ASG Law

Tag: RA 10149

  • Navigating the Legal Status of Government-Owned Corporations and Employee Benefits in the Philippines

    Understanding the Classification of Government-Owned Corporations and Its Impact on Employee Benefits

    Philippine National Construction Corporation v. National Labor Relations Commission, G.R. No. 248401, June 23, 2021

    Imagine a scenario where employees of a company, which they believed to be a private entity, suddenly find themselves entangled in a legal battle over their mid-year bonuses. This is the reality faced by the employees of the Philippine National Construction Corporation (PNCC), a case that sheds light on the complex interplay between corporate status and labor rights in the Philippines.

    In the heart of this legal dispute lies the fundamental question: Is PNCC a private corporation or a government-owned and controlled corporation (GOCC)? The answer to this question not only determined the legal framework governing PNCC but also had significant implications for its employees’ rights to their mid-year bonuses.

    Legal Context: Defining Government-Owned Corporations and Labor Rights

    Under Philippine law, the distinction between private corporations and GOCCs is crucial, as it dictates the applicable legal framework. A GOCC is defined by Republic Act No. 10149 as an agency organized as a stock or non-stock corporation, vested with functions relating to public needs, and owned by the government directly or through its instrumentalities. This classification impacts the rights and benefits of employees, as well as the regulatory oversight to which the corporation is subject.

    The Labor Code of the Philippines governs private corporations, ensuring employees’ rights to certain benefits, including the non-diminution of benefits under Article 100. Conversely, employees of GOCCs with original charters fall under the Civil Service Law, while those of non-chartered GOCCs are covered by the Labor Code. This dual framework often leads to confusion and disputes, as seen in the PNCC case.

    Key provisions of RA 10149 state that all GOCCs are subject to the National Position Classification and Compensation Plan approved by the President. This means that any benefits, including bonuses, must align with these standards and require presidential approval for implementation.

    Case Breakdown: The Journey of PNCC’s Legal Status

    Originally incorporated as the Construction Development Corporation of the Philippines (CDCP) under the Corporation Code, PNCC’s journey to its current status began with significant government intervention. In 1983, President Marcos issued Letter of Instruction No. 1295, converting CDCP’s debts to government financial institutions into shares, making the government a majority shareholder.

    Despite this, PNCC continued to operate as a private corporation until a series of legal challenges questioned its status. The case reached the Supreme Court, where PNCC argued that it should be classified as a GOCC, thus exempting it from certain labor laws. The Court, however, had to navigate through decades of legal precedents and legislative changes to determine PNCC’s true status.

    The Court’s decision hinged on several key points:

    • PNCC’s incorporation under the Corporation Code initially suggested a private corporation status.
    • Subsequent government ownership and control, including placement under the Department of Trade and Industry, indicated a shift towards GOCC status.
    • The Court cited Strategic Alliance v. Radstock Securities, affirming PNCC as a non-chartered GOCC.

    Justice Lazaro-Javier emphasized, “The PNCC is not ‘just like any other private corporation precisely because it is not a private corporation’ but indisputably a government-owned corporation.” This ruling clarified PNCC’s status but also highlighted the complexities of applying labor laws to such entities.

    The Court further ruled that while PNCC is a GOCC, it remains governed by the Labor Code due to its non-chartered status. However, the enactment of RA 10149 in 2011 introduced new requirements for granting employee benefits, necessitating presidential approval for bonuses like the mid-year bonus in question.

    Practical Implications: Navigating Corporate Status and Employee Benefits

    The PNCC ruling has far-reaching implications for similar corporations and their employees. It underscores the importance of understanding a corporation’s legal status and the applicable laws governing employee benefits. For businesses, especially those with government ties, it is crucial to align compensation practices with the National Position Classification and Compensation Plan.

    Employees of GOCCs must be aware that their benefits are subject to governmental oversight and may require presidential approval. This case serves as a reminder of the potential for changes in corporate status to impact long-standing benefits, highlighting the need for vigilance and legal awareness.

    Key Lessons:

    • Understand the legal status of your employer, as it can affect your rights and benefits.
    • Stay informed about changes in legislation that may impact your compensation.
    • Engage with labor unions or legal counsel to advocate for your rights effectively.

    Frequently Asked Questions

    What is a government-owned and controlled corporation (GOCC)?

