Digitel v.

DEU

FACTS
By virtue of a certification election, Digitel Employees Union (Union) became the exclusive bargaining agent of all rank
and file employees of Digitel in 1994. The Union and Digitel then commenced collective bargaining negotiations which
resulted in a bargaining deadlock. The Union threatened to go on strike, but then Acting Labor Secretary Bienvenido E.
Laguesma assumed jurisdiction over the dispute and eventually directed the parties to execute a CBA.

However, no CBA was forged between Digitel and the Union. Some Union members abandoned their employment with
Digitel. The Union later became dormant. Ten (10) years thereafter or on 28 September 2004, Digitel received from Arceo
Rafael A. Esplana (Esplana), who identified himself as President of the Union, a letter containing the list of officers, CBA
proposals and ground rules. However, Digitel was reluctant to negotiate with the Union and demanded that the latter show
compliance with the provisions of the Union’s Constitution and By-laws on union membership and election of officers.

On 4 November 2004, Esplana and his group filed a case for Preventive Mediation before the National Conciliation and
Mediation Board based on Digitel’s violation of the duty to bargain. On 25 November 2004, Esplana filed a notice of strike.
On 10 March 2005, then Labor Secretary Patricia A. Sto. Tomas issued an Order4 assuming jurisdiction over the labor
dispute.

During the pendency of the controversy, Digitel Service, Inc. (Digiserv), a non-profit enterprise engaged in call center
servicing, filed with the Department of Labor and Employment (DOLE) an Establishment Termination Report stating that it
will cease its business operation. The closure affected at least 100 employees, 42 of whom are members of the herein
respondent Union.

Alleging that the affected employees are its members and in reaction to Digiserv’s action, Esplana and his group filed
another Notice of Strike for union busting, illegal lock-out, and violation of the assumption order. On 23 May 2005, the
Secretary of Labor ordered the second notice of strike subsumed by the previous Assumption Order. Meanwhile, on 14
March 2005, Digitel filed a petition with the Bureau of Labor Relations (BLR) seeking cancellation of the Union’s
registration on the following grounds: 1) failure to file the required reports from 1994-2004; 2) misrepresentation of its
alleged officers; 3) membership of the Union is composed of rank and file, supervisory and managerial employees; and 4)
substantial number of union members are not Digitel employees.

RD: dismissed the petition for cancellation of union registration for lack of merit. The Regional Director ruled that it does
not have jurisdiction over the issue of non-compliance with the reportorial requirements. He also held that Digitel failed to
adduce substantial evidence to prove misrepresentation and the mixing of non-Digitel employees with the Union. Finally,
he declared that the inclusion of supervisory and managerial employees with the rank and file employees is no longer a
ground for cancellation of the Union’s certificate of registration.
BLR: dismissed for lack of merit thereby affirming the Regional Director.
SOLE: The Secretary of Labor directed Digitel to commence the CBA negotiation with the Union and certified theissue of
unfair labor practice, consisting of union-busting, illegal termination/lockout and violation of the assumption of jurisdiction,
specifically the return-to-work for compulsory arbitration to the NLRC.
NLRC: dismissed the unfair labor practice charge against Digitel but declaring the dismissal of the 13 employees of
Digiserv as illegal and ordering their reinstatement.
CA: upheld the SOLEs Order for Digitel to commence CBA negotiations with the Union and emphasized that the
pendency of a petition for the cancellation of a union’s registration does not bar the holding of negotiations for a CBA. The
CA sustained the finding that Digiserv is engaged in labor-only contracting and that its employees are actually employees
of Digitel.

ISSUE
W/N Digiserv is a legitimate contractor - NO
W/N there was a valid dismissal - NO

HELD
Petition denied. CA modified insofar as moral and exemplary damages be awarded to illegally terminated EEs

Digiserv is a labor-only contractor

After an exhaustive review of the records, there is no showing that first, Digiserv has substantial investment in the form of
capital, equipment or tools. Under the Implementing Rules, substantial capital or investment refers to "capital stocks and
subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises,
actually and directly used by the contractor or subcontractor in the performance or completion of the job, work or service
contracted out." The NLRC, as echoed by the Court of Appeals, did not find substantial Digiserv’s authorized capital stock
of One Million Pesos (P 1,000,000.00). It pointed out that only Two Hundred Fifty Thousand Pesos (P 250,000.00) of the
authorized capital stock had been subscribed and only Sixty-Two Thousand Five Hundred Pesos (P 62,500.00) had been
paid up. There was no increase in capitalization for the last ten (10) years.

Moreover, in the Amended Articles of Incorporation, as well as in the General Information Sheets for the years 1994, 2001
and 2005, the primary purpose of Digiserv is to provide manpower services. In PCI Automation Center, Inc. v. National
Labor Relations Commission, the Court made the following distinction: "the legitimate job contractor provides services
while the labor-only contractor provides only manpower. The legitimate job contractor undertakes to perform a specific job
for the principal employer while the labor-only contractor merely provides the personnel to work for the principal
employer." The services provided by employees of Digiserv are directly related to the business of Digitel, as rationalized
by the NLRC in this wise:It is undisputed that as early as March 1994, the affected employees, except for two, were
already performing their job as Traffic Operator which was later renamed as Customer Service Representative (CSR). It is
equally undisputed that all throughout their employment, their function as CSR remains the same until they were
terminated effective May 30, 2005. Their long period of employment as such is an indication that their job is directly
related to the main business of DIGITEL which is telecommunications. Because, if it was not, DIGITEL would not have
allowed them to render services as Customer Service Representative for such a long period of time.

