THIRD DIVISION

March 18, 2015

G.R. No. 205300

FONTERRA BRANDS PHILS., INC., Petitioner,

vs.
LEONARDO1 LARGADO and TEOTIMO ESTRELLADO, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the reversal and setting aside of the Decision of the Court of Appeals (CA) dated
September 6, 2012, as well as its January 11, 2013 Resolution denying reconsideration
thereof, in CA-G.R. SP No. 114227, entitled Leonardo Largado and Teotimo P.
Estrellado v. National Labor Relations Commission (NLRC), Fonterra Brands Phils.,
lnc./Carlo Mendoza, Zytron Marketing & Promotions Corp./Francisco Valencia, A. C.
Sicat Marketing & Promotional Services/Arturo Sicat.

The Facts

Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of Zytron
Marketing and Promotions Corp. (Z)rtron) for the marketing and promotion of its milk
and dairy products. Pursuant to the contract, Zytron provided Fonterra with trade
merchandising representatives (TMRs), including respondents Leonardo Largado
(Largado) and Teotimo Estrellado (Estrellado). The engagement of their services began
on September 15, 2003 and May 27, 2002, respectively, and ended on June 6, 2006.

On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions contract,
effective June 5, 2006. Fonterra then entered into an agreement for manpower supply
with A.C. Sicat Marketing and Promotional Services (A.C. Sicat). Desirous of continuing
their work as TMRs, respondents submitted their job applications with A.C. Sicat, which
hired them for a term of five (5) months, beginning June 7, 2006 up to November 6,
2006.

When respondents 5-month contracts with A.C. Sicat were about to expire, they
allegedly sought renewal thereof, but were allegedly refused. This prompted
respondents to file complaints for illegal dismissal, regularization, non-payment of
service incentive leave and 13th month pay, and actual and moral damages, against
petitioner, Zytron, and A.C. Sicat.
The Labor Arbiter dismissed the complaint and ruled that: (1) respondents were not
illegally dismissed. As a matter of fact, they were the ones who refused to renew their
contract and that they voluntarily complied with the requirements for them to claim their
corresponding monetary benefits in relation thereto; and (2) they were consecutively
employed by Zytron and A.C. Sicat, not by Fonterra. The dispositive portion of the
Decision2 reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered DISMISSING the

instant case for utter lack of merit.

SO ORDERED.

The NLRC affirmed the Labor Arbiter, finding that respondents separation from Zytron
was brought about by the execution of the contract between Fonterra and A.C. Sicat
where the parties agreed to absorb Zytrons personnel, including respondents. Too,
respondents failed to present any evidence that they protested this set-up. Furthermore,
respondents failed to refute the allegation that they voluntarily refused to renew their
contract with A.C. Sicat. Also, respondents did not assert any claim against Zytron and
A.C. Sicat. The NLRC disposed of the case in this wise:

WHEREFORE, premises considered, the appeals are hereby ordered DISMISSED and
the Decision of the Labor Arbiter is AFFIRMED [in] toto.

SO ORDERED.3

The NLRC decision was assailed in a petition under Rule 65 before the CA.

Ruling on the petition, the CA, in the questioned Decision,4 found that A.C. Sicat
satisfies the requirements of legitimate job contracting, but Zytron does not. According
to the CA: (1) Zytrons paid-in capital of 250,000 cannot be considered as substantial
capital; (2) its Certificate of Registration was issued by the DOLE months after
respondents supposed employment ended; and (3) its claim that it has the necessary
tools and equipment for its business is unsubstantiated. Therefore, according to the CA,
respondents were Fonterras employees.

Additionally, the CA held that respondents were illegally dismissed since Fonterra itself
failed to prove that their dismissal is lawful. However, the illegal dismissal should be
reckoned from the termination of their supposed employment with Zytron on June 6,
2006. Furthermore, respondents transfer to A.C. Sicat is tantamount to a completely
new engagement by another employer. Lastly, the termination of their contract with A.C.
Sicat arose from the expiration of their respective contracts with the latter. The CA, thus,
ruled that Fonterra is liable to respondents and ordered the reinstatement of
respondents without loss of seniority rights, with full backwages, and other benefits from
the time of their illegal dismissal up to the time of their actual reinstatement. The fallo of
the Decision reads:
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed
Decision dated 20 November 2009 and Resolution dated 5 March 2010 of the National
Labor Relations Commission (NLRC), Seventh Division, are
hereby ANULLED and SET ASIDE. Private respondent Fonterra Brand, Inc. is hereby
ordered to REINSTATE [respondents] without loss of seniority rights. Private
respondents Fonterra Brand, Inc. and Zytron Marketing and Promotional Corp. are
hereby further ORDERED to jointly and severally pay petitioners their full backwages
and other benefits from the time of their illegal dismissal up to the time of their actual
reinstatement; and attorneys fees.

SO ORDERED.

Zytron and Fonterra moved for reconsideration, but to no avail. Hence, this petition.

The Issues

Petitioner presents the following issues for Our resolution:

I.The CA erred in ruling that Zytron was a mere labor-only contractor to petitioner
Fonterra, in that:

a.As held by the Court, there is no absolute figure that constitutes "substantial"
capital for an independent contractor, and the same should instead be measured
against the type of work it is obligated to do for the principal. It is most
respectfully submitted that, here, the merchandising work undertaken by Zytrons
paid-in capital of 250,000 was as of 1990, the year it was incorporated;

b.As shown in its Articles of Incorporation, Zytron had been in business since
1990, or more than a decade before it signed a merchandising agreement with
petitioner Fonterra;

c.Very importantly, petitioner Fonterra never exercised the right to control

respondents and other employees of Zytron. Indeed, respondents neither alleged
that petitioner exercised control over them nor presented proof in support thereof
in any of their previous pleadings.

II.Respondents never claimed nor adduced evidence that they were dismissed from
employment by Zytron. In fact, Zytron denies terminating them from work. The CA, thus,
erred in finding that respondents were "illegally dismissed."

Succinctly, the issues in the case at bar are: (1) whether or not Zytron and A.C. Sicat
are labor-only contractors, making Fonterra the employer of herein respondents; and (2)
whether or not respondents were illegally dismissed.

Our Ruling
We find merit in the petition.

As regards the CAs conclusion that Zytron is not a legitimate job contractor, We are of
the view that such is immaterial to the resolution of the illegal dismissal issue for one
reason: We find that respondents voluntarily terminated their employment with Zytron,
contrary to their allegation that their employment with Zytron was illegally terminated.

We do not agree with the CA that respondents employment with Zytron was illegally
terminated.

As correctly held by the Labor Arbiter and the NLRC, the termination of respondents
employment with Zytron was brought about by the cessation of their contracts with the
latter. We give credence to the Labor Arbiters conclusion that respondents were the
ones who refused to renew their contracts with Zytron, and the NLRCs finding that they
themselves acquiesced to their transfer to A.C. Sicat.

By refusing to renew their contracts with Zytron, respondents effectively resigned from
the latter. Resignation is the voluntary act of employees who are compelled by personal
reasons to dissociate themselves from their employment, done with the intention of
relinquishing an office, accompanied by the act of abandonment. 5

Here, it is obvious that respondents were no longer interested in continuing their

employment with Zytron. Their voluntary refusal to renew their contracts was brought
about by their desire to continue their assignment in Fonterra which could not happen in
view of the conclusion of Zytrons contract with Fonterra. Hence, to be able to continue
with their assignment, they applied for work with A.C. Sicat with the hope that they will
be able to continue rendering services as TMRs at Fonterra since A.C. Sicat is
Fonterras new manpower supplier. This fact is even acknowledged by the CA in the
assailed Decision where it recognized the reason why respondents applied for work at
A.C. Sicat. The CA stated that "[t]o continuously work as merchandisers of Fonterra
products, [respondents] submitted their job applications to A.C. Sicat x x x." 6 This is
further bolstered by the fact that respondents voluntarily complied with the requirements
for them to claim their corresponding monetary benefits in relation to the cessation of
their employment contract with Zytron.

In short, respondents voluntarily terminated their employment with Zytron by refusing to

renew their employment contracts with the latter, applying with A.C. Sicat, and working
as the latters employees, thereby abandoning their previous employment with Zytron.
Too, it is well to mention that for obvious reasons, resignation is inconsistent with illegal
dismissal. This being the case, Zytron cannot be said to have illegally dismissed
respondents, contrary to the findings of the CA.

As regards respondents employment with A.C. Sicat and its termination via non-
renewal of their contracts, considering that in labor-only contracting, the law creates an
employer-employee relationship between the principal and the labor-only contractors
employee as if such employees are directly employed by the principal employer, and
considers the contractor as merely the agent of the principal,7 it is proper to dispose of
the issue on A.C. Sicats status as a job contractor first before resolving the issue on the
legality of the cessation of respondents employment.

In this regard, We defer to the findings of the CA anent A.C. Sicats status as a
legitimate job contractor, seeing that it is consistent with the rules on job contracting and
is sufficiently supported by the evidence on record.

A person is considered engaged in legitimate job contracting or subcontracting if the

following conditions concur:

1.The contractor or subcontractor carries on a distinct and independent business

and undertakes to perform the job, work or service on its own account and under
its own responsibility according to its own manner and method, and free from the
control and direction of the principal in all matters connected with the
performance of the work except as to the results thereof;

2.The contractor or subcontractor has substantial capital or investment; and

3.The agreement between the principal and contractor or subcontractor assures

the contractual employees entitlement to all labor and occupational safety and
health standards, free exercise of the right to self-organization, security of tenure,
and social and welfare benefits.8

On the other hand, contracting is prohibited when the contractor or subcontractor

merely recruits, supplies or places workers to perform a job, work or service for a
principal and if any of the following elements are present, thus:

1.The contractor or subcontractor does not have substantial capital or investment

which relates to the job, work or service to be performed and the employees
recruited, supplied or placed by such contractor or subcontractor are performing
activities which are directly related to the main business of the principal; or

2.The contractor does not exercise the right to control over the performance of
the work of the contractual employee.9

The CA correctly found that A.C. Sicat is engaged in legitimate job contracting. It duly
noted that A.C. Sicat was able to prove its status as a legitimate job contractor for
having presented the following evidence, to wit:

1.Certificate of Business Registration;

2.Certificate of Registration with the Bureau of Internal Revenue;

3.Mayors Permit;
 4.Certificate of Membership with the Social Security System;

5.Certificate of Registration with the Department of Labor and Employment;

6.Company Profile; and

7.Certifications issued by its clients.10

Furthermore, A.C. Sicat has substantial capital, having assets totaling 5,926,155.76 as
of December 31, 2006. Too, its Agreement with Fonterra clearly sets forth that A.C.
Sicat shall be liable for the wages and salaries of its employees or workers, including
benefits, premiums, and protection due them, as well as remittance to the proper
government entities of all withholding taxes, Social Security Service, and Medicare
premiums, in accordance with relevant laws.

The appellate court further correctly held that Fonterras issuance of Merchandising
Guidelines, stock monitoring and inventory forms, and promo mechanics, for
compliance and use of A.C. Sicats employees assigned to them, does not establish
that Fonterra exercises control over A.C. Sicat. We agree with the CAs conclusion that
these were imposed only to ensure the effectiveness of the promotion services to be
rendered by the merchandisers as it would be risky, if not imprudent, for any company
to completely entrust the performance of the operations it has contracted out.

These sufficiently show that A.C. Sicat carries out its merchandising and promotions
business, independent of Fonterras business. Thus, having settled that A.C. Sicat is a
1w phi 1

legitimate job contractor, We now determine whether the termination of respondents

employment with the former is valid.

We agree with the findings of the CA that the termination of respondents employment
with the latter was simply brought about by the expiration of their employment contracts.

Foremost, respondents were fixed-term employees. As previously held by this Court,

fixed-term employment contracts are not limited, as they are under the present Labor
Code, to those by nature seasonal or for specific projects with predetermined dates of
completion; they also include those to which the parties by free choice have assigned a
specific date of termination.11 The determining factor of such contracts is not the duty of
the employee but the day certain agreed upon by the parties for the commencement
and termination of the employment relationship.12

In the case at bar, it is clear that respondents were employed by A.C. Sicat as project
employees. In their employment contract with the latter, it is clearly stated that "[A.C.
Sicat is] temporarily employing [respondents] as TMR[s] effective June 6[, 2006] under
the following terms and conditions: The need for your service being only for a specific
project, your temporary employment will be for the duration only of said project of our
client, namely to promote FONTERRA BRANDS products x x x which is expected to be
finished on or before Nov. 06, 2006."13
Respondents, by accepting the conditions of the contract with A.C. Sicat, were well
aware of and even acceded to the condition that their employment thereat will end on
said pre-determined date of termination. They cannot now argue that they were illegally
dismissed by the latter when it refused to renew their contracts after its expiration. This
is so since the non-renewal of their contracts by A.C. Sicat is a management
prerogative, and failure of respondents to prove that such was done in bad faith
militates against their contention that they were illegally dismissed. The expiration of
their contract with A.C. Sicat simply caused the natural cessation of their fixed-term
employment thereat. We, thus, see no reason to disturb the ruling of the CA in this
respect.

