to more deadlocks than to
successfully negotiated CBAs.

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After considering the various factors the parties cited, we believe that the
interests of both labor and management are best served by a wage increase
of P1,900.00 per month for the first year and another P1,900.00 per month
for the second year of the two-year CBA term. Our reason for this is that
these increases sufficiently protects the interest of the worker as they are
roughly 15% of the monthly average salary of P11,600.00.[26] They likewise
sufficiently consider the employers costs and its overall wage structure,
while at the same time, being within the range that will not disrupt the wage
trends in Philippine industries.
The records shows that MERALCO, throughout its long years of existence,
was never remiss in its obligation towards its employees. In fact, as a
manifestation of its strong commitment to the promotion of the welfare and
well-being of its employees, it has consistently improved their compensation
package. For instance, MERALCO has granted salary increases[27] through
the collective bargaining agreement the amount of which since 1980 for
both rank-and-file and supervisory employees were as follows:
AMOUNT OF CBA INCREASES
DIFFERENCE
CBA COVERAGE
RANK-AND-FILE
SUPERVISORY
AMOUNT
PERCENT
1980
230.00
342.50
112.50
48.91%
1981

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210.00
322.50
112.50
53.57
1982
200.00
312.50
112.50
56.25
TOTAL
640.00
977.50
337.50
52.73
1983
320.00
432.50
112.50
35.16
1984
350.00

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ELS Labor Law 1

462.50
112.50
32.14
1985
370.00
482.50
112.50
30.41
TOTAL
1,040.00
1,377.50
337.50
32.45
1986
860.00
972.50
112.50
13.08
1987
640.00
752.50

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ELS Labor Law 1

112.50
17.58
1988
600.00
712.50
112.50
18.75
TOTAL
2,100.00
2,437.50
337.50
16.07
1989
1,100.00
1,212.50
112.50
10.23
1990
1,200.00
1,312.50
112.50

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ELS Labor Law 1

9.38
1991
1,300.00
1,412.50
112.50
8.65
TOTAL
3,600.00
3,937.50
337.50
9.38
1992
1,400.00
1,742.50
342.50
24.46
1993
1,350.00
1,682.50
332.50
24.63

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1994
1,150.00
1,442.50
292.50
25.43
TOTAL
3,900.00
4,867.50
967.50
24.81
Based on the above-quoted table, specifically under the column RANK-ANDFILE, it is easily discernible that the total wage increase of P3,800.00 for 1996
to 1997 which we are granting in the instant case is significantly higher than
the total increases given in 1992 to 1994, or a span of three (3) years, which
is only P3,900.00 a month. Thus, the Secretarys grant of P2,200.00 monthly
wage increase in the assailed order is unreasonably high a burden for
MERALCO to shoulder.
We now go to the economic issues.
1. CHRISTMAS BONUS
MERALCO questions the Secretarys award of Christmas bonuses on the
ground that what it had given its employees were special bonuses to mark or
celebrate special occasions, such as when the Asia Money Magazine
recognized MERALCO as the best managed company in Asia. These grants
were given on or about Christmas time, and the timing of the grant
apparently led the Secretary to the conclusion that what were given were
Christmas bonuses given by way of a company practice on top of the legally
required 13th month pay.
The Secretary in granting the two-month bonus, considered the following
factual finding, to wit:

