THIRD DIVISION

[G.R. No. 100898. July 5, 1993.]

ALEX FERRER, RAFAEL FERRER, HENRY DIAZ, DOMINGO

BANCOLITA, GIL DE GUZMAN, and FEDERATION OF
DEMOCRATIC LABOR UNIONS (FEDLU), petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION (SECOND
DIVISION), HUI KAM CHANG (In his capacity as General
Manager of Occidental Foundry Corporation), OCCIDENTAL
FOUNDRY CORPORATION, MACEDONIO S. VELASCO (In his
capacity as representative of the Federation of Free
Workers), GENARO CAPITLE, JESUS TUMAGAN, ERNESTO
BARROGA, PEDRO LLENA, GODOFREDO PACHECO,
MARCELINO CASTILLO, GEORGE IGNAS, PIO DOMINGO, and
JAIME BAYNADO,respondents.

Generoso P. Jacinto and Raymundo D. Mallilin for private respondents.

SYLLABUS

1. LABOR LAW; LABOR RELATIONS; COLLECTIVE BARGAINING

AGREEMENT; GIVEN PARAMOUNT CONSIDERATION. — A CBA is the law
between the company and the union and compliance therewith is mandated
by the express policy to give protection to labor. Said policy should be given
paramount consideration unless otherwise provided for by law (Meycauayan
College vs. Drilon, 185 SCRA 50 [1990]).
2. ID.; ID.; ID.; CLOSED-SHOP PROVISION; A VIOLATION OF RIGHT IN
CASE AT BAR. — A CBA provision for a closed shop is a valid form of union
security and it is not a restriction on the right or freedom of association
guaranteed by the Constitution ( Lirag Textile Mills, Inc. vs. Blanco, 109 SCRA
87 [1981]). However, in the implementation of the provisions of the CBA,
both parties thereto should see to it that no right is violated or impaired. In
the case at bar, while it is true that the CBA between OFC and the SAMAHAN
provided for the dismissal of employees who have not maintained their
membership in the union, the manner in which the dismissal was enforced
left much to be desired in terms of respect for the right of petitioners to
procedural due process. In the first place, the union has a specific provision
for the permanent or temporary "expulsion" of its erring members in its
constitution and by-laws ("saligang batas at alituntunin"). No hearing
("pandinig") was ever conducted by the SAMAHAN to look into petitioners'
explanation of their moves to oust the union leadership under Capitle, or
their subsequent affiliation with FEDLU. While it is true that petitioners'
actions might have precipitated divisiveness and, later, showed disloyalty to
the union, still, the SAMAHAN should have observed its own constitution and
by-laws by giving petitioners an opportunity to air their side and explain their
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 moves. If, after an investigation the petitioners were found to have violated
union rules, then and only then should they be subjected to proper
disciplinary measures.
3. ID.; EMPLOYMENT; TERMINATION; OBSERVANCE OF DUE
PROCESS REQUIRED. — The need for a company investigation is founded on
the consistent ruling of this Court that the twin requirements of notice and
hearing which are essential elements of due process must be met in
employment-termination cases. The employee concerned must be notified of
the employer's intent to dismiss him and of the reason or reasons for the
proposed dismissal. The hearing affords the employee an opportunity to
answer the charge or charges against him and to defend himself therefrom
before dismissal is effected (Kwikway Engineering Works vs. NLRC, 195 SCRA
526 [1991]; Salaw vs. NLRC, 202 SCRA 7 [1991]). Observance to the letter of
company rules on investigation of an employee about to be dismissed is not
mandatory. It is enough that there is due notice and hearing before a
decision to dismiss is made (Mendoza vs. NLRC, 195 SCRA 606 [1991]). But
even if no hearing is conducted, the requirement of due process would have
been met where a chance to explain a party's side of the controversy had
been accorded him (Philippine Airlines, Inc. vs. NLRC, 198 SCRA 748 [1991]).
If an employee may be considered illegally dismissed because he was not
accorded fair investigation (Hellenic Philippine Shipping vs. Siete, 195 SCRA
179 [1991]), the more reason there is to strike down as an inexcusable and
disdainful rejection of due process a situation where there is no investigation
at all (See: Colegio del Sto. Niño vs. NLRC, 197 SCRA 611 [1991]; Artex
Development Co., Inc. vs. NLRC , 187 SCRA 611 [1990]). The need for the
observance of an employee's right to procedural due process in termination
cases cannot be overemphasized. After all, one's employment, profession,
trade, or calling is a "property right" and the wrongful interference therewith
gives rise to an actionable wrong (Callanta vs. Carnation Philippines, Inc.,
145 SCRA 268 [1986]). Verily, a man's right to his labor is property within the
meaning of constitutional guarantees which he cannot be deprived of
without due process (Batangas Laguna Tayabas Bus Co. vs. Court of
Appeals, 71 SCRA 470 [1976]).
4. ID.; ID.; ID.; ID.; CASE AT BAR. — While the law recognizes the
right of an employer to dismiss employees in warranted cases, it frowns
upon arbitrariness as when employees are not accorded due process (Tan, Jr.
vs. NLRC , 183 SCRA 651 [1990]). Thus, the prerogatives of the OFC to
dismiss petitioners should not have been whimsically done for it unduly
exposed itself to a charge of unfair labor practice for dismissing petitioners
in line with the closed shop provision of the CBA, without a proper hearing
