G.R. No.

170054, January 21, 2013

701 Phil. 645

THIRD DIVISION
G.R. No. 170054, January 21, 2013

GOYA, INC., PETITIONER, VS. GOYA, INC. EMPLOYEES

UNION-FFW, RESPONDENT.
DECISION

PERALTA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure seeks to reverse and set aside the June 16, 2005 Decision[1] and
October 12, 2005 Resolution[2] of the Court of Appeals in CA-G.R. SP No.
87335, which sustained the October 26, 2004 Decision[3] of Voluntary
Arbitrator Bienvenido E. Laguesma, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered declaring that the

Company is NOT guilty of unfair labor practice in engaging the
services of PESO.

The company is, however, directed to observe and comply with its
commitment as it pertains to the hiring of casual employees when
necessitated by business circumstances.[4]

The facts are simple and appear to be undisputed.

Sometime in January 2004, petitioner Goya, Inc. (Company), a domestic

corporation engaged in the manufacture, importation, and wholesale of top
quality food products, hired contractual employees from PESO Resources
Development Corporation (PESO) to perform temporary and occasional
services in its factory in Parang, Marikina City. This prompted respondent
Goya, Inc. Employees Union–FFW (Union) to request for a grievance
conference on the ground that the contractual workers do not belong to the
categories of employees stipulated in the existing Collective Bargaining
Agreement (CBA).[5] When the matter remained unresolved, the grievance was
referred to the National Conciliation and Mediation Board (NCMB) for
voluntary arbitration.

During the hearing on July 1, 2004, the Company and the Union manifested
before Voluntary Arbitrator (VA) Bienvenido E. Laguesma that amicable
settlement was no longer possible; hence, they agreed to submit for resolution
the solitary issue of “[w]hether or not [the Company] is guilty of unfair labor
acts in engaging the services of PESO, a third party service provider[,] under
the existing CBA, laws[,] and jurisprudence.”[6] Both parties thereafter filed
their respective pleadings.

The Union asserted that the hiring of contractual employees from PESO is not
a management prerogative and in gross violation of the CBA tantamount to
unfair labor practice (ULP). It noted that the contractual workers engaged have
been assigned to work in positions previously handled by regular workers and

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Union members, in effect violating Section 4, Article I of the CBA, which

provides for three categories of employees in the Company, to wit:

Section 4. Categories of Employees.– The parties agree on the

following categories of employees:

(a) Probationary Employee. – One hired to occupy a

regular rank-and-file position in the Company and is
serving a probationary period. If the probationary
employee is hired or comes from outside the Company
(non-Goya, Inc. employee), he shall be required to
undergo a probationary period of six (6) months, which
period, in the sole judgment of management, may be
shortened if the employee has already acquired the
knowledge or skills required of the job. If the employee
is hired from the casual pool and has worked in the
same position at any time during the past two (2) years,
the probationary period shall be three (3) months.
(b)Regular Employee. – An employee who has
satisfactorily completed his probationary period and
automatically granted regular employment status in the
Company.
(c) Casual Employee, – One hired by the Company to
perform occasional or seasonal work directly connected
with the regular operations of the Company, or one
hired for specific projects of limited duration not
connected directly with the regular operations of the
Company.

It was averred that the categories of employees had been a part of the CBA
since the 1970s and that due to this provision, a pool of casual employees had
been maintained by the Company from which it hired workers who then
became regular workers when urgently necessary to employ them for more
than a year. Likewise, the Company sometimes hired probationary employees
who also later became regular workers after passing the probationary period.
With the hiring of contractual employees, the Union contended that it would no
longer have probationary and casual employees from which it could obtain
additional Union members; thus, rendering inutile Section 1, Article III (Union
Security) of the CBA, which states:

Section 1. Condition of Employment. – As a condition of continued

employment in the Company, all regular rank-and-file employees
shall remain members of the Union in good standing and that new
employees covered by the appropriate bargaining unit shall
automatically become regular employees of the Company and shall
remain members of the Union in good standing as a condition of
continued employment.

The Union moreover advanced that sustaining the Company’s position would
easily weaken and ultimately destroy the former with the latter’s resort to
retrenchment and/or retirement of employees and not filling up the vacant
regular positions through the hiring of contractual workers from PESO, and
that a possible scenario could also be created by the Company wherein it could
“import” workers from PESO during an actual strike.

