G.R. No.

85985 August 13, 1993

PHILIPPINE AIRLINES, INC. (PAL), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA and PHILIPPINE AIRLINES
EMPLOYEES ASSOCIATION (PALEA), respondents.

Ponente: MELO, J.

Facts:

On March 15, 1985, the Philippine Airlines, Inc. (PAL) completely revised its 1966 Code of Discipline. The Code was
circulated among the employees and was immediately implemented, and some employees were forthwith subjected
to the disciplinary measures embodied therein.

Thus, on August 20, 1995, the Philippine Airlines Employees Association(PALEA) filed a complaint before NLRC for
unfair labor practice, specifically Paragraphs E and G of Article 249 and Article 253 of the Labor Code, for arbitrary
implementation of PAL’s Code of Discipline without notice and prior discussion with Union by Management. PALEA
contended that being penal in nature, it must conform with the requirements of sufficient publication, and that the
Code was arbitrary, oppressive, and prejudicial to the rights of the employees.

PAL asserted its prerogative as an employer to prescribe rules and regulations regarding employees’ conduct in
carrying out their duties and functions. It had not violated the collective bargaining agreement or any provision of
the Labor Code.

On November 7, 1986, the Labor Arbiter dismissed the complaint finding no bad faith on the part of PAL in adopting
the Code and ruling that no unfair labor practice had been committed. However, it held that PAL was “not totally
fault free” considering that while the issuance of rules and regulations governing the conduct of employees is a
legitimate management prerogative, the same must meet the test of "reasonableness, propriety and fairness."

PAL appealed to the NLRC. On August 19, 1988, the NLRC affirmed the decision of the Labor Arbiter. It held that
there is no evidence of unfair labor practice committed by PAL. The NLRC made the following observation:

“The Code of Discipline involves security of tenure and loss of employment — a property right! It is time that
management realizes that to attain effectiveness in its conduct rules, there should be candidness and openness by
Management and participation by the union, representing its members. In fact, our Constitution has recognized the
principle of "shared responsibility" between employers and workers and has likewise recognized the right of workers
to participate in "policy and decision-making process affecting their rights . . ." The latter provision was interpreted
by the Constitutional Commissioners to mean participation in management.”
Issue:
Whether or not the formulation of a Code of Discipline among employees is a shared responsibility of the employer
and the employees.

Ruling:
Yes. Jurisprudence points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is
circumscribed by limitations found in law, a collective bargaining agreement, or the general principles of fair play and
justice (UST vs. NLRC). Moreover, as enunciated in Abbott Laboratories (Phil.) vs. NLRC, it must be duly established
that the prerogative being invoked is clearly a managerial one.

The Court found that the objectionable provisions of the PAL’s code are not purely business-oriented nor do they
concern the management aspect of the business of the company. The provisions of the Code clearly have
repercussions on the employee's right to security of tenure. The implementation of the provisions may result in the
deprivation of an employee's means of livelihood, which is a property right  (Callanta, vs Carnation Philippines, Inc.).

Management should see to it that employees are at least properly informed of its decisions or modes actions with
respect to its prerogatives regarding those affecting the rights of the employees in order to attain a harmonious
labor-management relationship and enlighten the workers concerning their rights. Furthermore, provisions in the
collective bargaining agreement may not be interpreted as cession of employees' rights to participate in the
deliberation of matters which may affect their rights and the formulation of policies relative thereto.

“Indeed, industrial peace cannot be achieved if the employees are denied their just participation in the discussion
of matters affecting their rights. Thus, even before Article 211 of the labor Code (P.D. 442) was amended by Republic
Act No. 6715, it was already declared a policy of the State, "(d) To promote the enlightenment of workers concerning
their rights and obligations . . . as employees." This was, of course, amplified by Republic Act No 6715 when it
decreed the "participation of workers in decision and policy making processes affecting their rights, duties and
welfare." PAL's position that it cannot be saddled with the "obligation" of sharing management prerogatives as
during the formulation of the Code, Republic Act No. 6715 had not yet been enacted (Petitioner's Memorandum, p.
44;  Rollo, p. 212), cannot thus be sustained. While such "obligation" was not yet founded in law when the Code was
formulated, the attainment of a harmonious labor-management relationship and the then already existing state
policy of enlightening workers concerning their rights as employees demand no less than the observance of
transparency in managerial moves affecting employees' rights.”

