ASG Law

Tag: Executive Order No. 7

  • Government Employee Benefits and Collective Bargaining: When Can a CBA Override Presidential Moratoriums?

    This Supreme Court decision clarifies the limits of collective bargaining agreements (CBAs) for government employees, particularly when they conflict with presidential directives. The Court ruled that the Clark Development Corporation (CDC) could not implement certain economic benefits agreed upon in a CBA with its supervisory employees because these benefits violated a presidential moratorium on increases in salaries and allowances for government-owned and controlled corporations (GOCCs). This means that even if a CBA is negotiated in good faith, its provisions cannot override existing laws and presidential orders designed to regulate government spending.

    CBA vs. Presidential Power: Who Decides GOCC Employee Benefits?

    The case arose from a renegotiated Collective Bargaining Agreement (CBA) between the Clark Development Corporation (CDC) and the Association of CDC Supervisory Personnel (ACSP). This CBA granted additional benefits to the supervisory employees, including increased leave days, a signing bonus, and salary increases. However, the Governance Commission for Government-Owned and-Controlled Corporations (GCG) raised concerns that the CBA violated Executive Order (EO) No. 7, which imposed a moratorium on increases in salaries, allowances, incentives, and other benefits in GOCCs without presidential authorization. The Bases Conversion Development Authority (BCDA) also recommended deferment of the CBA pending proof of CDC’s financial sustainability. This prompted ACSP to file a complaint, leading to a legal battle over the validity of the CBA’s economic terms.

    The central legal question revolved around whether the CBA could be enforced despite the existing presidential moratorium. The Accredited Voluntary Arbitrator (AVA) initially sided with the union, presuming presidential approval of the CBA’s economic provisions based on the principle of liberal construction in favor of labor. The Court of Appeals (CA) affirmed this decision, reasoning that EO No. 7 did not apply to CDC, as it was a GOCC without an original charter, and that presidential approval should be presumed in favor of labor. However, the Supreme Court ultimately reversed these decisions, emphasizing the limitations on government employees’ collective bargaining rights and the binding nature of presidential directives.

    The Supreme Court’s analysis hinged on the principle that the right of government employees to collective bargaining is not as extensive as that of private employees. Furthermore, the Court emphasized that only terms and conditions of government employment not fixed by law can be negotiated. Executive Order No. 7, Series of 2010, explicitly imposed a moratorium on increases in salaries and allowances for GOCCs, absent specific authorization from the President. The purpose of this moratorium was to control excessive compensation in GOCCs and strengthen supervision over their financial practices. The Court found that the renegotiated economic provisions of the CBA fell squarely within the scope of this prohibition.

    The Court addressed the lower courts’ reliance on Section 10 of EO No. 7, which suspended allowances and bonuses for members of GOCC boards. It clarified that this section was distinct from Section 9, which imposed the broader moratorium on salary and benefit increases. Moreover, the Court rejected the argument that EO No. 7 did not apply to CDC because it was a GOCC without an original charter, stating that the law makes no such distinction.

    “Ubi lex non distinguit nec nos distinguire debemus. When the law does not distinguish, we must not distinguish.”

    This underscored the principle that all GOCCs, regardless of their manner of creation, are subject to the same rules and regulations regarding compensation.

    Building on this principle, the Court considered Republic Act No. 10149, the “GOCC Governance Act of 2011,” which further restricts the authority of GOCCs to determine their own compensation systems. This law empowers the GCG to develop a compensation and position classification system applicable to all GOCCs, subject to presidential approval. In this case, the GCG did not favorably recommend the CBA’s additional benefits; instead, it argued that the CBA violated EO No. 7. This lack of endorsement further undermined the validity of the CBA’s economic provisions. Moreover, the subsequent issuance of EO No. 203, Series of 2016, explicitly prohibits GOCCs from negotiating the economic terms of their CBAs, reinforcing the GCG’s authority and the President’s control over GOCC compensation.

    This approach contrasts with the earlier decisions of the AVA and the CA, which had presumed presidential approval of the CBA’s economic terms based on the principle of liberal construction in favor of labor. The Supreme Court rejected this presumption, emphasizing that the principle only applies when there are doubts in the interpretation and implementation of the Labor Code and its implementing rules. In this case, the Court found the language of Section 9 of EO No. 7 to be unambiguous, requiring the President’s explicit consent for any additional benefits. Consequently, the Court held that any presumption of presidential approval was unwarranted, and the CBA’s economic terms were void for violating the law.

    The Court also cited analogous cases, such as Social Housing Employees Association, Inc. v. Social Housing Finance Corp., where the Court upheld the revocation of CBA provisions that violated EO No. 7 and RA No. 10149. Similarly, in Philippine National Construction Corporation v. National Labor Relations Commission, the Court ruled that the non-diminution rule was not violated when the petitioner ceased granting mid-year bonuses without presidential authorization. These cases support the principle that government entities must adhere to legal restrictions on compensation, even if those restrictions conflict with existing CBAs. Therefore, the CDC had valid reason not to implement the increases in salaries and benefits, because contracts violating the law are void and cannot create rights or obligations.

    FAQs

    What was the key issue in this case? The central issue was whether a collective bargaining agreement (CBA) between a government-owned corporation and its employees could override a presidential moratorium on salary and benefit increases.
    What is Executive Order No. 7? Executive Order No. 7 is a presidential order that imposed a moratorium on increases in salaries, allowances, incentives, and other benefits in government-owned and controlled corporations (GOCCs) without specific presidential authorization.
    Does EO No. 7 apply to all GOCCs? Yes, the Supreme Court clarified that EO No. 7 applies to all GOCCs, regardless of whether they have an original charter or were incorporated under the Corporation Code.
    What is the role of the Governance Commission for GOCCs (GCG)? The GCG is authorized to develop a compensation and position classification system applicable to all GOCCs, subject to the President’s approval, and to recommend incentives for certain positions based on good performance.
    Can presidential approval of CBA terms be presumed? No, the Supreme Court ruled that presidential approval of additional benefits in a CBA cannot be presumed; explicit authorization is required to lift the moratorium imposed by EO No. 7.
    What is Republic Act No. 10149? Republic Act No. 10149, also known as the “GOCC Governance Act of 2011,” promotes financial viability and fiscal discipline in GOCCs and strengthens the state’s role in their governance and management.
    What happens when a CBA violates the law? Any contract, including a CBA, that violates the law is considered void and cannot be a source of rights or obligations.
    What is the significance of EO No. 203? Executive Order No. 203 explicitly prohibits GOCCs from negotiating the economic terms of their CBAs, further reinforcing the President’s control over GOCC compensation.

    Ultimately, this case reinforces the principle that while government employees have the right to collective bargaining, this right is subject to legal limitations and presidential directives aimed at controlling government spending and ensuring fiscal responsibility. The Supreme Court’s decision underscores the importance of adhering to established legal frameworks, even when negotiating terms and conditions of employment through collective bargaining agreements.

    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: CLARK DEVELOPMENT CORPORATION vs. ASSOCIATION OF CDC SUPERVISORY PERSONNEL UNION, G.R. No. 207853, March 20, 2022

  • CBA Benefits and Presidential Approval: Balancing Labor Rights and GOCC Financial Discipline

    The Supreme Court ruled that a Collective Bargaining Agreement (CBA) granting additional benefits to employees of a government-owned and controlled corporation (GOCC) is invalid without the President’s specific approval. This decision reinforces the principle that while government employees have the right to collective bargaining, this right is limited by laws and regulations aimed at ensuring fiscal responsibility in GOCCs. The ruling emphasizes that the terms and conditions of government employment are primarily fixed by law, and any deviation requires explicit presidential authorization. It serves as a reminder that the principle of favoring labor cannot override clear legal prohibitions and the need for government oversight of GOCC finances.

    Navigating the Moratorium: Can a CBA Promise Benefits Without Presidential Consent?

    This case revolves around a dispute between Clark Development Corporation (CDC) and the Association of CDC Supervisory Personnel Union (ACSP) regarding a renegotiated CBA. The CBA included additional benefits for supervisory employees, such as increased leave days, a signing bonus, and additional allowances. However, the Governance Commission for Government-Owned and Controlled Corporations (GCG) challenged the validity of the CBA, arguing that it violated Executive Order (EO) No. 7, Series of 2010, which imposed a moratorium on increases in salaries and benefits in GOCCs without presidential approval. The central legal question is whether the CBA’s economic terms are enforceable without such approval, and whether the principle of favoring labor can override this requirement.