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We note that each of the grant mentioned in the commonly adopted table of
grants has a special description. Christmas bonuses were given in 1988 and
1989. However, the amounts of bonuses given differed. In 1988, it was
P1,500. In 1989, it was month salary. The use of Christmas bonus title
stopped after 1989. In 1990, what was given was a cash gift of months salary.
The grants thereafter bore different titles and were for varying amounts.
Significantly, the Company explained the reason for the 1995 bonuses and
this explanation was not substantially contradicted by the Union.
What comes out from all these is that while the Company has consistently
given some amount by way of bonuses since 1988, these awards were not
given uniformly as Christmas bonuses or special Christmas grants although
they may have been given at or about Christmas time.
xxxxxxxxx
The Company is not therefore correct in its position that there is not
established practice of giving Christmas bonuses that has ripened to the
status of being a term and condition of employment. Regardless of its
nomenclature and purpose, the act of giving this bonus in the spirit of
Christmas has ripened into a Company practice.[28]
It is MERALCOs position that the Secretary erred when he recognized that
there was an established practice of giving a two-month Christmas bonus
based on the fact that bonuses were given on or about Christmas time. It
points out that the established practice attributed to MERALCO was neither
for a considerable period of time nor identical in either amount or purpose.
The purpose and title of the grants were never the same except for the
Christmas bonuses of 1988 and 1989, and were not in the same amounts.
We do not agree.
As a rule, a bonus is not a demandable and enforceable obligation;[29] it may
nevertheless be granted on equitable consideration[30] as when the giving of
such bonus has been the companys long and regular practice.[31] To be
considered a regular practice, the giving of the bonus should have been
done over a long period of time, and must be shown to have been consistent
and deliberate.[32] Thus we have ruled in National Sugar Refineries
Corporation vs. NLRC:[33]
The test or rationale of this rule on long practice requires an indubitable
showing that the employer agreed to continue giving the benefits knowing
fully well that said employees are not covered by the law requiring payment
thereof.

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In the case at bar, the record shows the MERALCO, aside from complying
with the regular 13th month bonus, has further been giving its employees an
additional Christmas bonus at the tail-end of the year since 1988. While the
special bonuses differed in amount and bore different titles, it can not be
denied that these were given voluntarily and continuously on or about
Christmas time. The considerable length of time MERALCO has been giving
the special grants to its employees indicates a unilateral and voluntary act on
its part, to continue giving said benefits knowing that such act was not
required by law.
Indeed, a company practice favorable to the employees has been
established and the payments made by MERALCO pursuant thereto ripened
into benefits enjoyed by the employees. Consequently, the giving of the
special bonus can no longer be withdrawn by the company as this would
amount to a diminution of the employees existing benefits.[34]
We can not, however, affirm the Secretarys award of a two-month special
Christmas bonus to the employees since there was no recognized company
practice of giving a two-month special grant. The two-month special bonus
was given only in 1995 in recognition of the employees prompt and efficient
response during the calamities. Instead, a one-month special bonus, We
believe, is sufficient, this being merely a generous act on the part of
MERALCO.
2. RICE SUBSIDY and RETIREMENT BENEFITS for RETIREES
It appears that the Secretary of Labor originally ordered the increase of the
retirement pay, rice subsidy and medical benefits of MERALCO retirees. This
ruling was reconsidered based on the position that retirees are no longer
employees of the company and therefore are no longer bargaining
members who can benefit from a compulsory arbitration award. The
Secretary, however, ruled that all members of the bargaining unit who retire
between August 19, 1996 and November 30, 1997 (i.e., the term of the
disputed CBA under the Secretarys disputed orders) are entitled to receive
an additional rice subsidy.
The question squarely brought in this petition is whether the Secretary can
issue an order that binds the retirement fund. The company alleges that a
separate and independent trust fund is the source of retirement benefits for
MERALCO retirees, while the union maintains that MERALCO controls these
funds and may therefore be compelled to improve this benefit in an arbitral
award.
The issue requires a finding of fact on the legal personality of the retirement
fund. In the absence of any evidence on record indicating the nature of the
retirement funds legal personality, we rule that the issue should be remanded

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to the Secretary for reception of evidence as whether or not the MERALCO