In countering the Union’s allegations, the Company argued that: (a) the law
expressly allows contracting and subcontracting arrangements through
Department of Labor and Employment (DOLE) Order No. 18-02; (b) the

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engagement of contractual employees did not, in any way, prejudice the Union,
since not a single employee was terminated and neither did it result in a
reduction of working hours nor a reduction or splitting of the bargaining unit;
and (c) Section 4, Article I of the CBA merely provides for the definition of the
categories of employees and does not put a limitation on the Company’s right
to engage the services of job contractors or its management prerogative to
address temporary/occasional needs in its operation.

On October 26, 2004, VA Laguesma dismissed the Union’s charge of ULP for
being purely speculative and for lacking in factual basis, but the Company was
directed to observe and comply with its commitment under the CBA. The VA
opined:

We examined the CBA provision [Section 4, Article I of the CBA]

allegedly violated by the Company and indeed the agreement
prescribes three (3) categories of employees in the Company and
provides for the definition, functions and duties of each. Material to
the case at hand is the definition as regards the functions of a casual
employee described as follows:

Casual Employee – One hired by the COMPANY to

perform occasional or seasonal work directly connected
with the regular operations of the COMPANY, or one
hired for specific projects of limited duration not
connected directly with the regular operations of the
COMPANY.

While the foregoing agreement between the parties did eliminate

management’s prerogative of outsourcing parts of its operations, it
serves as a limitation on such prerogative particularly if it involves
functions or duties specified under the aforequoted agreement. It is
clear that the parties agreed that in the event that the Company needs
to engage the services of additional workers who will perform
“occasional or seasonal work directly connected with the regular
operations of the COMPANY,” or “specific projects of limited
duration not connected directly with the regular operations of the
COMPANY”, the Company can hire casual employees which is akin
to contractual employees. If we note the Company’s own
declaration that PESO was engaged to perform “temporary or
occasional services” (See the Company’s Position Paper, at p. 1),
then it should have directly hired the services of casual employees
rather than do it through PESO.

It is evident, therefore, that the engagement of PESO is not in

keeping with the intent and spirit of the CBA provision in question.
It must, however, be stressed that the right of management to
outsource parts of its operations is not totally eliminated but is
merely limited by the CBA. Given the foregoing, the Company’s
engagement of PESO for the given purpose is indubitably a violation
of the CBA.[7]

While the Union moved for partial reconsideration of the VA Decision,[8] the
Company immediately filed a petition for review[9] before the Court of Appeals
(CA) under Rule 43 of the Revised Rules of Civil Procedure to set aside the
directive to observe and comply with the CBA commitment pertaining to the

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hiring of casual employees when necessitated by business circumstances.

Professing that such order was not covered by the sole issue submitted for
voluntary arbitration, the Company assigned the following errors:

THE HONORABLE VOLUNTARY ARBITRATOR EXCEEDED

HIS POWER WHICH WAS EXPRESSLY GRANTED AND
LIMITED BY BOTH PARTIES IN RULING THAT THE
ENGAGEMENT OF PESO IS NOT IN KEEPING WITH THE
INTENT AND SPIRIT OF THE CBA.[10]

THE HONORABLE VOLUNTARY ARBITRATOR

COMMITTED A PATENT AND PALPABLE ERROR IN
DECLARING THAT THE ENGAGEMENT OF PESO IS NOT IN
KEEPING WITH THE INTENT AND SPIRIT OF THE CBA.[11]

On June 16, 2005, the CA dismissed the petition. In dispensing with the merits
of the controversy, it held:

This Court does not find it arbitrary on the part of the Hon.
Voluntary Arbitrator in ruling that “the engagement of PESO is not
in keeping with the intent and spirit of the CBA.” The said ruling is
interrelated and intertwined with the sole issue to be resolved that is,
“Whether or not [the Company] is guilty of unfair labor practice in
engaging the services of PESO, a third party service provider[,]
under existing CBA, laws[,] and jurisprudence.” Both issues concern
the engagement of PESO by [the Company] which is perceived as a
violation of the CBA and which constitutes as unfair labor practice
on the part of [the Company]. This is easily discernible in the
decision of the Hon. Voluntary Arbitrator when it held:

x x x x While the engagement of PESO is in violation of

Section 4, Article I of the CBA, it does not constitute
unfair labor practice as it (sic) not characterized under the
law as a gross violation of the CBA. Violations of a CBA,
except those which are gross in character, shall no longer
be treated as unfair labor practice. Gross violations of a
CBA means flagrant and/or malicious refusal to comply
with the economic provisions of such agreement. x x x

