FACTS:

The petitioner in these cases is a company engaged in the manufacture of automotive parts. It entered into agreements with service providers to perform tasks such as forwarding, packing, loading, and other related services. The company maintained that the services rendered by the service providers' employees are different from the functions undertaken by its regular rank-and-file employees covered by the bargaining unit. The unions, on the other hand, demanded that the service providers' employees be assimilated as regular company employees and absorbed by the collective bargaining unit. The petitioners argued that the unions' demands constituted an unlawful interference in the company's prerogative to choose who to hire and that the tasks performed by regular employees and the service providers' employees were not identical.

In both cases, the disputes were submitted to voluntary arbitration. In the first case, the voluntary arbitrator ruled that the company validly contracted out its forwarding services, but found that the service providers' employees encroached upon the functions of the petitioner's regular employees and should be considered regular employees entitled to all the rights and privileges of regular employees. In the second case, the voluntary arbitrator ruled in favor of the unions, declaring the forwarders' employees as regular employees of the company. The petitioners in both cases appealed the decisions to the Court of Appeals (CA), which fully affirmed the decisions of the voluntary arbitrators, holding that the decisions of voluntary arbitrators on matters of fact and law, within the scope of their authority, are conclusive and constitute res adjudicata.

The petitioners then filed petitions for review before the Supreme Court, questioning the CA rulings. They argued that the CA erred in affirming the decisions of the voluntary arbitrators, as the arbitrators lacked jurisdiction and the forwarders and their employees were not parties to the arbitration cases. The petitioners asserted that they have the prerogative to contract out services for efficiency and economic reasons. They also maintained that there are distinctions between the work of the forwarders' employees and that of the regular employees.

Both cases present similar disputes regarding the employment status of forwarders' employees and the extent of the company's management prerogative to contract out work.

ISSUES:

1. Whether or not the company validly contracted out or outsourced the services involving forwarding, packing, loading, and clerical activities related thereto.

2. Whether or not the functions of the forwarders' employees are functions being performed by regular rank-and-file employees covered by the bargaining unit.

3. Whether or not the outsourcing of the forwarding activities violates labor laws and the collective bargaining agreement (CBA).

4. Whether the forwarder employees should be considered as regular company employees and be included in the bargaining unit.

5. Whether the union has the legal standing to make the claim for the forwarder employees.

6. Whether the employees of the forwarders are regular company employees

RULING:

1. The voluntary arbitration ruling cannot bind third parties who are not parties to the voluntary arbitration and over whom the voluntary arbitrator has no jurisdiction. The ruling can only be recognized as valid between its immediate parties as a case arising from their collective bargaining agreement. The forwarders and their employees are not indispensable parties, and the case is not mooted by their absence. The ruling will fully bind the immediate parties and shall apply to their relationship and the interpretation and enforcement of the collective bargaining agreement provisions relevant to the arbitrated issues.

2. The outsourcing of the forwarding activities does not violate labor laws and the CBA. There is no evidence or argument effectively showing that the outsourcing interfered with, restrained, or coerced employees in the exercise of their rights to self-organization. The only remaining issue is the failure to recognize certain forwarder employees as regular company employees and the effect of this failure on the scope of coverage of the CBA.

3. The union cannot claim through voluntary arbitration that the forwarder employees should be considered regular company employees and be included in the bargaining unit. The appropriate avenue for this claim would be through negotiations or before the National Labor Relations Commission, but not through voluntary arbitration. Furthermore, the union does not have the legal personality to make this claim for the forwarder employees.

4. The evidence presented does not prove the union's point that the forwarder employees undertake company activities rather than forwarding activities. The union's own evidence, in the form of affidavits from forwarder employees, confirms that their work is predominantly related to forwarding or the shipment and transport of the company's finished goods. Therefore, the union does not have the legal standing to make the claim for the forwarder employees.

5. The Court nullified and set aside the decision of the Court of Appeals which declared the employees of the forwarders, including Kuehne & Nagel, Inc. (KNI), to be regular company employees. The Court concluded that based on the evidence presented, the employees do not conduct inventory of finished goods and their tasks are limited to counting and loading them into trucks and preparing transport documents. Therefore, they do not meet the qualifications of regular employees. The Court also noted that the issue of the voluntary arbitrator's authority to rule on issues not expressly submitted was not necessary to dwell upon in this case.

PRINCIPLES:

• Voluntary arbitration rulings are valid only between the immediate parties to the case arising from their collective bargaining agreement.

• The voluntary arbitration process cannot bind third parties who are not parties to the voluntary arbitration and over whom the voluntary arbitrator has no jurisdiction.

• Contracting out or outsourcing of services is a legitimate exercise of management prerogative, as long as it is motivated by good faith, not for the purpose of circumventing the law, and does not involve or result from malicious or arbitrary action.

• The company's basic objective of achieving greater economy and efficiency of operations can negate the presence of bad faith in outsourcing arrangements.

• The requirements of Article 106 of the Labor Code and its implementing rules must be complied with in outsourcing arrangements.

• Outsourcing of activities is permissible as long as it does not violate labor laws, regulations, and the CBA.

• Outsourced employees work for the outsourcer in the outsourcer's own operation that is itself a contracted work from the company.

• The skills requirements and job content between outsourced jobs and bargaining unit jobs may be the same, but their work for different purposes and entities completely distinguish and separate outsourced and company employees from one another.

• The recognition and scope of a bargaining unit is defined and specified in the CBA.

• The appropriate avenue for claims regarding the status of employees and their inclusion in a bargaining unit depends on the specific circumstances and may require negotiations or a complaint before the National Labor Relations Commission.

• To be considered regular company employees and included in a bargaining unit, forwarder employees must first be proven to be regular company employees.

• The nature of outsourced services is not substantially altered by occasional work that pertains to the company's activities, as long as the overall nature of the work is related to the forwarding activities.

• The task and function of an employee determines the nature of their employment, whether regular or not.

• The voluntary arbitrator has the authority to rule on issues that arise as a consequence of their findings on the submitted issues.