retirement fund is a separate and independent trust fund. The existence of a
separate and independent juridical entity which controls an irrevocable
retirement trust fund means that these retirement funds are beyond the
scope of collective bargaining: they are administered by an entity not a party
to the collective bargaining and the funds may not be touched without the
trustees conformity.
On the other hand, MERALCO control over these funds means that
MERALCO may be compelled in the compulsory arbitration of a CBA
deadlock where it is the employer, to improve retirement benefits since
retirement is a term or condition of employment that is a mandatory subject
of bargaining.
3. EMPLOYEES COOPERATIVE
The Secretarys disputed ruling requires MERALCO to provide the
employees covered by the bargaining unit with a loan of 1.5 Million as seed
money for the employees formation of a cooperative under the Cooperative
Law, R.A. 6938. We see nothing in this law - whether expressed or implied that requires employers to provide funds, by loan or otherwise, that
employees can use to form a cooperative. The formation of a cooperative is
a purely voluntary act under this law, and no party in any context or
relationship is required by law to set up a cooperative or to provide the
funds therefor. In the absence of such legal requirement, the Secretary has
no basis to order the grant of a 1.5 million loan to MERALCO employees for
the formation of a cooperative. Furthermore, we do not see the formation of
an employees cooperative, in the absence of an agreement by the collective
bargaining parties that this is a bargainable term or condition of
employment, to be a term or condition of employment that can be imposed
on the parties on compulsory arbitration.
4. GHSIP, HMP BENEFITS FOR DEPENDENTS and HOUSING EQUITY LOAN
MERALCO contends that it is not bound to bargain on these benefits
because these do not relate to wages, hours of work and other terms and
conditions of employment hence, the denial of these demands cannot result
in a bargaining impasse.
The GHSIP, HMP benefits for dependents and the housing equity loan have
been the subject of bargaining and arbitral awards in the past. We do not see
any reason why MERALCO should not now bargain on these benefits. Thus,
we agree with the Secretarys ruling:
x x x Additionally and more importantly, GHSIP and HMP, aside from being
contributory plans, have been the subject of previous rulings from this

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Office as bargainable matters. At this point, we cannot do any less and must
recognize that GHSIP and HMP are matters where the union can demand
and negotiate for improvements within the framework of the collective
bargaining system.[35]
Moreover, MERALCO have long been extending these benefits to the
employees and their dependents that they now become part of the terms
and conditions of employment. In fact, MERALCO even pledged to continue
giving these benefits. Hence, these benefits should be incorporated in the
new CBA.
With regard to the increase of the housing equity grant, we find P60,000.00
reasonable considering the prevailing economic crisis.
5. SIGNING BONUS
On the signing bonus issue, we agree with the positions commonly taken by
MERALCO and by the Office of the Solicitor General that the signing bonus
is a grant motivated by the goodwill generated when a CBA is successfully
negotiated and signed between the employer and the union. In the present
case, this goodwill does not exist. In the words of the Solicitor General:
When negotiations for the last two years of the 1992-1997 CBA broke down
and the parties sought the assistance of the NCMB, but which failed to
reconcile their differences, and when petitioner MERALCO bluntly invoked
the jurisdiction of the Secretary of Labor in the resolution of the labor
dispute, whatever goodwill existed between petitioner MERALCO and
respondent union disappeared. xxx.[36]
In contractual terms, a signing bonus is justified by and is the consideration
paid for the goodwill that existed in the negotiations that culminated in the
signing of a CBA. Without the goodwill, the payment of a signing bonus
cannot be justified and any order for such payment, to our mind, constitutes
grave abuse of discretion. This is more so where the signing bonus is in the
not insignificant total amount of P16 Million.
6. RED-CIRCLE-RATE ALLOWANCE
An RCR allowance is an amount, not included in the basic salary, that is
granted by the company to an employee who is promoted to a higher
position grade but whose actual basic salary at the time of the promotion
already exceeds the maximum salary for the position to which he or she is
promoted. As an allowance, it applies only to specifics individuals whose
salary levels are unique with respect to their new and higher positions. It is
for these reasons that MERALCO prays that it be allowed to maintain the
RCR allowance as a separate benefit and not be integrated in the basic