Note:
Articles IV and I of Chapter II of the PAL’s Code

Sec. 2. Non-exclusivity. — This Code does not contain the entirety of the rules and regulations of the company. Every
employee is bound to comply with all applicable rules, regulations, policies, procedures and standards, including
standards of quality, productivity and behaviour, as issued and promulgated by the company through its duly
authorized officials. Any violations thereof shall be punishable with a penalty to be determined by the gravity and/or
frequency of the offense.

Sec. 7. Cumulative Record. — An employee's record of offenses shall be cumulative. The penalty for an offense shall
be determined on the basis of his past record of offenses of any nature or the absence thereof. The more habitual an
offender has been, the greater shall be the penalty for the latest offense. Thus, an employee may be dismissed if the
number of his past offenses warrants such penalty in the judgment of management even if each offense considered
separately may not warrant dismissal. Habitual offenders or recidivists have no place in PAL. On the other hand, due
regard shall be given to the length of time between commission of individual offenses to determine whether the
employee's conduct may indicate occasional lapses (which may nevertheless require sterner disciplinary action) or a
pattern of incorrigibility.

G.R. No. 218390

HONGKONG BANK INDEPENDENT LABOR UNION (HBILU), Petitioner
vs.
HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED (HSBC), Respondent

Ponente: VELASCO, JR., J.

Facts:
In 2001, the BSP issued the Manual of Regulations for Banking (MoRB) which requires prior approval of the BSP for
Financing plans, in connection to financial assistance to bank’s officers and employees, as part of their fringe benefits
program, and amendments thereto. Pursuant to it, HSBC submitted its Financial Assistance Plan (FAP) to the BSP for
approval, and it allegedly contained a credit checking proviso stating, "repayment defaults on existing loans and
adverse information on outside loans will be considered in the evaluation of loan applications," which was then
approved by the latter on May 5, 2003.

HBILU, the incumbent bargaining agent of HSBC’s rank-and-file employees entered into CBA, covering the period
from April 1, 2010 to March 31, 2012, with HSBC without the said proviso containing the approved Financial Plan.

When the said CBA was about to expire, the parties started negotiations for new one to cover the period from April
1, 2012 to March 31, 2017. During the said negotiations, HSBC proposed amendments to align the wordings of the
CBA with its BSP-approved plan (FAP). It proposed the deletion of Section 4, Article XI of the expiring CBA, which is
related to credit ratio, and amendment of Sections 1 to 3 of the same article to insert the aforementioned credit
checking proviso. However, HBILU objected the proposed amendments, claiming that their insertions would curtail
its members’ availment of salary loans. HSBC withdrew its proposed amendments and, consequently, the Article
containing the said provisions remains unchanged. Despite the withdrawal of the proposal, HSBC sent an e-mail to its
employees on April 20, 2012 concerning the enforcement of the FAP, including the Credit Checking provisions
thereof.

In September 2012, HBILU member Vince Mananghaya (Mananghaya) applied for a loan under the provisions of
Article XI of the CBA. His first loan application was approved, but adverse findings from the external checks on his
credit background resulted in the denial of his September application. HBILU raised the denial as a grievance issue
with the National Conciliation Mediation Board (NCMB) arguing that the additional requirement of conducting
external credit checking is not sanctioned under the CBA, and such requirement cannot be unilaterally imposed by
HSBC.

On May 17, 2003, the Panel (NCMB Panel of Accredited Voluntary Arbitrators) dismissed the complaint. It held that
HSBC's adoption of the FAP was not done for any whimsical or arbitrary reason, but because the bank was
constrained to comply with the MoRB as it cannot divorce itself from the regulatory powers of the BSP.

The CA sustained the findings of the Panel in toto. It posited that when the BSP approved the HSBC’s FAP, the latter
became legally bound to enforce its provisions, including the conduct of external credit checks on its loan applicants.
Moreover, the said Plan should be deemed incorporated in the CBA.

Issue:
Whether or not HSBC could validly enforce the credit-checking requirement under its BSP-approved Plan (FAP) in
processing the salary loan applications of covered employees even when the said requirement is not recognized
under the CBA.