    A GOCC is an agency organized as a corporation, owned by the government, and tasked with functions related to public needs. They can be chartered or non-chartered, affecting the legal framework governing their operations and employee rights.

    How does the legal status of a corporation affect employee benefits?

    The legal status determines whether the Labor Code or Civil Service Law applies. Non-chartered GOCCs like PNCC are covered by the Labor Code, but benefits must align with government compensation standards and may require presidential approval.

    Can a company stop giving a benefit it has provided for years?

    Yes, if the company is a GOCC and the benefit is not mandated by law or contract, it may cease providing it if it does not align with government compensation standards or lacks presidential approval.

    What should employees do if their benefits are affected by changes in corporate status?

    Employees should seek legal advice to understand their rights under the new corporate status and engage with unions to negotiate or advocate for their benefits.

    How can a business ensure compliance with RA 10149?

    Businesses should review their compensation practices to ensure alignment with the National Position Classification and Compensation Plan and seek approval for any benefits that require it.

    ASG Law specializes in labor and employment law in the Philippines. Contact us or email hello@asglawpartners.com to schedule a consultation.

  • Moratorium on Salary Increases: Limits on GOCC Board Authority

    The Supreme Court has affirmed that government-owned and controlled corporations (GOCCs) cannot grant salary increases to their employees if a moratorium on such increases is in effect, even if the GOCC’s board of directors has the authority to set compensation. In Small Business Corporation vs. Commission on Audit, the Court ruled that Executive Order No. 7, which imposed a moratorium on salary increases, took precedence over the Small Business Corporation’s (SB Corp.) board’s authority to determine its employees’ compensation. This decision underscores the limits of GOCC autonomy in the face of executive orders designed to ensure fiscal prudence.

    SB Corp.’s Quest for Merit Increases: When Presidential Moratoriums Override Board Discretion

    This case revolves around the Small Business Corporation (SB Corp.), a government-owned and controlled corporation, and its attempt to grant merit increases to five of its officers. SB Corp. argued that its Board of Directors (BOD) had the authority to set the compensation of its employees, as provided in its charter. However, the Commission on Audit (COA) disallowed the merit increases, citing Executive Order No. 7 (EO No. 7), which imposed a moratorium on increases in salaries, allowances, incentives, and other benefits for GOCCs. The central question is whether EO No. 7 overrides the authority of SB Corp.’s BOD to grant merit increases.

    SB Corp. was created under Republic Act (RA) No. 6977, as amended by RA No. 8289, and further amended by RA No. 9501, known as the Magna Carta for Micro, Small and Medium Enterprises (MSMEs). Section 14(f) of RA No. 9501 states:

    “Notwithstanding the provisions of Republic Act. No. 6758 and Compensation Circular No. 10, Series of 1989 issued by the Department of Budget and Management, the Board shall have the authority to provide for the organizational structure, staffing pattern of SB Corporation and extend to the employees and personnel thereof salaries, allowances, and fringe benefits similar to those extended to and currently enjoyed by employees and personnel of other government financial institutions.”

    SB Corp. argued that this provision granted its BOD the authority to set its employees’ compensation, regardless of other laws or regulations. However, in September 2010, President Benigno S. Aquino III issued EO No. 7, which imposed a moratorium on increases in salaries, allowances, and other benefits for GOCC officers and employees. Section 9 of EO No. 7 states:

    “SECTION 9. Moratorium on Increases in Salaries, Allowances, Incentives, and Other Benefits Moratorium on increases in the rates of salaries, and the grant of new increases in the rates of allowances, incentives, and other benefits, except salary adjustments pursuant to Executive Order No. 811 dated June 17, 2009 and Executive Order No. 900 dated June 23, 2010 are hereby imposed until specifically authorized by the President.”

    The COA argued that EO No. 7 applied to SB Corp. and that the merit increases granted to the five officers were therefore disallowed. SB Corp., however, contended that EO No. 7 should not apply retroactively and that its BOD had the authority to grant the merit increases. Furthermore, they argued that by requesting GCG approval, they did not acknowledge GCG’s authority over SB Corp.

    The Supreme Court disagreed with SB Corp.’s arguments. The Court held that EO No. 7 was applicable to the grant of merit increases because the moratorium was already in effect when the increases were granted in April 2013. The court reasoned that a merit increase constitutes an “increase in the rates of salaries,” which is expressly prohibited by EO No. 7. The Court further emphasized that the moratorium’s intent was to curb excessive compensation in GOCCs and GFIs.