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salary.
The integration of the RCR allowance in the basic salary of the employees
had consistently been raised in the past CBAs (1989 and 1992) and in those
cases, the Secretary decreed the integration of the RCR allowance in the
basic salary. We do not see any reason why it should not be included in the
present CBA. In fact, in the 1995 CBA between MERALCO and the
supervisory union (FLAMES), the integration of the RCR allowance was
recognized. Thus, Sec. 4 of the CBA provides:
All Red-Circle-Rate Allowance as of December 1, 1995 shall be integrated in
the basic salary of the covered employees who as of such date are receiving
such allowance. Thereafter, the company rules on RCR allowance shall
continue to be observed/applied.[37]
For purposes of uniformity, we affirm the Secretarys order on the
integration of the RCR allowance in the basic salary of the employees.
7. SICK LEAVE RESERVE OF 15 DAYS
MERALCO assails the Secretarys reduction of the sick leave reserve benefit
from 25 days to 15 days, contending that the sick leave reserve of 15 days
has reached the lowest safe level that should be maintained to give
employees sufficient buffer in the event they fall ill.
We find no compelling reason to deviate from the Secretarys ruling that the
sick leave reserve is reduced to 15 days, with any excess convertible to cash
at the end of the year. The employee has the option to avail of this cash
conversion or to accumulate his sick leave credits up to 25 days for
conversion to cash at his retirement or separation from the service. This
arrangement is, in fact, beneficial to MERALCO. The latter admits that the
diminution of this reserve does not seriously affect MERALCO because
whatever is in reserve are sick leave credits that are payable to the employee
upon separation from service. In fact, it may be to MERALCOs financial
interest to pay these leave credits now under present salary levels than pay
them at future higher salary levels.[38]
8. 40-DAY UNION LEAVE
MERALCO objects to the demand increase in union leave because the union
leave granted to the union is already substantial. It argues that the union has
not demonstrated any real need for additional union leave.
The thirty (30) days union leave granted by the Secretary, to our mind,
constitute sufficient time within which the union can carry out its union
activities such as but not limited to the election of union officers, selection

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or election of appropriate bargaining agents, conduct referendum on union

matters and other union-related matters in furtherance of union objectives.
Furthermore, the union already enjoys a special union leave with pay for
union authorized representatives to attend work education seminars,
meetings, conventions and conferences where union representation is
required or necessary, and Paid-Time-off for union officers, stewards and
representatives for purpose of handling or processing grievances.
9. HIGH VOLTAGE/HIGH POLE/TOWING ALLOWANCE
MERALCO argues that there is no justification for the increase of these
allowances. The personnel concerned will not receive any additional risk
during the life of the current CBA that would justify the increase demanded
by the union. In the absence of such risk, then these personnel deserve only
the same salary increase that all other members of the bargaining unit will
get as a result of the disputed CBA. MERALCO likewise assails the grant of
the high voltage/high pole allowance to members of the team who are not
exposed to the high voltage/high pole risks. The risks that justify the higher
salary and the added allowance are personal to those who are exposed to
those risks. They are not granted to a team because some members of the
team are exposed to the given risks.
The increase in the high-voltage allowance (from P45.00 to P55.00), highpole allowance (from P30.00 to P40.00), and towing allowance is justified
considering the heavy risk the employees concerned are exposed to. The
high-voltage allowance is granted to an employee who is authorized by the
company to actually perform work on or near energized bare lines and bus,
while the high-pole allowance is given to those authorized to climb poles on
a height of at least 60 feet from the ground to work thereat. The towing
allowance, on the other hand, is granted to the stockman drivers who tow
trailers with long poles and equipment on board. Based on the nature of the
job of these concerned employees, it is imperative to give them these
additional allowances for taking additional risks. These increases are not even
commensurate to the danger the employees concerned are subjected to.
Besides, no increase has been given by the company since 1992.[39]
We do not, however, subscribe to the Secretarys order granting these
allowances to the members of the team who are not exposed to the given
risks. The reason is obvious- no risk, no pay. To award them the said
allowances would be manifestly unfair for the company and even to those
who are exposed to the risks, as well as to the other members of the
bargaining unit who do not receive the said allowances.
10. BENEFITS FOR COLLECTORS
MERALCO opposes the Secretarys grant of benefits for collectors on the

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ground that this is grossly unreasonable both in scope and on the premise it
is founded.
We have considered the arguments of the opposing parties regarding these
benefits and find the Secretarys ruling on the (a) lunch allowance; (b)
disconnection fee for delinquent accounts; (c) voluntary performance of
other work at the instance of the Company; (d) bobcat belt bags; and (e)
reduction of quota and MAPL during typhoons and other force majeure
events, reasonable considering the risks taken by the company personnel
involved, the nature of the employees functions and responsibilities and the
prevailing standard of living. We do not however subscribe to the Secretarys
award on the following:
(a) Reduction of quota and MAPL when the collector is on sick leave
because the previous CBA has already provided for a reduction of this
demand. There is no need to further reduce this.
(b) Deposit of cash bond at MESALA because this is no longer necessary in
view of the fact that collectors are no longer required to post a bond.
We shall now resolve the non-economic issues.
1. SCOPE OF THE BARGAINING UNIT
The Secretarys ruling on this issue states that:
a. Scope of the collective bargaining unit. The union is demanding that the
collective bargaining unit shall be composed of all regular rank and file
employees hired by the company in all its offices and operating centers
through its franchise and those it may employ by reason of expansion,
reorganization or as a result of operational exigencies. The law is that only
managerial employees are excluded from any collective bargaining unit and
supervisors are now allowed to form their own union (Art. 254 of the Labor
Code as amended by R.A. 6715). We grant the union demand.
Both MERALCO and the Office of the Solicitor General dispute this ruling
because if disregards the rule We have established on the exclusion of
confidential employee from the rank and file bargaining unit.
In Pier 8 Arrastre vs. Confesor and General Maritime and Stevedores Union,
[40] we ruled that:
Put another way, the confidential employee does not share in the same
community of interest that might otherwise make him eligible to join his rank
and file co-workers, precisely because of a conflict in those interests.

