You are on page 1of 237

Songco, et al. vs.

National Labor Relations Commission

G.R. Nos. 50999-51000

(March 23, 1990)

FACTS: Zuelig filed an application for clearance to terminate the services of Songco, and others,
on the ground of retrenchment due to financial losses. During the hearing, the parties agreed
that the sole issue to be resolved was the basis of the separation pay due. The salesmen
received monthly salaries of at least P400.00 and commission for every sale they made.

The Collective Bargaining Agreements between Zuelig and the union of which Songco, et al. were
members contained the following provision: "Any employee who is separated from employment
due to old age, sickness, death or permanent lay-off, not due to the fault of said employee, shall
receive from the company a retirement gratuity in an amount equivalent to one (1) month's
salary per year of service."

The Labor Arbiter ordered Zuelig to pay Songco et al., separation pay equivalent to their one
month salary (exclusive of commissions, allowances, etc.) for every year of service with the
company.

The National Labor Relations Commission sustained the Arbiter.

ISSUE: Whether or not earned sales commissions and allowances should be included in the
monthly salary of Songco, et al. for the purpose of computing their separation pay.

RULING:
In the computation of backwages and separation pay, account must be taken not only of the
basic salary of the employee, but also of the transportation and emergency living allowances.

Even if the commissions were in the form of incentives or encouragement, so that the salesman
would be inspired to put a little more industry on jobs particularly assigned to them, still these
commissions are direct remunerations for services rendered which contributed to the increase
of income of the employee. Commission is the recompense compensation or reward of an
agent, salesman, executor, trustee, receiver, factor, broker or bailee, when the same is calculated
as a percentage on the amount of his transactions or on the profit to the principal. The nature of
the work of a salesman and the reason for such type of remuneration for services rendered
demonstrate that commissions are part of Songco, et al's wage or salary.

The Court takes 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 relationships exists.

If the opposite view is adopted, i.e., that commissions do not form part of the wage or salary,
then in effect, we will be saying that this kind of salesmen do not receive any salary and,
therefore, not entitled to separation pay in the event of discharge from employment. This
narrow interpretation is not in accord with the liberal spirit of the labor laws, and considering
the purpose of separation pay which is, to alleviate the difficulties which confront a dismissed
employee thrown to the streets to face the harsh necessities of life.

In Soriano vs. NLRC (155 SCRA 124), we held that the commissions also claimed by the employee
(override commission plus net deposit incentive) are not properly includible in such base figure
since such commissions must be earned by actual market transactions attributable to the
petitioner [salesman]. Since the commissions in the present case were earned by actual
transactions attributable to Song, et al., these should be included in their separation pay. In the
computation thereof, what should be taken into account is the average commission earned
during their last year of employment.
Today is Tuesday, July 26, 2016

search

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-58870 December 18, 1987

CEBU INSTITUTE OF TECHNOLOGY (CIT), petitioner,

vs.