    Building on this principle, the Court clarified that EO No. 7 did not apply retroactively because the merit increases were granted after the issuance of the EO. The Court stated:

    “There is no question that EO No. 7 does not provide for any retroactive application. However, petitioner’s interpretation of which acts are prohibited by the moratorium runs contrary to the plain wording of EO No. 7 when it imposed the moratorium on “increases in the rates of salaries, and the grant of new increases in the rates of allowances, incentives and other benefits.” The E.O. did not prohibit merely the grant of increased salary rates in corporate salary structures; it also intended to halt the actual giving of increased salary rates.”

    This approach contrasts with SB Corp.’s argument that the salary structure was already in place before EO No. 7. The Court found that the operative act was the actual grant of the increase, not the existence of the salary structure. The Court further held that SB Corp. recognized the Governance Commission for GOCCs’ (GCG) jurisdiction over it when it sought confirmation from the GCG to proceed with the merit increase program. The court cited SB Corp.’s letter stating they “look up to GCG as the proper authority to confirm our request prior to implementation”. This letter was interpreted as an acknowledgment that SB Corp. needed GCG approval.

    The Supreme Court emphasized the powers and functions of the GCG as outlined in RA No. 10149, the GOCC Governance Act of 2011. Section 5 of RA No. 10149 provides that the GCG has the authority to:

    “(h) Conduct compensation studies, develop and recommend to the President a competitive compensation and remuneration system which shall attract and retain talent, at the same time allowing the GOCC to be financially sound and sustainable… (j) Coordinate and monitor the operations of GOCCs, ensuring alignment and consistency with the national development policies and programs.”

    Therefore, the Supreme Court ultimately ruled that the COA did not commit grave abuse of discretion in disallowing the merit increases. The Court held that EO No. 7 was applicable, that it was not applied retroactively, and that SB Corp. was within the jurisdiction of the GCG. The petition was denied.

    FAQs

    What was the key issue in this case? The key issue was whether Executive Order No. 7, which imposed a moratorium on salary increases for GOCCs, overrides the authority of the Small Business Corporation’s (SB Corp.) Board of Directors to grant merit increases to its employees.
    What is a government-owned and controlled corporation (GOCC)? A GOCC is a corporation that is owned or controlled by the government. These corporations are typically established to provide essential services or to engage in activities that are important to the national economy.
    What is the significance of Executive Order No. 7? Executive Order No. 7 imposed a moratorium on increases in salaries, allowances, incentives, and other benefits for GOCC officers and employees. This EO aimed to promote transparency, accountability, and prudence in government spending.
    Did the court find that SB Corp. was subject to EO No. 7? Yes, the court found that SB Corp. was subject to EO No. 7, as the EO applied to all GOCCs unless specifically exempted. SB Corp. was not exempt from the coverage of EO No. 7.
    Why did the COA disallow the merit increases? The COA disallowed the merit increases because they were granted during the period when EO No. 7’s moratorium was in effect. The COA determined that the increases violated the EO’s prohibition on salary increases.
    Did SB Corp.’s request for GCG confirmation affect the court’s decision? Yes, the court considered SB Corp.’s request for confirmation from the GCG as an acknowledgment that SB Corp. needed GCG approval. This request undermined SB Corp.’s argument that it had the sole authority to grant the merit increases.
    What is the role of the Governance Commission for GOCCs (GCG)? The GCG is the central advisory, monitoring, and oversight body for GOCCs. It has the authority to formulate, implement, and coordinate policies concerning GOCCs, including their compensation and remuneration systems.
    What was SB Corp.’s main argument in challenging the disallowance? SB Corp.’s main argument was that its Board of Directors had the authority to set employee compensation and that EO No. 7 should not be applied retroactively. However, the court rejected both of these arguments.

    This case clarifies the limits of a GOCC’s autonomy when executive orders are in place to regulate fiscal matters. Even when a GOCC’s board has the power to determine compensation, that power is not absolute and can be restricted by presidential directives aimed at ensuring responsible government spending.

    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: SMALL BUSINESS CORPORATION, PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT., G.R. No. 230628, October 03, 2017