With these, We need not belabor the other assigned errors.

IN VIEW OF THE FOREGOING, the instant Petition for Review is GRANTED. The
assailed Decision of the Court of Appeals dated September 6, 2012 and its January 11,
2013 Resolution denying reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor Relations
Commission dated November 20, 2009 and its Resolution dated March 5, 2010 in
NLRC Case No. RAB IV 12-23927-06-Q are hereby REINSTATED.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 202961 February 4, 2015

EMER MILAN, RANDY MASANGKAY, WILFREDO JAVIER, RONALDO DAVID,

BONIFACIO MATUNDAN, NORA MENDOZA, et al., Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SOLID MILLS, INC., and/or PHILIP
ANG, Respondents.

DECISION

LEONEN, J.:

An employer is allowed to withhold terminal pay and benefits pending the employee's
return of its properties.

Petitioners are respondent Solid Mills, Inc.' s (Solid Mills) employees.1 They are
represented by the National Federation of Labor Unions (NAFLU), their collective
bargaining agent.2

As Solid Mills employees, petitionersand their families were allowed to occupy SMI
Village, a property owned by Solid Mills.3 According to Solid Mills, this was "[o]ut of
liberality and for the convenience of its employees . . . [and] on the condition that the
employees . . . would vacate the premises anytime the Company deems fit." 4

In September 2003, petitioners were informed that effective October 10, 2003, Solid
Mills would cease its operations due to serious business losses.5 NAFLU recognized
Solid Mills closure due to serious business losses in the memorandum of agreement
dated September 1, 2003.6 The memorandum of agreement provided for Solid Mills
grant of separation pay less accountabilities, accrued sick leave benefits, vacation leave
benefits, and 13th month pay to the employees.7 Pertinent portions of the agreement
provide:

WHEREAS, the COMPANYhas incurred substantial financial losses and is currently

experiencing further severe financial losses;

WHEREAS, in view of such irreversible financial losses, the COMPANY will cease its
operations on October 10, 2003;

WHEREAS, all employees of the COMPANY on account of irreversible financial losses,

will bedismissed from employment effective October 10, 2003;
In view thereof, the parties agree as follows:

1. That UNION acknowledges that the COMPANY is experiencing severe

financial losses and as a consequence of which, management is constrained to
cease the companys operations.

2. The UNION acknowledges that under Article 283 of the Labor Code,
separation pay is granted to employees who are dismissed due to closures or
cessation of operations NOT DUE to serious business losses.

3. The UNION acknowledges that in view of the serious business losses the
Company has been experiencing as seen in their audited financial statements,
employees ARE NOT granted separation benefits under the law.

4. The COMPANY, by way of goodwill and in the spirit of generosity agrees to

grant financial assistance less accountabilities to members of the Union based
on length of service to be computed as follows: (Italics in this paragraph
supplied)

Number of days - 12.625 for every year of service

5. In view of the above, the members of the UNION will receive such financial
assistance on an equal monthly installments basis based on the following
schedule:

First Check due on January 5, 2004 and every 5th of the month thereafter until
December 5, 2004.

6. The COMPANY commits to pay any accrued benefits the Union members are
entitled to, specifically those arising from sick and vacation leave benefits and
13th month pay, less accountabilities based on the following schedule:

One Time Cash Payment to bedistributed anywhere from. . . .

....

8. The foregoing agreement is entered into with full knowledge by the parties of
their rights under the law and they hereby bind themselves not to conduct any
concerted action of whatsoever kind, otherwise the grant of financial assistance
as discussed above will be withheld.8 (Emphasis in the original)

Solid Mills filed its Department of Labor and Employment termination report on
September 2, 2003.9

Later, Solid Mills, through Alfredo Jingco, sent to petitioners individual notices to vacate
SMI Village.10
Petitioners were no longer allowed to report for work by October 10, 2003.11 They were
required to sign a memorandum of agreement with release and quitclaim before their
vacation and sick leave benefits, 13th month pay, and separation pay would be
released.12 Employees who signed the memorandum of agreement were considered to
have agreed to vacate SMI Village, and to the demolition of the constructed houses
inside as condition for the release of their termination benefits and separation
pay.13 Petitioners refused to sign the documents and demanded to be paid their benefits
and separation pay.14

Hence, petitioners filed complaintsbefore the Labor Arbiter for alleged non-payment of
separation pay, accrued sick and vacation leaves, and 13th month pay. 15 They argued
that their accrued benefits and separation pay should not be withheld becausetheir
payment is based on company policy and practice.16 Moreover, the 13th month pay is
based on law, specifically, Presidential Decree No. 851.17 Their possession of Solid Mills
property is not an accountability that is subject to clearance procedures. 18 They had
already turned over to SolidMills their uniforms and equipment when Solid Mills ceased
operations.19

On the other hand, Solid Mills argued that petitioners complaint was premature
because they had not vacated its property.20

The Labor Arbiter ruled in favor of petitioners.21 According to the Labor Arbiter, Solid
Mills illegallywithheld petitioners benefits and separation pay.22 Petitioners right to the
payment of their benefits and separation pay was vestedby law and contract. 23 The
memorandum of agreement dated September 1, 2003 stated no condition to the effect
that petitioners must vacate SolidMills property before their benefits could be given to
them.24 Petitioners possession should not be construed as petitioners "accountabilities"
that must be cleared first before the release of benefits.25 Their possession "is not by
virtue of any employer-employee relationship."26 It is a civil issue, which isoutside the
jurisdiction of the Labor Arbiter.27

The dispositive portion of the Labor Arbiters decision reads:

WHEREFORE, premises considered, judgment is entered ORDERING respondents

SOLID MILLS, INC. and/or PHILIP ANG (President), in solido to pay the remaining 21
complainants:

1) 19 of which, namely EMER MILAN, RAMON MASANGKAY, ALFREDO

JAVIER, RONALDO DAVID, BONIFACIO MATUNDAN, NORA MENDOZA,
MYRNA IGCAS, RAUL DE LAS ALAS, RENATO ESTOLANO, REX S.
DIMAFELIX, MAURA MILAN, JESSICA BAYBAYON, ALFREDO MENDOZA,
ROBERTO IGCAS, ISMAEL MATA, CARLITO DAMIAN, TEODORA MAHILOM,
MARILOU LINGA, RENATO LINGA their separation pay of 12.625 days pay per
year of service, pro-rated 13th month pay for 2003 and accrued vacation and sick
leaves, plus 12% interest p.a. from date of filing of the leadcase/judicial demand
on 12/08/03 until actual payment and/or finality;
 2) the remaining 2 of which, complainants CLEOPATRA ZACARIAS, as she
already received on 12/19/03 her accrued 13th month pay for 2003, accrued
VL/SL total amount of P15,435.16, likewise, complainant Jerry L. Sesma as he
already received his accrued 13th month pay for 2003, SL/VL in the total amount
of P10,974.97, shall be paid only their separation pay of 12.625 days pay per
year of service but also with 12% interest p.a. from date of filing of the lead
case/judicial demand on 12/08/03 until actual payment and/or finality, which
computation as of date, amount to as shown in the attached computation sheet.

3) Nine (9) individual complaintsviz., of Maria Agojo, Joey Suarez, Ronaldo

Vergara, Ronnie Vergara, Antonio R. Dulo, Sr., Bryan D. Durano, Silverio P.
Durano, Sr., Elizabeth Duarte and Purificacion Malabanan are DISMISSED
WITH PREJUDICE due to amicable settlement, whereas, that of [RONIE
ARANAS], [EMILITO NAVARRO], [NONILON PASCO], [GENOVEVA PASCO],
[OLIMPIO A. PASCO] are DISMISSED WITHOUT PREJUDICE, for lack of
interest and/or failure to prosecute.

The Computation and Examination unit is directed to cause the computation of the
award in Pars. 2 and 3 above.28(Emphasis in the original)

Solid Mills appealed to the National Labor Relations Commission. 29 It prayed for, among
others, the dismissal of the complaints against it and the reversal of the Labor Arbiters
decision.30

The National Labor Relations Commission affirmed paragraph 3 of the Labor Arbiters
dispositive portion, but reversed paragraphs 1 and 2. Thus:

WHEREFORE, the Decision of Labor Arbiter Renaldo O. Hernandez dated 10/17/05 is

AFFIRMED in so far as par. 3 thereof is concerned but modified in that paragraphs 1
and 2 thereof are REVERSED and SET ASIDE. Accordingly, the following
complainants, namely: Emir Milan, Ramon Masangkay, Alfredo Javier, Ronaldo David,
Bonifacio Matundan, Nora Mendoza, Myrna Igcas, Raul De Las Alas, Renato Estolano,
Rex S. Dimaf[e]lix, Maura Milan, Jessica Baybayon, Alfredo Mendoza, Roberto Igcas,
Cleopatra Zacarias and Jerry L. Sesmas monetary claims in the form of separation pay,
accrued 13th month pay for 2003, accrued vacation and sick leave pays are held in
abeyance pending compliance of their accountabilities to respondent company by
turning over the subject lots they respectively occupy at SMI Village Sucat

Muntinlupa City, Metro Manila to herein respondent company.31

The National Labor Relations Commission noted that complainants Marilou Linga,
Renato Linga, IsmaelMata, and Carlito Damian were already paid their respective
separation pays and benefits.32 Meanwhile, Teodora Mahilom already retired longbefore
Solid Mills closure.33 She was already given her retirement benefits.34
The National Labor Relations Commission ruled that because of petitioners failure to
vacate Solid Mills property, Solid Mills was justified in withholding their benefits and
separation pay.35 Solid Mills granted the petitioners the privilege to occupy its property
on accountof petitioners employment.36 It had the prerogative toterminate such
privilege.37 The termination of Solid Mills and petitioners employer-employee
relationship made it incumbent upon petitioners to turn over the property to Solid Mills. 38

Petitioners filed a motion for partial reconsideration on October 18, 2010, 39 but this was
denied in the November 30, 2010 resolution.40

Petitioners, thus, filed a petition for certiorari41 before the Court of Appeals to assail the
National LaborRelations Commission decision of August 31, 2010 and resolution of
November 30, 2010.42

On January 31, 2012, the Court of Appeals issued a decision dismissing petitioners
petition,43 thus:

WHEREFORE, the petition is hereby ordered DISMISSED.44

The Court of Appeals ruled thatSolid Mills act of allowing its employees to make
temporary dwellingsin its property was a liberality on its part. It may be revoked any time
at its discretion.45 As a consequence of Solid Mills closure and the resulting termination
of petitioners, the employer-employee relationship between them ceased to exist. There
was no more reason for them to stay in Solid Mills property.46 Moreover, the
memorandum of agreement between Solid Mills and the union representing petitioners
provided that Solid Mills payment of employees benefits should be "less
accountabilities."47

On petitioners claim that there was no evidence that Teodora Mahilom already received
her retirement pay, the Court of Appeals ruled that her complaint filed before the Labor
Arbiter did not include a claim for retirement pay. The issue was also raised for the first
time on appeal, which is not allowed.48 In any case, she already retired before Solid Mills
ceased its operations.49

The Court of Appeals agreed with the National Labor Relations Commissions deletion
of interest since it found that Solid Mills act of withholding payment of benefits and
separation pay was proper. Petitioners terminal benefits and pay were withheld
because of petitioners failure to vacate Solid Mills property.50

Finally, the Court of Appeals noted that Carlito Damian already received his separation
pay and benefits.51 Hence, he should no longer be awarded these claims.52

In the resolution promulgated on July 16, 2012, the Court of Appeals denied petitioners
motion for reconsideration.53

Petitioners raise in this petition the following errors:

 I

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT RULED THAT PAYMENT OF THE
MONETARY CLAIMS OF PETITIONERS SHOULD BE HELD IN ABEYANCE
PENDING COMPLIANCE OF THEIR ACCOUNTABILITIES TO RESPONDENT
SOLID MILLS BY TURNING OVER THE SUBJECT LOTS THEY
RESPECTIVELY OCCUPY AT SMI VILLAGE, SUCAT, MUNTINLUPA CITY.

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT UPHELD THE RULING OF THE NLRC
DELETING THE INTEREST OF 12% PER ANNUM IMPOSED BY THE
HONORABLE LABOR ARBITER HERNANDEZ ON THE AMOUNTDUE FROM
THE DATE OF FILING OF THE LEAD CASE/JUDICIAL DEMAND ON
DECEMBER 8, 2003 UNTIL ACTUAL PAYMENT AND/OR FINALITY.