(Tropical Hut Employees ' Union-CGW vs. Tropical Hut Food Market, Inc., 181
SCRA 173 [1990]; citing Binalbagan-Isabela Sugar Co., Inc. (BISCOM) vs.
Philippine Association of Free Labor Unions (PAFLU) , 8 SCRA 700 [1983]).
Neither can the manner of dismissal be considered within the ambit of
managerial prerogatives, for while termination of employment is traditionally
considered a management prerogative, it is not an absolute prerogative
subject as it is to limitations founded in law, the CBA, or general principles of
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 fair play and justice (University of Sto. Tomas vs. NLRC , 190 SCRA 758
[1990]).
5. ID.; ID.; ID.; ID.; VIOLATION THEREOF; PENALTY WHERE
DISMISSAL IS ILLEGAL; CASE AT BAR. — Under Rule XIV, Sections 2, 5, and 6
of the rules implementing Batas Pambansa Blg. 130, the OFC and the
SAMAHAN should solidarily indemnify petitioners for the violation of their
right to procedural due process (Great Pacific Life Assurance Corporation vs.
NLRC, 187 SCRA 694 [1990], citing Wenphil vs. NLRC , 170 SCRA 69 [1989],
Cariño vs. NLRC, supra). However, such penalty may be imposed only where
the termination of employment is justified and not when the dismissal is
illegal as in this case where the damages are in the form of back wages. A
legally dismissed employee may now be paid his back wages, allowances,
and other benefits for the entire period he was out of work subject to the
rule enunciated before the Mercury Drug Rule, which is that the employer
may, however, deduct any amount which the employee may have earned
during the period of his illegal termination (East Asiatic Company, Ltd. vs.
Court of Industrial Relations , 40 SCRA 521 [1971]). Computation of full back
wages and presentation of proof as to income earned elsewhere by the
illegally dismissed employee after his termination and before actual
reinstatement should be ventilated in the execution proceedings before the
Labor Arbiter concordant with Section 3, Rule 8 of the 1990 new Rules of
Procedure of the National Labor Relations Commission. Inasmuch as we have
ascertained in the text of this discourse that the OFC whimsically dismissed
petitioners without proper hearing and has thus opened OFC to a charge of
unfair labor practice, it ineluctably follows that petitioners can receive their
back wages computed from the moment their compensation was withheld
after their dismissal in 1989 up to the date of actual reinstatement. In such a
scenario, the award of back wages can extend beyond the 3-year period
fixed by the Mercury Drug Rule depending, of course, on when the employer
will reinstate the employees.
6. ID.; ID.; ID.; ILLEGAL DISMISSAL; PENALTY; CASE OF MERCURY
DRUG CO. V. COURT OF INDUSTRIAL RELATIONS SUPERSEDED BY R.A. 6715.
— With the passage of Republic Act No. 6715 which took effect on March 21,
1989, Article 279 of the Labor Code was amended and as implemented by
Section 3, Rule 8 of the 1990 New Rules of Procedure of the National Labor
Relations Commission, it would seem that the Mercury Drug Rule ( Mercury
Drug Co., Inc. vs. Court of Industrial Relations , 56 SCRA 694 [1974]) which
limited the award of back wages of illegally dismissed workers to three (3)
years "without deduction or qualification" to obviate the need for further
proceedings in the course of execution, is no longer applicable.
7. ID.; ID.; ID.; ID.; ID.; R.A. 6715 AMENDING ART 279 OF THE
LABOR CODE; RATIONALE. — It may appear that Article 279 of the Labor
Code, as amended by Republic Act No. 6715, has made the employer bear a
heavier burden than that pronounced in the Mercury Drug Rule, but perhaps
Republic Act No. 6715 was enacted precisely for the employer to realize that
the employee must be immediately restored to his former position, and to
impress the idea that immediate reinstatement is tantamount to a cost-
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 saving measure in terms of overhead expense plus incremental productivity
to the company which lies in the hands of the employer.
8. ID.; LABOR RELATIONS; LABOR ORGANIZATIONS; DISAFFILIATION
OF LOCAL UNION FROM A FEDERATION, LEGAL IN CASE AT BAR. — The right
of local union to disaffiliate from a federation in the absence of any provision
in the federation's constitution preventing disaffiliation of a local union is
legal (People's Industrial and Commercial Employees and Workers Org.
(FFW) vs. People's Industrial and Commercial Corp. , 112 SCRA 440 [1982]).
Such right is consistent with the constitutional guarantee of freedom of
association ( Tropical Hut Employees' Union-CGW vs. Tropical Hut Food
Market, Inc ., 181 SCRA 173 [1990]). Hence, while petitioners' act of holding
a special election to oust Capitle, et al. may be considered as an act of
sowing disunity among the SAMAHAN members, and, perhaps, disloyalty to
the union officials, which could have been dealt with by the union as a
disciplinary matter, it certainly cannot be considered as constituting
disloyalty to the union. Faced with a SAMAHAN leadership which they had
tried to remove as officials, it was but a natural act of self-preservation that
petitioners fled to the arms of the FEDLU after the union and the OFC had
tried to terminate their employment. Petitioners should not be made
accountable for such an act.

