TL;DR

The Supreme Court ruled that a voluntary arbitrator can decide on the legality of an employee’s dismissal and award backwages, even if the submission agreement only mentions separation pay and sales commissions. The Court reasoned that the claim for separation pay was directly linked to the allegation of illegal dismissal, thus making the legality of the dismissal an implicit issue for the arbitrator to resolve. This decision clarifies that voluntary arbitrators have the authority to address issues necessarily connected to those explicitly stated in the submission agreement, ensuring a comprehensive resolution of labor disputes and preventing piecemeal litigation. The ruling protects employees by ensuring they receive appropriate remedies, including backwages, when illegally dismissed, even if the initial submission agreement was narrowly defined.

Beyond Black and White: When a Labor Accord Implies More Than It States

Eddie Albarico, a salesman for 7K Corporation, found himself dismissed allegedly for poor performance, despite prior promotions and awards. He sought arbitration for separation pay and sales commissions. However, the arbitrator ruled his dismissal illegal and awarded backwages and attorney’s fees, exceeding the initial agreement’s scope. The question arose: can an arbitrator rule on issues not explicitly in the submission agreement?

The Supreme Court addressed whether the Court of Appeals (CA) erred in affirming the voluntary arbitrator’s jurisdiction to decide on the legality of Albarico’s dismissal and his entitlement to backwages, despite these issues not being expressly stated in the Submission Agreement. Petitioner 7K Corporation argued that the voluntary arbitrator exceeded his jurisdiction by ruling on issues beyond the scope of the Submission Agreement. However, the Court held that the arbitrator acted within his authority, as the issue of illegal dismissal was inextricably linked to Albarico’s claim for separation pay.

The Court clarified the jurisdiction of labor arbiters and voluntary arbitrators. While Article 217 of the Labor Code generally grants labor arbiters original and exclusive jurisdiction over termination disputes, Article 262 provides an exception. This provision allows voluntary arbitrators, upon agreement of the parties, to hear and decide all other labor disputes, including those falling under Article 217. Therefore, the Court affirmed that voluntary arbitrators may assume jurisdiction over termination disputes if the parties agree.

Building on this principle, the Court addressed the core issue: whether the voluntary arbitrator exceeded his authority by deciding on the legality of Albarico’s dismissal and awarding backwages. 7K Corporation contended that the arbitrator’s jurisdiction was limited to the issues explicitly stated in the Submission Agreement: separation pay and sales commissions. However, the Court disagreed, reasoning that Albarico’s claim for separation pay was directly predicated on his allegation of illegal dismissal. In other words, the issue of illegal dismissal was necessarily implied in the agreement.

The Court acknowledged that separation pay can be awarded in situations other than illegal dismissal, such as authorized causes under Article 283 of the Labor Code or for considerations of social justice. However, none of these circumstances were present in Albarico’s case. His claim for separation pay stemmed solely from his contention that he was illegally dismissed. Furthermore, the Court noted that even the NLRC recognized the connection between Albarico’s claim for separation pay and the issue of illegal dismissal when it dismissed his case for forum shopping.

Moreover, the Court cited Sime Darby Pilipinas, Inc. v. Deputy Administrator Magsalin, which established that a voluntary arbitrator has the authority to interpret an agreement to arbitrate and determine the scope of their own authority when the agreement is vague. Having established that the issue of illegal dismissal was necessarily included in the Submission Agreement, the Court ruled that the voluntary arbitrator rightly assumed jurisdiction to decide that issue. Consequently, the arbitrator could award backwages upon finding illegal dismissal, even if this entitlement was not explicitly claimed in the agreement. Backwages serve as a form of relief that restores the income lost by the illegally dismissed employee.

In conclusion, the Supreme Court’s decision in 7K Corporation v. Eddie Albarico clarifies the scope of a voluntary arbitrator’s jurisdiction, emphasizing that it extends to issues necessarily implied in the submission agreement. This ensures a more comprehensive and equitable resolution of labor disputes.

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.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: 7K Corporation v. Eddie Albarico, G.R. No. 182295, June 26, 2013