The Supreme Court ruled that the Development Bank of the Philippines (DBP) improperly granted a Governance Forum Productivity Award (GFPA) to its employees as a result of labor negotiations. While the DBP’s charter allows it to compromise claims, this power does not extend to granting contested benefits that circumvent established compensation laws. The Court clarified that government financial institutions (GFIs) must adhere to the principles of the Salary Standardization Law (SSL) when fixing employee compensation, and that industrial peace cannot justify unauthorized monetary awards. Although the disallowance of the GFPA was upheld, the Court acknowledged that the recipients acted in good faith and were not required to refund the amount.
DBP’s Award: A Compromise Too Far?
The Development Bank of the Philippines (DBP) found itself facing labor unrest in 2003, with employees demanding benefits like Amelioration Allowance (AA) and Cost of Living Allowance (COLA). To resolve the disruptions, DBP’s Board of Directors (BOD) approved a one-time Governance Forum Productivity Award (GFPA) for officers and employees. However, the Commission on Audit (COA) questioned the legality of the GFPA, leading to a disallowance and a legal battle that reached the Supreme Court. At the heart of the issue was whether the DBP’s BOD had the authority to grant the GFPA as a compromise to settle a labor dispute, or if it exceeded its powers.
DBP argued that Section 9 of its charter authorized it to compromise claims, stating:
Sec. 9. Powers and Duties of the Board of Directors. The Board of Directors shall have, among others, the following duties, powers and authority:
x x x x
The bank emphasized that its charter granted it autonomy in fixing employee compensation and allowances, citing Section 13, which states that the Board of Directors shall “fix their remunerations and other emoluments.” DBP maintained that this section exempted it from existing compensation laws.
However, the Court noted that while DBP’s charter exempted it from certain compensation laws, it also required the bank’s compensation system to conform to the principles of the Salary Standardization Law (SSL). This caveat limited the BOD’s authority to freely fix salaries and allowances, preventing it from entirely disregarding the guidelines of the SSL. The Court emphasized that the power to fix compensation structure under which it may grant allowances and monetary awards remains circumscribed by the SSL; it may not entirely depart from the spirit of the guidelines therein.
The Court also highlighted the policy requiring prior Presidential approval for allowances and benefits, as outlined in Presidential Decree (PD) 1597 and Memorandum Order (MO) 20. This requirement aimed to ensure rationalization and standardization across government entities. What distinguished the GFPA was that it stemmed from negotiations between DBP employees and management, a process the COA viewed as labor negotiations.
The Supreme Court clarified the scope of DBP’s authority to compromise, stating that it applied to existing claims or settled liabilities, not to contested benefits demanded by employees. To interpret the provision as including contested benefits that are demanded by employees of a chartered GFI such as the DBP is a wide stretch. To reiterate, its officers and employees’ remunerations may only be granted in the manner provided under Sec. 13 of its charter and conformably with the SSL.
The Court also agreed with the COA’s stance that industrial peace was not a valid factor in fixing employee compensation under the SSL. The grant of wider latitude to DBP’s BOD in fixing remunerations and emoluments does not include an abrogation of the principle that employees in the civil service “cannot use the same weapons employed by the workers in the private sector to secure concessions from their employees.” Therefore, the GFPA was deemed an ultra vires act, exceeding the BOD’s authority.
Despite upholding the disallowance, the Court recognized that the recipients of the GFPA had acted in good faith. In line with established jurisprudence, government officials and employees who receive disallowed benefits in good faith are not required to refund the amounts. The Court found no evidence of bad faith on the part of the DBP with regard to the grant of the GFPA. Even the COA argued that the disallowance of the GFPA was a distinct matter from the legality of the AA because the disallowance of the GFPA boiled down to the propriety of the compromise between DBP and its employees.
FAQs
| What was the key issue in this case? | The central issue was whether the Development Bank of the Philippines (DBP) had the authority to grant the Governance Forum Productivity Award (GFPA) to its employees as a compromise to settle a labor dispute. The Commission on Audit (COA) disallowed the award, arguing that it exceeded the bank’s powers. |
| What is the Salary Standardization Law (SSL)? | The SSL is a law that aims to standardize the compensation of government officials and employees, ensuring fair and equitable wages across different government entities. It sets guidelines and principles for determining salaries, allowances, and other benefits. |
| What does ‘ultra vires’ mean in this context? | ‘Ultra vires’ means ‘beyond powers.’ In this case, it refers to the DBP Board of Directors acting outside the scope of their legal authority when they granted the GFPA. |
| Why was the GFPA disallowed by the COA? | The COA disallowed the GFPA because it was considered an unauthorized benefit granted as a result of labor negotiations, circumventing the established compensation laws and regulations. |
| Were DBP employees required to return the GFPA? | No, the Supreme Court ruled that the DBP employees were not required to return the GFPA because they had received it in good faith, without any knowledge that it was improperly granted. |
| What is the significance of ‘good faith’ in this case? | The ‘good faith’ of the DBP employees was a crucial factor in the Court’s decision to exempt them from refunding the disallowed GFPA. Recipients of disallowed benefits are generally not required to return the amounts if they received them in good faith. |
| Can government-owned corporations freely determine employee compensation? | Government-owned corporations have some flexibility in setting employee compensation, but they must still adhere to the principles of the Salary Standardization Law and obtain prior approval from the President for certain allowances and benefits. |
| What are the implications for other government financial institutions? | The ruling serves as a reminder to government financial institutions to adhere to compensation laws and regulations. It clarifies that while they may have some autonomy in fixing employee compensation, their powers are not unlimited and must be exercised within the bounds of the law. |
In conclusion, the Supreme Court’s decision underscores the importance of adhering to established compensation laws and regulations, even when seeking to resolve labor disputes or promote industrial peace. While government entities have some flexibility in managing their affairs, they must operate within the confines of their legal authority.
For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.
Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Development Bank of the Philippines v. Commission on Audit, G.R. No. 210838, July 03, 2018
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