Anent the second assigned error, [the Company] contends that the
Hon. Voluntary Arbitrator erred in declaring that the engagement of
PESO is not in keeping with the intent and spirit of the CBA. [The
Company] justified its engagement of contractual employees through
PESO as a management prerogative, which is not prohibited by law.
Also, it further alleged that no provision under the CBA limits or
prohibits its right to contract out certain services in the exercise of
management prerogatives.

Germane to the resolution of the above issue is the provision in their

CBA with respect to the categories of the employees:

xxxx

A careful reading of the above-enumerated categories of employees

reveals that the PESO contractual employees do not fall within the

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enumerated categories of employees stated in the CBA of the parties.

Following the said categories, [the Company] should have observed
and complied with the provision of their CBA. Since [the Company]
had admitted that it engaged the services of PESO to perform
temporary or occasional services which is akin to those performed
by casual employees, [the Company] should have tapped the services
of casual employees instead of engaging PESO.

In justifying its act, [the Company] posits that its engagement of

PESO was a management prerogative. It bears stressing that a
management prerogative refers to the right of the employer to
regulate all aspects of employment, such as the freedom to
prescribe work assignments, working methods, processes to be
followed, regulation regarding transfer of employees, supervision of
their work, lay-off and discipline, and dismissal and recall of work,
presupposing the existence of employer-employee relationship. On
the basis of the foregoing definition, [the Company’s] engagement of
PESO was indeed a management prerogative. This is in consonance
with the pronouncement of the Supreme Court in the case of Manila
Electric Company vs. Quisumbing where it ruled that contracting out
of services is an exercise of business judgment or management
prerogative.

This management prerogative of contracting out services, however,

is not without limitation. In contracting out services, the
management must be motivated by good faith and the contracting
out should not be resorted to circumvent the law or must not have
been the result of malicious arbitrary actions. In the case at bench,
the CBA of the parties has already provided for the categories of the
employees in [the Company’s] establishment. [These] categories of
employees particularly with respect to casual employees [serve] as
limitation to [the Company’s] prerogative to outsource parts of its
operations especially when hiring contractual employees. As stated
earlier, the work to be performed by PESO was similar to that of the
casual employees. With the provision on casual employees, the
hiring of PESO contractual employees, therefore, is not in keeping
with the spirit and intent of their CBA. (Citations omitted)[12]

The Company moved to reconsider the CA Decision,[13] but it was denied;[14]

hence, this petition.

Incidentally, on July 16, 2009, the Company filed a Manifestation[15] informing

this Court that its stockholders and directors unanimously voted to shorten the
Company’s corporate existence only until June 30, 2006, and that the three-
year period allowed by law for liquidation of the Company’s affairs already
expired on June 30, 2009. Referring to Gelano v. Court of Appeals,[16] Public
Interest Center, Inc. v. Elma,[17] and Atienza v. Villarosa,[18] it urged Us,
however, to still resolve the case for future guidance of the bench and the bar
as the issue raised herein allegedly calls for a clarification of a legal principle,
specifically, whether the VA is empowered to rule on a matter not covered by
the issue submitted for arbitration.

Even if this Court would brush aside technicality by ignoring the supervening
event that renders this case moot and academic[19] due to the permanent
cessation of the Company’s business operation on June 30, 2009, the
arguments raised in this petition still fail to convince Us.

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We confirm that the VA ruled on a matter that is covered by the sole issue
submitted for voluntary arbitration. Resultantly, the CA did not commit serious
error when it sustained the ruling that the hiring of contractual employees from
PESO was not in keeping with the intent and spirit of the CBA. Indeed, the
opinion of the VA is germane to, or, in the words of the CA, “interrelated and
intertwined with,” the sole issue submitted for resolution by the parties. This
being said, the Company’s invocation of Sections 4 and 5, Rule IV[20] and
Section 5, Rule VI[21] of the Revised Procedural Guidelines in the Conduct of
Voluntary Arbitration Proceedings dated October 15, 2004 issued by the
NCMB is plainly out of order.

