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SECOND DIVISION

BENSON INDUSTRIES G.R. No. 200746

EMPLOYEES UNION-ALU-
TUCP and/or VILMA GENON,
Present:
EDISA HORTELANO,
LOURDES ARANAS, TONY
FORMENTERA, RENEBOY CARPIO, J, Chairperson,
LEYSON, MA. ALONA BRION,
ACALDO, MA. CONCEPCION DEL CASTILLO,
ABAO, TERESITA PEREZ, and
CALINAWAN, NICIFORO PERLAS-BERNABE, JJ.
CABANSAG, STELLA
BARONGO, MARILYN
POTOT, WELMER ABANID,
LORENZO ALIA, LINO
PARADERO, DIOSDADO
ANDALES, LUCENA ABESIA,
and ARMANDO YBANEZ,
Petitioners,

-versus-

BENSON INDUSTRIES, INC., Promulgated:

Respondent. AUG 0 6 2014 )\( ;):,
x------------------------------------------------------------------------------------ ---

DECISION

PERLAS-BERNABE, J.:

1
Before the Court is a petition tor review on certiorari assailing the
2 3
Decision dated September 27, 2011 and the Resolution dated January 31,

Rollo, pp. 5-26.

!d. at 3 I -39. Penned by Associate Justice Gabriel T. Ingles, with Associate Justices Pampio A.
Abarintos and Eduardo B. Peralta, Jr., concurring.
Id. at 41-42.
Decision 1 G.R. No. 200746

2012 of the Court of Appeals (CA) in CA-G.R. SP No. 03842 which

reversed and set aside the Decision4 dated October 24, 2008 of the Voluntary
Arbitrator (VA) of the National Conciliation and Mediation Board (NCMB),
and accordingly deleted the award to petitioners Vilma Genon, Edisa
Hortelano, Lourdes Aranas, Tony Formentera, Reneboy Leyson, Ma. Alona
Acaldo, Ma. Concepcion Abao, Teresita Calinawan, Niciforo Cabansag,
Stella Barongo, Marilyn Potot, Welmer Abanid, Lorenzo Alia, Lino
Paradero, Diosdado Andales, Lucena Abesia, and Armando Ybañez
(petitioners) of additional separation pay equivalent to four (4) days of work
for every year of service.

The Facts

Respondent Benson Industries, Inc. (Benson) is a domestic

corporation engaged in the manufacturing of green coils with the brand
name Lion-Tiger Mosquito Killer. On February 12, 2008, Benson sent its
employees, including herein petitioners, a notice5 informing them of their
intended termination from employment, to be effected on March 15, 2008 on
the ground of closure and/or cessation of business operations. In
consequence, the majority of Benson’s employees resigned. 6 Meanwhile,
petitioners, through Benson Industries Employees Union-ALU-TUCP
(Union), filed a notice of strike, claiming that the company’s supposed
closure was merely a ploy to replace the union members with lower paid
workers, and, as a result, increase its profit at their expense.7 The strike did
not, however, push through due to the parties’ amicable settlement during
the conciliation proceedings before the NCMB, whereby petitioners
accepted Benson’s payment of separation pay, computed at 15 days for
every year of service, as per the parties’ Memorandum of Agreement8 dated
April 9, 2008.9

This notwithstanding, petitioners proffered a claim for the payment of

additional separation pay at the rate of four (4) days for every year of
service. As basis, petitioners invoked Section 1, Article VIII of the existing
collective bargaining agreement (CBA) executed by and between the Union
and Benson which states that “[Benson] shall pay to any employee/laborer
who is terminated from the service without any fault attributable to him, a
‘Separation Pay’ equivalent to not less than nineteen (19) days’ pay for
every year of service based upon the latest rate of pay of the
employee/laborer concerned.”10 Benson opposed petitioners’ claim, averring
that the separation pay already paid to them was already more than what the
law requires. Reaching an impasse on the conflict, the parties referred the