Ruling:
No. The Court finds it crucial to stress that no less than the basic law of the land guarantees the rights of workers to
collective bargaining and negotiations as well as to participate in policy and decision-making processes affecting their
rights and benefits.[1]
The well-entrenched rule is that although jurisprudence recognizes the validity of the exercise by an employer of its
management prerogative and will ordinarily not interfere with such, this prerogative is not absolute and is subject to
limitations imposed by law, collective bargaining agreement, and general principles of fair play and justice.

A collective bargaining agreement or CBA is 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 as
mandated by the express policy of the law. And until a new CBA is executed by and between the parties, they are
duty-bound to keep the status quo  and to continue in full force and effect the terms and conditions of the existing
agreement. This finds basis under Article 253 of the Labor Code, which states:

ARTICLE 253. Duty to bargain collectively when there exists a collective bargaining agreement.  - When there is a
collective bargaining agreement, the duty to bargain collectively shall also mean that neither party shall terminate
nor modify such agreement during its lifetime. x x x It shall be the duty of both parties to keep the status quo and
to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period
and/or until a new agreement is reached by the parties.

The Court finds that the Plan was never made part of the CBA. As a matter of fact, HBILU rejected the Plan’s
incorporation into the agreement. The subsequent implementation of the Plan’s external credit check provisions in
relation to employee loan applications under the CBA was then a unilateral imposition by HSBC, which is violative of
the latter's duty to bargain collectively and, therefore, invalid.

In this respect, this Court is of the view that tolerating HSBC’s conduct would be tantamount to allowing a blatant
circumvention of Article 253 of the Labor Code. It would contravene the express prohibition against the unilateral
modification of a CBA during its subsistence and even thereafter until a new agreement is reached.

Note: On interpretation of CBA

In United Kimberly-Clark Employees Union Philippine Transport General Workers Organization (UKCEU-PTGWO) v.
Kimberly-Clark Philippines, Inc., the Court emphasized that:

As a general proposition, an arbitrator is confined to the interpretation and application of the collective bargaining
agreement. He does not sit to dispense his own brand of industrial justice: his award is legitimate only in so far as
it draws its essence from the CBA. It is said that an arbitral award does not draw its essence from the CBA; hence,
there is an unauthorized amendment or alteration thereof, if:

1. It is so unfounded in reason and fact;

2. It is so unconnected with the working and purpose of the agreement;
3. It is without factual support in view of its language, its context, and any other indicia of the parties' intention;
4. It ignores or abandons the plain language of the contract;
5. It is mistakenly based on a crucial assumption which concededly is a nonfact;
6. It is unlawful, arbitrary or capricious; and
7. It is contrary to public policy.

xx xx

If the terms of a CBA are clear and [leave] no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall prevail. However, if, in a CBA, the parties stipulate that the hirees must be
presumed of employment qualification standards but fail to state such qualification standards in said CBA, the VA
may resort to evidence extrinsic of the CBA to determine the full agreement intended by the parties. When a CBA
may be expected to speak on a matter, but does not, its sentence imports .ambiguity on that subject. The VA is not
merely to rely on the cold and cryptic words on the face of the CBA but is mandated to  discover the intention of
the parties. Recognizing the inability of the parties to anticipate or address all future problems, gaps may be left to
be filled in by reference to the practices of the industry, and the step which is equally a part of the CBA although
not expressed in it. In order to ascertain the intention of the contracting parties, their contemporaneous and
 subsequent acts shall be principally considered The VA may also consider and rely upon negotiating and
contractual history of the parties, evidence of past practices interpreting ambiguous provisions. The VA has to
examine such practices to determine the scope of their agreement, as where the provision of the CBA has been
loosely formulated. Moreover, the CBA must be construed liberally rather than narrowly and technically and the
Court must place a practical and realistic construction upon it
In resolving issues concerning CBAs, the foremost consideration therein is upholding the intention of both parties as
stated in the agreement itself, or based on their negotiations. Should it appear that a proposition or provision has
clearly been rejected by one party, and said provision was ultimately not included in the signed CBA.

Note:
[1] Section 3, Article XIII of the 1987 Constitution provides:

Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and
promote full employment and equality of employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful
concerted activities, including the right to strike in accordance with law. They shall be entitled to security of
tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making
processes affecting their rights and benefits as may be provided by law.

Pursuant to said guarantee, Article 211 of the Labor Code, as amended, declares it a policy of the State:

(a) To promote and emphasize the primacy of free collective bargaining and negotiations, including voluntary
arbitration, mediation and conciliation, as modes of settling labor or industrial disputes;

xx xx

(d) To promote the enlightenment of workers concerning their rights and obligations as union members and as
employees;

xx xx

(g) To ensure the participation of workers in decision and policymaking processes affecting their rights, duties and
welfare. (Emphasis ours)

Corollary thereto, Article 255 of the same Code provides:

ART. 255. EXCLUSIVE BARGAINING REPRESENTATION AND WORKERS PARTICIPATION IN POLICY AND DECISION-
MAKING.

xx xx

Any provision of law to the contrary notwithstanding, workers shall have the right, subject to such rules and
regulations as the Secretary of Labor and Employment may promulgate, to participate in policy and decision-
making process of the establishment where they are employed insofar as said processes will directly affect their
rights, benefits and welfare. For this purpose, workers and employers may form labor-management
councils: Provided, That the representatives of the workers in such labor management councils shall be elected by
at least the majority of all employees in said establishment.
G.R. No. 127598 February 22, 2000
MANILA ELECTRIC COMPANY, petitioner,
vs.
Hon. SECRETARY OF LABOR LEONARDO QUISUMBING and MERALCO EMPLOYEES and WORKERS ASSOCIATION
(MEWA), respondent.

Ponente: YNARES-SANTIAGO, J.

Facts:
The MERALCO Employees and Workers Association (MEWA) is dissatisfied with the terms of CBA with MERALCO. On
January 27, 1999, the Court promulgated a decision setting aside the orders of the Secretary of Labor dated August
19, 1996 and December 28, 1996, and directing the parties to execute a CBA incorporating the terms and conditions
contained in the unaffected portions of the said Secretary of Labor’s orders. The former also introduced some
modifications to the said resolutions, which includes the following:

January 27, 1999 decision Secretary’s Resolution

Wages - P1,900.00 for 1995-96 P2,200.00
X'mas bonus - modified to one month 2 months
Retirees - remanded to the Secretary granted
Loan to coops - denied granted
GHSIP, HMP and
- granted up to P60,000.00 granted
Housing loans
Signing bonus - denied granted
Union leave - 40 days (typo error) 30 days
not apply to those who are
High voltage/pole - members of a team
not exposed to the risk
no need for cash bond, no
Collectors -
need to reduce quota and MAPL
CBU - exclude confidential employees include
Union security - maintenance of membership closed shop
Contracting out - no need to consult union consult first
All benefits - existing terms and conditions all terms
Retroactivity - Dec. 28, 1996-Dec. 27, 199(9) from Dec. 1, 1995

Dissatisfied with the decision, some members of MEWA filed a motion for intervention and a motion for
reconsideration. Likewise, a separate intervention was filed by the supervisor’s union, FLAMES, alleging that it has
bona fide legal interest in the outcome of the case.

MERALCO also filed a motion for reconsideration contending that if the wage increase of P2,200.00 per month as
ordered by the Secretary is allowed, it would simply pass the cost covering such increase to the consumers through
an increase in the rate of electricity. 

Issues:
1. Whether or not wage increase of P2,200.00 per month as ordered by the Secretary is allowed.
2. Whether or not matters of salary increases are part of management prerogative.
3. Whether the reckoning period when the retroaction of the arbitral awards of the Secretary of Labor shall
commence from such time that he rendered the said award or to such time granted by him.
Rulings:
1. No. This is non sequitur. An increase in the prices of electric current needs the approval of the appropriate
regulatory government agency and does not automatically result from a mere increase in the wages of MERALCO's
employees. Moreover, such argument presupposes that MERALCO is capable of meeting a wage increase.

2. Yes. Matters of salary increases are part of management prerogative. It should be noted, however, that the
relations between labor and capital is impressed with public interest which must yield to the common good.  Neither
party should act oppressively against the other or impair the interest or convenience of the public. 

The Court rejected the added requirement of consultation as imposed by the Secretary of Labor in cases of
contracting out for six (6) months or more. The employer is allowed to contract out service for six months or more
as hiring of workers is within the its inherent freedom to regulate and is a valid exercise of management
prerogative subject only to special laws and agreements on the matter and the fair standards of justice.

3. Arbital awards shall commence to such time granted by the Secretary of Labor. The Secretary granted
retroactivity commencing from the period immediately following the last day of the expired CBA.

In general, a CBA negotiated within six (6) months after the expiration of the existing CBA retroacts to the day
immediately following such date. If any such agreement is entered into beyond six (6) months, the parties shall
agree on the duration of retroactivity thereof. 