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT UPHELD THE RULING OF THE NLRC
DENYING THE CLAIM OF TEODORA MAHILOM FOR PAYMENT OF
RETIREMENT BENEFITS DESPITE LACK OF ANY EVIDENCE THAT SHE
RECEIVED THE SAME.

IV

WHETHER OR NOT PETITIONER CARLITO DAMIAN IS ENTITLED TO HIS

MONETARY BENEFITS FROM RESPONDENT SOLID MILLS.54

Petitioners argue that respondent Solid Mills and NAFLUs memorandum of agreement
has no provision stating that benefits shall be paid only upon return of the possession of
respondent Solid Mills property.55 It only provides that the benefits shall be "less
accountabilities," which should not be interpreted to include such possession. 56 The fact
that majority of NAFLUs members were not occupants of respondent Solid Mills
property is evidence that possession of the property was not contemplated in the
agreement.57 "Accountabilities" should be interpreted to refer only to accountabilities that
wereincurred by petitioners while they were performing their duties asemployees at the
worksite.58 Moreover, applicable laws, company practice, or policies do not provide that
13th month pay, and sick and vacation leave pay benefits, may be withheld pending
satisfaction of liabilities by the employee.59

Petitioners also point out thatthe National Labor Relations Commission and the Court of
Appeals have no jurisdiction to declare that petitioners act of withholding possession of
respondent Solid Mills property is illegal.60The regular courts have jurisdiction over this
issue.61 It is independent from the issue of payment of petitioners monetary benefits. 62

For these reasons, and because, according to petitioners, the amount of monetary
award is no longer in question, petitioners are entitled to 12% interest per annum. 63

Petitioners also argue that Teodora Mahilom and Carlito Damian are entitled to their
claims. They insistthat Teodora Mahilom did not receive her retirement benefits and that
Carlito Damian did not receive his separation benefits.64

Respondents Solid Mills and Philip Ang,in their joint comment, argue that petitioners
failure to turn over respondentSolid Mills property "constituted an unsatisfied
accountability" for which reason "petitioners benefits could rightfully be withheld." 65 The
term "accountability" should be given its natural and ordinary meaning.66 Thus, it should
be interpreted as "a state of being liable or responsible," or "obligation." 67 Petitioners
differentiation between accountabilities incurred while performing jobs at the worksite
and accountabilities incurred outside the worksite is baseless because the agreement
with NAFLUmerely stated "accountabilities," without qualification.68

On the removal of the award of 12% interest per annum, respondents argue that such
removal was proper since respondent Solid Mills was justified in withholding the
monetary claims.69 Respondents argue that Teodora Mahilom had no more cause of
action for retirement benefits claim.70 She had already retired more than a decade before
Solid Mills closure. She also already received her retirement benefits in 1991. 71 Teodora
Mahiloms claim was also not included in the complaint filed before the Labor Arbiter.It
was improper to raise this claim for the first time on appeal. In any case, Teodora
Mahiloms claim was asserted long after the three-year prescriptive period provided in
Article 291 of the Labor Code.72

Lastly, according to respondents, it would be unjust if Carlito Damian would be allowed

to receive monetary benefits again, which he, admittedly, already received from Solid
Mills.73

The National Labor Relations Commission may preliminarily determine issues related to
rights arising from an employer-employee relationship

The National Labor Relations Commission has jurisdiction to determine, preliminarily,

the partiesrights over a property, when it is necessary to determine an issue related to
rights or claims arising from an employer-employee relationship.

Article 217 provides that the Labor Arbiter, in his or her original jurisdiction, and the
National Labor Relations Commission, in its appellate jurisdiction, may determine issues
involving claims arising from employeremployee relations. Thus:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. (1)
Except as otherwise provided under this Code, the Labor Arbiters shall have original
and exclusive jurisdiction to hear and decide within thirty (30) calendar days after the
submission of the case by the parties for decision without extension, even in the
absence of stenographic notes, the following cases involving workers, whether
agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may
file involving wages, rates of pay, hours of work and other terms and conditions
of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from
the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and

maternity benefits, all other claims, arising from employer-employee relations
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00), regardless of whether accompanied
with a claim for reinstatement.

(2) The Commission shall have exclusive appellate jurisdiction over all cases decided
by Labor Arbiters. (Emphasis supplied)

Petitioners claim that they have the right to the immediate release of their benefits as
employees separated from respondent Solid Mills is a question arising from the
employer-employee relationship between the parties.

Claims arising from an employer-employee relationship are not limited to claims by an

employee. Employers may also have claims against the employee, which arise from the
same relationship. In Baez v. Valdevilla,74 this court ruled that Article 217 of the Labor
Code also applies to employers claim for damages, which arises from or is connected
with the labor issue. Thus: Whereas this Court in a number of occasions had applied the
jurisdictional provisions of Article 217 to claims for damages filed by employees, we
hold that by the designating clause "arising from the employer-employee relations"
Article 217 should apply with equal force to the claim of an employer for actual damages
against its dismissed employee, where the basis for the claim arises from or is
necessarily connected with the factof termination, and should be entered as a
counterclaim in the illegal dismissal case.75
Baez was cited in Domondon v. National Labor Relations Commission. 76 One of the
issues in Domondonis whether the Labor Arbiter has jurisdiction to decide an issue on
the transfer of ownership of a vehicle assigned to the employee. It was argued that only
regular courts have jurisdiction to decide the issue.77

This court ruled that since the transfer of ownership of the vehicle to the employee was
connected to his separation from the employer and arose from the employer-employee
relationship of the parties, the employers claim fell within the LaborArbiters
jurisdiction.78

As a general rule, therefore, a claim only needs to be sufficiently connected to the labor
issue raisedand must arise from an employeremployee relationship for the
labortribunals to have jurisdiction.

In this case, respondent Solid Mills claims that its properties are in petitioners
possession by virtue of their status as its employees. Respondent Solid Mills allowed
petitioners to use its property as an act of liberality. Put in other words, it would not have
allowed petitioners to use its property had they not been its employees. The return of its
properties in petitioners possession by virtue of their status as employees is an issue
that must be resolved to determine whether benefits can be released immediately. The
issue raised by the employer is, therefore, connected to petitioners claim for benefits
and is sufficiently intertwined with the parties employeremployee relationship. Thus, it is
properly within the labor tribunals jurisdiction.

II

Institution of clearance procedures has legal bases

Requiring clearance before the release of last payments to the employee is a standard
procedure among employers, whether public or private. Clearance procedures are
instituted to ensure that the properties, real or personal, belonging to the employer but
are in the possession of the separated employee, are returned tothe employer before
the employees departure.

As a general rule, employers are prohibited from withholding wages from employees.
The Labor Code provides:

Art. 116. Withholding of wages and kickbacks prohibited.It shall be unlawful for any
person, directly or indirectly, to withhold any amount from the wages of a worker or
induce him to give up any part of his wages by force, stealth, intimidation, threat or by
any other means whatsoever without the workers consent.

The Labor Code also prohibits the elimination or diminution of benefits. Thus:
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book
shall be construed to eliminate or in any way diminish supplements, or other employee
benefits being enjoyed at the time of promulgation of this Code.

However, our law supports the employers institution of clearance procedures before the
release of wages. As an exception to the general rule that wages may not be withheld
and benefits may not be diminished, the Labor Code provides:

Art. 113. Wage deduction.No employer, in his own behalf or in behalf of any person,
shall make any deduction from the wages of his employees, except:

1. In cases where the worker is insured with his consent by the employer, and
the deduction is to recompense the employer for the amount paid by him as
premium on the insurance;

2. For union dues, in cases where the right of the worker or his union to check-off
has been recognized by the employer or authorized in writing by the individual
worker concerned; and

3. In cases where the employer is authorized by law or regulations issued by the

Secretary of Labor and Employment. (Emphasis supplied)

The Civil Code provides that the employer is authorized to withhold wages for debts
due:

Article 1706. Withholding of the wages, except for a debt due, shall not be made by the
employer.

"Debt" in this case refers to any obligation due from the employee to the employer. It
includes any accountability that the employee may have to the employer. There is no
reason to limit its scope to uniforms and equipment, as petitioners would argue.

More importantly, respondent Solid Mills and NAFLU, the union representing petitioners,
agreed that the release of petitioners benefits shall be "less accountabilities."

"Accountability," in its ordinary sense, means obligation or debt. The ordinary meaning
of the term "accountability" does not limit the definition of accountability to those
incurred in the worksite. As long as the debt or obligation was incurred by virtue of the
employer-employee relationship, generally, it shall be included in the employees
accountabilities that are subject to clearance procedures.

It may be true that not all employees enjoyed the privilege of staying in respondent Solid
Mills property. However, this alone does not imply that this privilege when enjoyed was
not a result of the employer-employee relationship. Those who did avail of the privilege
were employees of respondent Solid Mills. Petitioners possession should, therefore, be
included in the term "accountability."
Accountabilities of employees are personal. They need not be uniform among all
employees in order to be included in accountabilities incurred by virtue of an employer-
employee relationship. Petitioners do not categorically deny respondent Solid Mills
ownership of the property, and they do not claim superior right to it. What can be
gathered from the findings ofthe Labor Arbiter, National Labor Relations Commission,
and the Court ofAppeals is that respondent Solid Mills allowed the use of its property for
the benefit of petitioners as its employees. Petitioners were merely allowed to possess
and use it out of respondent Solid Mills liberality. The employer may, therefore, demand
the property at will.79

The return of the propertys possession became an obligation or liability on the part of
the employees when the employer-employee relationship ceased. Thus, respondent
Solid Mills has the right to withhold petitioners wages and benefitsbecause of this
existing debt or liability. In Solas v. Power and Telephone Supply Phils., Inc., et al., this
court recognized this right of the employer when it ruled that the employee in that case
was not constructively dismissed.80 Thus:

There was valid reason for respondents withholding of petitioners salary for the month
of February 2000. Petitioner does not deny that he is indebted to his employer in the
amount of around 95,000.00. Respondents explained that petitioners salary for the
period of February 1-15, 2000 was applied as partial payment for his debt and for
withholding taxes on his income; while for the period of February 15-28, 2000, petitioner
was already on absence without leave, hence, was not entitled to any pay.81

The law does not sanction a situation where employees who do not even assert any
claim over the employers property are allowed to take all the benefits out of their
employment while they simultaneously withhold possession of their employers property
for no rightful reason. Withholding of payment by the employer does not mean that the
employer may renege on its obligation to pay employees their wages, termination
payments, and due benefits. The employees benefits are also not being reduced. It is
only subjectedto the condition that the employees return properties properly belonging
to the employer. This is only consistent with the equitable principle that "no one shall be
unjustly enriched or benefited at the expense of another." 82

For these reasons, we cannot hold that petitioners are entitled to interest of their
withheldseparation benefits. These benefits were properly withheld by respondent Solid
Mills because of their refusal to return its property.

III

Mahilom and Damian are not entitled to the benefits claimed

Teodora Mahilom is not entitled to separation benefits.

Both the National Labor Relations Commission and the Court of Appeals found that
Teodora Mahilom already retired long before respondent Solid Mills closure. They
found that she already received her retirement benefits. We have no reason to disturb
this finding. This court is not a trier of facts. Findings of the National Labor Relations
Commission, especially when affirmed by the Court of Appeals, are binding upon this
court.83

Moreover, Teodora Mahiloms claim for retirement benefits was not included in her
complaint filed before the Labor Arbiter. Hence, it may not be raised in the appeal.

Similarly, the National Labor Relations Commission and the Court of Appeals found that
Carlito Damian already received his terminal benefits. Hence, he may no longer claim
terminal benefits. The fact that respondent Solid Mills has not yet demolished Carlito
Damians house in SMI Village is not evidence that he did not receive his benefits. Both
the National Labor Relations Commission and the Court of Appeals found that he
executed an affidavit stating that he already received the benefits.

A bsent any showing that the National Labor Relations Commission and the Court of
Appeals misconstrued these facts, we will not reverse these findings.

Our laws provide for a clear preference for labor. This is in recognition of the
asymmetrical power of those with capital when they are left to negotiate with their
workers without the standards and protection of law. In cases such as these, the
collective bargaining unit of workers are able to get more benefits and in exchange, the
owners are able to continue with the program of cutting their losses or wind down their
operations due to serious business losses. The company in this case did all that was
required by law.

The preferential treatment given by our law to labor, however, is not a license for
abuse.84 It is not a signal to commit acts of unfairness that will unreasonably infringe on
the property rights of the company. Both labor and employer have social utility, and the
law is not so biased that it does not find a middle ground to give each their due.

Clearly, in this case, it is for the workers to return their housing in exchange for the
release of their benefits. This is what they agreed upon. It is what is fair in the
1w phi 1

premises.

WHEREFORE, the petition is DENIED. The Court of Appeals' decision is AFFIRMED.

