Small Business Corp. v. Commission on Audit
REITERATIONFacts
The Antecedents: The Small Business Corporation (SB Corp.), a government-owned and controlled corporation, approved a merit increase program for five of its officers. This program was established under Board Resolution No. 1863, Series of 2011, which provided for step increments based on merit and length of service, affecting the basic salary of employees. The merit increases in question were granted on April 12, 2013, and were intended to cover the period from September 1, 2012, to August 31, 2014. Procedural History: The merit increases were disallowed by the State Auditor in Notice of Disallowance (ND) No. 14-001-401000-(13) dated August 27, 2014, citing Executive Order (EO) No. 7 which imposed a moratorium on salary increases for government-owned and controlled corporations. SB Corp. appealed this disallowance to the Commission on Audit (COA) Cluster Director, who denied the appeal. Subsequently, the COA En Banc also denied SB Corp.'s petition for review, affirming the disallowance. The COA En Banc reasoned that EO No. 7 applied and that SB Corp. had implicitly recognized the authority of the Governance Commission for GOCCs (GCG) over such matters. The Petition: SB Corp. filed a Petition for Certiorari with the Supreme Court, challenging the COA En Banc's decision. The petitioner argues that the COA committed grave abuse of discretion by holding that the Board of Directors lacked the authority to grant merit increases, by failing to consider that EO No. 7 has only prospective application, and by not recognizing that the merit increases were authorized by its own salary structure and prior approvals. The core of the petition is that the merit increases did not contravene the moratorium imposed by EO No. 7 and that the COA erred in disallowing the payments.
Issue(s)
Whether the Commission on Audit (COA) committed grave abuse of discretion in holding that the Board of Directors of SB Corporation did not have the authority to grant a merit increase to its employees, considering the applicability of Executive Order No. 7. Whether Executive Order No. 7 has only prospective application and whether its application in this case impairs vested or contractual rights. Whether the clear intent of Executive Order No. 7 in relation to Section 11 of Republic Act No. 10149 is that it must be applied prospectively, and whether SB Corp. is under the jurisdiction of the Governance Commission for GOCCs (GCG). Whether petitioner was authorized to implement the subject merit increases pursuant to its approved salary structure, whether the said merit increases had already been approved by the Civil Service Commission and the Secretary of Trade and Industry, and whether SB Corp. is estopped from questioning the GCG's authority.
Ruling
The petition is denied. The assailed Decision of the Commission on Audit En Banc is affirmed.
Ratio Decidendi
On the authority of the Board of Directors to grant merit increases and the applicability of EO No. 7: The Court held that the moratorium imposed by Section 9 of EO No. 7 is applicable to the grant of merit increases by SB Corp. Merit increases are considered an increase in the rate of salary, which falls directly under the prohibition of EO No. 7. The Court clarified that SB Corp.'s exemption from the Salary Standardization Law does not grant it absolute financial independence, and the exception provided in EO No. 7 for salary adjustments pursuant to EO No. 811 and EO No. 900 does not apply to SB Corp. as it is not covered by the Salary Standardization Law. The phrase "until specifically authorized by the President" does not constitute an exception but rather a condition for lifting the moratorium. The approval of SB Corp.'s Board Resolution by the Civil Service Commission (CSC) on April 12, 2011, after the moratorium was in effect, did not override EO No. 7, as the CSC has no authority to carve out exceptions to the President's directive. Therefore, the COA did not commit grave abuse of discretion in disallowing the merit increases. On the prospective application of EO No. 7: The Court ruled that EO No. 7 was not applied retroactively. The moratorium was imposed on September 8, 2010, and the merit increases were actually granted on April 12, 2013, and applied to salaries earned from September 1, 2012, to August 31, 2014. The moratorium was in full force and effect at the time of the actual granting of the increases. The petitioner's argument that the salary structure was approved in 2009 is irrelevant, as the prohibition is on the actual granting of increased salary rates, not merely on the approval of salary structures. The interpretation that the moratorium applies to the actual giving of increased salary rates is consistent with the spirit of EO No. 7, which aims to curb excessive compensation in GOCCs and promote transparency and prudence in government spending. On SB Corp.'s jurisdiction and estoppel: The Court found that SB Corp. is within the jurisdiction of the GCG, as provided by RA No. 10149. The letter sent by SB Corp. to the GCG on June 25, 2014, requesting confirmation to proceed with its merit increase program, was an express acknowledgment of the GCG's authority and a recognition that SB Corp. did not have the sole authority to grant such increases. This was further supported by the minutes of the BOD meeting, which indicated that despite a legal opinion suggesting otherwise, several directors and the Chairman agreed to seek GCG's approval to be safe. On SB Corp.'s estoppel: Therefore, SB Corp. is estopped from questioning the GCG's authority and the applicability of EO No. 7 after having sought and been denied approval by the GCG. The COA correctly ruled that SB Corp. had no authority to solely grant the merit increase and that its actions were contrary to the GCG's denial.
Main Doctrine
The moratorium imposed by Section 9 of Executive Order No. 7 applies to the grant of merit increases by Government Owned and Controlled Corporations (GOCCs), and such grant is disallowed if it occurs during the period of the moratorium, irrespective of when the salary structure was approved. Furthermore, seeking confirmation from the Governance Commission for GOCCs (GCG) for the implementation of merit increases constitutes an acknowledgment of the GCG's authority over such matters.