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Thus, in Metrolab Industries vs. Roldan-Confesor,[41] We ruled:

..that the Secretarys order should exclude the confidential employees from
the regular rank and file employees qualified to become members of the
MEWA bargaining unit.
From the foregoing disquisition, it is clear that employees holding a
confidential position are prohibited from joining the union of the rank and
file employees.
2. ISSUE OF UNION SECURITY
The Secretary in his Order of August 19, 1996,[42] ruled that:
b. Union recognition and security. The union is proposing that it be
recognized by the Company as sole and exclusive bargaining representative
of the rank and file employees included in the bargaining unit for the
purpose of collective bargaining regarding rates of pay, wages, hours of
work and other terms and conditions of employment. For this reason, the
Company shall agree to meet only with the Union officers and its authorized
representatives on all matters involving the Union as an organization and all
issues arising from the implementation and interpretation of the new CBA.
Towards this end, the Company shall not entertain any individual or group of
individuals on matters within the exclusive domain of the Union.
Additionally, the Union is demanding that the right of all rank and file
employees to join the Union shall be recognized by the Company.
Accordingly, all rank and file employees shall join the union.
xxxxxxxxx
These demands are fairly reasonable. We grant the same in accordance with
the maintenance of membership principle as a form of union security."
The Secretary reconsidered this portion of his original order when he said in
his December 28, 1996 order that:
x x x. when we decreed that all rank and file employees shall join the Union,
we were actually decreeing the incorporation of a closed shop form of
union security in the CBA between the parties. In Ferrer v. NLRC, 224 SCRA
410, the Supreme Court ruled that a CBA provision for a closed shop is a
valid form of union security and is not a restriction on the right or freedom
of association guaranteed by the Constitution, citing Lirag v. Blanco, 109
SCRA 87.
MERALCO objected to this ruling on the grounds that: (a) it was never

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questioned by the parties; (b) there is no evidence presented that would

justify the restriction on employee's union membership; and (c) the
Secretary cannot rule on the union security demand because this is not a
mandatory subject for collective bargaining agreement.
We agree with MERALCOs contention.
An examination of the records of the case shows that the union did not ask
for a closed shop security regime; the Secretary in the first instance
expressly stated that a maintenance of membership clause should govern;
neither MERALCO nor MEWA raised the issue of union security in their
respective motions for reconsideration of the Secretarys first disputed
order; and that despite the parties clear acceptance of the Secretarys first
ruling, the Secretary motu proprio reconsidered his maintenance of
membership ruling in favor of the more stringent union shop regime.
Under these circumstances, it is indubitably clear that the Secretary gravely
abused his discretion when he ordered a union shop in his order of
December 28, 1996. The distinctions between a maintenance of membership
regime from a closed shop and their consequences in the relationship
between the union and the company are well established and need no
further elaboration.
Consequently, We rule that the maintenance of membership regime should
govern at MERALCO in accordance with the Secretarys order of August 19,
1996 which neither party disputed.
3. THE CONTRACTING OUT ISSUE
This issue is limited to the validity of the requirement that the union be
consulted before the implementation of any contracting out that would last
for 6 months or more. Proceeding from our ruling in San Miguel Employees
Union-PTGWO vs Bersamina,[43] (where we recognized that contracting out
of work is a proprietary right of the employer in the exercise of an inherent
management prerogative) the issue we see is whether the Secretarys
consultation requirement is reasonable or unduly restrictive of the companys
management prerogative. We note that the Secretary himself has considered
that management should not be hampered in the operations of its business
when he said that:
We feel that the limitations imposed by the union advocates are too specific
and may not be applicable to the situations that the company and the union
may face in the future. To our mind, the greater risk with this type of
limitation is that it will tend to curtail rather than allow the business growth
that the company and the union must aspire for. Hence, we are for the
general limitations we have stated above because they will allow a calibrated