MARVIC M.V.F. LEONEN

Associate Justice
Sevilla v semana
 FIRST DIVISION

G.R. No. 85073 August 24, 1993

DAVAO FRUITS CORPORATION, petitioner,

vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-file
workers/employees of DAVAO FRUITS CORPORATION and NATIONAL LABOR
RELATIONS COMMISSION, respondents.

Dominguez & Paderna Law Offices for petitioners.

The Solicitor General for public respondents.

QUIASON, J.:

This is a petition for certiorari to set aside the resolution of the National Labor Relations
Commission (NLRC), dismissing for lack of merit petitioner's appeal from the decision of
the Labor Arbiter in NLRC Case No. 1791-MC-X1-82.

On December 28, 1982 respondent Associated Labor Unions (ALU), for and in behalf of
all the rank-and-file workers and employees of petitioner, filed a complaint (NLRC Case
No. 1791-MC-XI-82) before the Ministry of Labor and Employment, Regional Arbitration
Branch XI, Davao City, against petitioner, for "Payment of the Thirteenth-Month Pay
Differentials." Respondent ALU sought to recover from petitioner the thirteenth month
pay differential for 1982 of its rank-and-file employees, equivalent to their sick, vacation
and maternity leaves, premium for work done on rest days and special holidays, and
pay for regular holidays which petitioner, allegedly in disregard of company practice
since 1975, excluded from the computation of the thirteenth month pay for 1982.

In its answer, petitioner claimed that it erroneously included items subject of the
complaint in the computation of the thirteenth month pay for the years prior to 1982,
upon a doubtful and difficult question of law. According to petitioner, this mistake was
discovered only in 1981 after the promulgation of the Supreme Court decision in the
case of San Miguel Corporation v. Inciong (103 SCRA 139).

A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos, in favor
of respondent ALU. The dispositive portion of the decision reads as follows:

WHEREFORE, in view of all the foregoing considerations, judgment is

hereby rendered ordering respondent to pay the 1982 13th month pay
 differential to all its rank-and-file workers/employees herein represented
by complainant Union (Rollo, p. 32).

Petitioner appealed the decision of the Labor Arbiter to the NLRC, which affirmed the
said decision accordingly dismissed the appeal for lack of merit.

Petitioner elevated the matter to this Court in a petition for review under Rule 45 of the
Revised Rules of Court. This error notwithstanding and in the interest of justice, this
Court resolved to treat the instant petition as a special civil action for certiorari under
Rule 65 of the Revised Rules of Court (P.D. No. 1391, Sec. 5; Rules Implementing P.D.
No. 1391, Rule II, Sec. 7; Cando v. National Labor Relations Commission, 189 SCRA
666 [1990]: Pearl S. Buck Foundation, Inc. v. National Labor Relations Commission,
182 SCRA 446 [1990]).

The crux of the present controversy is whether in the computation of the thirteenth
month pay given by employers to their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves, premiums for work done on
rest days and special holidays, and pay for regular holidays may be excluded in the
computation and payment thereof, regardless of long-standing company practice.

Presidential Decree No. 851, promulgated on December 16, 1975, mandates all
employers to pay their employees a thirteenth month pay. How this pay shall be
computed is set forth in Section 2 of the "Rules and Regulations Implementing
Presidential Decree No. 851," thus:

SECTION 2. . . .

(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic
salary of an employee within a calendar year.

(b) "Basic Salary" shall include all renumerations or earnings paid by an

employer to an employee for services rendered but may not include cost
of living allowances granted pursuant to Presidential Decree No. 525 or
Letter of Instructions No. 174, profit-sharing payments, and all allowances
and monetary benefits which are not considered or integrated as part of
the regular or basic salary of the employee at the time of the promulgation
of the Decree on December 16, 1975.

The Department of Labor and Employment issued on January 16, 1976 the
"Supplementary Rules and Regulations Implementing P.D. No. 851" which in paragraph
4 thereof further defines the term "basic salary," thus:

4. Overtime pay, earnings and other renumerations which are not part of
the basic salary shall not be included in the computation of the 13th month
pay.
Clearly, the term "basic salary" includes renumerations or earnings paid by the
employer to employee, but excludes cost-of-living allowances, profit-sharing payments,
and all allowances and monetary benefits which have not been considered as part of
the basic salary of the employee as of December 16, 1975. The exclusion of cost-of-
living allowances and profit sharing payments shows the intention to strip "basic salary"
of payments which are otherwise considered as "fringe" benefits. This intention is
emphasized in the catch all phrase "all allowances and monetary benefits which are not
considered or integrated as part of the basic salary." Basic salary, therefore does not
merely exclude the benefits expressly mentioned but all payments which may be in the
form of "fringe" benefits or allowances (San Miguel Corporation v. Inciong, supra, at
143-144). In fact, the Supplementary Rules and Regulations Implementing P.D. No. 851
are very emphatic in declaring that overtime pay, earnings and other renumerations
shall be excluded in computing the thirteenth month pay.

In other words, whatever compensation an employee receives for an eight-hour work

daily or the daily wage rate in the basic salary. Any compensation or remuneration other
than the daily wage rate is excluded. It follows therefore, that payments for sick,
vacation and maternity leaves, premium for work done on rest days special holidays, as
well as pay for regular holidays, are likewise excluded in computing the basic salary for
the purpose of determining the thirteen month pay.

Petitioner claims that the mistake in the interpretation of "basic salary" was caused by
the opinions, orders and rulings rendered by then Acting Labor Secretary Amado C.
Inciong, expressly including the subject items in computing the thirteenth month pay.
The inclusion of these items is clearly not sanctioned under P.D. No. 851, the governing
law and its implementing rules, which speak only of "basis salary" as the basis for
determining the thirteenth month pay.

Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was erased by the
Supplementary Rules and Regulations which clarified the definition of "basic salary."

As pointed out in San Miguel Corporation v. Inciong, (supra):

While doubt may have been created by the prior Rules and Regulations
and Implementing Presidential Decree 851 which defines basic salary to
include all remunerations or earnings paid by an employer to an
employee, this cloud is dissipated in the later and more controlling
Supplementary Rules and Regulations which categorically, exclude from
the definition of basic salary earnings and other remunerations paid by
employer to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of broad inclusion is now
a subject of broad exclusion. The Supplementary Rules and Regulations
cure the seeming tendency of the former rules to include all remunerations
and earnings within the definition of basic salary.
 The all-embracing phrase "earnings and other remunerations which are
deemed not part of the basic salary includes within its meaning payments
for sick, vacation, or maternity leaves, premium for work performed on rest
days and special holidays, pay for regular holidays and night differentials.
As such they are deemed not part of the basic salary and shall not be
considered in the computation of the 13th-month pay. If they were not so
excluded, it is hard to find any "earnings and other remunerations"
expressly excluded in computation of the 13th month-pay. Then the
exclusionary provision would prove to be idle and with purpose.

The "Supplementary Rules and Regulations Implementing P.D. No. 851," which put to
rest all doubts in the computation of the thirteenth month pay, was issued by the
Secretary of Labor as early as January 16, 1976, barely one month after the effectivity
of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid the
thirteenth month pay, without excluding the subject items therein until 1981. Petitioner
continued its practice in December 1981, after promulgation of the afore-quoted San
Miguel decision on February 24, 1981, when petitioner purportedly "discovered" its
mistake.

From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the
computation of its employees' thirteenth month pay, the payments for sick, vacation and
maternity leaves, premiums for work done on rest days and special holidays, and pay
for regular holidays. The considerable length of time the questioned items had been
included by petitioner indicates a unilateral and voluntary act on its part, sufficient in
itself to negate any claim of mistake.

A company practice favorable to the employees had indeed been established and the
payments made pursuant thereto, ripened into benefits enjoyed by them. And any
benefit and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer, by virtue of Section 10 of the
Rules and Regulations Implementing P.D. No. 851, and Article 100 of the labor of the
Philippines, which prohibit the diminution or elimination by the employer of the
employees' existing benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).

Petitioner cannot invoke the principle of solutio indebiti which as a civil law concept that
is not applicable in Labor Law. Besides, in solutio indebiti, the obligee is required to
return to the obligor whatever he received from the latter (Civil Code of the Philippines,
Arts. 2154 and 2155). Petitioner in the instant case, does not demand the return of what
it paid respondent ALU from 1975 until 1981; it merely wants to "rectify" the error it
made over these years by excluding unilaterally from the thirteenth month pay in 1982
the items subject of litigation. Solutio indebiti, therefore, is not applicable to the instant
case.

WHEREFORE, finding no grave abuse of discretion on the part of the NLRC, the
petition is hereby DISMISSED, and the questioned decision of respondent NLRC is
AFFIRMED accordingly.
Cruz, Grio-Aquino, Davide, Jr. and Bellosillo, JJ., concur.
DIPS v ABARQUEZ 1983
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 176985 April 1, 2013

RICARDO E. VERGARA, JR., Petitioner,

vs.
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.

DECISION

PERALTA, J.:

Before Us is a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure assailing the January 9, 2007 Decision1 and March 6, 2007 Resolution2 of
the Court of Appeals (CA) in CA .. G.R. SP No. 94622, which affirmed the January 31,
2006 Decision3 and March 8, 2006 Resolution4 of the National Labor Relations
Commission (NLRC) modifying the September 30, 2003 Decision5 of the Labor Arbiter
(LA) by deleting the sales management incentives in the computation of petitioner's
retirement benefits.

Petitioner Ricardo E. Vergara, Jr. was an employee of respondent Coca-Cola Bottlers

Philippines, Inc. from May 1968 until he retired on January 31, 2002 as a District Sales
Supervisor (DSS) for Las Pias City, Metro Manila. As stipulated in respondents
existing Retirement Plan Rules and Regulations at the time, the Annual Performance
Incentive Pay of RSMs, DSSs, and SSSs shall be considered in the computation of
retirement benefits, as follows: Basic Monthly Salary + Monthly Average Performance
Incentive (which is the total performance incentive earned during the year immediately
preceding 12 months) No. of Years in Service.6

Claiming his entitlement to an additional PhP474,600.00 as Sales Management

Incentives (SMI)7 and to the amount of PhP496,016.67 which respondent allegedly
deducted illegally, representing the unpaid accounts of two dealers within his
jurisdiction, petitioner filed a complaint before the NLRC on June 11, 2002 for the
payment of his "Full Retirement Benefits, Merit Increase, Commission/Incentives,
Length of Service, Actual, Moral and Exemplary Damages, and Attorneys Fees." 8

After a series of mandatory conference, both parties partially settled with regard the
issue of merit increase and length of service.9 Subsequently, they filed their respective
Position Paper and Reply thereto dealing on the two remaining issues of SMI
entitlement and illegal deduction.
On September 30, 2003, the LA rendered a Decision 10 in favor of petitioner, directing
respondent to reimburse the amount illegally deducted from petitioners retirement
package and to integrate therein his SMI privilege. Upon appeal of respondent,
however, the NLRC modified the award and deleted the payment of SMI.

Petitioner then moved to partially execute the reimbursement of illegal deduction, which
the LA granted despite respondents opposition.11 Later, without prejudice to the
pendency of petitioners petition for certiorari before the CA, the parties executed a
Compromise Agreement12 on October 4, 2006, whereby petitioner acknowledged full
payment by respondent of the amount of PhP496,016.67 covering the amount illegally
deducted.

The CA dismissed petitioners case on January 9, 2007 and denied his motion for
reconsideration two months thereafter. Hence, this present petition to resolve the
singular issue of whether the SMI should be included in the computation of petitioners
retirement benefits on the ground of consistent company practice. Petitioner insistently
avers that many DSSs who retired without achieving the sales and collection targets
were given the average SMI in their retirement package.

We deny.

This case does not fall within any of the recognized exceptions to the rule that only
questions of law are proper in a petition for review on certiorari under Rule 45 of the
Rules of Court. Settled is the rule that factual findings of labor officials, who are deemed
to have acquired expertise in matters within their respective jurisdiction, are generally
accorded not only respect but even finality, and bind us when supported by substantial
evidence.13 Certainly, it is not Our function to assess and evaluate the evidence all over
again, particularly where the findings of both the CA and the NLRC coincide.

In any event, even if this Court would evaluate petitioner's arguments on its supposed
merits, We still find no reason to disturb the CA ruling that affirmed the NLRC. The
findings and conclusions of the CA show that the evidence and the arguments of the
parties had all been carefully considered and passed upon. There are no relevant and
compelling facts to justify a different resolution which the CA failed to consider as well
as no factual conflict between the CA and the NLRC decisions.