Labor laws are silent as to when an arbitral award in a labor dispute where the Secretary has assumed jurisdiction
by virtue of Art. 263(g) shall retroact. Despite the silence of the law, the Court ruled that:

1) CBA arbitral awards granted after six (6) months from the expiration of the last CBA shall retroact to such time
agreed upon by both employer and the employees or their union.

2) Absent such an agreement as to retroactivity, the award shall retroact to the first day after the six-month period
following the expiration of the last day of the CBA should there be one.

3) In the absence of a CBA, the Secretary's determination of the date of retroactivity as part of his discretionary
powers over arbitral awards shall control.

G.R. No. L-25246 September 12, 1974

BENJAMIN VICTORIANO, plaintiff-appellee,
vs.
ELIZALDE ROPE WORKERS' UNION and ELIZALDE ROPE FACTORY, INC., defendants, ELIZALDE ROPE WORKERS'
UNION, defendant-appellant.

Ponente: ZALDIVAR, J.

Facts:

Benjamin Victoriano, a member of the religious sect known as the "Iglesia ni Cristo", had been in the employ of the
Elizalde Rope Factory, Inc. (Company) since 1958. As such employee, he was a member of the Elizalde Rope Workers'
Union (Union) which had with the Company a collective bargaining agreement containing a “closed shop” provision
which reads as follows: “Membership in the Union shall be required as a condition of employment for all permanent
employees workers covered by this Agreement.”
Under par 4, Sec. 4(a) of R.A. no. 875, the employer was not precluded “from making an agreement with a labor
organization to require as a condition of employment membership therein, if such labor organization is the
representative of the employees.” R.A. no. 3350 was enacted amending the said provision which inserted the
following proviso: “but such agreement shall not cover members of any religious sects which prohibit affiliation of
their members in any such labor organization.”

Being a member of a religious sect that prohibits affiliation of its members with any labor organization, Victoranio
manifested his resignation with the Union. The union, then, wrote a formal letter to the Company asking the latter to
separate him from the service as he was resigning from the Union as a member. The Company, in turn, notified
Victoranio and his counsel that unless he could achieve a satisfactory arrangement with the Union, the Company
would be constrained to dismiss him from the service.

Victoranio filed an action for injunction before CFI Manila to enjoin the Company and the Union to dismiss him. In
response, the Union invoked the “union security clause” of the CBA, assailed the constitutionality of R.A. no. 3350,
and contended that the court has no jurisdiction over the case.

CFI Manila rendered a judgement in favor of Victoranio. The Union appealed directly to the Court assailing the
constitutionality of R.A. no. 3350.

Union Victoranio
That RA 3350 infringes on the fundamental right to form That RA 3350 does not violate the right to form
lawful associations as it deprives the members of their lawful associations, for the right to join associations
1
constitutional right to form or join lawful associations or includes the right not to join or to resign from a labor
organizations guaranteed by the Bill of Rights. organization.
That said Act impairs the obligation of contracts for
while the Union is obliged to comply its CBA containing a
“closed shop provision,” it relieves the employer from its
That said Act does not impair the obligation of
reciprocal obligation of cooperating in the maintenance
2 contracts as it formed part and incorporated into the
of union membership as a condition of employment, and
terms of the closed shop agreement.
it deprives the Union dues from employees who, under
the Act, are relieved from the obligation to continue
their membership thereto.
That the Act does not violate the establishment of
religion clause or separation of Church and State, as
That said Act violates Section 1 (7), Article III of the 1935 the Congress merely accommodated the religious
Constitution (non-establishment of religion), as it needs of workers whose religion prohibits its
3
discriminatorily favors those religious sects which bans members from joining labor union, and balanced the
their members from joining labor unions. collective rights of organized labor with the
constitutional right of an individual to freely exercise
his chosen religion.
That said Act violates the Constitutional provision that That the constitutional right to the free exercise of
4 "no religious test shall be required for the exercise of a one's religion has primacy and preference over union
civil right." security measures which are merely contractual.
That said Act does not violate the constitutional
That said Act violates the “equal protection” clause of provision of equal protection, for the classification of
the Constitution as it exempts from the operation of workers under the Act depending on their religious
5
closed shop agreement the members of the "Iglesia ni tenets is based on substantial distinction, is germane
Cristo." to the purpose of the law, and applies to all the
members of a given class.
That said Act does not violate the social justice policy
of the Constitution, for said Act was enacted
That said Act violates the Constitutional provision
6 precisely to equalize employment opportunities for
regarding the promotion of social justice.
all citizens in the midst of the diversities of their
religious beliefs.