4
Id. at 253-260. Penned by Voluntary Arbitrator Manuel P. Legaspi.
5
Id. at 60-62.
6 See id. at 43-44.
7 See id. at 33 and 52.
8 Id. at 63.
9 See id. at 44.
10 Id. at 255.
Decision 2 G.R. No. 200746

issue to voluntary arbitration, wherein the validity of Benson’s closure was

brought up as well.11

The VA Ruling

In a Decision 12 dated October 24, 2008 (October 24, 2008 VA

Decision), the VA ruled in favor of petitioners, and, thus, ordered Benson to
pay each of them separation benefits in “an amount equivalent to four (4)
days for every year of service based on the latest rate of pay of the
[individual petitioner] concerned subject to whatever legally valid
deductions chargeable against [said individual petitioner] whenever
applicable.”13

The VA ratiocinated that in computing the amount of separation

benefits due to petitioners, the basis should be the provision of the existing
CBA between Benson and the Union which explicitly states that should the
employees be terminated through no fault of their own, they should be
awarded separation benefits at the rate of 19 days for every year of service.
In this regard, the VA opined that the provisions of the CBA should be given
effect because it expresses the latest agreement of the union and the
company, not to mention the fact that it gives more benefits to the
employees.14

Separately, the VA found adequate proof to support Benson’s position

that it was indeed in a state of insolvency, which, therefore, justified its
closure and/or cessation of business operations on the ground of serious
business losses and/or financial reverses.15

Dissatisfied, Benson elevated the matter on appeal before the CA.

The CA Ruling

In a Decision16 dated September 27, 2011, the CA reversed and set

aside the VA’s ruling, and accordingly deleted the award of additional
separation benefits equivalent to four (4) days of work for every year of
service. It held that despite the express provision in the CBA stating that
Benson should pay its employees who were terminated without their fault
separation benefits equivalent to at least 19 days’ pay for every year of

11 See id. at 254-255.

12
Id. at 253-260.
13 Id. at 50.
14 Id. at 255.
15 See id. at 255-260.
16
Id. at 31-39.
Decision 3 G.R. No. 200746

service, Benson cannot be compelled to do so considering its current

financial status.17

Aggrieved, petitioners moved for reconsideration, which was,

however, denied by the CA in a Resolution18 dated January 31, 2012, hence,
this petition.

The Issue Before the Court

The sole issue for the Court’s resolution is whether or not the CA
correctly deleted the award to petitioners of additional separation benefits
equivalent to four (4) days of work for every year of service.

The Court’s Ruling

The petition is impressed with

merit.

Closure of business may be considered as a reversal of an employer’s

fortune whereby there is a complete cessation of business operations and/or
an actual locking-up of the doors of the establishment, usually due to
financial losses. Under the Labor Code, it is treated as an authorized cause
for termination, aimed at preventing further financial drain upon an
employer who cannot anymore pay its employees since business has already
stopped. As a form of recompense, the employer is required to pay its
employees separation benefits, except when the closure is due to serious
business losses.19 Article 297 (formerly Article 283)20 of the Labor Code, as
amended, states this rule:

Art. 297. Closure of Establishment and Reduction of Personnel. The

employer may also terminate the employment of any employee due to the
installation of labor-saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or
undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, x x x. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses,
the separation pay shall be equivalent to one (1) month pay or at least
one-half (½) month pay for every year of service, whichever is higher.
A fraction of at least six (6) months shall be considered one (1) whole
year. (Emphasis and underscoring supplied)

17
See id. at 35-38.
18
Id. at 41-42.
19 See Sangwoo Philippines, Inc. v. Sangwoo Philippines, Inc. Employees Union – Olalia, G.R. No.
173154 and G.R. No. 173229, December 9, 2013; citations omitted.
20 As amended and renumbered by Republic Act No. 10151, entitled “AN ACT ALLOWING THE
EMPLOYMENT OF NIGHT WORKERS, THEREBY REPEALING ARTICLES 130 AND 131 OF PRESIDENTIAL
DECREE NUMBER FOUR HUNDRED FORTY-TWO, AS AMENDED, OTHERWISE KNOWN AS THE LABOR
CODE OF THE PHILIPPINES.”
Decision 4 G.R. No. 200746

While serious business losses generally exempt the employer from

paying separation benefits, it must be pointed that the exemption only
pertains to the obligation of the employer under Article 297 of the Labor
Code. This is because of the law’s express parameter that mandates payment
of separation benefits “in case of closures or cessation of operations of
establishment or undertaking not due to serious business losses or
financial reverses.” The policy distinction underlying Article 297 – that is,
the distinction between closures due to serious business losses and those
which are not – was deftly discussed by the Court in the case of Cama v.
Joni’s Food Services, Inc.,21 as follows:

The Constitution, while affording full protection to labor,

nonetheless, recognizes “the right of enterprises to reasonable returns on
investments, and to expansion and growth.” In line with this protection
afforded to business by the fundamental law, Article 283 [(now, Article
297)] of the Labor Code clearly makes a policy distinction. It is only in
instances of “retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses” that employees whose
employment has been terminated as a result are entitled to separation
pay. In other words, Article 283 [(now, Article 297)] of the Labor Code
does not obligate an employer to pay separation benefits when the closure
is due to serious losses. To require an employer to be generous when it is
no longer in a position to do so, in our view, would be unduly oppressive,
unjust, and unfair to the employer. Ours is a system of laws, and the law
in protecting the rights of the working man, authorizes neither the
oppression nor the self-destruction of the employer. x x x.22 (Emphasis
supplied)

When the obligation to pay separation benefits, however, is not

sourced from law (particularly, Article 297 of the Labor Code), but from
contract,23 such as an existing collective bargaining agreement between the
employer and its employees, an examination of the latter’s provisions
becomes necessary in order to determine the governing parameters for the
said obligation. To reiterate, an employer which closes shop due to serious
business losses is exempt from paying separation benefits under Article 297
of the Labor Code for the reason that the said provision explicitly requires
the same only when the closure is not due to serious business losses;
conversely, the obligation is maintained when the employer’s closure is not
due to serious business losses. For a similar exemption to obtain against a
contract, such as a CBA, the tenor of the parties’ agreement ought to be
similar to the law’s tenor. When the parties, however, agree to deviate
therefrom, and unqualifiedly covenant the payment of separation benefits
21
469 Phil. 223 (2004).
22
Id. at 235-236.
23 Article 1157 of the Civil Code provides:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (Emphases supplied)
Decision 5 G.R. No. 200746

irrespective of the employer’s financial position, then the obligatory force of

that contract prevails and its terms should be carried out to its full effect.
Verily, it is fundamental that obligations arising from contracts have the
force of law between the contracting parties and thus should be complied
with in good faith;24 and parties are bound by the stipulations, clauses, terms
and conditions they have agreed to, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to law, morals,
public order or public policy.25 Hence, if the terms of a CBA are clear and
there is no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations shall prevail.26 As enunciated in Honda Phils.,
Inc. v. Samahan ng Malayang Manggagawa sa Honda:27

A collective bargaining agreement 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.28

In this case, it is undisputed that a CBA was forged by the employer,

Benson, and its employees, through the Union, to govern their relations
effective July 1, 2005 to June 30, 2010. It is equally undisputed that Benson
agreed to and was thus obligated under the CBA to pay its employees who
had been terminated without any fault attributable to them separation
benefits at the rate of 19 days for every year of service. This is particularly
found in Section 1, Article VIII of the same contract, to wit:

Section 1. Separation Pay – The Company shall pay to any

employee/laborer who is terminated from the service without any fault
attributable to him, a “Separation Pay” equivalent to not less than nineteen
(19) days’ pay for every year of service based upon the latest rate of pay
of the employee/laborer concerned.29

As may be gleaned from the following whereas clauses in a

Memorandum of Agreement 30 dated November 20, 2003 between the
parties, Benson had been fully aware of its distressed financial condition
even at the time of the previous CBA (effective from July 1, 2000 to June
30, 2005):

24 Prisma Construction & Development Corporation v. Menchavez, G.R. No. 160545, March 9, 2010,
614 SCRA 590, 597.
25 Id. at 601.
26 Supreme Steel Corporation v. Nagkakaisang Manggagawa Ng Supreme Independent Union (NMS-
IND-APL), G.R. No. 185556, March 28, 2011, 646 SCRA 501, 521.
27
G.R. No. 145561, June 15, 2005, 460 SCRA 186.
28
Id. at 190-191.
29
Rollo, p. 255.
30
Id. at 415-418.
Decision 6 G.R. No. 200746

WHEREAS, on February 01, 2001 the Company and the Union entered
into a Collective Bargaining Agreement (CBA) with effectivity
from July 01, 2000 to June 30, 2005;

xxxx

WHEREAS, the Company and the Union recognize that the

Philippines is at present in grave economic crisis;

WHEREAS, the Union recognizes and acknowledges that the

Company in particular is in grave financial difficulties and
that the Company is hard up to meet its financial obligations to
creditor banks that said creditor banks have even threatened to
foreclose the mortgages on and to seize the Company’s factory,
realties, machineries and assets and in fact, the Bank of the
Philippine Islands, one of the creditor banks scheduled on
November 17, 1998 a foreclosure sale of the Company’s factory,
realties, machineries and assets in Extrajudicial Foreclosure Case
No. EJF-2773-CEB;

x x x x (Emphases supplied)

Benson even admits in its Comment that it was already saddled with
loan from banks as early as 199731 and that it had been unable to service its
loan obligations.32 And yet, nothing appears on record to discount the fact
that it still unqualifiedly and freely agreed to the separation pay provision in
the July 1, 2005 to June 30, 2010 CBA, its distressed financial condition
notwithstanding.

Thus, in view of the foregoing, the Court disagrees with the CA in

negating Benson’s obligation to pay petitioners their full separation benefits
under the said agreement. The postulation that Benson had closed its
establishment and ceased operations due to serious business losses cannot be
accepted as an excuse to clear itself of any liability since the ground of
serious business losses is not, unlike Article 297 of the Labor Code,
considered as an exculpatory parameter under the aforementioned CBA.
Clearly, Benson, with full knowledge of its financial situation, freely and
voluntarily entered into such agreement with petitioners. Hence, having
failed to show that the subject CBA provision on separation benefits is
contrary to law, morals, public order or public policy, or that the same can
be interpreted as one with a condition – for instance, that the parties actually
contemplated non-payment of separation benefits in the event of closure due
to serious business losses – the Court is constrained to reinstate the October
24, 2008 VA Decision ordering Benson to pay each of the petitioners
separation benefits in “an amount equivalent to four (4) days for every year
of service based on the latest rate of pay of the [individual petitioner]

31
Id. at 455.
32
Id.
Decision 7 G.R. No. 200746

concerned, subject to whatever legally valid deductions chargeable against

[said individual petitioner], whenever applicable.”33

Analogous to the foregoing is the Court’s disquisition in Lepanto

Ceramics, Inc. v. Lepanto Ceramics Employees Association,34 whereby the
employer therein was held liable for the payment of Christmas bonus
benefits, considering that the grant thereof was voluntarily and unqualifiedly
agreed upon by the parties under the CBA despite the employer’s full
awareness of its distressed financial position (as Benson in this case), viz.:

It is a 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. This principle stands strong and true in the case at bar.

A reading of the provision of the CBA reveals that the same

provides for the giving of a “Christmas gift package/bonus” without
qualification. Terse and clear, the said provision did not state that the
Christmas package shall be made to depend on the petitioner’s financial
standing. The records are also bereft of any showing that the petitioner
made it clear during the CBA negotiations that the bonus was
dependent on any condition. Indeed, if the petitioner and respondent
Association intended that the 3,000.00 bonus would be dependent on
the company earnings, such intention should have been expressed in
the CBA.

It is noteworthy that in petitioner’s 1998 and 1999 financial

Statements, it took note that “the 1997 financial crisis in the Asian region
adversely affected the Philippine economy.”

From the foregoing, petitioner cannot insist on business losses as a

basis for disregarding its undertaking. It is manifestly clear that
petitioner was very much aware of the imminence and possibility of
business losses owing to the 1997 financial crisis. In 1998, petitioner
suffered a net loss of 14,347,548.00. Yet it gave a 3,000.00 bonus to
the members of the Association. In 1999, when petitioner’s very own
financial statement reflected that “the positive developments in the
economy have yet to favorably affect the operations of the company,” and
reported a loss of 346,025,733.00, it entered into the CBA with the
respondent Association whereby it contracted to grant a Christmas gift
package/bonus to the latter. Petitioner supposedly continued to incur
losses on the years 2000 and 2001. Still and all, this did not deter it
from honoring the CBA provision on Christmas bonus as it continued
to give 3,000.00 each to the members of the respondent
Association in the years 1999, 2000 and 2001.

All given, business losses are a feeble ground for petitioner to

repudiate its obligation under the CBA. The rule is settled that any
benefit and supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the employer. The
principle of non-diminution of benefits is founded on the constitutional

33
Id. at 260.
34
G.R. No. 180866, March 2, 2010, 614 SCRA 63.
Decision 8 G.R. No. 200746

mandate to protect the rights of workers and to promote their welfare and
to afford labor full protection.

Hence, absent any proof that petitioner’s consent was vitiated by

fraud, mistake or duress, it is presumed that it entered into the CBA
voluntarily and had full knowledge of the contents thereof and was aware
of its commitments under the contract. 35 (Emphases and underscoring
supplied; citations omitted)

A similar disposition was also made in the case of Eastern

Telecommunications Philippines, Inc. v. Eastern Telecoms Employees
Union,36 wherein the Court held as follows:

The parties to the contract must be presumed to have assumed the

risks of unfavorable developments. It is, therefore, only in absolutely
exceptional changes of circumstances that equity demands assistance for
the debtor. In the case at bench, the Court determines that ETPI’s claimed
depressed financial state will not release it from the binding effect of the
2001-2004 CBA Side Agreement.

ETPI appears to be well aware of its deteriorating financial

condition when it entered into the 2001-2004 CBA Side Agreement with
ETEU and obliged itself to pay bonuses to the members of ETEU.
Considering that ETPI had been continuously suffering huge losses from
2000 to 2002, its business losses in the year 2003 were not exactly
unforeseen or unexpected. Consequently, it cannot be said that the
difficulty in complying with its obligation under the Side Agreement was
“manifestly beyond the contemplation of the parties.” Besides, as held
in Central Bank of the Philippines v. Court of Appeals, mere pecuniary
inability to fulfill an engagement does not discharge a contractual
obligation. Contracts, once perfected, are binding between the contracting
parties. Obligations arising therefrom have the force of law and should be
complied with in good faith. ETPI cannot renege from the obligation it
has freely assumed when it signed the 2001-2004 CBA Side
Agreement.37 (Emphases and underscoring supplied; citations omitted)

To quell any doubts, it bears pointing out that the CA’s reliance on
Galaxie Steel Workers Union (GSWU-NAFLU-KMU) v. NLRC38 and Cama
v. Joni’s Food Services, Inc.39 was actually misplaced since no CBA was
involved in those cases. As such, consistent with the parameters of Article
297 of the Labor Code as above-discussed, the payment of separation
benefits in view of the employer’s serious business losses in those cases was
not in order. In the same light, North Davao Mining Corporation v. NLRC40
was speciously applied by the CA given that the payment of separation
benefits in that case was not sourced from a contractual CBA obligation but
merely from a unilateral company practice which was deemed as an act of

35
Id. at 73-74.
36
G.R. No. 185665, February 8, 2012, 665 SCRA 516.
37
Id. at 531-532.
38
535 Phil. 675 (2006).
39
Supra note 21.
40
G.R. No. 112546, March 13, 1996, 254 SCRA 721.
Decision 10 G.R. No. 200746

generosity on the part. of the employer. It was in this context that the Court
held that "to require [the company] to continue being generous when it is no
longer in a position to do so would certainly be unduly oppressive, unfair
41
and most revolting to the conscience." The factual dissimilarity of these
cases to Benson and petitioners' situation therefore precludes the application
of the same
ruling.

Accordingly, finding no cogent reason for Benson not to comply with

its obligations under the July 1, 2005 to June 30, 2010 CBA, and considering
further that the interpretation of any law or provision affecting labor should
42
be interpreted in favor oflabor, the Court hereby reverses theCA Decision
and reinstates the October 24, 2008 VA Decision.

WHEREFORE, the petition is GRANTED. The Decision dated

September 27, 2011 and the Resolution dated January 31, 2012 of the Court
of Appeals in CA-G.R. SP No. 03842 are hereby REVERSED and SET
ASIDE. The Decision dated October 24, 2008 of the Voluntary Arbitrator of
the National Conciliation and Mediation Board is REINSTATED.

SO
ORDERED.
JA{J, itLM/
ESTELA M.jERLAS-BERNABE
Associate Justice

WE CONCUR:

Associate Justice
Chairperson

QIU4U[J,
ARTURO D. BRION MARIANO C. DEL CASTILLO
Associate Justice Associate Justice

JOS REZ

41
ld. at 730.
42
LABOR CODE, Article 4.
Decision 11 G.R. No. 200746

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the

Division Chairperson's Attestation, I certifY that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice