EMPLOYMENT CONTRACT IS IMBUED WITH PUBLIC INTEREST AND CANNOT BE INTERPRETED BY EMPLOYER TO THE PREJUDICE OF EMPLOYEES

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Employment contract is not an ordinary contract as it is imbued with public interest. Thus, the SC held in the following case:

Del Monte Fresh Produce (Philippines), Inc. vs. Del Monte Fresh Supervisors Union
G.R. No. 225115, January 27, 2020

Management prerogative; Company policies; Company policies that are an outcome of an exercise of management prerogative can implicate the rights and obligations of employees, and to that extent they become part of the employment contract, as when the violation of policies is considered a ground for contract termination; Labor contracts; Labor contracts are no ordinary private contracts; Labor contracts are imbued with public interest and a proper subject matter of police power measures; Statutory construction in employment contracts; Doubts in the interpretation and implementation of the labor laws;

Facts:

Respondent Del Monte Fresh Supervisors Union (DMFSU) is the exclusive bargaining representative of the supervisory employees of petitioner Del Monte Fresh Produce (Philippines) Inc. (Del Monte).

Following unsuccessful attempts at mediation and conciliation, DMFSU filed in behalf of 18 supervisor-members a Complaint with the Voluntary Arbitrator (VA) for “accrued differentials and salary adjustments due to underpayment of salary resulting from the non-implementation of the supervisors’ salary structure” as laid out in “company policies which are binding between the employer and employees as it is in the nature of a Collective Bargaining Agreement (CBA).”

The company policies in question consist of the Global Policy on Salary Administration (Global Policy) and the May 1, 2000 Policy on Salary Administration under Del Monte Fresh Produce (Philippines), Inc. (Local Policy). The pertinent provisions in the Local Policy state that the minimum rate for a particular Hay Level is generally the starting rate for a newly hired employee. However, experience, qualifications, special skills, and other criteria may be considered. So newly hired employees may start at a salary higher than the setminimum, provided that the starting salary is not more than 20% higher than the set minimum.

Further, the company, at the discretion of the hiring manager may offer below the set minimum salary for the Hay Level provided that it shall not be lower than 10% of the set minimum. This applies to employees who undergo his/her probationary period and when upon becoming regular employees, his/her salary shall be raised to the minimum level.

On the other hand, the pertinent provisions in the Global Policy state that the minimum rate of the particular Job Grade (or Hay Level) is the starting rate for newly hired employees. However, a lower or higher starting salary may be warranted when authorized by Corporate Human Resources, with due consideration given to experience, qualifications, special skills, and other criteria. The normal starting salary rate for a qualified new employee shall be the minimum rate for their approved position level, based on the current Salary Structure of the location. This may vary depending on numerous factors such as, current market conditions; other pertinent matters that may have an effect on salaries.

The head of the requesting department, in coordination with the local Human Resources department, may recommend a salary up to 20% over the minimum rate for the newly hired employee subject to approval by Corporate Human Resources. Similarly, employee may be offered below the set minimum salary for the Hay level. The performance of newly hired employees, who are introductory period and given below the minimum hiring rate, may be reviewed towards the end of introductory period, and if warranted, may be eligible for a salary increase sufficient to reach the minimum salary level upon regularization. This must be in accordance to what has been approved in the PRF.

The 18 affected supervisors were hired at Hay Levels 5 through 8. For those at Hay Level 5, the minimum rate was P17,792.00 but they were paid probationary rates that ranged from P12,000.00 to P12,793.00 and regularization rates that ranged from P12,793.00 to P17,207.00. Similar disparities were evident among the probationary, regularization and minimum rates for those hired at Hay Levels 6 and 7.

DMFSU claimed that, contrary to the Local Policy, Del Monte paid the affected supervisors salary rates below their respective minimum rates at the time of their regularization. It argued that, similar to a CBA, the Local Policy is an enforceable instrument which is binding on Del Monte. Del Monte refused to pay the claims and denied that the Local Policy was binding, as this had already been superseded by the Global Policy. Moreover, the decision to implement any company policy is a prerogative of the management.

VA Ruling:

The VA dismissed the complaint on the ground of sanctity of contract: the affected supervisors freely entered into their employment contracts and willingly accepted the stipulated salaries.

The VA interpreted the Local Policy to mean that “it does not strictly require the hiring Manger to give the minimum range as the initial salary rate” and that regularization and merit promotion are conditions for entitlement to the minimum rate.

DMFSU filed a Petition for Review before the Court of Appeals (CA).

CA Ruling:

The CA granted the petition.

The CA disposed that the corresponding minimum rate of the applicable Hay Level at the time the affected supervisors became regular shall be applied in the computation of the salary differentials.

Del Monte filed a Motion for Partial Reconsideration but the same was denied by the CA. The CA interpreted the Local Policy and Global Policy to mean that Del Monte has the discretion to pay newly-hired employees a salary rate lower than the minimum rate during the probationary period.

However, once the probationary period ends and the employee is regularized, Del Monte must pay the minimum rate. Entitlement to the minimum rate requires mere regularization based solely on performance review, without need of merit promotion. The management has no discretion over the payment of the minimum rate upon regularization of an employee.

Once the employee is regularized, management prerogative must give way and be subject to the limitations composed by law, the collective bargaining agreement and general principles of fair play and justice.

Issue/s:

Whether or not statutory construction should be applied in doubtful employment contracts

Whether or not the textual application by the Court of the provisions of the contract impairs the employment contract

Whether or not the employer is allowed to interpret the mandatory provision of its policy in consideration of extrinsic factors even if it results in less beneficial treatment of employees

Whether or not the company policy granting more flexibility in the grant of benefits replacing the one more beneficial to the employees may be disregarded by the Court since employment contract is imbued with public interest

SC Ruling:

The SC found the petition lacking in merit.

Del Monte argues that the CA erred in subjecting the term “shall” in the company’s Local Policy to rules of interpretation that are appropriate only for statutory construction. The SC held that it is true that the Court has applied the rules of statutory construction to labor legislations and regulations.

However, there is no prohibition to the application of these rules to labor contracts, for Article 1702 of the Civil Code itself provides that in case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.

In the case at hand, the SC ruled that there is doubt over how the Local Policy and Global Policy affect the employment contracts of the 18 supervisors. Thus, the CA was warranted in its application of existing rules of interpretation of these policies in relation to the contracts.

Del Monte argued that the CA erred in enforcing the Local Policy and holding it liable to pay the difference between the minimum rate and the actual rate that had been paid to the 18 supervisors since their regularization. The unpublished Local Policy is not binding. Implementation of the salary rates set out therein is a management prerogative. Acceptance of the actual salary rates by the 18 supervisors is protected by the sanctity of the contracts. The ruling of the CA interferes with management prerogative anddisregards the sanctity of contracts.

The SC agreed with the CA that it was in exercise of management prerogative that Del Monte issued the Local Policy and Global Policy, in the sense that the formulation and adoption of these policies involved considerations of business factors that Del Monte alone can make. However, after having been officially issued, these policies became part of employment contracts and their implementation ceased to be a matter of management prerogative. Rather, implementation is governed “by law, collective bargaining and general principles of fair play and justice.”

There is no question that employers enjoy management prerogative when it comes to the formulation of business policies, including those that affect their employees. However, company policies that are an outcome of an exercise of management prerogative can implicate the rights and obligations of employees, and to that extent they become part of the employment contract, as when the violation of policies is considered a ground for contract termination.

Del Monte bewails that mandatory implementation of the Local Policy relating to the minimum rates for regularized employees will deny it of the flexibility necessary in order to assess individual strengths and weaknesses of regularized employees or to adjust salaries in order to deal with business distress.

The SC cited with favor the CA’s holding that the Local Policy provisions on the matter are clear that at the point of hiring and during the newly-hired employee’s probationary period discretion is given to the hiring manager to determine the starting rate. Meanwhile, it gives no discretion to the hiring manager since it uses the word “shall” in providing that upon regularization or successful completion of the probationary or introductory period, the regular employee shall be granted a salary increase to raise his salary before regularization to the minimum rate.

These are textual interpretations by the CA that the petitioner glossed over in favor of a mere contextual approach. The CA even anticipated such contextual arguments by pointing out that the policies do not preclude Del Monte from making an assessment of the individual merits of probationary employees; Del Monte may decide that said employees do not meet its standards for regularization.

Del Monte objects to the CA’s mandatory implementation of the Local Policy on the minimum rate on the ground that it impairs the employment contract which the 18 supervisors had freely signed. Labor contracts are no ordinary private contracts; rather, they are imbued with public interest and a proper subject matter of police power measures. In this case, the CA sought to uphold rather than impair the contract between Del Monte and its employees by requiring implementation of a policy that is adjunct to the contract.