Issues:
Whether or not R.A. no. 3350 insofar as it exempts members of any religious sect that prohibits affiliation of their
members with any labor organization is unconstitutional.

Rulings:
1. R.A. no. 3350 does not violate the constitutional provision on freedom of association. Nowhere to be found in the
said Act that it prohibits and bans the members of religious sects from joining labor unions, and neither can the
same be deduced by necessary implication therefrom. It should be noted that both the Constitution and R.A. no. 875
(Industrial Peace Act) provide that “the right to form associations or societies for purposes not contrary to laws shall
not be abridged”.

Section 3 of Republic Act No. 875 (Industrial Peace Act) provides that employees shall have the following rights:
1) Right to self-organization;
2) Right to form, join or assist labor organizations of their own choosing for the purpose of collective
bargaining; and
3) Right to engage in concerted activities for the purpose of collective bargaining and other mutual aid or
protection.

A right comprehends at least two broad notions, namely:

1) LIBERTY or FREEDOM, whereby an employee may, in the absence of legal restraint, act for himself without
being prevented by law; and
2) POWER, whereby an employee may, as he pleases, join or refrain from Joining an association.

Based on the foregoing, an employee has freedom to join association of his choice; and even after he has joined,
he still retains the liberty and the power to leave and cancel his membership with said organization/association at
any time. Both the Constitution and the Industrial Peace Act recognizes and guarantees to the employees the right
to join associations of his choice, but it does not impose, in the same breath, upon the employees the duties to
join associations.

However, the right to refrain from joining labor organizations under sec. 3 of the Industrial Peace Act is limited, as
the same may be withdrawn if a labor union and an employer have agreed on a closed shop, whereby the latter
may employ only members of the collective bargaining union, and the employees must continue to be members of
the union for the duration of their employment contract to keep their jobs.

R.A. no. 3350 introduced an exception when it added a proviso stating "but such agreement shall not cover
members of any religious sects which prohibit affiliation of their members in any such labor organization". The said
Act merely excludes ipso jure from the application and coverage of the closed shop the employees belonging to
such religious sect. It does not prohibit the members of such religious sects from affiliating with labor unions, but
rather leaves to said members the liberty and the power to affiliate, or not to affiliate, with labor unions.

2. R.A. no. 3350 does not violate the constitutional inhibition of “non-impairment” of contract clause of the
Constitution. According to Black, a statute impairs a contract if it introduces a change into its:
1) express terms,
2) legal contstruction,
3) validity,
4) discharge, or
5) remedy for its enforcement.

There is an impairment of the contract if the law absolves either of the parties from its performance; or, without
destroying the contract, derogates from substantial contractual rights.

***However, the prohibition to impair the obligation of contract is not absolute and unqualified, for it prohibits
unreasonable impairment only. In spite of the constitutional prohibition, the State continues to possess authority
to safeguard the vital interest of the its people. Legislation appropriate to safeguarding said interest may modify or
abrogate contracts already in effect. All contracts made with reference to any matter that is subject to regulation
under the police power must be understood as made in reference to the possible exercise of that power.
Therefore, the contract clause of the Constitution must be not only in harmony with, but also in subordination to,
in appropriate instances, the reserved power of the state to safeguard the vital interests of the people. This has
 special application to contracts regulating relations between capital and labor which are not merely contractual,
and said labor contracts, for being impressed with public interest, must yield to the common good. (this par can be
omitted)

Legislation impairing obligation of contracts can be sustained:

1) when it is enacted for the promotion of the general good of the people,
2) when the means adopted to secure that end is reasonable, and
3) both the end and the means adopted must be legitimate.

(1) and (3)

The purpose of R.A. no. 3350 is to ensure the freedom of belief and religion, and to promote the general welfare
by preventing discrimination against those members of religious sect which prohibit their members from joining
labor unions, promoting thereby their right to work and to the fruits thereof, which is the only means whereby
they can support themselves and their dependents. Moreover, its purpose is to protect members of such religious
sects against two aggregates of power, namely: (1) collective labor, directed by a union, and (1)collective capital,
directed by management. Hence, the purpose is legitimate.

