In Insular Hotel Employees Union-NFL v. Waterfront Insular Hotel Davao, the Supreme Court addressed whether a Memorandum of Agreement (MOA) that reduced employee benefits, negotiated between a financially distressed hotel and a union, was valid. The Court ruled that the MOA was indeed valid and enforceable, emphasizing that a union can voluntarily agree to reduce benefits during financial hardship, especially when the agreement is aimed at preventing the employer’s closure and preserving jobs. This decision underscores the importance of collective bargaining and the ability of unions to make concessions in the face of economic challenges, provided such concessions are made in good faith and for the overall benefit of the employees’ continued employment.

Distress Signals: Can a Union Concede Benefits to Save a Hotel?

Waterfront Insular Hotel Davao faced severe financial losses, leading to a temporary suspension of operations. The Davao Insular Hotel Free Employees Union-NFL (DIHFEU-NFL), representing the hotel’s employees, offered several concessions to help the hotel recover, including a temporary suspension of their Collective Bargaining Agreement (CBA) and a reduction of certain economic benefits. These proposals were formalized in a Manifesto, and after negotiations, the hotel and the union signed a Memorandum of Agreement (MOA) that downsized the workforce and implemented a new pay scale. The hotel then resumed operations, and retained employees signed “Reconfirmation of Employment” contracts reflecting the new terms. A dispute arose when some employees, claiming to be local officers of the National Federation of Labor (NFL), filed a complaint alleging unlawful diminution of wages and benefits through the MOA. This led to legal battles over the validity of the MOA and the authority of the parties involved, ultimately reaching the Supreme Court.

The central legal issue revolved around the jurisdiction of the National Conciliation and Mediation Board (NCMB) and the voluntary arbitrators, the authority of the union representatives, and the validity of the MOA itself, particularly concerning the reduction of employee benefits. The Supreme Court addressed several procedural and substantive issues. First, the Court examined the authority of the parties who initiated the complaint. It noted that the initial Notice of Mediation was filed by individuals claiming to represent the NFL, not the local union, DIHFEU-NFL. The Court emphasized that only a certified or duly recognized bargaining agent could file such a notice, citing Section 3, Rule IV of the NCMB Manual of Procedure. Since the case was initially filed by individuals without proper authorization from the union, the NCMB lacked jurisdiction from the outset.

Who may file a notice or declare a strike or lockout or request preventive mediation. –

Any certified or duly recognized bargaining representative may file a notice or declare a strike or request for preventive mediation in cases of bargaining deadlocks and unfair labor practices.

Building on this procedural point, the Court noted that while a Submission Agreement was eventually signed by the hotel and “IHEU-NFL,” the persistent objections raised by the hotel regarding the authority of the individual employees and the NFL to represent the union further undermined the agreement’s validity. The hotel consistently questioned whether these parties had the standing to challenge the MOA, given that they were not the duly authorized representatives of the union. In Tabigue v. International Copra Export Corporation (INTERCO), the Supreme Court clarified that only disputes involving the union and the company should be referred to the grievance machinery or voluntary arbitrators.

Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name or designate their respective representatives to the grievance machinery and if the grievance is unsettled in that level, it shall automatically be referred to the voluntary arbitrators designated in advance by parties to a CBA. Consequently, only disputes involving the union and the company shall be referred to the grievance machinery or voluntary arbitrators.

The Supreme Court also addressed whether the federation to which the local union was affiliated had the standing to file the case. In Coastal Subic Bay Terminal, Inc. v. Department of Labor and Employment, the Court clarified that a local union is a separate and distinct voluntary association, and mere affiliation does not give the mother federation the license to act independently of the local union.

A local union does not owe its existence to the federation with which it is affiliated. It is a separate and distinct voluntary association owing its creation to the will of its members. Mere affiliation does not divest the local union of its own personality, neither does it give the mother federation the license to act independently of the local union. It only gives rise to a contract of agency, where the former acts in representation of the latter. Hence, local unions are considered principals while the federation is deemed to be merely their agent.

Turning to the substantive issue of whether the MOA was valid, the Court acknowledged that the hotel was indeed facing severe financial distress. The Court highlighted that the CA was correct in its assessment that upholding the MOA would mean the continuance of the hotel’s operation and financial viability. The audited financial statements submitted by the hotel demonstrated significant operating losses, justifying the need for concessions from the union.