Generally, employees have a vested right over existing benefits voluntarily granted to
them by their employer.14Thus, any benefit and supplement being enjoyed by the
employees cannot be reduced, diminished, discontinued or eliminated by the
employer.15 The principle of non-diminution of benefits is actually founded on the
Constitutional mandate to protect the rights of workers, to promote their welfare, and to
afford them full protection.16 In turn, said mandate is the basis of Article 4 of the Labor
Code which states that "all doubts in the implementation and interpretation of this Code,
including its implementing rules and regulations, shall be rendered in favor of labor." 17
There is diminution of benefits when the following requisites are present: (1) the grant or
benefit is founded on a policy or has ripened into a practice over a long period of time;
(2) the practice is consistent and deliberate; (3) the practice is not due to error in the
construction or application of a doubtful or difficult question of law; and (4) the
diminution or discontinuance is done unilaterally by the employer.18

To be considered as a regular company practice, the employee must prove by

substantial evidence that the giving of the benefit is done over a long period of time, and
that it has been made consistently and deliberately.19Jurisprudence has not laid down
any hard-and-fast rule as to the length of time that company practice should have been
exercised in order to constitute voluntary employer practice.20 The common
denominator in previously decided cases appears to be the regularity and
deliberateness of the grant of benefits over a significant period of time.21 It requires an
indubitable showing that the employer agreed to continue giving the benefit knowing
fully well that the employees are not covered by any provision of the law or agreement
requiring payment thereof.22 In sum, the benefit must be characterized by regularity,
voluntary and deliberate intent of the employer to grant the benefit over a considerable
period of time.23

Upon review of the entire case records, We find no substantial evidence to prove that
the grant of SMI to all retired DSSs regardless of whether or not they qualify to the
same had ripened into company practice. Despite more than sufficient opportunity given
him while his case was pending before the NLRC, the CA, and even to this Court,
petitioner utterly failed to adduce proof to establish his allegation that SMI has been
consistently, deliberately and voluntarily granted to all retired DSSs without any
qualification or conditions whatsoever. The only two pieces of evidence that he
stubbornly presented throughout the entirety of this case are the sworn statements of
Renato C. Hidalgo (Hidalgo) and Ramon V. Velazquez (Velasquez), former DSSs of
respondent who retired in 2000 and 1998, respectively. They claimed that the SMI was
included in their retirement package even if they did not meet the sales and collection
qualifiers.24 However, juxtaposing these with the evidence presented by respondent
would reveal the frailty of their statements.

The declarations of Hidalgo and Velazquez were sufficiently countered by respondent

through the affidavits executed by Norman R. Biola (Biola), Moises D. Escasura
(Escasura), and Ma. Vanessa R. Balles (Balles).25 Biola pointed out the various stop-
gap measures undertaken by respondent beginning 1999 in order to arrest the
deterioration of its accounts receivables balance, two of which relate to the policies on
the grant of SMI and to the change in the management structure of respondent upon its
re-acquisition by San Miguel Corporation. Escasura represented that he has personal
knowledge of the circumstances behind the retirement of Hidalgo and Velazquez. He
attested that contrary to petitioners claim, Hidalgo was in fact qualified for the SMI. As
for Velazquez, Escasura asserted that even if he (Velazquez) did not qualify for the
SMI, respondents General Manager in its Calamba plant still granted his (Velazquez)
request, along with other numerous concessions, to achieve industrial peace in the
plant which was then experiencing labor relations problems. Lastly, Balles confirmed
that petitioner failed to meet the trade receivable qualifiers of the SMI. She also cited
the cases of Ed Valencia (Valencia) and Emmanuel Gutierrez (Gutierrez), both DSSs of
respondent who retired on January 31, 2002 and December 30, 2002, respectively. She
noted that, unlike Valencia, Gutierrez also did not receive the SMI as part of his
retirement pay, since he failed to qualify under the policy guidelines. The verity of all
these statements and representations stands and holds true to Us, considering that
petitioner did not present any iota of proof to debunk the same. 1wphi1

Therefore, respondent's isolated act of including the SMI in the retirement package of
Velazquez could hardly be classified as a company practice that may be considered an
enforceable obligation. To repeat, the principle against diminution of benefits is
applicable only if the grant or benefit is founded on an express policy or has ripened into
a practice over a long period of time which is consistent and deliberate; it presupposes
that a company practice, policy and tradition favorable to the employees has been
clearly established; and that the payments made by the company pursuant to it have
ripened into benefits enjoyed by them.26 Certainly, a practice or custom is, as a general
rule, not a source of a legally demandable or enforceable right. 27 Company practice, just
like any other fact, habits, customs, usage or patterns of conduct, must be proven by
the offering party who must allege and establish specific, repetitive conduct that might
constitute evidence of habit or company practice.28

To close, We rule that petitioner could have salvaged his case had he step up to
disprove respondents contention that he miserably failed to meet the collection
qualifiers of the SMI. Respondent argues that

An examination of the Companys aged trial balance reveals that petitioner did not meet
the trade receivable qualifier. On the contrary, the said trial balance reveals that
petitioner had a large amount of uncollected overdue accounts. For the year 2001, his
percentage collection efficiency for current issuance was at an average of 13.5% a
month as against the required 70%. For the same, petitioners collection efficiency was
at an average of 60.25% per month for receivables aged 1-30 days, which is again, way
below the required 90%. For receivables aged 31-60 days during said year, petitioners
collection efficiency was at an average of 56.17% per month, which is approximately
half of the required 100%. Worse, for receivables over 60 days old, petitioners average
collection efficiency per month was a reprehensively low 14.10% as against the required
100%.29

The above data was repeatedly raised by respondent in its Rejoinder (To Complainants
Reply) before the LA,30Memorandum of Appeal31 and Opposition (To Complainant-
Appellees Motion for Reconsideration)32 before the NLRC, and Comment (On the
Petition),33 Memorandum (For the Private Respondent),34 and Comment (On the Motion
for Reconsideration)35 before the CA. Instead of frontally rebutting the data, petitioner
treated them with deafening silence; thus, reasonably and logically implying lack of
evidence to support the contrary.
WHEREFORE, the petition is DENIED. The January 9, 2007 Decision and March 6,
2007 Resolution of the Court of Appeals in CA-G.R. SP No. 94622, which affirmed the
January 31, 2006 Decision and March 8, 2006 Resolution of the NLRC deleting the LA's
inclusion of sales management incentives in the computation of petitioner's retirement
benefits, is hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 92174 December 10, 1993

BOIE-TAKEDA CHEMICALS, INC., petitioner,

vs.

HON. DIONISIO DE LA SERNA, Acting Secretary of the Department of Labor and

Employment, respondent.

G.R. No. L-102552 December 10, 1993

PHILIPPINE FUJI XEROX CORP., petitioner,

vs.

CRESENCIANO B. TRAJANO, Undersecretary of the Department of Labor and

Employment, and PHILIPPINE FUJI XEROX EMPLOYEES UNION, respondents.

Herrera, Laurel, De los Reyes, Roxas & Teehankee for Boie-Takeda Chemicals, Inc.
and Phil Xerox Corp.

The Solicitor General for public respondents.

NARVASA, C.J.:

What items or items of employee remuneration should go into the computation of

thirteenth month pay is the basic issue presented in these consolidated petitions.
Otherwise stated, the question is whether or not the respondent labor officials in
computing said benefit, committed "grave abuse of discretion amounting to lack of
jurisdiction," by giving effect to Section 5 of the Revised Guidelines on the
implementation of the Thirteenth Month Pay (Presidential Decree No. 851) promulgated
by then Secretary of Labor and Employment, Hon. Franklin Drilon, and overruling
petitioner's contention that said provision constituted a usurpation of legislative power
because not justified by or within the authority of the law sought to be implemented
besides being violative of the equal protection of the law clause of the Constitution.

Resolution of the issue entails, first, a review of the pertinent provisions of the laws and
implementing regulations.

Sections 1 and 2 of Presidential Decree No. 851, the Thirteenth Month Pay Law, read
as follows:
 Sec 1. All employees are hereby required to pay all their employees
receiving basic salary of not more than P1,000.00 a month, regardless of
the nature of the employment, a 13th month pay not later than December
24 of every year.

Sec. 2. Employers already paying their employees a 13th month pay or its
equivalent are not covered by this Decree.

The Rules and Regulations Implementing P.D. 851 promulgated by then Labor Minister
Blas Ople on December 22, 1975 contained the following relevant provisions relative to
the concept of "thirteenth month pay" and the employers exempted from giving it, to wit:

Sec. 2. Definition of certain terms. . . .

a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary
of an employee within a calendar year;

b) "Basic Salary" shall include all remunerations or earnings paid by an

employer to an employee for services rendered but may not include cost
of living allowances granted pursuant to Presidential Decree No. 525 or
Letter of Instructions No. 174, profit sharing payments, and all allowances
and monetary benefits which are not considered or integrated as part of
the regular or basic salary of the employee at the time of the promulgation
of the Decree on December 16, 1975.

Sec. 3. Employers covered. . . . (The law applies) to all employers

except to:

xxx xxx xxx

c) Employers already paying their employers a 13-month pay or more in

calendar year or is equivalent at the time of this issuance;

xxx xxx xxx

e) Employers of those who are paid on purely commission, boundary, or

task basis, and those who are paid a fixed amount for performing a
specific work, irrespective of the time consumed in the performance
thereof, except where the workers are paid on piece-rate basis in which
case the employer shall be covered by this issuance insofar as such
workers are concerned.

xxx xxx xxx

The term "its equivalent" as used in paragraph (c) shall include Christmas
bonus, mid-year bonus, profit-sharing payments and other cash bonuses
 amounting to not less than 1/12th of the basic salary but shall not include
cash and stock dividends, cost of living allowances and all other
allowances regularly enjoyed by the employee, as well as non-monetary
benefits. Where an employer pays less than 1/12th of the employee's
basic salary, the employer shall pay the difference.

Supplementary Rules and Regulations implementing P.D. 851 were subsequently

issued by Minister Ople which inter alia set out items of compensation not included in
the computation of the 13th month pay, viz.:

Sec. 4. Overtime pay, earnings and other remunerations which are not
part of the basic salary shall not be included in the computation of the 13th
month pay.

On August 13, 1986, President Corazon C. Aquino promulgated Memorandum Order

No. 28, which contained a single provision modifying Presidential Decree No. 851 by
removing the salary ceiling of P1,000.00 a month set by the latter, as follows:

Section 1 of Presidential Decree No. 851 is hereby modified to the extent

that all employers are hereby required to pay all their rank-and-file
employees a 13th month pay not later than December 24, of every year.

Slightly more than a year later, on November 16, 1987, Revised Guidelines on the
Implementation of the 13th Month Pay Law were promulgated by then Labor Secretary
Franklin Drilon which, among other things, defined with particularity what remunerative
items were and were not embraced in the concept of 13th month pay, and specifically
dealt with employees who are paid a fixed or guaranteed wage plus commission. The
relevant provisions read:

4. Amount and payment of 13th Month Pay.

xxx xxx xxx

The basic salary of an employee for the purpose of computing the 13th
month pay shall include all remunerations or earnings paid by the
employer for services rendered but does not include allowances and
monetary benefits which are not considered or integrated as part of the
regular or basic salary, such as the cash equivalent of unused vacation
and sick leave credits, overtime, premium, night differential and holiday
pay, and cost-of-living allowances. However, these salary-related benefits
should be included as part of the basic salary in the computation of the
13th month pay if by individual or collective agreement, company practice
or policy, the same are treated as part of the basic salary of the
employees.

xxx xxx xxx

 5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. Employees who are paid on piece work
basis are by law entitled to the 13th month pay.

Employees who are paid a fixed or guaranteed wage plus commission are
also entitled to the mandated 13th month pay based on their total earnings
during the calendar year, i.e., on both their fixed or guaranteed wage and
commission.

This was the state of the law when the controversies at bar arose out of the following
antecedents:

(RE G.R. No. 92174) A routine inspection was conducted on May 2, 1989 in the
premises of petitioner Boie-Takeda Chemicals, Inc. by Labor
and Development Officer Reynaldo B. Ramos under Inspection Authority
No. 4-209-89. Finding that Boie-Takeda had not been including the commissions
earned by its medical representatives in the computation of their 13th month pay,
Ramos served a Notice of Inspection Results 1 on Boie-Takeda through its president,
Mr. Benito Araneta, requiring Boie-Takeda within ten (10) calendar days from notice to
effect restitution or correction of "the underpayment of 13th month pay for the year(s)
1986, 1987 and 1988 of Med Rep (Revised Guidelines on the Implementation of 13th
month pay # 5) in the total amount of P558,810.89."

Boie-Takeda wrote the Labor Department contesting the Notice of Inspection Results,
and expressing the view "that the commission paid to our medical representatives are
not to be included in the computation of the 13th month pay . . . (since the) law and its
implementing rules speak of REGULAR or BASIC salary and therefore exclude all other
remunerations which are not part of the REGULAR salary." It pointed out that, "if no
sales is (sic) made under the effort of a particular representative, there is no
commission during the period when no sale was transacted, so that commissions are
not and cannot be legally defined as regular in nature. 2

Regional Director Luna C. Piezas directed Boie-Takeda to appear before his Office on
June 9 and 16, 1989. On the appointed dates, however, and despite due notice, no one
appeared for Boie-Takeda, and the matter had perforce to be resolved on the basis of
the evidence at hand. On July 24, 1989, Director Piezas issued an Order 3directing
Boie-Takeda:

. . . to pay . . . (its) medical representatives and its managers the total

amount of FIVE HUNDRED SIXTY FIVE THOUSAND SEVEN HUNDRED
FORTY SIX AND FORTY SEVEN CENTAVOS (P565,746.47)
representing underpayment of thirteenth (13th) month pay for the years
1986, 1987, 1988, inclusive, pursuant to the . . . revised guidelines within
ten (10) days from receipt of this Order.
A motion for reconsideration 4 was seasonably filed by Boie-Takeda under date of
August 3, 1989. Treated as an appeal, it was resolved on
January 17, 1990 by then Acting Labor Secretary Dionisio de la Serna, who affirmed the
July 24, 1989 Order with modification that the sales commissions earned by Boie-
Takeda's medical representatives before August 13, 1989, the effectivity date of
Memorandum Order No. 28 and its Implementing Guidelines, shall be excluded in the
computation of their 13th month pay. 5

Hence the petition docketed as G.R. No. 92174.

(RE G.R. No. 102552) A similar Routine Inspection was conducted in the premises of
Philippine Fuji Xerox Corp. on September 7, 1989 pursuant to Routine Inspection
Authority No. NCR-LSED-RI-494-89. In his Notice of Inspection Results, 6 addressed to
the Manager, Mr. Nicolas O. Katigbak, Senior Labor and Employment Officer Nicanor
M. Torres noted the following violation committed by Philippine Fuji Xerox Corp., to wit:

Underpayment of 13th month pay of 62 employees, more or less

pursuant to Revised Guidelines on the Implementation of the 13th month
pay law for the period covering 1986, 1987 and 1988.

Philippine Fuji Xerox was requested to effect rectification and/or restitution of the noted
violation within five (5) working days from notice.

No action having been taken thereon by Philippine Fuji Xerox,

Mr. Eduardo G. Gonzales, President of the Philxerox Employee Union, wrote then Labor
Secretary Franklin Drilon requesting a follow-up of the inspection findings. Messrs.
Nicolas and Gonzales were summoned to appear before Labor Employment and
Development Officer Mario F. Santos, NCR Office, Department of Labor for a
conciliation conference. When no amicable settlement was reached, the parties were
required to file their position papers.

Subsequently, Regional Director Luna C. Piezas issued an Order dated August 23,
1990, 7 disposing as follows:

WHEREFORE, premises considered, Respondent PHILIPPINE FUJI

XEROX is hereby ordered to restitute to its salesmen the portion of the
13th month pay which arose out of the non-implementation of the said
revised guidelines, ten (10) days from receipt hereof, otherwise,
MR. NICANOR TORRES, the SR. LABOR EMPLOYMENT OFFICER is
hereby Ordered to proceed to the premises of the Respondent for the
purpose of computing the said deficiency (sic) should respondent fail to
heed his Order.

Philippine Fuji Xerox appealed the aforequoted Order to the Office of the Secretary of
Labor. In an Order dated October 120, 1991, Undersecretary Cresenciano B. Trajano
denied the appeal for lack of merit. Hence, the petition in G.R. No. 102552, which was
ordered consolidated with G.R. No. 92174 as involving the same issue.

In their almost identically-worded petitioner, petitioners, through common counsel,

attribute grave abuse of discretion to respondent labor officials
Hon. Dionisio dela Serna and Undersecretary Cresenciano B. Trajano in issuing the
questioned Orders of January 17, 1990 and October 10, 1991, respectively. They
maintain that under P.D. 851, the 13th month pay is based solely on basic salary. As
defined by the law itself and clarified by the implementing and Supplementary Rules as
well as by the Supreme Court in a long line of decisions, remunerations which do not
form part of the basic or regular salary of an employee, such as commissions, should
not be considered in the computation of the 13th month pay. This being the case, the
Revised Guidelines on the Implementation of the 13th Month Pay Law issued by then
Secretary Drilon providing for the inclusion of commissions in the 13th month pay, were
issued in excess of the statutory authority conferred by P.D. 851. According to
petitioners, this conclusion becomes even more evident when considered in light of the
opinion rendered by Labor Secretary Drilon himself in "In Re: Labor Dispute at the
Philippine Long Distance Telephone Company" which affirmed the contemporaneous
interpretation by then Secretary Ople that commissions are excluded from the basic
salary. Petitioners further contend that assuming that Secretary Drilon did not exceed
the statutory authority conferred by P.D. 851, still the Revised Guidelines are null and
void as they violate the equal protection of the law clause.

Respondents through the Office of the Solicitor General question the propriety of
petitioners' attack on the constitutionality of the Revised Guidelines in a petition
for certiorari which, they contend, should be confined purely to the correction of errors
and/or defects of jurisdiction, including matters of grave abuse of discretion amounting
to lack or excess of jurisdiction and not extend to a collateral attack on the validity
and/or constitutionality of a law or statute. They aver that the petitions do not advance
any cogent reason or state any valid ground to sustain the allegation of grave abuse of
discretion, and that at any rate, P.D. No. 851, otherwise known as the 13th Month Pay
Law has already been amended by Memorandum Order No. 28 issued by President
Corazon C. Aquino on August 13, 1986 so that commissions are now imputed into the
computation of the 13th Month Pay. They add that the Revised Guidelines issued by
then Labor Secretary Drilon merely clarified a gray area occasioned by the silence of
the law as to the nature of commissions; and worked no violation of the equal protection
clause of the Constitution, said Guidelines being based on reasonable classification.
Respondents point to the case of Songco vs. National Labor Relations Commission,
183 SCRA 610, wherein the Court declared that Article 97(f) of the Labor Code is
explicit that commission is included in the definition of the term "wage".

We rule for the petitioners.

Contrary to respondents' contention, Memorandum Order No. 28 did not repeal,

supersede or abrogate P.D. 851. As may be gleaned from the language of the
Memorandum Order No. 28, it merely "modified" Section 1 of the decree by removing
the P1,000.00 salary ceiling. The concept of 13th Month Pay as envisioned, defined and
implemented under P.D. 851 remained unaltered, and while entitlement to said benefit
was no longer limited to employees receiving a monthly basic salary of not more than
P1,000.00, said benefit was, and still is, to be computed on the basic salary of the
employee-recipient as provided under P.D. 851. Thus, the interpretation given to the
term "basic salary" as defined in P.D. 851 applies equally to "basic salary" under
Memorandum Order No. 28.

In the case of San Miguel Corp. vs. Inciong, 103 SCRA 139, this Court delineated the
coverage of the term "basic salary" as used in P.D. 851. We said at some length:

Under Presidential Decree 851 and its implementing rules, the basic
salary of an employee is used as the basis in the determination of his 13th
month pay. Any compensations or remunerations which are deemed not
part of the basic pay is excluded as basis in the computation of the
mandatory bonus.

Under the Rules and Regulations implementing Presidential Decree 851,

the following compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential

Decree 525 and Letter of Instructions No. 174;

b) Profit-sharing payments;

c) All allowances and monetary benefits which are not

considered or integrated as part of the regular basic salary of
the employee at the time of the promulgation of the Decree
on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing

Presidential Decree 851 Presidential Decree 851 issued by then Labor
Secretary Blas Ople, overtime pay, earnings and other remunerations are
excluded as part of the basic salary and in the computation of the 13th
month pay.

The exclusion of the cost-of-living allowances under Presidential Decree

525 and Letter of Instructions No. 174, and profit-sharing payments
indicate the intention to strip basic salary of other payments which are
properly considered as "fringe" benefits. Likewise, the catch-all
exclusionary phrase "all allowances and monetary benefits which are not
considered or integrated as part of the basic salary" shows also the
intention to strip basic salary of any and all additions which may be in the
form of allowances or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations Implementing
Presidential Decree 851 is even more emphatic in declaring that earnings
and other remunerations which are not part of the basic salary shall not be
included in the computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which defines basic salary to
include all remunerations or earnings paid by an employer to an
employee, this cloud is dissipated in the later and more controlling
Supplementary Rules and Regulations which categorically exclude from
the definitions of basic salary earnings and other remunerations paid by
an employer to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of a broad inclusion is
now a subject of broad exclusion. The Supplementary Rules and
Regulations cure the seeming tendency of the former rules to include all
remunerations and earnings within the definition of basic salary.

The all embracing phrase "earnings and other remunerations" which are
deemed not part of the basic salary includes within its meaning payments
for sick, vacation, or maternity leaves, premium for works performed on
rest days and special holidays, pays for regular holidays and night
differentials. As such they are deemed not part of the basic salary and
shall not be considered in the computation of the 13th-month pay. If they
were not excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in the computation of the 13th month
pay. Then the exclusionary provision would prove to be idle and with no
purpose.

This conclusion finds strong support under the Labor Code of the
Philippines. To cite a few provisions:

Art. 87. Overtime Work. Work may be performed beyond eight (8) hours a
day provided that the employee is paid for the overtime work, additional
compensation equivalent to his regular wage plus at least twenty-five
(25%) percent thereof.

It is clear that overtime pay is an additional compensation other than and

added to the regular wage or basic salary, for reason of which such is
categorically excluded from the definition of basic salary under the
Supplementary Rules and Regulations Implementing Presidential Decree
851.

In Article 93 of the same Code, paragraph

 c) work performed on any special holiday shall be paid an additional
compensation of at least thirty percent (30%) of the regular wage of the
employee.

It is likewise clear the premiums for special holiday which is at least 30%
of the regular wage is an additional pay other than and added to the
regular wage or basic salary. For similar reason, it shall not be considered
in the computation of the 13th month pay.

Quite obvious from the foregoing is that the term "basic salary" is to be understood in its
common, generally-accepted meaning, i.e., as a rate of pay for a standard work period
exclusive of such additional payments as bonuses and overtime. 8 This is how the term
was also understood in the case of Pless v. Franks, 308 S.W. 2nd. 402, 403, 202 Tenn.
630, which held that in statutes providing that pension should not less than 50 percent
of "basic salary" at the time of retirement, the quoted words meant the salary that an
employee (e.g., a policeman) was receiving at the time he retired without taking into
consideration any extra compensation to which he might be entitled for extra work. 9

In remunerative schemes consisting of a fixed or guaranteed wage plus commission,

the fixed or guaranteed wage is patently the "basic salary" for this is what the employee
receives for a standard work period. Commissions are given for extra efforts exerted in
consummating sales or other related transactions. They are, as such, additional pay,
which this Court has made clear do not form part of the "basic salary."

Respondents would do well to distinguish this case from Songco vs. National Labor
Relations Commission, supra, upon which they rely so heavily. What was involved
therein was the term "salary" without the restrictive adjective "basic". Thus, in said case,
we construed the term in its generic sense to refer to all types of "direct remunerations
for services rendered," including commissions. In the same case, we also took judicial
notice of the fact "that some salesmen do not receive any basic salary but depend on
commissions and allowances or commissions alone, although an employer-employee
relationship exists," which statement is quite significant in that it speaks of a "basic
salary" apart and distinct from "commissions" and "allowances". Instead of supporting
respondents' stand, it would appear that Songco itself recognizes that commissions are
not part of "basic salary."

In including commissions in the computation of the 13th month pay, the second
paragraph of Section 5(a) of the Revised Guidelines on the Implementation of the 13th
Month Pay Law unduly expanded the concept of "basic salary" as defined in P.D. 851. It
is a fundamental rule that implementing rules cannot add to or detract from the
provisions of the law it is designed to implement. Administrative regulations adopted
under legislative authority by a particular department must be in harmony with the
provisions of the law they are intended to carry into effect. They cannot widen its scope.
An administrative agency cannot amend an act of Congress. 10
Having reached this conclusion, we deem it unnecessary to discuss the other issues
raised in these petitions.

WHEREFORE, the consolidated petitions are hereby GRANTED. The second

paragraph of Section 5 (a) of the Revised Guidelines on the Implementation of the 13th
Month Pay Law issued on November 126, 1987 by then Labor Secretary Franklin M.
Drilon is declared null and void as being violative of the law said Guidelines were issued
to implement, hence issued with grave abuse of discretion correctible by the writ of
prohibition and certiorari. The assailed Orders of January 17, 1990 and October 10,
1991 based thereon are SET ASIDE.

SO ORDERED.

Padilla, Regalado, Nocon and Puno, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 88168 August 30, 1990

TRADERS ROYAL BANK, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION & TRADERS ROYAL BANK
EMPLOYEES UNION, respondents.

