BPI EMPLOYEES UNION-DAVAO CITY-FUBU (BPIEU-DAVAO CITY-FUBU), PETITIONER, VS. BANK OF THE PHILIPPINE ISLANDS (BPI), AND BPI OFFICERS CLARO M. REYES, CECIL CONANAN AND GEMMA VELEZ…

BPI Employees Union-Davao City-FUBU versus Bank of the Philippine Islands

The Case

This is a labor case in which the rank-and-file bargaining union of the Bank of the Philippine Islands in Davao City challenged the bank's decision to contract out certain functions to its own subsidiary, BPI Operations Management Corporation, and to transfer twelve former employees of the Far East Bank and Trust Company to that subsidiary rather than absorb them into the bank after the corporate merger. The Union alleged unfair labor practice, violation of the duty to bargain, and union busting. The case matters because it is the Court's cleanest statement that contracting out is not illegal per se, that it is an exercise of business judgment, and that a violation of a union shop clause is a mere grievance and not an unfair labor practice unless it is a gross violation of an economic provision of the collective bargaining agreement.

Procedural History

The Union filed a notice of strike before the National Conciliation and Mediation Board. The bank then asked the Secretary of Labor and Employment to assume jurisdiction, and the Secretary certified the labor dispute to the National Labor Relations Commission for compulsory arbitration. The Labor Commission upheld the validity of the service agreement and dismissed the charge of unfair labor practice. After its motion for reconsideration was denied, the Union went up to the Court of Appeals by a petition for certiorari under Rule 65. The Court of Appeals affirmed the Commission, with the modification that the enumeration of functions listed under the Central Bank circular be deleted from the resolution. It held that the petition raised factual matters, that the findings were supported by substantial evidence, and that no grave abuse of discretion was shown. The Union's motion for reconsideration was denied. The Union then filed with the Supreme Court a petition for review on certiorari under Rule 45.

Facts

BPI Operations Management Corporation was created pursuant to Central Bank Circular Number 1388, Series of 1993, and is a subsidiary of the bank operating as an entirely separate and distinct entity. A service agreement between the bank and the corporation was first implemented in the Metro Manila branches, covering check clearing, delivery of bank statements, fund transfers, card production, operations accounting and control, and cash servicing. No bank employee was displaced, and those performing the transferred functions were given other assignments. The Manila chapter of the union filed an unfair labor practice complaint, but the Labor Commission reversed the Labor Arbiter and the Court of Appeals denied the union's petition, holding that the bank acted in pursuit of its legitimate business.

On January 1, 1996, the service agreement was implemented in Davao City. A merger between the bank and the Far East Bank and Trust Company took effect on April 10, 2000, with the bank as the surviving corporation. Thereafter the bank's cashiering function and the merged bank's cashiering, distribution and bookkeeping functions were handled by the corporation, and twelve former employees of the merged bank were transferred to the corporation to complete its service complement.

The Union objected, contending that the functions rightfully belonged to its members and that it was deprived of the membership of the former employees who, by the merger, would have formed part of its bargaining unit under the union shop provision. It filed a formal protest and asked that the matter be submitted to the grievance procedure, but the bank did not consider it grievable and proposed a Labor Management Conference instead. When that failed, the Union filed the notice of strike.

Issues

• Whether or not the bank's act of contracting out the cashiering, distribution and bookkeeping functions to its subsidiary, and of transferring the twelve former employees of the merged bank to that subsidiary instead of absorbing them, is in conformity with the law and the existing collective bargaining agreement.
• Whether or not the alleged violation of the union shop clause is an unfair labor practice, or a mere grievance under the collective bargaining agreement.
• Whether or not Department Order Number 10, Series of 1997, applies, and whether it conflicts with Central Bank Circular Number 1388, Series of 1993.

Applicable Provisions

Article 261 of the Labor Code, as quoted in the decision, provides:

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.

This is the provision that decides the unfair labor practice charge, because it confines unfair labor practice to gross violations of the economic provisions of the agreement.

Ruling

On the first issue, the Court held that the contracting out was valid. Contracting out of services is not illegal per se; it is an exercise of business judgment or management prerogative, and absent proof that management acted in a malicious or arbitrary manner, the Court will not interfere. Bad faith could not be attributed to the bank because its actions were authorized by Central Bank Circular Number 1388, Series of 1993. The functions outsourced, namely cashiering, distribution and bookkeeping, were not inherent banking functions but ancillary ones, since banks perform only two main functions, deposit and loan. The Court also found that no employee was transferred or dismissed, no salary or benefit was diminished, and the Union failed to prove that the transfer of the twelve former employees was motivated by ill will, anti-unionism or bad faith.

On the second issue, the Court held that the Union's reliance on the Shell case was misplaced. Under Article 261, only gross violations of the economic provisions of the collective bargaining agreement are treated as unfair labor practice; otherwise they are mere grievances. The provisions the Union invoked were those on recognition as sole bargaining representative and on union security, not economic provisions. The Court also held that the reduction of positions in the bargaining unit did not interfere with the right to self-organization, since the employees themselves were neither transferred nor dismissed, and the Union's representation of prospective members was contingent on their own choice to join.

On the third issue, the Court held that there is no conflict between Department Order Number 10 and the Central Bank circular; they complement each other. The competence to determine which banking functions may be outsourced lies with the Bangko Sentral ng Pilipinas, but banks cannot outsource allowed functions without regard to the guidelines of the Department of Labor and Employment. Even considering Department Order Number 10 alone, the bank would still be within its bounds, because the subject functions were not related or integral to the main business of the principal.

Doctrine

Contracting out of services is not illegal per se; it is an exercise of business judgment or management prerogative, and the Court will not interfere absent proof of malice or arbitrariness. A violation of a collective bargaining agreement is no longer treated as unfair labor practice unless it is a gross violation, meaning a flagrant or malicious refusal to comply with the economic provisions of the agreement; all other violations are mere grievances. The reduction of positions in a bargaining unit does not by itself interfere with the right to self-organization where no employee is transferred or dismissed and no benefit is diminished. Finally, Department Order Number 10 and the circulars of the Bangko Sentral ng Pilipinas are harmonized, not conflicting: the central bank determines which banking functions may be outsourced, subject to the labor department's guidelines.

Disposition

The petition was denied, and the decision of the Court of Appeals was affirmed; the bank won.

Remember This

Memorize this line: only gross violations of the economic provisions of a collective bargaining agreement are unfair labor practice; everything else is a grievance. Examiners use this case to test contracting out as management prerogative, the grievance versus unfair labor practice distinction under Article 261, and the harmonization of labor and banking regulations.