Furthermore, Digiserv does not exercise control over the affected employees. The NLRC highlighted the fact that Digiserv
shared the same Human Resources, Accounting, Audit and Legal Departments with Digitel which manifested that it was
Digitel who exercised control over the performance of the affected employees. The NLRC also relied on the letters of
commendation, plaques of appreciation and certification issued by Digitel to the Customer Service Representatives as
evidence of control.

Considering that Digiserv has been found to be engaged in labor-only contracting, the dismissed employees are deemed
employees of Digitel.

Affected employees illegaly terminated

Records teem with proof that its dismissed employees are in fact employees of Digitel. It is undisputed that the remaining
affected employees, except for two (2), were already hired by DIGITEL even before the existence of DIGISERV. It is
equally undisputed that the remaining, affected employees continuously held the position of Customer Service
Representative, which was earlier known as Traffic Operator, from the time they were appointed on March 1, 1994 until
they were terminated on May 30, 2005. The UNION alleges that these Customer Service Representatives were under the
Customer Service Division of DIGITEL. The UNION’s allegation is correct. Further, the Certificates issued to Customer
Service Representative likewise show that they are employees of DIGITEL.

Digitel maintains that the affected employees were validly dismissed on the grounds of closure of Digiserv, a department
within Digitel. According to jurisprudence, the closure of a department or division of a company as retrenchment. The
dismissed employees were undoubtedly retrenched with the closure of Digiserv.

Here, there was no valid retrenchment. In the instant case, the question to be answered is whether or not the affected
employees were dismissed in good faith. We find that there was no good faith in the retrenchment. Bad faith was
manifested by the timing of the closure of Digiserv and the rehiring of some employees to Interactive Technology
Solutions, Inc. (I-tech), a corporate arm of Digitel. The assumption order directs employees to return to work, and the
employer to reinstate the employees. The existence of the assumption order should have prompted Digitel to observe the
status quo. Instead, Digitel proceeded to close down Digiserv. The Secretary of Labor had to subsume the second notice
of strike in the assumption order. This order notwithstanding, Digitel proceeded to dismiss the employees.

Thus, the closure of Digiserv pending the existence of an assumption order coupled with the creation of a new corporation
performing similar functions as Digiserv leaves no iota of doubt that the target of the closure are the union member-
employees. These factual circumstances prove that Digitel terminated the services of the affected employees to defeat
their security of tenure. The termination of service was not a valid retrenchment; it was an illegal dismissal of employees.

Claims of EE for ULP of ER

It needs to be mentioned too that the dismissal constitutes an unfair labor practice under Article 248(c) of the Labor Code
which refers to contracting out services or functions being performed by union members when such will interfere with,
restrain or coerce employees in the exercise of their rights to self-organization. At the height of the labor dispute,
occasioned by Digitel’s reluctance to negotiate with the Union, I-tech was formed to provide, as it did provide, the same
services performed by Digiserv, the Union members’ nominal employer.

Under Article 279 of the Labor Code, an illegally dismissed employee is entitled to backwages and reinstatement. Where
reinstatement is no longer viable as an option, as in this case where Digiserv no longer exists, separation pay equivalent
to one (1) month salary, or one-half (1/2) month pay for every year of service, whichever is higher, should be awarded as
an alternative. The payment of separation pay is in addition to payment of backwages. Here, reinstatment is impossible
since there is no clear showing that Digiserv and I-tech is one and the same company and also under the doctrine of
strained relations. Hence the award for separation pay is proper.

Finally, an illegally dismissed employee should be awarded moral and exemplary damages as their dismissal was tainted
with unfair labor practice. Depending on the factual milieu, jurisprudence has awarded varying amounts as moral and
exemplary damages to illegally dismissed employees when the dismissal is attended by bad faith or fraud; or constitutes
an act oppressive to labor; or is done in a manner contrary to good morals, good customs or public policy; or if the
dismissal is effected in a wanton, oppressive or malevolent manner.

In Nueva Ecija I Electric Cooperative, Inc. (NEECO I) Employees Association v. National Labor Relations Commission, we
intoned:

Unfair labor practices violate the constitutional rights of workers and employees to self-organization, are inimical to the
legitimate interests of both labor and management, including their right to bargain collectively and otherwise deal with
each other in an atmosphere of freedom and mutual respect; and disrupt industrial peace and hinder the promotion of
healthy and stable labor-management relations. As the conscience of the government, it is the Court’s sworn duty to
ensure that none trifles with labor rights.

We awarded moral damages in the amount of P 10,000.00 and likewise awarded P 5,000.00 as exemplary damages for
each dismissed employee.