    The Court begins by addressing the right of government employees to self-organization and collective bargaining, noting that these rights are not as extensive as those of private employees. This distinction is crucial because the terms and conditions of government employment are largely fixed by law. Therefore, only aspects not already determined by law are open for negotiation. This framework sets the stage for understanding the impact of EO No. 7, which directed the rationalization of compensation systems in GOCCs and imposed a moratorium on salary and benefit increases unless specifically authorized by the President.

    The Court emphasizes the broad language of the moratorium in EO No. 7, designed to halt additional salaries and allowances to GOCC employees and officers. This moratorium aimed to control excessive compensation and strengthen oversight of GOCC finances. The exception to this rule was salary adjustments made pursuant to existing Salary Standardization Laws (SSL), which did not cover the renegotiated economic provisions of the CDC and ACSP CBA. This distinction is critical, as it clarifies that the CBA’s additional benefits fell squarely within the scope of the moratorium.

    Building on this, the Court cites Small Business Corporation v. Commission on Audit, clarifying that the phrase “until specifically authorized by the President” does not create an exception but rather describes a situation where the President lifts the moratorium. The use of “until” signifies that the moratorium remains in effect until the President explicitly authorizes the increases. The Court also takes judicial notice that the President never lifted the moratorium after its issuance in September 2010, rendering the CBA’s economic terms void due to their violation of the law.

    The Court also dismisses the reliance of the Court of Appeals (CA) and the Accredited Voluntary Arbitrator (AVA) on Section 10 of EO No. 7, which pertains to the suspension of allowances for members of GOCC boards of directors. This section is irrelevant to ACSP, a union of supervisory employees. Further, the Court rejects the CA and AVA’s argument that EO No. 7 does not apply to CDC because it is a GOCC without an original charter, stating that the law makes no such distinction. Citing the principle of “Ubi lex non distinguit nec nos distinguere debemus” (where the law does not distinguish, neither should we), the Court asserts that EO No. 7 applies to all GOCCs, regardless of their creation.

    The enactment of Republic Act (RA) No. 10149, known as the “GOCC Governance Act of 2011,” further reinforces the need for presidential approval. This law removes the authority of GOCCs to independently determine their compensation systems, tasking the GCG with developing a compensation and position classification system for all GOCC employees, subject to presidential approval. The GCG is also authorized to recommend incentives for specific positions based on GOCC performance. In this case, the GCG did not recommend the additional benefits in the CDC-ACSP CBA; instead, it opined that the CBA violated EO No. 7, while the Bases Conversion and Development Authority (BCDA) suggested deferment or renegotiation.

    Significantly, the President issued EO No. 203 in 2016, adopting a compensation and position classification system for GOCCs. Section 2 of EO No. 203 explicitly prohibits GOCC governing boards from negotiating the economic terms of CBAs with their officers and employees, further supporting the GCG’s position that the moratorium under EO No. 7 remains effective until a comprehensive compensation framework is in place. This provision underscores the intent to centralize control over GOCC compensation and ensure compliance with government-wide policies.

    The Court also dismisses the argument that the principle of construing in favor of labor should apply. This principle is only relevant when there are doubts in the interpretation and implementation of the Labor Code and its regulations. In this case, the language of Section 9 of EO No. 7 regarding the moratorium on salary increases is unambiguous, requiring that the law be interpreted and applied according to its plain meaning. The requirement for presidential consent to lift the moratorium is clear, and any presumption of such approval is unwarranted.

    In line with these principles, the Court cites analogous cases like Social Housing Employees Association, Inc. v. Social Housing Finance Corp., where the revocation of CBA economic provisions was upheld due to violations of EO No. 7 and RA No. 10149. Similarly, in Philippine National Construction Corporation v. National Labor Relations Commission, the Court found no violation of the non-diminution rule when the company ceased granting mid-year bonuses without presidential approval, the company having failed to obtain the President’s approval as to the grant of additional benefits.

