FACTS

In the present incident, petitioner Bank of the Philippine Islands (BPI) moves for reconsideration of our
Decision dated August 10, 2010, holding that former employees of the Far East Bank and Trust Company
(FEBTC) “absorbed” by BPI pursuant to the two banks’ merger were covered by the Union Shop Clause in
the then existing collective bargaining agreement (CBA) of BPI with respondent BPI Employees Union-
Davao Chapter-Federation of Unions in BPI Unibank (the Union).

ISSUE

Whether or not employees are absorbed in a merger of the two corporations.

RULING

YES.

It is more in keeping with the dictates of social justice and the State policy of according full protection to
labor to deem employment contracts as automatically assumed by the surviving corporation in a merger,
even in the absence of an express stipulation in the articles of merger or the merger plan. In his dissenting
opinion, Justice Brion reasoned that:

To my mind, due consideration of Section 80 of the Corporation Code, the constitutionally declared
policies on work, labor and employment, and the specific FEBTC-BPI situation — i.e., a merger with
complete “body and soul” transfer of all that FEBTC embodied and possessed and where both
participating banks were willing (albeit by deed, not by their written agreement) to provide for the
affected human resources by recognizing continuity of employment — should point this Court to a
declaration that in a complete merger situation where there is total takeover by one corporation over
another and there is silence in the merger agreement on what the fate of the human resource
complement shall be, the latter should not be left in legal limbo and should be properly provided for, by
compelling the surviving entity to absorb these employees. This is what Section 80 of the Corporation
Code commands, as the surviving corporation has the legal obligation to assume all the obligations and
liabilities of the merged constituent corporation.

Not to be forgotten is that the affected employees managed, operated and worked on the transferred
assets and properties as their means of livelihood; they constituted a basic component of their
corporation during its existence. In a merger and consolidation situation, they cannot be treated without
consideration of the applicable constitutional declarations and directives, or, worse, be simply
disregarded. If they are so treated, it is up to this Court to read and interpret the law so that they are
treated in accordance with the legal requirements of mergers and consolidation, read in light of the social
justice, economic and social provisions of our Constitution. Hence, there is a need for the surviving
corporation to take responsibility for the affected employees and to absorb them into its workforce where
no appropriate provision for the merged corporation’s human resources component is made in the
Merger Plan.

By upholding the automatic assumption of the non-surviving corporation’s existing employment contracts
by the surviving corporation in a merger, the Court strengthens judicial protection of the right to security
of tenure of employees affected by a merger and avoids confusion regarding the status of their various
benefits which were among the chief objections of our dissenting colleagues. However, nothing in this
Resolution shall impair the right of an employer to terminate the employment of the absorbed employees
for a lawful or authorized cause or the right of such an employee to resign, retire or otherwise sever his
employment, whether before or after the merger, subject to existing contractual obligations. In this
manner, Justice Brion’s theory of automatic assumption may be reconciled with the majority’s concerns
with the successor employer’s prerogative to choose its employees and the prohibition against
involuntary servitude.

Notwithstanding this concession, the Court finds no reason to reverse our previous pronouncement that
the absorbed FEBTC employees are covered by the Union Shop Clause.

ISSUE

Whether or not employees are ipso jure absorbed in a merger of the two corporations.

RULING

NO. [H]uman beings are never embraced in the term “assets and liabilities.”Moreover, BPI’s absorption
of former FEBTC employees was neither by operation of law nor by legal consequence of contract. There
was no government regulation or law that compelled the merger of the two banks or the absorption of
the employees of the dissolved corporation by the surviving corporation. Had there been such law or
regulation, the absorption of employees of the non-surviving entities of the merger would have been
mandatory on the surviving corporation. In the present case, the merger was voluntarily entered into by
both banks presumably for some mutually acceptable consideration. In fact, the Corporation Code does
not also mandate the absorption of the employees of the non-surviving corporation by the surviving
corporation in the case of a merger.

[The] Court cannot uphold the reasoning that the general stipulation regarding transfer of FEBTC assets
and liabilities to BPI as set forth in the Articles of Merger necessarily includes the transfer of all FEBTC
employees into the employ of BPI and neither BPI nor the FEBTC employees allegedly could do anything
about it. Even if it is so, it does not follow that the absorbed employees should not be subject to the terms
and conditions of employment obtaining in the surviving corporation.

Furthermore, [the] Court believes that it is contrary to public policy to declare the former FEBTC
employees as forming part of the assets or liabilities of FEBTC that were transferred and absorbed by BPI
in the Articles of Merger. Assets and liabilities, in this instance, should be deemed to refer only to property
rights and obligations of FEBTC and do not include the employment contracts of its personnel. A
corporation cannot unilaterally transfer its employees to another employer like chattel. Certainly, if BPI
as an employer had the right to choose who to retain among FEBTC’s employees, FEBTC employees had
the concomitant right to choose not to be absorbed by BPI. Even though FEBTC employees had no choice
or control over the merger of their employer with BPI, they had a choice whether or not they would allow
themselves to be absorbed by BPI. Certainly nothing prevented the FEBTC’s employees from resigning or
retiring and seeking employment elsewhere instead of going along with the proposed absorption.

Employment is a personal consensual contract and absorption by BPI of a former FEBTC employee without
the consent of the employee is in violation of an individual’s freedom to contract. It would have been a
different matter if there was an express provision in the articles of merger that as a condition for the
merger, BPI was being required to assume all the employment contracts of all existing FEBTC employees
with the conformity of the employees. In the absence of such a provision in the articles of merger, then
BPI clearly had the business management decision as to whether or not employ FEBTC’s employees. FEBTC
employees likewise retained the prerogative to allow themselves to be absorbed or not; otherwise, that
would be tantamount to involuntary servitude.

Issue:
May a corporation invoke its merger with another corporation as a valid ground toexempt its absorbed
employees from the coverage of a union shop clause contained in itsexisting CBA with its own certified
labor union

Employment ContractsSignificantly, too, the Articles of Merger and Plan of Merger dated April 7, 2000 did
not containany specific stipulation with respect to the employment contracts of existing personnel of
thenon-surviving entity which is FEBTC. Unlike the Voluntary Arbitrator, this Court cannot upholdthe
reasoning that the general stipulation regarding transfer of FEBTC assets and liabilities toBPI as set forth
in the Articles of Merger necessarily includes the transfer of all FEBTCemployees into the employ of BPI
and neither BPI nor the FEBTC employees allegedly could doanything about it. Even if it is so, it does not
follow that the absorbed employees should not besubject to the terms and conditions of employment
obtaining in the surviving corporation.The rule is that unless expressly assumed, labor contracts such as
employment contracts andcollective bargaining agreements are not enforceable against a transferee of
an enterprise, labor contracts being in personam, thus binding only between the parties. A labor contract
merelycreates an action in personam and does not create any real right which should be respected bythird
parties. This conclusion draws its force from the right of an employer to select hisemployees and to decide
when to engage them as protected under our Constitution, and the samecan only be restricted by law
through the exercise of the police power.