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response to specific future situations the company and the union may face.
[44]
Additionally, We recognize that contracting out is not unlimited; rather, it is a
prerogative that management enjoys subject to well-defined legal limitations.
As we have previously held, the company can determine in its best business
judgment whether it should contract out the performance of some of its
work for as long as the employer is motivated by good faith, and the
contracting out must not have been resorted to circumvent the law or must
not have been the result of malicious or arbitrary action.[45] The Labor Code
and its implementing rules also contain specific rules governing contracting
out (Department of Labor Order No. 10, May 30, 1997, Sections. 1-25).
Given these realities, we recognize that a balance already exist in the parties
relationship with respect to contracting out; MERALCO has its legally
defined and protected management prerogatives while workers are
guaranteed their own protection through specific labor provisions and the
recognition of limits to the exercise of management prerogatives. From
these premises, we can only conclude that the Secretarys added
requirement only introduces an imbalance in the parties collective bargaining
relationship on a matter that the law already sufficiently regulates. Hence, we
rule that the Secretarys added requirement, being unreasonable, restrictive
and potentially disruptive should be struck down.
4. UNION REPRESENTATION IN COMMITTEES
As regards this issue, We quote with approval the holding of the Secretary in
his Order of December 28, 1996, to wit:
We see no convincing reason to modify our original Order on union
representation in committees. It reiterates what the Article 211 (A)(g) of the
Labor Codes provides: To ensure the participation of workers in decision and
policy-making processes affecting their rights, duties and welfare. Denying
this opportunity to the Union is to lay the claim that only management has
the monopoly of ideas that may improve management strategies in
enhancing the Companys growth. What every company should remember is
that there might be one among the Union members who may offer
productive and viable ideas on expanding the Companys business horizons.
The unions participation in such committees might just be the opportune
time for dormant ideas to come forward. So, the Company must welcome
this development (see also PAL v. NLRC, et. al., G.R. 85985, August 13, 1995).
It must be understood, however, that the committees referred to here are
the Safety Committee, the Uniform Committee and other committees of a
similar nature and purpose involving personnel welfare, rights and benefits as
well as duties.

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We do not find merit in MERALCOs contention that the above-quoted ruling

of the Secretary is an intrusion into the management prerogatives of
MERALCO. It is worthwhile to note that all the Union demands and what the
Secretarys order granted is that the Union be allowed to participate in policy
formulation and decision-making process on matters affecting the Union
members right, duties and welfare as required in Article 211 (A)(g) of the
Labor Code. And this can only be done when the Union is allowed to have
representatives in the Safety Committee, Uniform Committee and other
committees of a similar nature. Certainly, such participation by the Union in
the said committees is not in the nature of a co-management control of the
business of MERALCO. What is granted by the Secretary is participation and
representation. Thus, there is no impairment of management prerogatives.
5. INCLUSION OF ALL TERMS AND CONDITIONS IN THE CBA
MERALCO also decries the Secretarys ruling in both the assailed Orders
thatAll other benefits being enjoyed by the companys employees but which are
not expressly or impliedly repealed in this new agreement shall remain
subsisting and shall likewise be included in the new collective bargaining
agreement to be signed by the parties effective December 1, 1995.[46]
claiming that the above-quoted ruling intruded into the employers freedom
to contract by ordering the inclusion in the new CBA all other benefits
presently enjoyed by the employees even if they are not incorporated in the
new CBA. This matter of inclusion, MERALCO argues, was never discussed
and agreed upon in the negotiations; nor presented as issues before the
Secretary; nor were part of the previous CBAs between the parties.
We agree with MERALCO.
The Secretary acted in excess of the discretion allowed him by law when he
ordered the inclusion of benefits, terms and conditions that the law and the
parties did not intend to be reflected in their CBA.
To avoid the possible problems that the disputed orders may bring, we are
constrained to rule that only the terms and conditions already existing in the
current CBA and was granted by the Secretary (subject to the modifications
decreed in this decision) should be incorporated in the CBA, and that the
Secretarys disputed orders should accordingly be modified.
6. RETROACTIVITY OF THE CBA
Finally, MERALCO also assails the Secretarys order that the effectivity of the
new CBA shall retroact to December 1, 1995, the date of the