    In conclusion, the Court emphasizes that CDC had a valid reason not to implement the salary and benefit increases outlined in the renegotiated CBA. Because the terms and conditions of government employment are fixed by law, any contract that violates these laws is void and cannot be a source of rights and obligations. This decision underscores the importance of adhering to legal requirements and obtaining proper authorization when negotiating CBAs in the government sector.

    FAQs

    What was the key issue in this case? The central issue was whether the Clark Development Corporation (CDC) could implement a Collective Bargaining Agreement (CBA) granting additional benefits to its employees without the approval of the President of the Philippines, given Executive Order No. 7, which imposed a moratorium on such increases.
    What is Executive Order No. 7 (EO 7)? EO 7, issued in 2010, directed the rationalization of the compensation and position classification system in Government-Owned and Controlled Corporations (GOCCs) and imposed a moratorium on increases in salaries, allowances, incentives, and other benefits unless specifically authorized by the President.
    What is the significance of Republic Act No. 10149 (RA 10149)? RA 10149, also known as the “GOCC Governance Act of 2011,” removes the authority of GOCCs to determine their own compensation systems and authorizes the Governance Commission for GOCCs (GCG) to develop a compensation and position classification system applicable to all GOCCs, subject to presidential approval.
    Why did the Supreme Court rule against the Collective Bargaining Agreement (CBA)? The Supreme Court ruled against the CBA because its economic terms, which included additional benefits for employees, were renegotiated without the President’s approval, violating the moratorium imposed by EO 7 and the provisions of RA 10149 that require presidential approval for compensation systems in GOCCs.
    Does the principle of construing in favor of labor apply in this case? The Supreme Court held that the principle of construing in favor of labor does not apply because the language of Section 9 of EO 7 regarding the moratorium on salary increases is unambiguous, and the law must be interpreted and applied according to its plain meaning.
    What was the role of the Governance Commission for GOCCs (GCG) in this case? The GCG intervened in the case, arguing that the CBA contravened EO 7 and RA 10149, and that the moratorium on the grant of additional benefits remained effective pending the promulgation and approval of the compensation and position classification system for GOCCs.
    What is the meaning of “Ubi lex non distinguit nec nos distinguere debemus” in this context? This Latin phrase means “where the law does not distinguish, neither should we.” The Supreme Court cited this principle to reject the argument that EO 7 does not apply to CDC because it is a GOCC without an original charter, stating that the law makes no such distinction between GOCCs.
    What are the implications of this ruling for other GOCCs and their employees? This ruling reinforces the principle that GOCCs must adhere to legal requirements and obtain proper authorization, particularly presidential approval, when negotiating CBAs that involve increases in salaries and benefits for employees. It serves as a reminder that the right to collective bargaining is limited by laws and regulations aimed at ensuring fiscal responsibility in GOCCs.

    This case clarifies the balance between labor rights and the government’s need to maintain fiscal discipline in GOCCs. The requirement for presidential approval ensures that any increases in salaries and benefits are aligned with broader government policies and financial sustainability. As such, it is crucial for GOCCs and their employees to understand these limitations and comply with the relevant laws and regulations.

    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: CLARK DEVELOPMENT CORPORATION VS. ASSOCIATION OF CDC SUPERVISORY PERSONNEL UNION, G.R. No. 207853, March 20, 2022

  • Navigating Salary Increases in Government-Owned Corporations: Understanding the Legal Boundaries

    Key Takeaway: The Importance of Adhering to Presidential Moratoriums on Salary Increases in Government-Owned Corporations

    Small Business Corporation v. Commission on Audit, G.R. No. 251178, April 27, 2021

    Imagine a scenario where employees of a government-owned corporation eagerly await their salary increments, only to find out that the increases they received were disallowed by the Commission on Audit (COA). This is precisely what happened in the case of the Small Business Corporation (SBC) versus the COA, which underscores the critical importance of understanding and adhering to legal directives, particularly those issued by the President, concerning salary adjustments within government institutions.

    In this case, SBC implemented salary increases for its employees from September 1, 2012, to September 30, 2014, amounting to P4,489,002.09. The central legal question was whether these salary increases were lawful in light of Executive Order No. 7 (EO No. 7), which imposed a moratorium on such increases for government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs).

    Legal Context: Understanding Moratoriums and Salary Structures in GOCCs and GFIs

    The legal framework governing salary adjustments in GOCCs and GFIs is intricate, involving several statutes and executive orders. At the heart of this case is EO No. 7, issued by then-President Benigno S. Aquino III on September 8, 2010. This order imposed a moratorium on increases in salaries, allowances, incentives, and other benefits for GOCCs and GFIs, stating:

    SECTION 9. Moratorium on Increases in Salaries, Allowances, Incentives and Other Benefits. – Moratorium on increases in the rates of salaries, and the grant of new increases in the rates of allowances, incentives and other benefits, except salary adjustments pursuant to Executive Order No. 811 dated June 17, 2009 and Executive Order No. 900 dated June 23, 2010 are hereby imposed until specifically authorized by the President.

    This moratorium was intended to strengthen supervision over compensation levels and prevent excessive remuneration packages, as articulated in the whereas clauses of EO No. 7. It is crucial to understand that while certain GOCCs and GFIs may have the authority to set their salary structures, as SBC did under Republic Act No. 6977, such power remains subject to presidential oversight and applicable laws.

    Moreover, the Governance Commission for GOCCs (GCG), established under Republic Act No. 10149, plays a pivotal role in overseeing compensation frameworks. The GCG is tasked with preventing unconscionable and excessive remuneration packages, and its involvement in this case highlights its authority over SBC’s salary adjustments.

    Case Breakdown: The Journey of SBC’s Salary Increases

    The story of SBC’s salary increases began with the approval of a revised salary structure on February 8, 2010, by the Department of Trade and Industry (DTI) Secretary. This structure included provisions for step increments based on merit and length of service, as outlined in Board Resolution No. 1610 and later detailed in Board Resolution No. 1863, issued on October 28, 2011.

    Despite the approval of the salary structure before the issuance of EO No. 7, the actual implementation of the salary increases occurred between September 1, 2012, and September 30, 2014. This timing was critical because it fell within the period covered by the moratorium.

    The COA issued six notices of disallowance against the salary increases, asserting that they violated EO No. 7. SBC appealed these disallowances to the COA Cluster Director and then to the COA Proper, arguing that the increases were lawful due to prior approval of their salary structure. However, both the COA Cluster Director and the COA Proper upheld the disallowances, emphasizing that the salary increases were implemented during the moratorium’s effectivity.

    The Supreme Court, in its decision, found no grave abuse of discretion by the COA. It emphasized that the moratorium applied to the actual granting of salary increases, not merely their approval:

    “It is the date of the actual giving of the increased salary rate that is material insofar as determining whether the moratorium imposed by EO No. 7 is applicable or not[,]” irrespective of when the GOCC’s/GFI’s salary structure was approved[.]

    Furthermore, the Court held that the approving and certifying officers of SBC acted with gross negligence in authorizing the salary increases despite the clear prohibition under EO No. 7. As a result, they were held solidarity liable for the return of the disallowed amounts, while the payee-recipients were individually liable under the principle of solutio indebiti.

    Practical Implications: Navigating Future Salary Adjustments in GOCCs and GFIs

    This ruling has significant implications for GOCCs and GFIs planning salary adjustments. It underscores the necessity of aligning such adjustments with presidential directives and ensuring compliance with applicable laws and regulations. Future salary increases must be carefully timed and approved, considering any existing moratoriums or oversight requirements.

    For businesses and institutions within this sector, it is advisable to consult with legal experts to ensure that any proposed salary adjustments are in full compliance with current legal standards. This case also serves as a reminder of the importance of understanding the distinction between the approval of a salary structure and its actual implementation.

    Key Lessons:

    • Always verify the current status of any presidential directives or moratoriums before implementing salary increases.
    • Ensure that all salary adjustments are reviewed and, if necessary, approved by relevant oversight bodies like the GCG.
    • Be aware of the legal principles of solutio indebiti and the potential liability for both approving officers and recipients of disallowed amounts.

    Frequently Asked Questions

    What is a moratorium on salary increases?

    A moratorium on salary increases is a temporary suspension of any new salary adjustments or increments, typically issued by a higher authority like the President, to control or stabilize financial expenditures within government institutions.

    Can a GOCC or GFI implement salary increases during a moratorium?

    No, as per the ruling in the SBC case, salary increases implemented during the effectivity of a moratorium are subject to disallowance, even if the salary structure was approved prior to the moratorium.