DECISION

MELO, J : p

The petition for certiorari before us seeks to annul and set aside: (a)
the decision dated June 20, 1991 of the Second Division of the National Labor
Relations Commission (NLRC) (Penned by Commissioner Rustico L. Diokno
and concurred in by Presiding Commissioner Edna Bonto-Perez and
Commissioner Domingo H. Zapanta) which affirmed in toto the decision of
April 5, 1990 of Labor Arbiter Eduardo J. Carpio dismissing the complaint for
illegal dismissal and unfair labor practice on the ground that both the
company and the union merely complied with the collective bargaining
agreement provision sanctioning the termination of any employee who fails
to retain membership in good standing with the union; and (b) the NLRC
resolution denying the motion for the reconsideration of said decision (NLRC
NCR Case No. 00-10-04855-89).
Petitioners were regular and permanent employees of the Occidental
Foundry Corporation (OFC) in Malanday, Valenzuela, Metro Manila which was
under the management of Hui Kam Chang. As piece workers, petitioners'
earnings ranged from P110 to P140 a day. They had been in the employ of
OFC for about ten years at the time of their dismissal in 1989 (p. 38, Rollo).
On January 5, 1989, the Samahang Manggagawa ng Occidental
Foundry Corporation-FFW (SAMAHAN) and the OFC entered into a collective
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 bargaining agreement (CBA) which would be effective for the three-year
period between October 1, 1988 and September 30, 1991 (Memorandum for
OFC and Hui Kam Chang, p. 6, Rollo; p. 551). Article II thereof provides for a
union security clause thus:
Section 1 — The company agrees that all permanent and
regular factory workers in the company who are members in good
standing of the union or who thereafter may become members, shall
as a condition of continued employment, maintain their membership
in the union in good standing for the duration of the agreement.

xxx xxx xxx

Section 3 — The parties agree that failure to retain membership
in good standing with the UNION shall be ground for the operation of
paragraph 1 hereof and the dismissal by the company of the
aforesaid employee upon written request by the union. The aforesaid
request shall be accompanied by a verified carbon original of the
Board of (sic) Resolution by the UNION signed by at least a majority of
its officers/directors. (p. 562, Rollo.)
On May 6, 1989, petitioner Alex Ferrer and the SAMAHAN, filed in the
Department of Labor and Employment (DOLE), a complaint for the expulsion
from SAMAHAN of the following officers: Genaro Capitle (president), Jesus
Tumagan (vice-president), Godofredo Pacheco (auditor), and Marcelino
Pacheco (board member) (Case No. NCR-00-M-89-11-01). The complaint was
founded on said officers alleged inattentiveness to the economic demands of
the workers. However, on September 4, 1989, petitioners Diaz and Alex
Ferrer withdrew the petition (p. 590, Rollo).
On September 10, 1989, petitioners conducted a special election of
officers of the SAMAHAN (pp. 205 & 583, Rollo). Said election was, however,
later questioned by the FFW. Nonetheless, the elected set of officers tried to
dissuade the OFC from remitting union dues to the officers led by Capitle
who were allied with the FFW. Later, however, Romulo Erlano, one of the
officers elected at the special election, manifested to the DOLE that he was
no longer objecting to the remittance of union dues to the officers led by
Capitle. Petitioners' move to stage a strike based on economic demands was
also later disowned by members of the SAMAHAN. LLpr

The intraunion squabble came to a head when, on September 11,

1989, a resolution expelling petitioners from the SAMAHAN was issued by
the aforesaid union officials headed by Capitle, together with board
members George Ignas, Pio Domingo, and Jaime Baynado (pp. 286 & 599,
Rollo). The following day, Capitle sent OFC the following letter:
12 September 1989

Mr. Hui Kam Chang

General Manager
Malanday, Valenzuela
Metro Manila
Dear Mr. Chang:

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 In compliance with Article II, Sec. 3 of the Union Security Clause
as enunciated in our Collective Bargaining Agreement, I would like
you to dismiss the following employees on the ground of failure to
retain membership in good standing:
1. Alex Ferrer
2. Gil de Guzman
3. Henry Diaz
4. Domingo Bancolita
5. Rafael Ferrer, Jr.
Attached herewith is the verified carbon original of the Board
Resolution of the union signed by the majority of its officers/directors.
Thank you very much.
Very truly yours,
(Sgd.)
GENARO CAPITLE
President
(p. 66, Rollo.)
Although petitioners received this letter weeks after its date, it appears
that on that same date, they had learned about their dismissal from
employment as shown by the letter also dated September 13, 1989 which
they sent the Federation of Democratic Labor Unions (FEDLU). They
volunteered therein to be admitted as members of the FEDLU and requested
that they be represented ("katawanin") by said federation before the DOLE in
the complaint which they intended to file against the union (SAMAHAN), the
FFW and the company for illegal dismissal, reinstatement, and other benefits
in accordance with law (p. 74, Rollo). LLpr

Thereafter, on various dates, petitioners sent individual letters to Hui

Kam Chang professing innocence of the charges levelled against them by
the SAMAHAN and the FFW and pleading that they be reinstated (pp. 69-73,
Rollo). Their letters appear to have elicited no response.
Thus, contending that their dismissal was without cause and in utter
disregard of their right to due process of law, petitioners, through the FEDLU,
filed a complaint for illegal dismissal and unfair labor practice before the
NLRC against Hui Kam Chang, OFC, Macedonio S. Velasco (as representative
of the FFW), the FFW, and the SAMAHAN officers headed by Capitle (p. 75,
Rollo).
In due course, after the case was ventilated through position papers
and other documents, the labor arbiter rendered a decision dismissing
petitioners' complaint (pp. 79-89, Rollo). He found that in dismissing
petitioners, OFC was "merely complying with the mandatory provisions of the
CBA — the law between it and the union." He added:
To register compliance with the said covenant, all that is
necessary is a written request of the union requesting dismissal of the
employees who have failed to retain membership in good standing
with the union. The matter or question, therefore, of determining why
and how did complainants fail to retain membership in good standing
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 is not for the company to inquire via formal investigation. By having
the request of the union, a legal presumption that the request was
born out of a formal inquiry by the union that subject employees
failed to retain membership in good standing, failed to exist. This
means generally that where a valid closed shop or similar agreement
is in force with respect to a particular bargaining unit as in the case a
quo, the employer shall refuse to employ any person unless he is a
member of the majority union and the employer shall dismiss
employees who fail to retain their membership in the majority union.
This must be deemed a just cause recognized by law and
jurisprudence. The effect is discrimination to encourage membership
in other unions. (pp. 86-87, Rollo.)
Hence, the labor arbiter concluded, the dismissal of petitioners was an
exercise of legitimate management prerogative which cannot be considered
as an unfair labor practice. On whether the SAMAHAN and the FFW could be
held liable for illegal dismissal and unfair labor practice, the arbiter opined
that since there was no employer-employee relationship between petitioners
and respondent unions, the complaint against the latter has no factual and
legal bases, because petitioners "should not have confused expulsion from
membership in the union as one and the same incident to their subsequent
employment termination."
Consequently, petitioners appealed to the NLRC on the grounds that
there was prima facie evidence of abuse of discretion on the part of the
labor arbiter and that he committed serious errors in his findings of facts.
On June 20, 1991, the NLRC rendered the herein questioned decision
affirming in toto the decision of the labor arbiter. Petitioners' motion for the
reconsideration of the NLRC decision having been denied, they resorted to
the instant petition for certiorari which presents the issue of whether or not
respondent Commission gravely abused its discretion in affirming the
decision of the labor arbiter which is allegedly in defiance of the elementary
principles of procedural due process as the petitioners were summarily
dismissed from employment without an investigation having been conducted
by the OFC on the veracity of the allegation of the SAMAHAN-FFW that they
violated the CBA.
A CBA is the law between the company and the union and compliance
therewith is mandated by the express policy to give protection to labor. Said
policy should be given paramount consideration unless otherwise provided
for by law (Meycauayan College vs. Drilon, 185 SCRA 50 [1990]). A CBA
provision for a closed shop is a valid form of union security and it is not a
restriction on the right or freedom of association guaranteed by the
Constitution (Lirag Textile Mills, Inc. vs. Blanco, 109 SCRA 87 [1981]).
However, in the implementation of the provisions of the CBA, both parties
thereto should see to it that no right is violated or impaired. In the case at
bar, while it is true that the CBA between OFC and the SAMAHAN provided
for the dismissal of employees who have not maintained their membership in
the union, the manner in which the dismissal was enforced left much to be
desired in terms of respect for the right of petitioners to procedural due
process.
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 In the first place, the union has a specific provision for the permanent
or temporary "expulsion" of its erring members in its constitution and by-
laws ("saligang batas at alituntunin"). Under the heading membership and
removal ("pag-aanib at pagtitiwalag"), it states:

Sec. 4. Ang sinumang kasapi ay maaring itiwalag (sic) ng

Samahan pangsamantala o tuluyan sa pamamagitan (sic) ng tatlo't
ikaapat (3/4) na bahagi ng dami ng bilang ng Pamunuang
Tagapagpaganap. Pagkaraan lamang sa pandinig sa kanyang kaso.
Batay sa sumusunod:
(a) Sinumang gumawa ng mga bagay bagay na labag at
lihis sa patakaran ng Samahan.
(b) Sinumang gumawa ng mga bagay na maaaring
ikabuwag ng Samahan.
(c) Hindi paghuhulog ng butaw sa loob ng tatlong buwan na
walang sakit o Doctor's Certificate.
(d) Hindi pagbibigay ng abuloy na itinatadhana ng
Samahan.
(e) Sinumang kasapi na natanggal sa kapisanan at gustong
sumapi uli ay magpapanibago ng bilang, mula sa taon ng kanyang
pagsapi uli sa Samahan. (Underscoring supplied; Ibid., p. 177).
No hearing ("pandinig") was ever conducted by the SAMAHAN to look
into petitioners' explanation of their moves to oust the union leadership
under Capitle, or their subsequent affiliation with FEDLU. While it is true that
petitioners' actions might have precipitated divisiveness and, later, showed
disloyalty to the union, still, the SAMAHAN should have observed its own
constitution and by-laws by giving petitioners an opportunity to air their side
and explain their moves. If, after an investigation the petitioners were found
to have violated union rules, then and only then should they be subjected to
proper disciplinary measures.
Here lies the distinction between the facts of this case and that of
Cariño vs. NLRC (185 SCRA 177 [1990]) upon which the Solicitor General
heavily relies in supporting the stand of petitioners. In Cariño, the erring
union official was given the chance to answer the complaints against him
before an investigating committee created for that purpose. On the other
hand, herein petitioners were not given even one opportunity to explain their
side in the controversy. This procedural lapse should not have been
overlooked considering the union security provision of the CBA.
What aggravated the situation in this case is the fact that OFC itself
took for granted that the SAMAHAN had actually conducted an inquiry and
considered the CBA provision for the closed shop as self-operating that,
upon receipt of a notice that some members of the SAMAHAN had failed to
maintain their membership in good standing in accordance with the CBA, it
summarily dismissed petitioners. To make matters worse, the labor arbiter
and the NLRC shared the same view in holding that "(t)he matter or
question, therefore, of determining why and how did complainants fail to
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 retain membership in good standing is not for the company to inquire via
formal investigation" (pp. 87 & 135, Rollo). In this regard, the following words
of my learned brother, Mr. Justice Feliciano, in the Resolution in Cariño are
apt:
4. Turning now to the involvement of the Company in the
dismissal of petitioner Cariño, we note that the Company upon being
formally advised in writing of the expulsion of petitioner Cariño from
the Union, in turn simply issued a termination letter to Cariño, the
termination being made effective the very next day. We believe that
the Company should have given petitioner Cariño an opportunity to
explain his side of the controversy with the Union. Notwithstanding
the Union's Security Clause in the CBA, the Company should have
reasonably satisfied itself by its own inquiry that the Union had not
been merely acting arbitrarily and capriciously in impeaching and
expelling petitioner Cariño . . .
xxx xxx xxx
5. We conclude that the Company had failed to accord to
petitioner Cariño the latter's right to procedural due process. The
right of an employee to be informed of the charges against him and
to reasonable opportunity to present his side in a controversy with
either the Company or his own Union, is not wiped away by a Union
Security Clause or a Union Shop Clause in a CBA. An employee is
entitled to be protected not only from a company which disregards
his rights but also from his own Union the leadership of which could
yield to the temptation of swift and arbitrary expulsion from
membership and hence dismissal from his job. (pp. 186 & 189.)
The need for a company investigation is founded on the consistent
ruling of this Court that the twin requirements of notice and hearing which
are essential elements of due process must be met in employment-
termination cases. The employee concerned must be notified of the
employer's intent to dismiss him and of the reason or reasons for the
proposed dismissal. The hearing affords the employee an opportunity to
answer the charge or charges against him and to defend himself therefrom
before dismissal is effected (Kwikway Engineering Works vs. NLRC, 195 SCRA
526 [1991]; Salaw vs. NLRC, 202 SCRA 7 [1991]). Observance to the letter of
company rules on investigation of an employee about to be dismissed is not
mandatory. It is enough that there is due notice and hearing before a
decision to dismiss is made (Mendoza vs. NLRC, 195 SCRA 606 [1991]). But
even if no hearing is conducted, the requirement of due process would have
been met where a chance to explain a party's side of the controversy had
been accorded him (Philippine Airlines, Inc. vs. NLRC, 198 SCRA 748 [1991]).
Cdpr

If an employee may be considered illegally dismissed because he was

not accorded fair investigation ( Hellenic Philippine Shipping vs. Siete, 195
SCRA 179 [1991]), the more reason there is to strike down as an inexcusable
and disdainful rejection of due process a situation where there is no
investigation at all (See: Colegio del Sto. Niño vs. NLRC, 197 SCRA 611
[1991]; Artex Development Co., Inc. vs. NLRC, 187 SCRA 611 [1990]). The
need for the observance of an employee's right to procedural due process in
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 termination cases cannot be overemphasized. After all, one's employment,
profession, trade, or calling is a "property right" and the wrongful
interference therewith gives rise to an actionable wrong (Callanta vs.
Carnation Philippines, Inc., 145 SCRA 268 [1986]). Verily, a man's right to his
labor is property within the meaning of constitutional guarantees which he
cannot be deprived of without due process (Batangas Laguna Tayabas Bus
Co. vs. Court of Appeals, 71 SCRA 470 [1976]).
While the law recognizes the right of an employer to dismiss
employees in warranted cases, it frowns upon arbitrariness as when
employees are not accorded due process (Tan, Jr. vs. NLRC , 183 SCRA 651
[1990]). Thus, the prerogatives of the OFC to dismiss petitioners should not
have been whimsically done for it unduly exposed itself to a charge of unfair
labor practice for dismissing petitioners in line with the closed shop provision
of the CBA, without a proper hearing (Tropical Hut Employees' Union-CGW
vs. Tropical Hut Food Market, Inc ., 181 SCRA 173 [1990]; citing Binalbagan-
Isabela Sugar Co., Inc. (BISCOM) vs. Philippine Association of Free Labor
Unions (PAFLU), 8 SCRA 700 [1983]). Neither can the manner of dismissal be
considered within the ambit of managerial prerogatives, for while
termination of employment is traditionally considered a management
prerogative, it is not an absolute prerogative subject as it is to limitations
founded in law, the CBA, or general principles of fair play and justice
(University of Sto. Tomas vs. NLRC, 190 SCRA 758 [1990]). LibLex

Under Rule XIV, Sections 2, 5, and 6 of the rules implementing Batas

Pambansa Blg. 130, the OFC and the SAMAHAN should solidarily indemnify
petitioners for the violation of their right to procedural due process (Great
Pacific Life Assurance Corporation vs. NLRC , 187 SCRA 694 [1990], citing
Wenphil vs. NLRC , 170 SCRA 69 [1989], Cariño vs. NLRC, supra). However,
such penalty may be imposed only where the termination of employment is
justified and not when the dismissal is illegal as in this case where the
damages are in the form of back wages.
As earlier discussed, petitioners' alleged act of sowing disunity among
the members of the SAMAHAN could have been ventilated and threshed out
through a grievance procedure within the union itself. But resort to such
procedure was not pursued. What actually happened in this case was that
some members, including petitioners, tried to unseat the SAMAHAN
leadership headed by Capitle due to the latter's alleged inattention to
petitioners' demands for the implementation of the P25-wage increase which
took effect on July 1, 1989. The intraunion controversy was such that
petitioners even requested the FFW to intervene to facilitate the
enforcement of the said wage increase (Petition, p. 54; p. 55, Rollo).
Petitioners sought the help of the FEDLU only after they had learned of
the termination of their employment upon the recommendation of Capitle.
Their alleged application with federations other than the FFW (Labor Arbiter's
Decision, pp. 4-5; pp. 82-83, Rollo) can hardly be considered as disloyalty to
the SAMAHAN, nor may the filing of such applications denote that petitioners
failed to maintain in good standing their membership in the SAMAHAN. The
SAMAHAN is a different entity from FFW, the federation to which it belonged.
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 Neither may it be inferred that petitioners sought disaffiliation from the FFW
for petitioners had not formed a union distinct from that of the SAMAHAN.
Parenthetically, the right of a local union to disaffiliate from a federation in
the absence of any provision in the federation's constitution preventing
disaffiliation of a local union is legal ( People's Industrial and Commercial
Employees and Workers Org. (FFW) vs. People's Industrial and Commercial
Corp., 112 SCRA 440 [1982]). Such right is consistent with the constitutional
guarantee of freedom of association (Tropical Hut Employees' Union-CGW
vs. Tropical Hut Food Market, Inc., 181 SCRA 173 [1990]).
Hence, while petitioners' act of holding a special election to oust
Capitle, et al. may be considered as an act of sowing disunity among the
SAMAHAN members, and, perhaps, disloyalty to the union officials, which
could have been dealt with by the union as a disciplinary matter, it certainly
cannot be considered as constituting disloyalty to the union. Faced with a
SAMAHAN leadership which they had tried to remove as officials, it was but a
natural act of self-preservation that petitioners fled to the arms of the FEDLU
after the union and the OFC had tried to terminate their employment.
Petitioners should not be made accountable for such an act.

With the passage of Republic Act No. 6715 which took effect on March
21, 1989, Article 279 of the Labor Code was amended to read as follows:
Security of Tenure. — In cases of regular employment, the
employer shall not terminate the services of an employee except for
a just cause or when authorized by this Title. An employee who is
unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and other privileges and to his full
backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.
and as implemented by Section 3, Rule 8 of the 1990 New Rules of
Procedure of the National Labor Relations Commission, it would seem that
the Mercury Drug Rule ( Mercury Drug Co., Inc. vs. Court of Industrial
Relations, 56 SCRA 694 [1974]) which limited the award of back wages of
illegally dismissed workers to three (3) years "without deduction or
qualification" to obviate the need for further proceedings in the course of
execution, is no longer applicable.
A legally dismissed employee may now be paid his back wages,
allowances, and other benefits for the entire period he was out of work
subject to the rule enunciated before the Mercury Drug Rule, which is that
the employer may, however, deduct any amount which the employee may
have earned during the period of his illegal termination (East Asiatic
Company, Ltd. vs. Court of Industrial Relations , 40 SCRA 521 [1971]).
Computation of full back wages and presentation of proof as to income
earned elsewhere by the illegally dismissed employee after his termination
and before actual reinstatement should be ventilated in the execution
proceedings before the Labor Arbiter concordant with Section 3, Rule 8 of
the 1990 new Rules of Procedure of the National Labor Relations
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 Commission. prcd

Inasmuch as we have ascertained in the text of this discourse that the

OFC whimsically dismissed petitioners without proper hearing and has thus
opened OFC to a charge of unfair labor practice, it ineluctably follows that
petitioners can receive their back wages computed from the moment their
compensation was withheld after their dismissal in 1989 up to the date of
actual reinstatement. In such a scenario, the award of back wages can
extend beyond the 3-year period fixed by the Mercury Drug Rule depending,
of course, on when the employer will reinstate the employees.
It may appear that Article 279 of the Labor Code, as amended by
Republic Act No. 6715, has made the employer bear a heavier burden than
that pronounced in the Mercury Drug Rule, but perhaps Republic Act No.
6715 was enacted precisely for the employer to realize that the employee
must be immediately restored to his former position, and to impress the idea
that immediate reinstatement is tantamount to a cost-saving measure in
terms of overhead expense plus incremental productivity to the company
which lies in the hands of the employer.
WHEREFORE, the decision appealed from is hereby SET ASIDE and
private respondents are hereby ordered to reinstate petitioners to their
former or equivalent positions without loss of seniority rights and with full
back wages, inclusive of allowances and other benefits or their monetary
equivalent, pursuant to Article 279 of the Labor Code, as amended by
Republic Act No. 6715. LLjur

SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

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