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commencement of the last two years of the effectivity of the existing CBA.
This retroactive date, MERALCO argues, is contrary to the ruling of this
Court in Pier 8 Arrastre and Stevedoring Services, Inc. vs. RoldanConfessor[47] which mandates that the effective date of the new CBA
should be the date the Secretary of Labor has resolved the labor disputes.
On the other hand, MEWA supports the ruling of the Secretary on the theory
that he has plenary power and discretion to fix the date of effectivity of his
arbitral award citing our ruling in St. Lukes Medical Center, Inc. vs. Torres.[48]
MEWA also contends that if the arbitral award takes effect on the date of the
Secretary Labors ruling on the parties motion for reconsideration (i.e., on
December 28, 1996), an anomaly situation will result when CBA would be
more than the 5-year term mandated by Article 253-A of the Labor Code.
However, neither party took into account the factors necessary for a proper
resolution of this aspect. Pier 8, for instance, does not involve a mid-term
negotiation similar to this case, while St. Lukes does not take the hold over
principle into account, i.e., the rule that although a CBA has expired, it
continues to have legal effects as between the parties until a new CBA has
been entered into.[49]
Article 253-A serves as the guide in determining when the effectivity of the
CBA at bar is to take effect. It provides that the representation aspect of the
CBA is to be for a term of 5 years, while
x x x [A]ll other provisions of the Collective Bargaining Agreement shall be
re-negotiated not later than 3 years after its execution. Any agreement on
such other provisions of the Collective Bargaining Agreement entered into
within 6 months from the date of expiry of the term of such other provisions
as fixed in such Collective Bargaining Agreement shall retroact to the day
immediately following such date. If such agreement is entered into beyond 6
months, the parties shall agree on the duration of the effectivity thereof. x x
x.
Under these terms, it is clear that the 5-year term requirement is specific to
the representation aspect. What the law additionally requires is that a CBA
must be re-negotiated within 3 years after its execution. It is in this renegotiation that gives rise to the present CBA deadlock.
If no agreement is reached within 6 months from the expiry date of the 3
years that follow the CBA execution, the law expressly gives the parties - not
anybody else - the discretion to fix the effectivity of the agreement.
Significantly, the law does not specifically cover the situation where 6
months have elapsed but no agreement has been reached with respect to
effectivity. In this eventuality, we hold that any provision of law should then

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apply for the law abhors a vacuum.[50]

One such provision is the principle of hold over, i.e., that in the absence of a
new CBA, the parties must maintain the status quo and must continue in full
force and effect the terms and conditions of the existing agreement until a
new agreement is reached.[51] In this manner, the law prevents the existence
of a gap in the relationship between the collective bargaining parties.
Another legal principle that should apply is that in the absence of an
agreement between the parties, then, an arbitrated CBA takes on the nature
of any judicial or quasi-judicial award; it operates and may be executed only
respectively unless there are legal justifications for its retroactive application.
Consequently, we find no sufficient legal ground on the other justification
for the retroactive application of the disputed CBA, and therefore hold that
the CBA should be effective for a term of 2 years counted from December
28, 1996 (the date of the Secretary of Labors disputed order on the parties
motion for reconsideration) up to December 27, 1999.
WHEREFORE, the petition is granted and the orders of public respondent
Secretary of Labor dated August 19, 1996 and December 28, 1996 are set
aside to the extent set forth above. The parties are directed to execute a
Collective Bargaining Agreement incorporating the terms and conditions
contained in the unaffected portions of the Secretary of Labors order of
August 19, 1996 and December 28, 1996, and the modifications set forth
above. The retirement fund issue is remanded to the Secretary of Labor for
reception of evidence and determination of the legal personality of the
MERALCO retirement fund.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Melo, Kapunan, and Pardo, JJ., concur.