(2)
As explained in Explanatory Note to HB No. 5859, the law precludes refusal of employing a qualified person who,
on account of his religious beliefs and convictions, cannot accept membership in a labor organization, for it is
tantamount to punishing said person for believing such doctrine. Hence, the means adopted by the act, that is by
exempting the members of said religious sects from coverage of union security agreement, is reasonable.

The free exercise of religious profession or belief is superior to contract rights. In case of conflict, the latter must
yield to the former. Therefore, contractual rights must yield to freedom of religion.

3. R.A. no. 3350 does not violate the constitutional inhibition of the “non-establishment” of religion clause of the
Constitution. The said constitutional provision only prohibits legislation for the support of any religious tenets or the
modes of worship of any sect, thus forestalling compulsion by law of the acceptance of any creed or the practice of
any form of worship, but also assures the free exercise of one's chosen form of religion.

In Aglipay vs. Ruiz, the Court stated that the government should not be precluded from pursuing a valid objectives
secular in character even if the incidental result would be favorable to a religion or sect. The purpose of R.A. no.
3350 is to serve the secular purpose of advancing the constitutional right to the free exercise of religion, by
averting that certain persons be refused work, or be dismissed from work, or be dispossessed of their right to
work and of being impeded to pursue a modest means of livelihood, by reason of union security agreements. To
help its citizens to find gainful employment whereby they can make a living to support themselves and their
families is a valid objective of the state. 

The Court of the view that the exemption from the effects of closed shop agreement does not directly advance or
diminish the interest of a particular religion. Although it may benefit those who are members of religious sects
that prohibit affiliation of their members with labor union, such benefit is merely incidental and indirect.

4. R.A. no. 3350 does not violate the “equal protection” clause of the Constitution. The guaranty of equal protection
of the laws is not a guaranty of equality in the application of the laws upon all citizens of the state. It is the equality
of application of law to those similarly situated. It allows classification. Classification in law is the grouping of things
in speculation or practice because they agree with one another in certain particulars. 

In order for a classification to be valid, the following must concur:

1) That the classification should be based on substantial distinctions which make for real differences;
2) That it must be germane to the purpose of the law;
3) That it must must not be limited to existing conditions only; and
4) That it must apply equally to each member of the class.

The classification rests on real or substantial, not merely imaginary or whimsical, distinctions, that is, employees
have different beliefs, feelings, and sentiments. They do not believe in the same religious faith and different
religions differ in their dogmas and cannons.
The classification is also germane to the purpose of the law. It is also not limited to existing conditions only as it is
intended to apply for all times as long as there are closed shop agreements between an employer and a labor
union, and there are employees who are prohibited by their religion from affiliating with labor unions. The act
applies to all members of religious sects that prohibits their members to join labor unions.
G.R. No. 131235 November 16, 1999
UST FACULTY UNION (USTFU), GIL Y. GAMILLA, CORAZON QUI, NORMA CALAGUAS, IRMA POTENCIANO, LUZ DE
GUZMAN, REMEDIOS GARCIA, RENE ARNEJO, EDITHA OCAMPO, CESAR REYES, CELSO NIERRA, GLICERIA BALDRES,
MA. LOURDES MEDINA, HIDELITA GABO, MAFEL YSRAEL, LAURA ABARA, NATIVIDAD SANTOS, FERDINAND LIMOS,
CARMELITA ESPINA, ZENAIDA FAMORCA, PHILIP AGUINALDO, BENEDICTA ALAVA and LEONCIO CASAL, petitioners,
vs.
Dir. BENEDICTO ERNESTO R. BITONIO JR. of the Bureau of Labor Relations , Med-Arbiter TOMAS F. FALCONITIN of
The National Capital Region, Department of Labor and Employment (DOLE), EDUARDO J. MARIÑO JR., MA.
MELVYN ALAMIS, NORMA COLLANTES, URBANO ALABAGIA, RONALDO ASUNCION, ZENAIDA BURGOS, ANTHONY
CURA, FULVIO M. GUERRERO, MYRNA HILARIO, TERESITA MEER, FERNANDO PEDROSA, NILDA REDOBLADO, RENE
SISON, EVELYN TIROL and ROSIE ALCANTARA, respondents.

Ponente: PANGANIBAN, J.

Facts:

Issues:

Rulings: