Are Verbal Promises Made During CBA Negotiations Binding? Understanding the Limits of Collective Bargaining Agreements

TLDR: This Supreme Court case clarifies that verbal promises or undertakings made during Collective Bargaining Agreement (CBA) negotiations, if not explicitly written into the final CBA document, are generally not legally enforceable. Employers are only obligated to fulfill the terms outlined in the signed CBA, emphasizing the importance of documenting all agreed terms in the formal agreement to avoid future disputes.

[ G.R. No. 113856, September 07, 1998 ] SAMAHANG MANGGAGAWA SA TOP FORM MANUFACTURING UNITED WORKERS OF THE PHILIPPINES (SMTFM-UWP), ITS OFFICERS AND MEMBERS, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, HON. JOSE G. DE VERA  AND  TOP FORM MANUFACTURING PHIL., INC., RESPONDENTS.

INTRODUCTION

Imagine a scenario where a company, during heated negotiations with its employees’ union, verbally assures them of certain benefits to reach a compromise and finalize a Collective Bargaining Agreement (CBA). Later, when the time comes to honor these assurances, the company backtracks, claiming the verbal promises are not part of the legally binding CBA. This situation is not merely hypothetical; it’s a real concern for unions and employers alike in the Philippines. This case, Samahang Manggagawa sa Top Form Manufacturing vs. National Labor Relations Commission, delves into this very issue, clarifying the legal weight of verbal commitments made during CBA negotiations and underscoring the critical importance of the written CBA document.

At the heart of this dispute is the question: Can an employer be held liable for unfair labor practice for failing to honor verbal promises of across-the-board wage increases made during CBA negotiations, even if these promises are not explicitly included in the final CBA? The Supreme Court’s decision provides crucial insights into the nature of collective bargaining and the enforceability of agreements in the Philippine labor context.

LEGAL CONTEXT: COLLECTIVE BARGAINING AND UNFAIR LABOR PRACTICE

In the Philippines, labor law strongly encourages collective bargaining as a mechanism for ensuring fair terms and conditions of employment. The Labor Code defines collective bargaining as the process of negotiating an agreement between an employer and a legitimate labor organization representing the employees. This agreement, once formalized, becomes the Collective Bargaining Agreement (CBA), a legally binding contract that governs the relationship between the company and its unionized employees.

A critical aspect of labor law is the prohibition against Unfair Labor Practices (ULP). Article 248 of the Labor Code outlines various employer actions that constitute ULP, including “bargaining in bad faith.” Bargaining in bad faith essentially means that an employer is not genuinely engaging in negotiations with the intent to reach a fair and mutually acceptable agreement. This can manifest in various forms, such as refusing to make counter-proposals, delaying negotiations unreasonably, or, as alleged in this case, making promises during negotiations and then reneging on them.

Article 252 of the Labor Code further clarifies the “duty to bargain collectively,” stating:

“SEC. 252. Meaning of Duty to Bargain Collectively. – The duty to bargain collectively means the performance of a mutual obligation to meet and convene promptly and expeditiously in good faith for the purpose of negotiating an agreement with respect to wages, hours of work and all other terms and conditions of employment including proposals for adjusting any grievances or questions arising under such agreement and executing a contract incorporating such agreements if requested by either party but such duty does not compel any party to agree to a proposal or to make any concession.”

This provision highlights that while parties are obligated to bargain in good faith, there’s no compulsion to agree to any specific proposal. The law encourages agreement, but it respects the autonomy of both parties in negotiations. This case hinges on interpreting “good faith bargaining” in the context of verbal promises made during these negotiations.

CASE BREAKDOWN: TOP FORM MANUFACTURING AND THE WAGE INCREASE DISPUTE

The Samahang Manggagawa sa Top Form Manufacturing – United Workers of the Philippines (SMTFM-UWP) union was the recognized bargaining agent for the employees of Top Form Manufacturing Philippines, Inc. During CBA negotiations in 1990, the union proposed that any future government-mandated wage increases should be implemented across-the-board. Minutes from a negotiation meeting indicated that while management acknowledged the union’s proposal and their past practice of across-the-board increases, the union ultimately decided to defer the inclusion of this specific provision in the CBA.

Union members later claimed in a joint affidavit that they dropped their proposal for an “automatic across-the-board wage increase” based on the company’s negotiating panel’s “undertaking/promise.” They stated they relied on the company’s representation and past practice. Subsequently, the Regional Tripartite Wages and Productivity Board (RTWPB-NCR) issued Wage Orders Nos. 01 and 02, mandating wage increases.

When the union requested across-the-board implementation of these wage orders, Top Form Manufacturing refused. Instead, the company implemented a differentiated scheme, granting the full mandated increase only to lower-paid employees and smaller, scaled increases to higher-paid employees, citing the need to avoid wage distortion. This led the union to file an Unfair Labor Practice case, arguing that the company had bargained in bad faith by reneging on its promise of across-the-board increases.

The case proceeded through the following stages:

1. Labor Arbiter: The Labor Arbiter dismissed the union’s complaint, finding no evidence of bad faith bargaining. The Arbiter noted that the union itself had deferred its proposal and that the wage orders did not mandate across-the-board increases. The differentiated implementation was deemed a reasonable attempt to prevent wage distortion.
2. National Labor Relations Commission (NLRC): The NLRC affirmed the Labor Arbiter’s decision, finding no merit in the union’s appeal. The NLRC agreed that the verbal promise was not binding as it wasn’t in the CBA and that the company’s implementation of the wage orders was not discriminatory or indicative of bad faith.
3. Supreme Court: The union then elevated the case to the Supreme Court via a Petition for Certiorari, arguing grave error on the part of the NLRC.

The Supreme Court, in its decision penned by Justice Romero, upheld the NLRC’s ruling. The Court emphasized that:

“The CBA is the law between the contracting parties… Compliance with a CBA is mandated by the expressed policy to give protection to labor. In the same vein, CBA provisions should be ‘construed liberally rather than narrowly and technically, and the courts must place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.’ This is founded on the dictum that a CBA is not an ordinary contract but one impressed with public interest. It goes without saying, however, that only provisions embodied in the CBA should be so interpreted and complied with. Where a proposal raised by a contracting party does not find print in the CBA, it is not a part thereof and the proponent has no claim whatsoever to its implementation.”

The Court reasoned that if the union wanted the across-the-board wage increase to be a binding commitment, it should have ensured its inclusion in the CBA. The minutes of the negotiation, while reflecting discussions, did not constitute a binding agreement on their own. The Court further stated:

“If indeed private respondent promised to continue with the practice of granting across-the-board salary increases ordered by the government, such promise could only be demandable in law if incorporated in the CBA.”

Because the promise was not in the CBA, the Court concluded that the company was not guilty of unfair labor practice or discrimination. The Court also agreed with the lower tribunals that there was no significant wage distortion resulting from the company’s implementation of the wage orders.

PRACTICAL IMPLICATIONS: LESSONS FOR UNIONS AND EMPLOYERS

This case provides critical lessons for both unions and employers involved in collective bargaining in the Philippines.

For Unions:

• Get it in Writing: Verbal promises, no matter how sincerely made during negotiations, carry little legal weight unless they are explicitly written into the CBA document. Unions must insist on including all agreed terms, especially crucial economic benefits, in the written agreement.
• Focus on the CBA Document: The CBA is the ultimate source of enforceable rights and obligations. Unions should meticulously review the CBA to ensure it accurately reflects all agreements reached during negotiations.
• Document Everything: While minutes of meetings are not substitutes for CBA provisions, they can serve as supporting evidence. However, the primary focus should always be on the final, signed CBA.

For Employers:

• Clarity in Negotiations: While verbal assurances might facilitate smoother negotiations, employers should be cautious about making promises they are not prepared to codify in the CBA. Misunderstandings about verbal commitments can lead to ULP charges and strained labor relations.
• CBA as the Definitive Agreement: Employers should ensure that their actions are consistent with the written CBA. Implementation of wage orders or other benefits should be guided by the terms of the CBA and relevant labor laws.
• Good Faith Bargaining: While verbal promises outside the CBA are not strictly binding, maintaining good faith throughout negotiations is crucial. Transparency and clear communication can prevent disputes and foster a positive labor-management relationship.

KEY LESSONS

• CBA is King: In Philippine labor law, the Collective Bargaining Agreement is the paramount document defining the terms and conditions of employment for unionized employees.
• Verbal Promises are Not Enough: Verbal agreements made during CBA negotiations, if not incorporated into the written CBA, are generally not legally enforceable.
• Importance of Documentation: Both unions and employers must prioritize documenting all agreed-upon terms in the written CBA to avoid future disputes and ensure clarity of obligations.
• Focus on Written Agreement: When disputes arise, labor tribunals and courts will primarily look at the written CBA to determine the rights and obligations of the parties.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1: What is a Collective Bargaining Agreement (CBA)?

A: A CBA is a legally binding contract between an employer and a union representing its employees, outlining the terms and conditions of employment, such as wages, benefits, working hours, and grievance procedures.

Q2: Are minutes of CBA negotiation meetings legally binding?

A: Generally, minutes of negotiation meetings are not legally binding in themselves. They serve as a record of discussions but do not replace the formal CBA document. Only terms explicitly written and signed into the CBA are legally enforceable.

Q3: What constitutes “bargaining in bad faith”?

A: Bargaining in bad faith is an unfair labor practice where an employer (or union) does not genuinely intend to reach an agreement during negotiations. Examples include refusing to make counter-proposals, unreasonable delays, or surface bargaining without real intent to concede.

Q4: Can a company change its mind after verbally agreeing to something during CBA negotiations?

A: Yes, unless the verbal agreement is formalized and written into the CBA. Until the CBA is signed, tentative agreements are not legally binding. This case emphasizes the importance of ensuring all agreed terms are in the final written CBA.

Q5: What is wage distortion and why is it relevant in wage increase implementation?

A: Wage distortion occurs when mandated wage increases disproportionately affect lower-level employees, significantly reducing or eliminating pay differentials with higher-level positions. Companies sometimes implement wage increases in a tiered manner to mitigate wage distortion, as seen in this case.

Q6: What should unions do to ensure verbal promises are honored by employers?

A: Unions should insist on including all verbal promises and agreements in the written CBA document before signing. They should not rely solely on verbal assurances and must ensure all crucial terms are explicitly stated in the CBA.

Q7: Is it always unfair labor practice if an employer doesn’t fulfill a verbal promise made during CBA negotiations?

A: Not necessarily. As this case shows, if the verbal promise is not incorporated into the CBA, failing to fulfill it may not automatically be considered unfair labor practice, especially if the employer’s actions are not demonstrably in bad faith in the overall bargaining process.

ASG Law specializes in Labor Law and Collective Bargaining Agreement negotiations. Contact us or email hello@asglawpartners.com to schedule a consultation.