Likewise, the Company cannot find solace in its cited case of Ludo & Luym
Corporation v. Saornido.[22] In Ludo, the company was engaged in the
manufacture of coconut oil, corn starch, glucose and related products. In the
course of its business operations, it engaged the arrastre services of CLAS for
the loading and unloading of its finished products at the wharf. The arrastre
workers deployed by CLAS to perform the services needed were subsequently
hired, on different dates, as Ludo’s regular rank-and-file employees.
Thereafter, said employees joined LEU, which acted as the exclusive
bargaining agent of the rank-and-file employees. When LEU entered into a
CBA with Ludo, providing for certain benefits to the employees (the amount of
which vary according to the length of service rendered), it requested to include
in its members’ period of service the time during which they rendered arrastre
services so that they could get higher benefits. The matter was submitted for
voluntary arbitration when Ludo failed to act. Per submission agreement
executed by both parties, the sole issue for resolution was the date of
regularization of the workers. The VA Decision ruled that: (1) the subject
employees were engaged in activities necessary and desirable to the business of
Ludo, and (2) CLAS is a labor- only contractor of Ludo. It then disposed as
follows: (a) the complainants were considered regular employees six months
from the first day of service at CLAS; (b) the complainants, being entitled to
the CBA benefits during the regular employment, were awarded sick leave,
vacation leave, and annual wage and salary increases during such period; (c)
respondents shall pay attorney’s fees of 10% of the total award; and (d) an
interest of 12% per annum or 1% per month shall be imposed on the award
from the date of promulgation until fully paid. The VA added that all
separation and/or retirement benefits shall be construed from the date of
regularization subject only to the appropriate government laws and other social
legislation. Ludo filed a motion for reconsideration, but the VA denied it. On
appeal, the CA affirmed in toto the assailed decision; hence, a petition was
brought before this Court raising the issue, among others, of whether a
voluntary arbitrator can award benefits not claimed in the submission
agreement. In denying the petition, We ruled:

Generally, the arbitrator is expected to decide only those questions

expressly delineated by the submission agreement. Nevertheless, the
arbitrator can assume that he has the necessary power to make a final
settlement since arbitration is the final resort for the adjudication of
disputes. The succinct reasoning enunciated by the CA in support of
its holding, that the Voluntary Arbitrator in a labor controversy has
jurisdiction to render the questioned arbitral awards, deserves our
concurrence, thus:

In general, the arbitrator is expected to decide those

questions expressly stated and limited in the submission
agreement. However, since arbitration is the final resort
for the adjudication of disputes, the arbitrator can assume

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G.R. No. 170054, January 21, 2013

that he has the power to make a final settlement. Thus,

assuming that the submission empowers the arbitrator to
decide whether an employee was discharged for just
cause, the arbitrator in this instance can reasonably
assume that his powers extended beyond giving a yes-or-
no answer and included the power to reinstate him with or
without back pay.

In one case, the Supreme Court stressed that “xxx the

Voluntary Arbitrator had plenary jurisdiction and
authority to interpret the agreement to arbitrate and to
determine the scope of his own authority subject only, in a
proper case, to the certiorari jurisdiction of this Court. The
Arbitrator, as already indicated, viewed his authority as
embracing not merely the determination of the abstract
question of whether or not a performance bonus was to be
granted but also, in the affirmative case, the amount
thereof.