San Juan, Gonzalez, San Agustin & Sinense for petitioner.

E.N.A. Cruz, Enfero & Associates for private respondent.

GRIO-AQUINO, J.:

This petition for certiorari seeks to nullify or set aside the decision dated September 2,
1988 of the National Labor Relations Commission, which found the petitioner, Traders
Royal Bank (or TRB), guilty of diminution of benefits due the private respondents and
ordered it to pay the said employees' claims for differentials in their holiday, mid-year,
and year-end bonuses.

On November 18, 1986, the Union, through its president, filed a letter-complaint against
TRB with the Conciliation Division of the Bureau of Labor Relations claiming that:

First, the management of TRB per memo dated October 10, 1986 paid the
employees their HOLIDAY PAY, but has withheld from the Union the basis
of their computation.

Second, the computation in question, has allegedly decreased the daily

salary rate of the employees. This diminution of existing benefits has
decreased our overtime rate and has affected the employees' take home
pay.
 Third, the diminution of benefits being enjoyed by the employees since
time immemorial, e.g. mid-year bonus, from two (2) months gross pay to
two (2) months basic and year-end bonus from three (3) months gross to
only two (2) months.

Fourth, the refusal by management to recall active union members from

the branches which were being transferred without prior notice, solely at
the instance of the branch manager. (p. 26, Rollo.)

In its answer to the union's complaint, TRB pointed out that the NLRC, not the Bureau of
Labor Relations, had jurisdiction over the money claims of the employees.

On March 24, 1987, the Secretary of Labor certified the complaint to the NLRC for
resolution of the following issues raised by the complainants:

l) The Management of TRB per memo dated October 10, 1986 paid the
employees their holiday pay but has withheld from the union the basis of
their computation.

2) The computation in question has allegedly decreased the daily salary

rate of the employees. This diminution of existing benefits has decreased
our overtime rate and has affected the employees' take home pay.

3) The diminution of benefits being enjoyed by the employees since the

(sic) immemorial, e.g. mid-year bonus, from two (2) months gross pay to
two (2) months basic and year-end bonus from three (3) months gross to
only two (2) months.

4) The refusal by management to recall active union members from the

branches which were being transferred without prior notice, solely at the
instance of the branch, manager. (p. 28, Rollo.)

In the meantime, the parties who had been negotiating for a collective bargaining
agreement, agreed on the terms of the CBA, to wit:

1. The whole of the bonuses given in previous years is not

demandable, i.e., there is no diminution, as to be liable for a differential, if
the bonus given is less than that in previous years.

2. Since only two months bonus is guaranteed, only to that extent are
bonuses deemed part of regular compensation.

3. As regards the third and fourth bonuses, they are entirely dependent on
the income of the bank, and not demandable as part of compensation.
(pp. 67-68, Rollo.)
Despite the terms of the CBA, however, the union insisted on pursuing the case,
arguing that the CBA would apply prospectively only to claims arising after its effectivity.

Petitioner, on the other hand, insisted that it had paid the employees holiday pay. The
practice of giving them bonuses at year's end, would depend on how profitable the
operation of the bank had been. Generally, the bonus given was two (2) months basic
mid-year and two (2) months gross end-year.

On September 2, 1988, the NLRC rendered a decision in favor of the employees, the
dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the petitioner and

ordering respondent bank to pay petitioner members-employees the
following:

1. Holiday differential for the period covering l983-1986 as embodied in

Resolution No. 4984-1986 of respondent's Board of Directors but to start
from November 11, 1983 and using the Divisor 251 days in determining
the daily rate of the employees;

2. Mid-year bonus differential representing the difference between two (2)

months gross pay and two (2) months basic pay and end-year bonus
differential of one (1) month gross pay for 1986.

The claim for holiday differential for the period earlier than November 11,
1983 is hereby dismissed, the same having prescribed.

Likewise, the charge of unfair labor practice against the respondent

company is hereby dismissed for lack of merit. (pp. 72-73, Rollo.)

A motion for reconsideration was filed by TRB but it was denied. Hence, this petition
for certiorari.

There is merit in the petitioner's contention that the NLRC gravely abused its discretion
in ordering it to pay mid-year/year-end bonus differential for 1986 to its employees.

A bonus is "a gratuity or act of liberality of the giver which the recipient has no right to
demand as a matter of right" (Aragon vs. Cebu Portland Cement Co., 61 O.G. 4597). "It
is something given in addition to what is ordinarily received by or strictly due the
recipient." The granting of a bonus is basically a management prerogative which cannot
be forced upon the employer "who may not be obliged to assume the onerous burden of
granting bonuses or other benefits aside from the employee's basic salaries or wages" .
. . (Kamaya Point Hotel vs. National Labor Relations Commission, Federation of Free
Workers and Nemia Quiambao, G.R. No. 75289, August 31, 1989).
It is clear from the above-cited rulings that the petitioner may not be obliged to pay
bonuses to its employees. The matter of giving them bonuses over and above their
lawful salaries and allowances is entirely dependent on the profits, if any, realized by
the Bank from its operations during the past year.

From 1979-1985, the bonuses were less because the income of the Bank had
decreased. In 1986, the income of the Bank was only 20.2 million pesos, but the Bank
still gave out the usual two (2) months basic mid-year and two months gross year-end
bonuses. The petitioner pointed out, however, that the Bank weakened considerably
after 1986 on account of political developments in the country. Suspected to be a
Marcos-owned or controlled bank, it was placed under sequestration by the present
administration and is now managed by the Presidential Commission on Good
Government (PCGG).

In the light of these submissions of the petitioner, the contention of the Union that the
granting of bonuses to the employees had ripened into a company practice that may not
be adjusted to the prevailing financial condition of the Bank has no legal and moral
bases. Its fiscal condition having declined, the Bank may not be forced to distribute
bonuses which it can no longer afford to pay and, in effect, be penalized for its past
generosity to its employees.

Private respondent's contention, that the decrease in the midyear and year-end
bonuses constituted a diminution of the employees' salaries, is not correct, for bonuses
are not part of labor standards in the same class as salaries, cost of living allowances,
holiday pay, and leave benefits, which are provided by the Labor Code.

WHEREFORE, the petition for certiorari is granted. The decision of the National Labor
Relations Commission is modified by deleting the award of bonus differentials to the
employees for 1986. In other respects, the decision is affirmed. Costs against the
respondent union.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 106331 March 9, 1998

INTERNATIONAL PHARMACEUTICALS, INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), FOURTH DIVISION, and DR. VIRGINIA
CAMACHO QUINTIA, respondents.

MENDOZA, J.:

This is a petition for certiorari to set aside the decision of the National Labor Relations Commission
which affirmed in toto the decision of the Labor Arbiter, finding petitioner guilty of the illegal dismissal
of private respondent Virginia Camacho Quintia, as well as its resolution denying reconsideration.

Petitioner International Pharmaceuticals, Inc. (IPI) is a corporation engaged in the manufacture,

production and sale of pharmaceutical products. In March 1983, it employed private respondent
Virginia Camacho Quintia as Medical Director of its Research and Development department,
replacing one Diana Villaraza. 1 The government, in that year, launched a program encouraging the development of herbal
medicine and offering incentives to interested parties. Petitioner decided to venture into the development of herbal medicine, although it is
now alleged that this was merely experimental, to find out if it would be feasible to include herbal medicine in its business. 2 One of the
government requirements was the hiring of a pharmacologist. Petitioner avers that it was only for this purpose that private respondent was
hired, hence its contention that private respondent was a project employee.

The contract of employment provided for a term of one year from the date of its execution on March
19, 1983, subject to renewal by mutual consent of the parties at least thirty days before its
expiration. It provided for a monthly compensation of P4,000.00. It was agreed that Quintia could
continue teaching at the Cebu Doctor's Hospital, 3 where she was, at that time, a full-time member of the faculty.

Quintia claimed that when her contract of employment was about to expire, she was invited by
Xavier University in Cagayan de Oro City to be the chairperson of its pharmacology department.
However, Pio Castillo, the president and general manager, prevailed upon her to stay, assuring her
of security of tenure. Because of this assurance, she declined the offer of Xavier University. 4 Indeed,
after her contract expired on March 19, 1984, she remained in the employ of petitioner where she not only performed the work of Medical
Director of its Research and Development department but also that of company physician. This continued until her termination on July 12,
1986.

In her complaint, private respondent alleges that the reason for her termination "was her taking up
the cudgels for the rank and file employees when she felt they were given a raw deal by the officers
of their own Savings and Loan Association." She claimed that sometime in June 1986, while Pio
Castillo was in China, the Association declared dividends to its members. Due to complaints of the
employees, meetings were held during which private respondent pointed out the "inequality in the
imposition of interest rate to the low-salaried employees" and led them in the demand for a full
disclosure of the association's financial status. Her participation was resented by the association's
officers, all of whom were appointed by management, so that when Castillo arrived, private
respondent was summoned to Castillo's office where she was berated for her acts and humiliated in
front of some laborers. When she sought permission to explain her side, she was arrogantly turned
down and told to leave. 5

On July 10, 1986, Quintia was replaced as head of the Research and Development department by
Paz Wong. Two days later, on July 12, 1986, she received an inter-office memorandum officially
terminating her services allegedly because of the expiration of her contract of employment.

On January 21, 1987, 6 private respondent filed a complaint, charging petitioner with illegal dismissal and praying that petitioner be
ordered to reinstate private respondent and to pay her full backwages and moral damages. 7

In its position paper, petitioner claimed that private respondent had been hired on a "consultancy
basis coterminous with the duration of the project" involving the development of herbal medicine and
that her employment was terminated upon the abandonment of that project. It explained that
Quintia's employment, which lasted for more than two years after the original contract expired, was
by virtue of an oral agreement with the same terms as the written contract or, at the very least, by
virtue of implied extensions of the said contract which lasted until the "company decided that nothing
would come out from said project." 8

In a decision rendered on December 18, 1990, the Labor Arbiter found private respondent to have
been illegally dismissed. He held that private respondent was a regular employee and not a project
employee and so could not be dismissed without just and/or legal causes as provided in the Labor
Code. Moreover, he found that petitioner failed to observe due process in terminating Quintia's
services. For this reason, the Labor Arbiter ordered the petitioner to reinstate private respondent and
to pay her backwages for three years, including 13th month pay and Service Incentive Leave, moral
damages and attorney's fees amounting to P177,099.94. He further ruled that if reinstatement was
no longer feasible, petitioner should pay private respondent P6,000 as separation pay.

On appeal, the NLRC affirmed the ruling in a decision dated May 26, 1992. Petitioner moved for
reconsideration, but its motion was denied for lack of merit. The NLRC directed the Labor Arbiter to
conduct a hearing to determine whether reinstatement was feasible. Hence, this petition.

We find the petition to be without merit.

First. Art, 280 of the Labor Code provides:

Art. 280. Regular and casual employment. The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreement of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or trade of the employer
except where the employment has been fixed for a specific project or undertaking, the
completion or termination of which has been determined at the time of the engagement of
the employee or where the work or service to be performed is seasonal in nature and the
employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: Provided, That any employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be considered a regular employee with
respect to the activity in which he is employed and his employment shall continue while such
activity exists.

In Brent School, Inc. v. Zamora, 9 it was held that although work done under a contract is necessary and desirable in relation to
the usual business of the employer, a contract for a fixed period may nonetheless be made so long as it is entered into freely, voluntarily and
knowingly by the parties. Applying this ruling to the case at bar, the NLRC held that the written contract between petitioner and private
respondent was valid, but, after its expiration on March 18, 1984, as the petitioner had decided to continue her services, it must respect the
security of tenure of the employee in accordance with Art, 280. It said:

To our mind, when complainant was allowed to continue working without the benefit of a
contract after the expiration of the one year period provided in their written contract, that act
completely changed the complexion of the relationship between the parties.

The NLRC cited the following facts to justify its ruling: Quintia was continued as Medical Director and
even given the additional function of company physician after the expiration of the original contract;
she undertook various civic activities for and in behalf of petitioner, such as conducting free clinics
and giving out IPI products; she did work which was necessary and desirable in relation to the trade
or business of petitioner; and her employment lasted for more than (3) three years.

Petitioner contends:

(1) that the NLRC's reliance on Art. 280 is "clearly contrary to this Court's decisions;"

(2) that private respondent's tasks are really not necessary and desirable to the usual business of
petitioner;

(3) that there is "clearly no legal or factual basis to support respondent NLRC's reliance on the
absence of a new written contract as indicating that respondent Quintia became a regular
employee." 10

Petitioner's first ground is that the ruling of the NLRC is contrary to the Brent School decision. He
contends that Art. 280 should not be so interpreted as to render employment contracts with a fixed
term invalid. But the NLRC precisely upheld the validity of the contract in accordance with the Brent
School case. Indeed, the validity of the written contract is not in issue in this case. What is in issue is
whether private respondent did not become a regular employee after the expiration of the written
contraction March 18, 1984 on the basis of the facts pointed out by the NLRC, simply because there
was in the beginning a contract of employment with a fixed term.