    What is the role of the Governance Commission for GOCCs in salary adjustments?

    The GCG oversees the compensation frameworks of GOCCs and GFIs, ensuring that they adhere to legal standards and prevent excessive remuneration packages.

    What are the liabilities for approving officers and recipients of disallowed salary increases?

    Approving officers may be held solidarity liable for the return of disallowed amounts if they acted with gross negligence or bad faith. Recipients are individually liable under the principle of solutio indebiti, regardless of their good faith.

    How can GOCCs and GFIs ensure compliance with salary adjustment regulations?

    Regularly consult with legal experts, stay updated on presidential directives and applicable laws, and ensure that any salary adjustments are reviewed by oversight bodies like the GCG.

    ASG Law specializes in government and corporate law. Contact us or email hello@asglawpartners.com to schedule a consultation.

  • Moratorium on Salary Increases: Limits on GOCC Board Authority

    The Supreme Court has affirmed that government-owned and controlled corporations (GOCCs) cannot grant salary increases to their employees if a moratorium on such increases is in effect, even if the GOCC’s board of directors has the authority to set compensation. In Small Business Corporation vs. Commission on Audit, the Court ruled that Executive Order No. 7, which imposed a moratorium on salary increases, took precedence over the Small Business Corporation’s (SB Corp.) board’s authority to determine its employees’ compensation. This decision underscores the limits of GOCC autonomy in the face of executive orders designed to ensure fiscal prudence.

    SB Corp.’s Quest for Merit Increases: When Presidential Moratoriums Override Board Discretion

    This case revolves around the Small Business Corporation (SB Corp.), a government-owned and controlled corporation, and its attempt to grant merit increases to five of its officers. SB Corp. argued that its Board of Directors (BOD) had the authority to set the compensation of its employees, as provided in its charter. However, the Commission on Audit (COA) disallowed the merit increases, citing Executive Order No. 7 (EO No. 7), which imposed a moratorium on increases in salaries, allowances, incentives, and other benefits for GOCCs. The central question is whether EO No. 7 overrides the authority of SB Corp.’s BOD to grant merit increases.

    SB Corp. was created under Republic Act (RA) No. 6977, as amended by RA No. 8289, and further amended by RA No. 9501, known as the Magna Carta for Micro, Small and Medium Enterprises (MSMEs). Section 14(f) of RA No. 9501 states:

    “Notwithstanding the provisions of Republic Act. No. 6758 and Compensation Circular No. 10, Series of 1989 issued by the Department of Budget and Management, the Board shall have the authority to provide for the organizational structure, staffing pattern of SB Corporation and extend to the employees and personnel thereof salaries, allowances, and fringe benefits similar to those extended to and currently enjoyed by employees and personnel of other government financial institutions.”

    SB Corp. argued that this provision granted its BOD the authority to set its employees’ compensation, regardless of other laws or regulations. However, in September 2010, President Benigno S. Aquino III issued EO No. 7, which imposed a moratorium on increases in salaries, allowances, and other benefits for GOCC officers and employees. Section 9 of EO No. 7 states:

    “SECTION 9. Moratorium on Increases in Salaries, Allowances, Incentives, and Other Benefits Moratorium on increases in the rates of salaries, and the grant of new increases in the rates of allowances, incentives, and other benefits, except salary adjustments pursuant to Executive Order No. 811 dated June 17, 2009 and Executive Order No. 900 dated June 23, 2010 are hereby imposed until specifically authorized by the President.”

    The COA argued that EO No. 7 applied to SB Corp. and that the merit increases granted to the five officers were therefore disallowed. SB Corp., however, contended that EO No. 7 should not apply retroactively and that its BOD had the authority to grant the merit increases. Furthermore, they argued that by requesting GCG approval, they did not acknowledge GCG’s authority over SB Corp.

    The Supreme Court disagreed with SB Corp.’s arguments. The Court held that EO No. 7 was applicable to the grant of merit increases because the moratorium was already in effect when the increases were granted in April 2013. The court reasoned that a merit increase constitutes an “increase in the rates of salaries,” which is expressly prohibited by EO No. 7. The Court further emphasized that the moratorium’s intent was to curb excessive compensation in GOCCs and GFIs.

