In BPI Employees Union-Davao City-FUBU v. Bank of the Philippine Islands, the Supreme Court addressed the legality of outsourcing certain bank functions to a subsidiary, specifically regarding its impact on union membership and collective bargaining agreements. The Court ruled in favor of the Bank of the Philippine Islands (BPI), affirming its management prerogative to outsource non-core banking functions, provided it does not violate employees’ rights to self-organization or the terms of existing collective bargaining agreements. This decision clarifies the extent to which companies can restructure operations without necessarily infringing on labor rights, emphasizing the importance of balancing business needs with contractual obligations and employee protections.

BPI’s Restructuring: Can Outsourcing Undermine Union Representation?

The case revolves around the Bank of the Philippine Islands (BPI) and its decision to outsource certain functions to BPI Operations Management Corporation (BOMC), a subsidiary. This move was challenged by the BPI Employees Union-Davao City-FUBU (Union), which argued that it violated the collective bargaining agreement (CBA) and undermined the employees’ right to self-organization. The Union contended that by transferring functions and employees to BOMC, BPI reduced the bargaining unit, thereby weakening the Union’s position and depriving former FEBTC employees of union membership following a merger.

BPI defended its actions by invoking its management prerogative to streamline operations and improve efficiency. The bank argued that outsourcing was a legitimate business decision authorized by Central Bank (now Bangko Sentral ng Pilipinas or BSP) Circular No. 1388, which allows banks to contract out certain services. BPI maintained that it acted in good faith, without any intention to undermine the Union or violate the employees’ rights. Furthermore, BPI asserted that the CBA recognized the bank’s exclusive right to manage its business, including hiring, promotions, transfers, and dismissals.

The central legal question was whether BPI’s outsourcing of functions to BOMC constituted unfair labor practice (ULP) and a violation of the CBA. The Union relied on the union shop agreement in the CBA, which required regular employees belonging to the bargaining unit, including those absorbed by way of the corporate merger, to join the bargaining union as a condition for employment. The Union cited the case of Shell Oil Workers’ Union v. Shell Company of the Philippines, Ltd., arguing that outsourcing positions in the existing bargaining unit is an unfair labor practice.

The Supreme Court distinguished the Shell Case and emphasized that under Article 261 of the Labor Code, only gross violations of the economic provisions of the CBA are treated as ULP; otherwise, they are mere grievances. The Court stated:

ART. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. – x x x Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

In this case, the alleged violation of the union shop agreement, even if malicious, did not involve an economic provision of the CBA. The Court also noted that the Union failed to consider the bank’s exclusive rights and prerogatives, as recognized in the CBA, which included the maintenance of order, discipline, and efficiency in its operations.

The Union’s argument that outsourcing reduced positions in the bargaining unit and interfered with the employees’ right to self-organization was also rejected by the Court. The Court found no evidence that employees were terminated or dismissed from service. It also held that the Union failed to prove that the transfer of twelve former FEBTC employees to BOMC was motivated by ill will, anti-unionism, or bad faith. The Court reasoned that contracting out services is not illegal per se and is an exercise of business judgment or management prerogative. Absent proof of malicious or arbitrary action, the Court will not interfere with the employer’s judgment.

The Supreme Court also addressed the applicability of Department Order (D.O.) No. 10, which the Union argued should govern the outsourcing arrangement. The Court clarified that there is no conflict between D.O. No. 10 and CBP Circular No. 1388, and that they complement each other. While the Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment relationship. The Court emphasized the importance of considering the specialized nature of the banking industry and the BSP’s competence in determining which banking functions may be outsourced.

Furthermore, the Court stated that the functions outsourced by BPI, such as cashiering, distribution, and bookkeeping, were ancillary to the business of banks and sanctioned by CBP Circular No. 1388. D.O. No. 10 serves as a guide to determine what functions may be contracted out, subject to the rules and established jurisprudence on legitimate job contracting. Citing Alviado v. Procter & Gamble Phils., Inc., the Court reiterated that it is management prerogative to farm out any of its activities, regardless of whether such activity is peripheral or core in nature, as long as it does not violate the employee’s right to security of tenure and payment of benefits. The outsourcing must also not fall under labor-only contracting.

The Supreme Court ultimately denied the petition, upholding the validity of BPI’s service agreement with BOMC and affirming the bank’s management prerogative to outsource non-core functions. This decision provides valuable guidance on the permissible scope of outsourcing in the banking industry and the importance of balancing business needs with employee rights and contractual obligations.

FAQs

What was the key issue in this case?	The key issue was whether BPI’s outsourcing of cashiering, distribution, and bookkeeping functions to BOMC constituted unfair labor practice and violated the collective bargaining agreement.
Did the Supreme Court rule in favor of the Union?	No, the Supreme Court ruled against the Union, upholding the validity of BPI’s outsourcing arrangement and affirming the bank’s management prerogative.
What is management prerogative?	Management prerogative refers to the inherent right of employers to manage and operate their businesses according to their best judgment, including decisions on outsourcing, restructuring, and other operational matters.
What is a union shop agreement?	A union shop agreement is a provision in a collective bargaining agreement that requires employees to join the union as a condition of continued employment.
What is unfair labor practice (ULP)?	Unfair labor practice refers to actions by employers or unions that violate employees’ rights to self-organization, collective bargaining, and other protected labor activities.
What is CBP Circular No. 1388?	CBP Circular No. 1388 is a circular issued by the Central Bank of the Philippines (now BSP) that allows banks to contract out certain services, such as data processing, deposit and withdrawal recording, and check-clearing processing.
What is Department Order (D.O.) No. 10?	Department Order No. 10 is an order issued by the Department of Labor and Employment (DOLE) that provides guidelines on permissible contracting or subcontracting activities.
Are there any limitations to outsourcing?	Yes, outsourcing must not violate employees’ rights to security of tenure and payment of benefits, and it must not fall under labor-only contracting, where the contractor merely supplies workers without substantial capital or control over their work.

The BPI Employees Union case underscores the delicate balance between management’s prerogative to make business decisions and the protection of employees’ rights under collective bargaining agreements and labor laws. While companies have the right to streamline operations and improve efficiency, they must do so in good faith and without undermining the employees’ right to self-organization or violating the terms of existing agreements. The decision serves as a reminder that outsourcing is permissible, but it must be conducted in a manner that respects the rights and interests of all stakeholders.

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: BPI Employees Union-Davao City-FUBU v. BPI, G.R. No. 174912, July 24, 2013