The employees challenging the MOA argued that it violated Article 100 of the Labor Code, which prohibits the elimination or diminution of benefits. However, the Court cited Apex Mining Company, Inc. v. NLRC, clarifying that Article 100 is specifically concerned with benefits already enjoyed at the time of the promulgation of the Labor Code and does not apply to situations arising afterward. Moreover, the Court emphasized that the right to free collective bargaining includes the right to suspend it, as illustrated in Rivera v. Espiritu.

PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF BENEFITS- Nothing in this Book shall be construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of the promulgation of this Code.

In Rivera v. Espiritu, the Court recognized that unions and employers could voluntarily agree to suspend CBAs in light of severe financial situations.

The right to free collective bargaining, after all, includes the right to suspend it.

The Court also addressed the argument that the MOA was invalid because it was not ratified by the general membership of the union, as required by DIHFEU-NFL’s Constitution and By-Laws. Despite this procedural lapse, the Court noted that the individual members of the union had signed contracts denominated as “Reconfirmation of Employment,” which incorporated the new salary and benefits scheme outlined in the MOA. This, the Court reasoned, constituted an implied ratification of the MOA. In Planters Products, Inc. v. NLRC, the Court had previously refrained from declaring a CBA invalid, even though it was not formally ratified, because the employees had enjoyed benefits under it. Similarly, in this case, the Court found it iniquitous for the union members to disclaim the validity of the MOA after signing new contracts that allowed the hotel to re-open and preserve their jobs.

Finally, the Court emphasized that Domy R. Rojas, the president of DIHFEU-NFL, was authorized to negotiate with the hotel and sign any documents to implement the agreement. A Board of Directors Resolution specifically authorized Rojas to negotiate with Waterfront Insular Hotel Davao and to work for the latter’s acceptance of the proposals contained in DIHFEU-NFL’s Manifesto. Therefore, the actions of Rojas were within his authority as union president, further supporting the validity of the MOA.

FAQs

What was the main issue in this case?	The main issue was whether a Memorandum of Agreement (MOA) between a financially distressed hotel and its union, which reduced employee benefits, was valid and enforceable.
Why did the hotel claim it needed to reduce employee benefits?	The hotel was facing severe financial losses and argued that reducing employee benefits was necessary to ensure its continued operation and prevent permanent closure.
Did the union agree to the reduction in benefits?	Yes, the union, through its representatives, voluntarily negotiated and agreed to the reduction in benefits as part of a MOA aimed at helping the hotel recover financially.
What is a Memorandum of Agreement (MOA) in this context?	In this case, a MOA is a formal agreement between the hotel and the union outlining the terms and conditions under which the hotel would resume operations, including reduced employee benefits.
What does the Labor Code say about reducing employee benefits?	Article 100 of the Labor Code prohibits the elimination or diminution of benefits already enjoyed at the time of the Code’s promulgation, but it does not prevent a union from voluntarily agreeing to reduce benefits in certain circumstances.
Was the MOA ratified by the union members?	Although the MOA was not formally ratified, the Supreme Court considered the individual “Reconfirmation of Employment” contracts signed by union members as an implied ratification.
What was the role of the National Federation of Labor (NFL) in this case?	The NFL, as the federation to which the local union was affiliated, initially attempted to file the complaint but was found to lack the authority to do so on behalf of the individual employees.
What was the final decision of the Supreme Court?	The Supreme Court upheld the validity of the MOA, ruling that the union could voluntarily agree to reduce benefits to help the financially distressed hotel continue its operations and preserve jobs.

The Supreme Court’s decision in this case provides valuable guidance on the balance between protecting labor rights and recognizing the economic realities faced by employers. It affirms that unions can make strategic decisions to concede certain benefits to ensure the long-term viability of the company and the continued employment of its members. The ruling emphasizes the importance of good-faith negotiations and the collective bargaining process in navigating such situations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Insular Hotel Employees Union-NFL vs. Waterfront Insular Hotel Davao, G.R. Nos. 174040-41, September 22, 2010