    Building on this principle, the Court clarified that EO No. 7 did not apply retroactively because the merit increases were granted after the issuance of the EO. The Court stated:

    “There is no question that EO No. 7 does not provide for any retroactive application. However, petitioner’s interpretation of which acts are prohibited by the moratorium runs contrary to the plain wording of EO No. 7 when it imposed the moratorium on “increases in the rates of salaries, and the grant of new increases in the rates of allowances, incentives and other benefits.” The E.O. did not prohibit merely the grant of increased salary rates in corporate salary structures; it also intended to halt the actual giving of increased salary rates.”

    This approach contrasts with SB Corp.’s argument that the salary structure was already in place before EO No. 7. The Court found that the operative act was the actual grant of the increase, not the existence of the salary structure. The Court further held that SB Corp. recognized the Governance Commission for GOCCs’ (GCG) jurisdiction over it when it sought confirmation from the GCG to proceed with the merit increase program. The court cited SB Corp.’s letter stating they “look up to GCG as the proper authority to confirm our request prior to implementation”. This letter was interpreted as an acknowledgment that SB Corp. needed GCG approval.

    The Supreme Court emphasized the powers and functions of the GCG as outlined in RA No. 10149, the GOCC Governance Act of 2011. Section 5 of RA No. 10149 provides that the GCG has the authority to:

    “(h) Conduct compensation studies, develop and recommend to the President a competitive compensation and remuneration system which shall attract and retain talent, at the same time allowing the GOCC to be financially sound and sustainable… (j) Coordinate and monitor the operations of GOCCs, ensuring alignment and consistency with the national development policies and programs.”

    Therefore, the Supreme Court ultimately ruled that the COA did not commit grave abuse of discretion in disallowing the merit increases. The Court held that EO No. 7 was applicable, that it was not applied retroactively, and that SB Corp. was within the jurisdiction of the GCG. The petition was denied.

    FAQs

    What was the key issue in this case? The key issue was whether Executive Order No. 7, which imposed a moratorium on salary increases for GOCCs, overrides the authority of the Small Business Corporation’s (SB Corp.) Board of Directors to grant merit increases to its employees.
    What is a government-owned and controlled corporation (GOCC)? A GOCC is a corporation that is owned or controlled by the government. These corporations are typically established to provide essential services or to engage in activities that are important to the national economy.
    What is the significance of Executive Order No. 7? Executive Order No. 7 imposed a moratorium on increases in salaries, allowances, incentives, and other benefits for GOCC officers and employees. This EO aimed to promote transparency, accountability, and prudence in government spending.
    Did the court find that SB Corp. was subject to EO No. 7? Yes, the court found that SB Corp. was subject to EO No. 7, as the EO applied to all GOCCs unless specifically exempted. SB Corp. was not exempt from the coverage of EO No. 7.
    Why did the COA disallow the merit increases? The COA disallowed the merit increases because they were granted during the period when EO No. 7’s moratorium was in effect. The COA determined that the increases violated the EO’s prohibition on salary increases.
    Did SB Corp.’s request for GCG confirmation affect the court’s decision? Yes, the court considered SB Corp.’s request for confirmation from the GCG as an acknowledgment that SB Corp. needed GCG approval. This request undermined SB Corp.’s argument that it had the sole authority to grant the merit increases.
    What is the role of the Governance Commission for GOCCs (GCG)? The GCG is the central advisory, monitoring, and oversight body for GOCCs. It has the authority to formulate, implement, and coordinate policies concerning GOCCs, including their compensation and remuneration systems.
    What was SB Corp.’s main argument in challenging the disallowance? SB Corp.’s main argument was that its Board of Directors had the authority to set employee compensation and that EO No. 7 should not be applied retroactively. However, the court rejected both of these arguments.

    This case clarifies the limits of a GOCC’s autonomy when executive orders are in place to regulate fiscal matters. Even when a GOCC’s board has the power to determine compensation, that power is not absolute and can be restricted by presidential directives aimed at ensuring responsible government spending.

    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: SMALL BUSINESS CORPORATION, PETITIONER, VS. COMMISSION ON AUDIT, RESPONDENT., G.R. No. 230628, October 03, 2017