Petitioner also invokes the ruling in Singer Sewing Machine v. Drilon 11 in which it was stated:

The definition that regular employees are those who perform activities which are desirable
and necessary for the business of the employer is not determinative in this case. Any
agreement may provide that one party shall render services for and in behalf of another for a
consideration (no matter how necessary for the latter's business) even without being hired as
an employee. This is precisely true in the case of an independent contractorship as well as in
an agency agreement. The Court agrees with the petitioner's argument that Article 280 is not
the yardstick for determining the existence of an employment relationship because it merely
distinguishes between two kinds of employees, i.e., regular employees and casual
employees, for purposes of determining the right of an employee to certain benefits, to join or
form a union, or to security of tenure. Article 280 does not apply where the existence of an
employment relationship is in dispute.

Petitioner argues:

Even assuming arguendo that respondent Quintia was performing tasks which were
"necessary and desirable to the main business" of petitioner, said standard cannot apply
since said Article merely distinguishes between regular and casual employment for the
 purpose of determining entitlement to benefits under the Labor Code. In this case,
respondent Quintia's alleged status as "regular" employee has precisely been disputed by
petitioner. And, as this Honorable Court noted in the foregoing case, an agreement may
provide that one party will render services, no matter how necessary for the other party's
business, without being hired as a regular employee, and this is precisely the nature of the
contract entered into by the parties in this case. 12

Clearly, petitioner misapplies the ruling in Singer. Quintia's status as an employee is not disputed in
this case. Therefore, in determining whether she was a project employee or a regular employee, the
question is whether her work was "necessary and desirable to the main business of the employer." It
is true that, as held in Singer, parties can enter into an agreement for the rendering of services by
one to the other and that however necessary such services may be to the latter's business the
contract will not necessarily give rise to an employer-employee relationship if the elements of such
relationship are not present. But that is not the question in this case. Quintia was an employee. The
question is whether, given the fact that she was an employee, she was a regular or a project
employee, considering that she had been continued in the service of petitioner for more than two
years following the expiration of her written contract.

Petitioner's second point is that private respondent's tasks were not really necessary and desirable
in respect of the usual business of petitioner, the work done by Quintia being on a temporary basis
only. 13 According to petitioner, Quintia's engagement was only for the duration of its herbal medicine development project. In addition,
petitioner points out that private respondent was not required to keep fixed office hours and this arrangement continued even after the
expiration of the written contract, thus indicating the temporary nature of her employment.

Petitioner's allegations are contrary to the factual findings of both the NLRC and the Labor Arbiter,
particularly their findings that she was the head of petitioner's Research and Development
department; that in addition, she performed the function of company physician; and that she
undertook various civic activities in behalf of petitioner and that this engagement lasted for more
than three years (1983 1986). 14 Certainly, as the NLRC observed, these facts show complainant working "not as
'consultant' but as a regular employee albeit a managerial one." 15 It should be added that Quintia was hired to replace one Diana
Villaraza, 16 which suggests that the position to which she was appointed by petitioner was an existing one, so much so that after the
termination of Quintia's employment, somebody else (Paz Wong) was appointed in her place. 17 If private respondent's employment was for
a particular project which had allegedly been terminated, why would there be a need to replace her?

We are not prepared to throw overboard the findings of both the NLRC and the Labor Arbiter on the
matter. These are essentially factual matters which are within the competence of the labor agencies
to determine. Their findings are accorded by this Court respect and finality if, as in this case, they
are supported by substantial evidence. 18

Indeed, the terms of the written employment contract are clear:

. . . That the FIRST PARTY is a manufacturer of medicines and pharmaceutical preparations,

while the SECOND PARTY is a Doctor of Medicine and Pharmacologist of long standing;

That the FIRST PARTY desires to hire the SECOND PARTY as Medical Director of its
Research and Development department, which the latter accepts, under the following terms
and conditions, to wit:

1. That the SECOND PARTY shall perform and/or cause the performance of the following:

a) Microbiological research and testing;

b) Clinical research and testing;

 c) Prove and support First Party's claims in its brochures, literature and advertisements;

d) Register with and cause the approval by Food and Drug Administration of all
pharmaceutical and medical preparations developed and tested by the First Party's R&D
department; and

e) To do and perform such other duties as may, from time to time, be assigned by the First
Party consonant to and in accord with the position herein conferred . . . .

There is no mention whatsoever of any project or of any consultancy in the contract. As aptly
observed by the Solicitor General, the duties of Quintia as provided for in the contract reject any
notion of consultancy. Clearly, she was hired as Medical Director of the Research and Development
department of petitioner company and not as consultant nor for any particular project. The work she
performed was manifestly necessary and desirable to the usual business of petitioner, considering
that it is engaged in the manufacture and production of medicinal preparations. Petitioner itself
admits that research and development are part of its business. 19

We agree with the Labor Arbiter that the fact that she was not required to report at a fixed hour or to
keep fixed hours of work does not detract from her status as a regular employee. As petitioner itself
admits, Quintia was a managerial employee 20 and therefore not covered by the Labor Code provisions on hours of work.
What this Court said in once case 21 is apropos:

The primary standard, . . . of determining a regular employment is the reasonable connection

between the particular activity performed by the employee in relation to the usual business or
trade of the employer. The test is whether the former is usually necessary or desirable in the
usual business or trade of the employer. The connection can be determined by considering
the nature of the work performed and its relation to the scheme of the particular business or
trade in its entirety. Also, if the employee has been performing the job for at least one year,
even if the performance is not continuous or merely intermittent, the law deems the repeated
and continuing need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the employment is also considered
regular, but only with respect to such activity and while such activity exists.

Neither does the fact that private respondent was teaching full-time at the Cebu Doctors' College
negate her regular status since this fact does not affect the nature of Quintia's work. Whether one's
employment is regular is not determined by the number of hours one works, but by the nature of the
work and by the length of time one has been in that particular job.

Considering the foregoing, it is clear that Quintia became a regular employee of petitioner after her
contract expired on March 18, 1984 and her services were continued for more than two years in the
usual trade or business of the employer.

Petitioner goes on to state his third point that "there is clearly no legal or factual basis to support
respondent NLRC's reliance on the absence of a new written contract as indicating that respondent
Quintia became a regular employee." 22 In support, the petitioner again cites the Brent School case 23 where it was
recognized that term contracts can be made orally. 24 Hence, it is argued that "the mere fact that there was no subsequent written contract
does not mean that the original agreement was abandoned and/or that respondent became a regular employee due to the absence thereof
and/or that the parties had executed a new agreement, in the absence of evidence showing intent to abandon and/or novate the same." It
posits that, based on the acts of the parties, an implied renewal was entered into, or, at the very least, petitioner claims, the absence of a
written contract only indicates that the parties impliedly agreed to extend their written contract.

There is absolutely no principle of law to support the proposition urged by petitioner. On the other
hand the written contract in this case provided that it was subject to renewal by mutual consent of
the parties at least thirty days before its expiration on March 18, 1984. There is no evidence to show
that the parties mutually agreed to renew their contract. On the other hand, to sustain petitioner's
contention that there was an implied extension after the expiration of the original contract would
make it possible for employers like petitioner to circumvent Art. 280 of the Labor Code and thus
prevent an employee from becoming regular through the simple expedient of making him sign a
contract for a term and then extend to him a contract term, after term, after term.

Moreover, assuming that petitioner is correct that there was at least an implied renewal of the written
contract containing the same terms and conditions, then Quintia's termination should have been
effective in March of 1986 or March of 1987 rather than July of 1986. It should be noted that the
fixed term stated in the written contract allegedly renewed is one year. Considering that the said
contract was executed on March 19, 1983, then if there really were implied renewals with the same
terms and conditions, private respondent's employment should not have been terminated in July of
1986. As discussed earlier, the decision of the NLRC is based not alone on inference drawn from the
expiration of the contract but on facts which, in light of Art. 280, show that private respondent's work
was in pursuance of the business of petitioner.

Second. Prescinding from the premise that private respondent was a project employee, petitioner
claims that because it had discontinued its herbal medicine project after it had been shown not to be
viable, private respondent's employment had to be terminated, too.

We have already shown why this claim has no basis and no merit. Petitioner was unable to prove
that it had actually undertaken a project. Private respondent's contract will be searched in vain for
any mention of a project. What it states is that Quintia's employment was one for a definite period,
not for a project as petitioner would have it. A project employment is one where the employment has
been fixed for a specific project/undertaking, the completion or termination of which has been
determined at the time of the engagement of the employee. 25 Quintia's engagement after the expiration of the
written contract cannot be said to have been pre-determined because, if petitioner's other claim is to be believed, it was essentially
contingent upon the feasibility of herbal medicine as part of petitioner's business and for as long as the herbal medicine development was
being pursued by it.

It follows from the conclusion that private respondent Quintia was a regular employee that she could
only be dismissed for just or authorized cause. 26 The records are bereft of any evidence showing the existence of any of
the specified causes in the Labor Code. It may be that an employer is allowed wider discretion in terminating employment in respect of
managerial personnel compared to rank-and-file employees, and that such managerial employees can be separated from the service for loss
of confidence. 27 However, a mere allegation of such ground is not sufficient. As this Court has held in Western Shipping Agency,
Inc. v. NLRC: 28

Loss of confidence is a valid ground for the dismissal of managerial employees . . . But even managerial employees enjoy security
of tenure, . . . and, . . . can only be dismissed after cause is shown in an appropriate proceeding. The loss of confidence must be
substantiated by evidence. The burden of proof is on the employer to show grounds justifying the loss of confidence.

Petitioner in this case failed to discharge this burden, as both the Labor Arbiter and the NLRC found.

Moreover, as the labor arbiter found, petitioner failed to accord due process to private respondent in
terminating her services. In the case of Aurora Land Projects Corp. v. NLRC it was stated: 29

The law requires that the employer must furnish the worker sought to be dismissed with two written notices before termination of
employee can be legally effected: (1) notice which apprises the employee of the particular acts or omissions for which his
dismissal is sought; and (2) the subsequent notice which informs the employee of the employer's decision to dismiss him (Section
13, BP 130; Sections 2-6, Rule XIV, Book V Rules and Regulations Implementing the Labor Code as amended). Failure to comply
with the requirements taints the dismissal with illegality. This procedure is mandatory; in the absence of which, any judgment
reached by management is void and in existent. (Tingson, Jr. v. NLRC, 185 SCRA 498 [1990]; National Service Corporation v.
NLRC, 168 SCRA 122 [1988]; Ruffy v. NLRC, 182 SCRA 365 [1990]).

The memoranda dated July 12, 1986 and July 10, 1986, copies of which were furnished the
complainant, informing her of the termination of her contract and the appointment of a replacement,
without apprising her of the particular acts or omissions for which her dismissal was sought, do not
suffice to satisfy, the requirements of notice. Nor was petitioner given the opportunity to be
heard. 30 Consequently, her dismissal from the service was illegal.

Third. Petitioner contends that the reinstatement of private respondent is not feasible because the
position which she held was abolished on account of its decision to discontinue its herbal medicine
development project and that, in any event, because the position is a sensitive one which needs an
employee in whom the petitioner has full faith and confidence. It is also contended that reinstatement
would be untenable considering the antagonism engendered as a result of this case. 31

As regards the claim that the position has already been abolished and, therefore, reinstatement is
impossible, suffice it to state that the factual findings of the Labor Arbiter belie this. A replacement
for private respondent was appointed two (2) days prior to her termination. If the position had been
abolished, there would have been no necessity for a replacement.

But we agree that because of antagonism generated by this case and the private respondent's own
preference for separation pay, reinstatement would no longer be feasible. It would thus be in the
best interest of the parties to order the payment of separation pay in lieu of reinstatement. Such an
amount should not be equivalent to one-half month salary for every year of service only, as ordered
by the Labor Arbiter and affirmed by the NLRC but, in accordance with our decisions, 32 it must be
equivalent to one month salary for every year of service.

Private respondent should be given separation pay and backwages in accordance with the Labor
Code. The backwages, however, are to be computed only for three years from July 12, 1986, the
date of her dismissal, without deduction or qualification, considering that the dismissal was made
before the effectivity on March 21, 1989, of R.A. No. 6715, which provides for the payment of full
backwages to employees who are illegally dismissed. 33

WHEREFORE, the petition is DISMISSED. The decision of the National Labor Relations
Commission is MODIFIED by ordering petitioner to pay private respondent separation pay
equivalent to one month salary for every year of service. In all other respects, the decision of the
NLRC is AFFIRMED.

SO ORDERED.