By the same token, the issue of regularization should be

viewed as two-tiered issue. While the submission
agreement mentioned only the determination of the date or
regularization, law and jurisprudence give the voluntary
arbitrator enough leeway of authority as well as adequate
prerogative to accomplish the reason for which the law on
voluntary arbitration was created – speedy labor justice. It
bears stressing that the underlying reason why this case
arose is to settle, once and for all, the ultimate question of
whether respondent employees are entitled to higher
benefits. To require them to file another action for
payment of such benefits would certainly undermine labor
proceedings and contravene the constitutional mandate
providing full protection to labor.[23]

Indubitably, Ludo fortifies, not diminishes, the soundness of the questioned VA

Decision. Said case reaffirms the plenary jurisdiction and authority of the
voluntary arbitrator to interpret the CBA and to determine the scope of his/her
own authority. Subject to judicial review, the leeway of authority as well as
adequate prerogative is aimed at accomplishing the rationale of the law on
voluntary arbitration – speedy labor justice. In this case, a complete and final
adjudication of the dispute between the parties necessarily called for the
resolution of the related and incidental issue of whether the Company still
violated the CBA but without being guilty of ULP as, needless to state, ULP is
committed only if there is gross violation of the agreement.

Lastly, the Company kept on harping that both the VA and the CA conceded
that its engagement of contractual workers from PESO was a valid exercise of
management prerogative. It is confused. To emphasize, declaring that a
particular act falls within the concept of management prerogative is
significantly different from acknowledging that such act is a valid exercise
thereof. What the VA and the CA correctly ruled was that the Company’s act
of contracting out/outsourcing is within the purview of management
prerogative. Both did not say, however, that such act is a valid exercise thereof.
Obviously, this is due to the recognition that the CBA provisions agreed upon
by the Company and the Union delimit the free exercise of management
prerogative pertaining to the hiring of contractual employees. Indeed, the VA
opined that “the right of the management to outsource parts of its operations is
not totally eliminated but is merely limited by the CBA,” while the CA held

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G.R. No. 170054, January 21, 2013

that “[t]his management prerogative of contracting out services, however, is

not without limitation. x x x [These] categories of employees particularly with
respect to casual employees [serve] as limitation to [the Company’s]
prerogative to outsource parts of its operations especially when hiring
contractual employees.”

A collective bargaining agreement is the law between the parties:

It is familiar and fundamental doctrine in labor law that the CBA is the law
between the parties and they are obliged to comply with its provisions. We said
so in Honda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda:

A collective bargaining agreement or CBA refers to the negotiated

contract between a legitimate labor organization and the employer
concerning wages, hours of work and all other terms and conditions
of employment in a bargaining unit. As in all contracts, the parties in
a CBA may establish such stipulations, clauses, terms and conditions
as they may deem convenient provided these are not contrary to law,
morals, good customs, public order or public policy. Thus, where the
CBA is clear and unambiguous, it becomes the law between the
parties and compliance therewith is mandated by the express policy
of the law.

Moreover, if the terms of a contract, as in a CBA, are clear and leave

no doubt upon the intention of the contracting parties, the literal
meaning of their stipulations shall control. x x x.[24]

In this case, Section 4, Article I (on categories of employees) of the CBA

between the Company and the Union must be read in conjunction with its
Section 1, Article III (on union security). Both are interconnected and must be
given full force and effect. Also, these provisions are clear and unambiguous.
The terms are explicit and the language of the CBA is not susceptible to any
other interpretation. Hence, the literal meaning should prevail. As repeatedly
held, the exercise of management prerogative is not unlimited; it is subject to
the limitations found in law, collective bargaining agreement or the general
principles of fair play and justice.[25] Evidently, this

case has one of the restrictions- the presence of specific CBA provisions unlike
in San Miguel Corporation Employees Union-PTGWO v. Bersamira,[26] De
Ocampo v. NLRC,[27] Asian Alcohol Corporation v. NLRC, [28] and Serrano v.
NLRC[29] cited by the Company. To reiterate, the CBA is the norm of conduct
between the parties and compliance therewith is mandated by the express
policy of the law.[30]

WHEREFORE, the petition is DENIED. The assailed June 16, 2005

Decision, as well as the October 12, 2005 Resolution of the Court of Appeals,
which sustained the October 26, 2004 Decision of the Voluntary Arbitrator, are
hereby AFFIRMED.

SO ORDERED.

Velasco, Jr., (Chaitperson), Peralta, Abad, Mendoza, and Leonen, JJ., concur.

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[1]
Penned by Associate Justice Eugenio S. Labitoria, with Associate Justices
Eliezer R. de los Santos and Arturo D. Brion (now a member of this Court)
concuning; rollo, pp. 33-42.
[2]
Id. at 43-44.
[3]
CA rollo, pp. 24-29.
[4]
Id. at 29.
[5]
Id. at 62.
[6]
Id. at 30.
[7]
Id. at 27-28.
[8]
Id. at 70.
[9]
Id. at 6-18.
[10]
Id. at 10.
[11]
Id. at 13.
[12]
Id. at 83-88.
[13]
Id. at 91-97.
[14]
Resolution dated October 12, 2005; id. at 100-101.
[15]
Rollo, pp. 145-157.
[16]
No. L-39050, February 24, 1981, 103 SCRA 90; 190 Phil. 814 (1981).
[17]
G.R. No. 138965, June 30, 2006, 494SCRA 53; 526 Phil. 550 (2006).
[18]
G.R. No. 161081, May 10, 2005, 458 SCRA 385; 497 Phil. 689 (2005).
[19]
In David v. Macapagal-Arroyo, G.R. Nos. 171396, 171409, 171485,
171483, 171400, 171489, and 171424 , May 3, 2006, 489 SCRA 160, 213-215;
522 Phil. 705, 753-754 (2006), the Court held:

A moot and academic case is one that ceases to present a justiciable

controversy by virtue of supervening events, so that a declaration thereon
would be of no practical use or value. Generally, courts decline jurisdiction
over such case or dismiss it on ground of mootness.

xxxx

The “moot and academic” principle is not a magical formula that can
automatically dissuade the courts in resolving a case. Courts will decide cases,
otherwise moot and academic, if: first, there is a grave violation of the
Constitution; second, the exceptional character of the situation and the

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G.R. No. 170054, January 21, 2013

paramount public interest is involved; third, when constitutional issue raised

requires formulation of controlling principles to guide the bench, the bar, and
the public; and fourth, the case is capable of repetition yet evading review.
[20]
Rule IV, Sections 4 and 5 state:

Section 4. When Jurisdiction is Exercised. The voluntary arbitrator shall

exercise jurisdiction over specific case/s:

1) Upon receipt of a submission agreement duly signed by both

parties.

2) Upon receipt of the notice to arbitrate when there is refusal from

one party;

3) Upon receipt of an appointment/designation as voluntary

arbitrator by the board in either of the following circumstances:

3.1. In the event that parties fail to select an arbitrator; or

3.2. In the absence of a named arbitrator in the CBA and the

party upon whom the notice to arbitrate is served does not
favorably reply within seven days from receipt of such notice.

Section 5. Contents of submission agreement. The submission agreement shall

contain, among others, the following:

1. The agreement to submit to arbitration;

2. The specific issue/s to be arbitrated;
3. The name of the arbitrator;
4. The names, addresses and contact numbers of the parties;
5. The agreement to perform or abide by the decision. (Emphasis
supplied)

[21]
Rule VI, Sec. 5 provides:

Section 5. Simplification of Arbitrable Issue/s. The arbitrator must see to it

that he understands clearly the issue/s submitted to arbitration. If, after
conferring with the parties, he finds the necessity to clarify/simplify the issue/s,
he shall assist the parties in the reformulation of the same.
[22]
G.R. No. 140960, January 20, 2003, 395 SCRA 451; 443 Phil. 554 (2003).
[23]
Ludo & Luym Corporation v. Saornido, supra note 22, at 459; at 562-563.
(Citations omitted.)
[24]
TSPIC Corporation v. TSPIC Employees Union (FFW), G.R. No. 163419,
February 13, 2008, 545 SCRA 215, 225. (Citations omitted.)
[25]
DOLE Philippinesnc. v. Pawis ng Makabayang Obrero, G.R. No. 146650,
January 13, 2003, 395 SCRA 112, 116; 443 Phil. 143, 149 (2003).
[26]
G.R. No. 87700, June 13, 1990, 186 SCRA 496; 264 Phil. 875 (1990).

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G.R. No. 170054, January 21, 2013

[27]
G.R. No. 101539, September4, 1992,213 SCRA 652.
[28]
G.R. No. 131108, March 25, 1999,305 SCRA 416; 364 Phil. 912 (1999).
[29]
G.R. No. 117040, January 27, 2000, 323 SCRA 445; 380 Phil. 416 (2000).
[30]
DOLE Philippines, Inc. v. Pawis ng Makabayang Obrero, supra note 25, at
150.

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