HON. BLAS OPLE, in his capacity as Minister, Ministry of Labor and Employment, JULIUS ABELLA,
ARSENIO ABELLANA, RODRIGO ALIWALAS, ZOSIMO ALMOCERA, GERONIDES ANCOG, GREGORIO
ASIA, ROGER BAJARIAS, BERNARDO BALATAYO, JR., BASILIO CABALLES, DEMOCRITO TEVES,
VOLTAIRE DELA CERNA, ROBERTO COBARRUBIAS, VILMA GOMEZ CHUA, RUBEN GALLITO,
EDGARDO CONCEPCION, VICTOR COQUILLA, JOSE DAKOYKOY, PATERNO WONG, EVELYN LACAYA,
RODRIGO GONZALES, JEOGINA GOZO, MIGUEL CABALLES, CONSUELO JAVELOSA, QUILIANO
LASCO, FRANKLIN LAUTA, JUSTINIANA LARGO, RONALD LICUPA, ALAN MILANO, MARIA
MONSANTO, REYNALDO NOYNAY, RAMON PARADELA, NATALIO PLAZA, LUZPURA QUIROGA, NOE
RODIS, COSMENIA SAAVEDRA, LEONARDO SAGARIO, LETICIA SERRA, SIEGFREDO TABANAG,
LUCINO TAMAOSO, DANILO TERANTE, HELEN CALVO TORRES, ERNESTO VILLANUEVA, DOLORES
VILLONDO, EDWARD YAP, ROWENA VIVARES, DOLORES SANANAM, RODRIGO BACALSO,
YOLANDA TABLANTE, ROMERO BALATUCAN, CARMELITA LADOT, PANFILO CANETE, EMMANUEL
CHAVEZ, JR., SERGIO GALIDO, ANGEL COLLERA, ZOSIMO CUNANAN, RENE BURT LLANTO, GIL
BATAYOLA, VICENTE DELANTE, CANDELARIO DE DIOS, JOSE MA. ESTELLA, NECITA TRINIDAD,
ROTELLO ILUMBA, TEODORICO JAYME, RAYMUNDO ABSIN, RUDY MANEJA, REYNA RAMOS,
ANASTACIA BLANCO, FE DELMUNDO, ELNORA MONTERA, MORRISON MONTESCLAROS, ELEAZAR
PANIAMOGAN, BERNARDO PILAPIL, RODOLFO POL, DEMOSTHENES REDOBLE, PACHECO
ROMERO, DELLO SABANAL, SARAH SALINAS, RENATO SOLATORIO, EDUARDO TABLANTE,
EMMANUEL TAN, FELICISIMO TESALUNA, JOSE VERALLO, JR., MAGDALENO VERGARA,
ESMERALDA ABARQUEZ, MAC ARTHUR DACUYCUY ACOMPANADA, TRINIDAD ADLAWAN, FE
ELIZORDO ALCANTARA, REOSEBELLA AMPER, ZENAIDA BACALSO, ELIZA BADANA, GEORGIA BAS,
ERLINDA BURIAS, ELDEFONSO BURIAS, CORAZON CASENAS, REGINO CASTANEDA, GEORGE
CATADA, CARMENCITA G. CHAVEZ, LORETIA CUNANAN, FLORES DELFIN, TERESITA ESPINO, ELVIE
GALANZA, AMADEA GALELA, TERESITA. JUNTILLA, LEONARDA KAPUNGAN, ADORACION
LANAWAN, LINDA LAYAO, GERARDO LAYSON, VIRGILIO LIBETARIO, RAYMOND PAUL LOGARTA,
NORMA LUCERO, ANATOLIA MENDEZ, ELIODORO MENDEZ, JUDALINE MONTE, ELMA OCAMPO,
ESTEFA OLIVARES, GEORGE ORAIS, CRISPINA PALANG, GRETA PEGARIDO, MELBA QUIACHON,
REMEDIOS QUIROS, VIRGINIA RANCES, EDNA DELOS REYES, VICENTE TAN, EMERGENCIA ROSELL,
JULIETA TATING, MERCIA TECARRO, FELISA VERGARA, WEMINA VILLACIN, MACRINA YBARSABAL,
MILAGROS CATALAN, JULIETA AQUINDE, SONIA ARTIAGA, MA. TERESITA OBANDO, ASUNCION
ABAYAN, ESTHER CARREON, ECHEVARRE, BUENAFE SAMSON, CONCEPCION GONZALES,
VITALIANA VENERACION, LEONCIA ABELLAR, REYNITA VILLACARLOS. respondents.

No. L-68345 December 18, 1987

DIVINE WORD COLLEGE OF LEGAZPI, petitioner,

vs.

The Honorable Deputy Minister of Labor and Employment, VICENTE LEOGARDO, JR., the
HONORABLE REGIONAL DIRECTOR (Regional Office No. 5) of the Ministry of Labor &
Employment GERARDO S. CASTILLO, CECILIA MANUEL and other alleged complainants,
respondents.

Nos. L-69224-5 December 18, 1987

FAR EASTERN UNIVERSITY EMPLOYEES LABOR UNION, petitioner,

vs.

FAR EASTERN UNIVERSITY and the NATIONAL LABOR RELATIONS COMMISSION, respondents.

No. 70832 December 18, 1987

GREGORIO T. FABROS, ROGELIO B. DE GUZMAN, CRESENCIANO ESPINO, JOSE RAMOS SUNGA,


BAYLON BANEZ FERNANDO ELESTERIO, ISMAEL TABO, AMABLE TUIBEO CELSO TUBAY, RAFAEL
HERNANDEZ, GERONIMO JASARENO, MEL BALTAZAR, MA. LOURDES PASCUAL, T. DEL ROSARIO
ACADEMY TEACHERS and EMPLOYEES ASSOCIATION, DENNIS MONTE, BECKY TORRES, LOIDA
VELASCO, ROMLY NERY, DAISY N. AMPIG, PATRICIO DOLORES, ROGELIO RAMIREZ, and NILDA L.
SEVILLA, petitioners,

vs.
The HON. JAIME C. LAYA, in his capacity as Minister of Education, Culture and Sports,
respondents.

No. L-76524 December 18, 1987

JASMIN BISCOCHO, ROWENA MARIANO, AGNES GALLEGO, MA. ANA ORDENES, ISABEL DE LEON,
LUZVIMINDA FIDEL, MARIQUIT REYES, SOTERA ORTIZ, ANGELINA ROXAS, BITUIN DE PANO,
ELIZABETH ORDEN, APOLLO ORDEN, GUILLERMA CERCANO, IMELDA CARINGAL, EFREN
BATIFORA, ROSIE VALDEZ, DELIA QUILATEZ, FELIX RODRIGUEZ, OSCAR RODRIGUEZ, JOVITA
CEREZO, JOSEFINA BONDOC, BELEN POSADAS, DOLORES PALMA, ANTONINA CRUS, CONRADO
BANAYAT, TERESITA LORBES, and CORAZON MIRANDA, petitioners,

vs.

THE HONORABLE AUGUSTO SANCHEZ, in his capacity as Minister of Labor and Employment,
ESPIRITU SANTO PAROCHIAL SCHOOL AND ESPIRITU SANTO PAROCHIAL SCHOOL FACULTY
ASSOCIATION, respondents.

No. 76596 December 18, 1987

RICARDO C. VALMONTE and CORAZON BADIOLA, petitioners,

vs.

THE HONORABLE AUGUSTO SANCHEZ, in his capacity as Minister of Labor and Employment,
ESPIRITU SANTO PAROCHIAL SCHOOL FACULTY ASSOCIATION, and ESPIRITU SANTO PAROCHIAL
SCHOOL, respondents.

CORTES, J.:

Six cases involving various private schools, their teachers and non-teaching school personnel,
and even parents with children studying in said schools, as well as the then Minister of Labor
and Employment, his Deputy, the National Labor Relations Commission, and the then Minister of
Education, Culture and Sports, have been consolidated in this single Decision in order to dispose
of uniformly the common legal issue raised therein, namely, the allocation of the incremental
proceeds of authorized tuition fee increases of private schools provided for in section 3 (a) of
Presidential Decree No. 451, and thereafter, under the Education Act of 1982 (Batas Pambansa
Blg. 232).

Specifically, the common problem presented by these cases requires an interpretation of section
3(a) of Pres. Decree No. 451 which states:

SEC. 3. Limitations. The increase in tuition or other school fees or other charges as well as the
new fees or charges authorized under the next preceding section shall be subject to the
following conditions;

(a) That no increase in tuition or other school fees or charges shall be approved unless sixty
(60%) per centum of the proceeds is allocated for increase in salaries or wages of the members
of the faculty and all other employees of the school concerned, and the balance for institutional
development, student assistance and extension services, and return to investments: Provided
That in no case shall the return to investments exceed twelve (12%) per centum of the
incremental proceeds;

xxx xxx xxx

In addition, there is also a need for a pronouncement on the effect of the subsequent enactment
of B.P. Blg. 232 which provides for the allocation of tuition fee increases in section 42 thereof.

In a nutshell, the present controversy was precipitated by the claims of some school personnel
for allowances and other benefits and the refusal of the private schools concerned to pay said
allowances and benefits on the ground that said items should be deemed included in the salary
increases they had paid out of the 60% portion of the proceeds from tuition fee increases
provided for in section 3 (a) of Pres. Decree No. 451. The interpretation and construction of laws
being a matter of judicial power and duty [Marbury v. Madison, 1 Cranch 137 (1803); Endencia v.
David, 93 Phil. 696 (1953)], this Court has been called upon to resolve the controversy.

In the process of reading and at times, having to decipher, the numerous pleadings filed in the
six cases, the Court found that the main issue has been approached by the parties from almost
diametrical points, thereby bringing into focus three sub-issues: first, whether or not allowances
and other fringe benefits of faculty members and other school employees may be charged
against the 60% portion of the tuition fee increases provided for in section 3(a) of Pres. Dec. No.
451: second, whether or not the same items may be charged against said portion under the
provisions of B.P. Blg. 232: and, third, whether or not schools and their employees may enter
into a collective bargaining agreement allocating more than 60% of said incremental proceeds
for salary increases and other benefits of said employees. After these sub-issues have been
resolved, the Court will tackle the other incidents attending the individual cases, seriatim.

The factual antecedents that brought these cases before this Tribunal are as follows:

I.. FACTUAL BACKGROUND OF EACH CASE

A.

CEBU INSTITUTE OF TECHNOLOGY CASE

This case originated from a Complaint filed with the Regional Office No. VII of the Ministry of
Labor on February 11, 1981 against petitioner Cebu Institute of Technology (CIT) by private
respondents, Panfilo Canete, et al., teachers of CIT, for non-payment of: a) cost of living
allowances (COLA) under Pres. Dec. Nos. 525, 1123, 1614, 1678 and 1713, b) thirteenth (13th)
month pay differentials and c) service incentive leave. By virtue of an Order issued by the then
Deputy Minister of Labor Carmelo C. Noriel, a labor-management committee composed of one
representative each from the Ministry of Labor and Employment (MOLE), the Minister of
Education, Culture and Sports (MECS), and two representatives each from CIT and from the
teachers was created. Said committee was to ascertain compliance with the legal requirements
for the payment of COLA, thirteenth (13th) month pay and service incentive leave [Rollo, p. 84].

The position taken by CIT during the conference held by the labor management committee was
that it had paid the allowances mandated by various decrees but the same had been integrated
in the teacher's hourly rate. It alleged that the payment of COLA by way of salary increases is in
line with Pres. Dec. No. 451. It also claimed in its position paper that it had paid thirteenth
month pay to its employees and that it was exempt from the payment of service incentive leave
to its teachers who were employed on contract basis [Rollo, pp. 85-86].

After the report and recommendation of the committee, herein public respondent, then
Minister of Labor and Employment issued the assailed Order dated September 29, 1981 and
held that the basic hourly rate designated in the Teachers' Program is regarded as the basic
hourly rate of teachers exclusive of the COLA, and that COLA should not be taken from the 60%
incremental proceeds of the approved increase in tuition fee. The dispositive portion of the
Order reads:
PREMISES CONSIDERED, CIT is hereby ordered to pay its teaching staff the following:

1) COLA under P.D.'s 525 and 1123 from February 1978 up to 1981;

2) COLA under P.D.'s l6l4,1634,1678 and l7l3;and

3) Service incentive leave from l978 upto l981.

CIT is further directed to integrate into the basic salaries of its teachers and (sic) COLA under
P.D.'s 525 and 1123 starting on January 1981, pursuant to P.D. 1751. For purposes of integration,
the hourly rate shown in its Teachers' Program for school year 198182 shall be considered as the
basic hourly rate.

SO ORDERED.

Petitioner assails the aforesaid Order in this Special Civil Action of certiorari with Preliminary
Injunction and/or Restraining Order. The Court issued a Temporary Restraining Order on
December 7, 1981 against the enforcement of the questioned Order of the Minister of Labor and
Employment.

B.

DIVINE WORD COLLEGE OF LEGAZPI CASE

Upon a complaint filed by ten faculty members for alleged non-compliance by herein petitioner
Divine Word College of Legazpi with, among others, Pres. Dec. No. 451, i.e., allowances were
charged to the 60% incremental proceeds of tuition fee increase, the Labor Regulation Section of
Regional Office No. V (Legazpi City) of the Ministry of Labor and Employment conducted an
inspection of the employment records of said school. On the basis of the report on the special
inspection that the school did not comply with Pres. Dec. No. 451, herein respondent Regional
Director issued an Order dated May 30, 1983, requiring compliance by the Divine Word College.
The latter filed a Memorandum of Appeal from said Order which the Regional Director treated as
a Motion for Reconsideration. Upon failure of the school to comply with the aforesaid Order,
another Order (August 2, 1983) was issued by herein respondent Regional Director requiring
herein petitioner to pay the faculty members- complainants (herein private respondents) the
amounts indicated therein or the total sum of Six Hundred Seventeen Thousand Nine Hundred
Sixty Seven Pesos and Seventy Seven Centavos (P 617,967.77). Petitioner's Motion for
Reconsideration of the Order was denied.

On appeal, the respondent Deputy Minister of Labor and Employment affirmed the Order of the
Regional Director, viz:

xxx xxx xxx

Coming now to the substantial merit of the case, we share the view that the emergency
allowances due the complainants under the several presidential decrees (PD's 525, 1123, etc.)
cannot be charged by the respondent against the 60% of the incremental proceeds from
increase in tuition fees authorized under PD 451, not only because as per decision of the
Supreme Court (UE vs. UE Faculty Association, et. al., G.R. No. 57387, September 30, 1982) said
allowances whether mandated by law or secured by collective bargaining should be taken only
from the return to investment referred to in the decree if the school has no other resources to
grant the allowances but not from the 60% incremental proceeds, but also because to hold
otherwise would, to our mind, inevitably result in the loss of one benefit due the complainants-
that is the salary or wage increase granted them by PD 451.

In other words, we believe that by paying the complainants' allowances out of the 60%
incremental proceeds intended for their salary increase they are practically being deprived of
one benefit-their share in the 60% incremental proceeds in terms of salary or wage increase.

WHEREFORE, for the reasons abovestated, the Order appealed from is hereby AFFIRMED, and
the appeal DISMISSED, for lack of merit.

SO ORDERED.

(Annex "K " to Petition; Rollo, p. 108, 110).

This special civil action of certiorari and Prohibition with Preliminary Injunction questions the
interpretation of, and application by the respondent Deputy Minister, of the provisions of Pres.
Dec. No. 45 1, as set forth in the assailed Order.
On March 25, 1985, after considering the allegations, issues and arguments adduced in the
Petition as well as the Comment thereon of the public respondent and dispensing with the
private respondents' Comment, the Court resolved to dismiss the Petition for lack of merit
(Rollo, p. 198). On April 26, 1985, petitioner filed a Motion for Reconsideration with Motion to
Consider the Case En Banc. On June 26, 1985 the First Division of the Court referred the case to
the Court En Banc for consolidation with G.R. No. 70832, entitled "Gregorio T. Fabros, et al vs.
Hon. Jaime C. Laya, etc. " since it involves the same issue on the application of 60% incremental
proceeds of authorized tuition fee increases [Rollo, p. 235]. The Court EN BANC resolved to
accept the case. (Resolution of July 16, 1985). These cases were further consolidated with other
cases involving the same issues.

C.

FAR EASTERN UNIVERSITY CASE

On December 17, 1978, petitioner Union filed with the Ministry of Labor and Employment a
complaint against respondent University for non-payment of legal holiday pay and under-
payment of the thirteenth (13th) month pay. On July 7, 1979, while the case was pending, the
Union President, in his personal capacity, filed another complaint for violation of Pres. Dec. No.
451 against the same respondent.

The two cases were forthwith consolidated and jointly heard and tried. On March 10, 1980,
Labor Arbiter Ruben A. Aquino promulgated a decision the dispositive portion of which is quoted
hereunder:

RESPONSIVE TO THE FOREGOING, respondent is hereby directed, within ten (10) days from
receipt hereof, to:

1. To (sic) pay the paid legal holidays that it withdrew since January 14, 1976 up to the
present; and

2. Pay the 13th month pay differential of complainant's for the covered period December
16, 1975 to December 17, 1978, date of filing of complaint for non-payment of legal holiday pay
and under payment of the 13th month pay, and thereafter. Barred forever are money claims
beyond three (3) years from the time the course (sic) of action occurred. Respondent's formula
on transportation allowance which was deducted from the 13th month pay is thus subject to this
prescriptive period, for purposes of computation of differentials for the 13th month pay.

The claim under PD 451 is hereby dismissed for lack of merit.

SO ORDERED.

(Annex " E " to Petition; Rollo, p. 55, 65-66).

Both parties appealed the decision of the Labor Arbiter. On September 18, 1984, the respondent
Commission disposed of the appeal in the following manner:

RESPONSIVE TO THE FOREGOING, the Decision of Labor Arbiter Ruben A. Aquino in the instant
case dated March 10, 1980 is hereby Modified in the sense that complainant's claims for legal
holiday pay and 13th month pay are likewise dismissed for lack of merit and the dismissal of the
claim under P.D. 451 is hereby Affirmed en (sic) toto.

(Annex "A" to Petition: Rollo, p. 24, 35).

Petitioner's Motion for Reconsideration dated September 29, 1984 was denied for lack of merit
on November 8, 1984. Before this Court is the petition on certiorari filed by the Union assailing
the abovementioned decision of the Commissioner.

D.

FABROS CASE

This petition is in the nature of a class suit brought by petitioners in behalf of the faculty
members and other employees of more than 4000 private schools nationwide. Petitioners seek
to enjoin the implementation of paragraphs 7 to 7.5 of MECS Order No. 5, series of 1985 on the
ground that the said order is null and void for being contrary to Pres. Dec. No. 451 and the
rulings of the Supreme Court in the cases of University of the East v. UE Faculty Association [G.R.
No. L-57387, September 20, 1982, 117 SCRA 5541, University of Pangasinan Faculty Union v.
University of Pangasinan and NLRC [G.R. No. 63122, February 20, 1984, 127 SCRA 691 ], St. Louis
University Faculty Club v. NLRC and St. Louis University [G.R. No. 65585, September 28, 1984,
132 SCRA 380].

On September 11, 1982, Batas Pambansa Blg. 232 (Education Act of 1982) was signed into law.
On the matter of tuition and other school fees of private schools, section 42 of said law provides
as follows:

Sec. 42. Tuition and other School Fees. Each private School shall determine its rate of tuition
and other school fees or charges. The rates and charges adopted by schools pursuant to this
provision shall be collectible, and their application or use authorized subject to rules and
regulations promulgated by the Ministry of Education, Culture and Sports. (Emphasis supplied).

Invoking section 42 of B.P. Blg. 232, among others, as its legal basis, the then Minister of
Education Jaime C. Laya promulgated on April 1, 1985 the disputed MECS Order No. 25, s. 1985
entitled Rules and Regulations To Implement the Provisions of B.P. Blg. 232. The Education Act of
1982, Relative to Student Fees for School Year 1985-1986. The relevant portions of said Order
are quoted hereunder:

7. Application or Use of Tuition and

Other School Fees or Charges.

7.1. The proceeds from tuition fees and other school charges as well as other income of each
school shall be treated as an institutional fund which shall be administered and managed for the
support of school purposes strictly: Provided, That for the purpose of generating additional
financial resources or income for the operational support and maintenance of each school two
or more schools may pool their institutional funds, in whole or in part, subject to the prior
approval of their respective governing boards.

7.2. Tuition fees shag be used to cover the general expenses of operating the school in order
to allow it to meet the minimum standards required by the Ministry or any other higher
standard, to which the school aspires. They may be used to meet the costs of operation for
maintaining or improving the quality of instruction/training/research through improved facilities
and through the payment of adequate and competitive compensation for its faculty and support
personnel, including compliance with mandated increases in personnel compensation and/or
allowance.
7.3. Tuition fees shag be used to cover minimum and necessary costs including the following:
(a) compensation of school personnel such as teaching or academic staff, school administrators,
academic non-teaching personnel, and non-academic personnel, (b) maintenance and operating
expenses, including power and utilities, rentals, depreciation, office supplies; and (c) interest
expenses and installment payments on school debts.

7.4. Not less than sixty (60) percent of the incremental tuition proceeds shall be used for
salaries or wages, allowances and fringe benefits of faculty and support staff, including cost of
living allowance, imputed costs of contributed services, thirteenth (13th) month pay, retirement
fund contributions, social security, medicare, unpaid school personnel claims and payments as
may be prescribed by mandated wage orders. collective bargaining agreements and voluntary
employer practices, Provided That increases in fees specifically authorized for the purposes listed
in paragraph 4.3.3 hereof shall be used entirely for those purposes. (Italics supplied).

7.5. Other student fees and charges as may be approved, including registration, library,
laboratory, athletic, application, testing fees and charges shall be used exclusively for the
indicated purposes, including (a) the acquisition and maintenance of equipment, furniture and
fixtures, and buildings, (b) the payment of debt amortization and interest charges on debt
incurred for school laboratory, athletic, or other purposes, and (c) personal services and
maintenance and operating expenses incurred to operate the facilities or services for which fees
and charges are collected.

The Petition prayed for the issuance of a temporary restraining order which was granted by this
Court after hearing. The dispositive portion of the resolution dated May 28, 1985 reads as
follows:

After due consideration of the allegations of the petition dated May 22, 1985 and the arguments
of the parties, the Court Resolved to ISSUE, effective immediately and continuing until further
orders from this Court, a TEMPORARY RESTRAINING ORDER enjoining the respondent from
enforcing or implementing paragraphs 7.4 to 7.5 of MECS Order No. 25, s. 1985, which provide
for the use and application of sixty per centum (60%) of the increases in tuition and other school
fees or charges authorized by public respondent for the school year 1985-1986 in a manner
inconsistent with section 3(a), P.D. No. 451, (which allocates such 60% of the increases
exclusively "for increases in salaries or wages of the members of the faculty and other
employees of the school concerned.") and directing accordingly that such 60% of the authorized
increases shall be held in escrow by the respective colleges and universities, i.e., shall be kept
intact and not disbursed for any purpose pending the Court's resolution of the issue of the
validity of the aforementioned MECS Order in question.

(Rollo, p. 21).
In the same resolution, the Philippine Association of Colleges and Universities (PACU) was
impleaded as respondent.

Subsequent to the issuance of this resolution, four (4) schools, represented in this petition,
moved for the lifting of the temporary restraining order as to them. In separate resolutions, this
Court granted their prayers.

Ateneo de Manila University, De La Sale University (Taft Avenue) and De La Salle University-
South, through their respective counsels, manifested that for the school year 1985-1986, tuition
fee increase was approved by the MECS and that on the basis of Pres. Dec. No. 451, 60% of the
tuition fee increases shall answer for salary increase. However, a budgeted salary increase,
exclusive of living allowances and other benefits, was approved for the same school year which
when computed amounts to more than the 60%.

This Court granted the motions in separate resolutions lifting the temporary restraining order
with respect to these schools in order that they may proceed with the implementation of the
general salary increase for their employees.

In the case of St. Louis University, its Faculty Club, Administrative Personnel Association and the
University itself joined in a petition seeking for leave that 49% of the increase in tuition and
other fees for school year 1985-1986 be released. Petitioners manifested that the remaining
balance shall continue to be held in escrow by the University.

In a resolution dated January 28, 1986, the Court resolved as follows:

Accordingly, the Temporary Restraining Order issued by this Court on May 28, 1985 is hereby
ordered LIFTED with respect to Saint Louis University of Baguio City in order that it may proceed
immediately with the implementation of salary increases for its employees.

D.

BISCOCHO CASE
The Espiritu Santo Parochial School and the Espiritu Santo Parochial School Faculty Association
were parties to a labor dispute which arose from a deadlock in collective bargaining. The parties
entered into conciliation proceedings. The union went on strike after efforts at the conciliation
failed. Subsequently, a return to work agreement was forged between the parties and both
agreed to submit their labor dispute to the jurisdiction of the Minister of Labor.

In the exercise of his power to assume jurisdiction, the Ministry of Labor and Employment issued
an Order dated April 14, 1986 which provides for the following:

IN CONSIDERATION OF ALL THE FOREGOING, the Ministry hereby declares the strike staged by
the Union to be legal and orders the following:

a) the School to submit the pertinent record of employment of Romualdo Noriego to the
Research and Information Division of the NLRC for computation of his underpayment of wages
and for the parties to abide by the said computation;

b) the School to submit all pertinent record of collections of tuition fee increases for school
year (sic) 1982-1983, 1983-1984 and 1984-1985 to the Research and Information Division of the
NLRC for proper computation and for equal distribution of the amount to all employees and
teachers during the abovementioned school year (sic) as their salary adjustment under P.D. 461;

c) the parties to wait for the final resolution of the illegal dismissal (case) docketed as NLRC
NCR Case No. 5-1450-85 and to abide by the said resolution;

d) to furnish the MECS a copy of this order for them to issue the guidelines in the
implementation of PRODED Program;

e) the parties to execute a collective bargaining agreement with an economic package


equivalent to 90% of the proceeds from tuition fee increases for school year 1985-1986 and
another 90% for school year 1986-1987 and 85% for school year 1987-1988. The amount
aforementioned shall be divided equally to all members of the bargaining unit as their respective
salary adjustments. Such other benefits being enjoyed by the members of the bargaining unit
prior to the negotiation of the CBA shall remain the same and shall not be reduced.

f) the School to deduct the amount equivalent to ten (10%) per cent of the backwages payable
to all members of the bargaining unit as negotiation fee and to deliver the same to the Union
Treasurer for proper disposition (Emphasis supplied).

SO ORDERED.

(Rollo, pp. 16-17)

Pursuant to the said order, private respondent Union agreed to incorporate in their proposed
collective bargaining agreement (CBA) with the School the following:

2) The Union and School Administration will incorporate the following in their CBA -

1) The computation of the tuition fee increase shall be gross to gross from which the
corresponding percentage of 90% will be taken. The resulting amount will be divided among
141.5 employees for 1985-86 and 132.5 employees for 1986-87.

1/2 of the resulting increase will be added to basic and divided by 13.3 to arrive at monthly
increase in basic. The other 1/2 will be divided by 12.3 to arrive at monthly increase in living
allowance.

xxx xxx xxx

4) xxx

Upon request/demand of the Union, School win deduct from backwages of managerial
employees and others outside the bargaining unit what Union win charge its own members in
the form of attorney's fees, special assessment and union dues/agency fee.

5) The signing of the CBA and payment of backwages and others shall be on November 26,
1986 at the Espiritu Santo Parochial School Library.

(Rollo, pp. 3-4).


The herein petitioners, Jasmin Biscocho and 26 others, all employees and faculty members of
the respondent School, filed the present petition for prohibition to restrain the implementation
of the April 14, 1986 Order of respondent Labor Minister as well as the agreements arrived at
pursuant thereto. They contend that said Order and agreements affect their rights to the 60%
incremental proceeds under Pres. Dec. No. 451 which provide for the exclusive application of the
60% incremental proceeds to basic salary.

Acting on the petitioners' prayer, this Court immediately issued a temporary restraining order on
November 25, 1986 ". . . enjoining the respondents from enforcing, implementing and
proceeding with the questioned order of April 14, 1986 and collective bargaining agreement
executed between respondents Union and the School Administration in pursuance thereof."
[Rollo, p. 20].

F.

VALMONTE CASE

This Petition was filed by parents with children studying at respondent school, Espiritu Santo
Parochial School to nullify the Order dated April 14, 1986 issued by public respondent, then
Minister of Labor and Employment, specifically paragraphs (e) and (f) thereof, quoted in the
Biscocho case.

The award contained in the said Order is the result of the assumption of jurisdiction by the
public respondent over a labor dispute involving the private respondents school and faculty
association. The latter had earlier filed a notice of strike because of a bargaining deadlock on the
demands of its members for additional economic benefits. After numerous conciliation
conferences held while the union was on strike, the parties voluntarily agreed that the public
respondent shall assume jurisdiction over all the disputes between them. As to the subject
matter of the instant case, the public respondent found that the latest proposals of the
respondent school was to give 85% of the proceeds from tuition fee increases for the school
years to be divided among the teachers and employees as salary adjustments. What the
respondent faculty association offered to accept was a package of 95% for school year 1985-
1986, 90% for school year 1986- 1987. The respondent school offered to strike the middle of the
two positions, hence the Order complained of by the petitioners [See Annex "A", Petition; Rollo,
pp. 9, 14-15; Comment of the Respondent Faculty Association: Rollo, p. 26].

II. RESOLUTION OF THE COMMON LEGAL ISSUE


This long-drawn controversy has sadly placed on the balance diverse interests, opposed yet
intertwined, and all deserving, and demanding, the protection of the State. On one arm of the
balance hang the economic survival of private schools and the private school system, undeniably
performing a complementary role in the State's efforts to maintain an adequate educational
system in the country. Perched precariously on the other arm of the same balance is the much-
needed financial uplift of schoolteachers, extolled for all times as the molders of the minds of
youth, hence of every nation's future. Ranged with them with needs and claims as insistent are
other school personnel. And then, anxiously waiting at the sidelines, is the interest of the public
at large, and of the State, in the continued availability to all who desire it, high-standard
education consistent with national goals, at a reasonable and affordable price.

Amidst these opposing forces the task at hand becomes saddled with the resultant implications
that the interpretation of the law would bear upon such varied interests. But this Court can not
go beyond what the legislature has laid down. Its duty is to say what the law is as enacted by the
lawmaking body. That is not the same as saying what the law should be or what is the correct
rule in a given set of circumstances. It is not the province of the judiciary to look into the wisdom
of the law nor to question the policies adopted by the legislative branch. Nor is it the business of
this Tribunal to remedy every unjust situation that may arise from the application of a particular
law. It is for the legislature to enact remedial legislation if that be necessary in the premises. But
as always, with apt judicial caution and cold neutrality, the Court must carry out the delicate
function of interpreting the law, guided by the Constitution and existing legislation and mindful
of settled jurisprudence. The Court's function is therefore limited, and accordingly, must confine
itself to the judicial task of saying what the law is, as enacted by the lawmaking body.

FIRST SUB-ISSUE

A. Whether or not allowances and other fringe benefits of employees may be charged
against the 60% portion of the incremental proceeds provided for in sec. 3(a) of Pres. Dec. No.
451.

1. Arguments raised in the Cebu Institute of Technology case

In maintaining its position that the salary increases it had paid to its employees should be
considered to have included the COLA, Cebu Institute of Technology (CIT) makes reference to
Pres. Dec. No. 451 and its Implementing Rules. The line of reasoning of the petitioner appears to
be based on the major premise that under said decree and rules, 60% of the incremental
proceeds from tuition fee increases may be applied to salaries, allowances and other benefits of
teachers and other school personnel. In support of this major premise, petitioner cites various
implementing rules and regulations of the then Minister of Education, Culture and Sports, to the
effect that 60% of the incremental proceeds may be applied to salaries, allowances and other
benefits for members of the faculty and other school personnel [Petition citing Implementing
Rules and Regulations of Pres. Dec. No. 451 of various dates; Rollo, pp. 318-320]. Petitioner
concludes that the salary increases it had granted the CIT teachers out of the 60% portion of the
incremental proceeds of its tuition fee increases from 1974-1980 pursuant to Pres. Dec. No. 451
and the MECS implementing rules and regulations must be deemed to have included the COLA
payable to said employees for those years [Rollo, pp. 911].

With leave of Court, the Philippine Association of Colleges and Universities, filed its
Memorandum as Intervenor in support of the proposition that schools may pay the COLA to
faculty members and other employees out of the 60% of the increase in tuition fees. In addition
to the arguments already set forth in the memorandum of the petitioner CIT, intervenor PACU
attacks the Decision of this Court in University of the East v. University of the East Faculty
Association et. all G.R. No. 57387 as "not doctrinal" and inapplicable to the CIT case. The Court
held in the UE case, which was promulgated on September 30, 1982, during the pendency of
these cases, that:

... allowances and benefits should be chargeable to the return to investment referred to in Sec.
3(a), if the schools should happen to have no other resources than incremental proceeds of
authorized tuition fee increases ... (See Dispositive Portion of the Decision)

Intervenor PACU alleges that the aforecited U.E. decision does not categorically rule that COLA
and other fringe benefits should not be charged against the 60% incremental proceeds of the
authorized tuition fee increase.

The Solicitor General, on the other hand, argues in support of the Order of the public
respondent that Pres. Dec. No. 451 allocates the 60% proceeds of tuition fee increases
exclusively for salary increases of teachers and non- teaching supportive personnel of the school
concerned, and that the Decree does not provide that said salary increases would take the place
of the COLA [Rollo, p. 244-245]. He cites as authority for this stance, two (2) memoranda of the
then President dated June 6, 1978 and March 30, 1979 both of which provide that the 60%
incremental proceeds of tuition fee increases "shall be allocated for the increase in the salaries
of teachers and supportive personnel. " Anent the U.E. case, the Solicitor General states that the
Supreme Court in deciding said case took note of the stand of the Office of the President that
the 60% incremental proceeds shall be solely applied to salaries of faculty members and
employees.

On August 7, 1986, considering the supervening events, including the change of administration,
that have transpired during the pendency of these cases, the Court required the Solicitor
General to state whether or not he maintains the action and position taken by his predecessor-
in-office. In his Compliance with said Resolution, the Solicitor General Manifested the position
that:

a. If the tuition fee increase was collected during the effectivity oil Presidential Decree No.
451, 60% thereof shall answer exclusively for salary increase of school personnel. Other
employment benefits shall be covered by the 12% allocated for return of investment, this is in
accordance with the ruling of this Honorable Court in University of the East vs. U.E. Faculty
Association, et. al (117 SCRA 554), ... and reiterated in University of Pangasinan Faculty Union v.
University of Pangasinan, et. al. (127 SCRA 691) and St. Louis Faculty Club u. NLRC (132 SCRA
380).

b. If the salary increase was collected during the effectivity of Batas Pambansa Blg. (sic)
232, 60% thereof shall answer not only for salary increase of school personnel but also for other
employment benefits.

(Rollo, at pp. 513-514)

2. Arguments raised in the Divine Word College Case

Petitioner Divine Word College of Legazpi (DWC) advances the theory that the COLA, 13th month
pay and other personnel benefits decreed by law, must be deemed chargeable against the 60%
portion allocated for increase of salaries or wages of faculty and all other school employees. In
support of this stance, petitioner points out that said personnel benefits are not included in the
enumeration of the items for which the balance (less 60%) or 40% portion of the incremental
proceeds may be alloted under section 3(a) of Pres. Dec. No. 451 [Rollo, pp. 29-30. Petitioner
likewise cites the interpretation of the respondent Minister of Education, Culture and Sports
embodied in the Implementing Rules and Regulations of P.D. 451, DEC Issuance, May 13, 1987;
Rollo, p. 30], that the 60% incremental proceeds of authorized tuition fee increases may be
applied to increases in emoluments and/or benefits for members of faculty, including staff and
administrative employees of the school as the valid interpretation of the law, as against that
made by the respondent Deputy Minister of Labor in the assailed Order. If the latter
interpretation is upheld, petitioner would go as far as questioning the constitutionality of Pres.
Dec. No. 451 upon the ground that the same discriminates against the petitioner and other
private schools as a class of employers. According to the petitioner, the discrimination takes the
form of requiring said class of employers to give 60% of their profits to their employees in
addition to the COLA mandated by law, while other employers have to contend only with salary
increases and COLA [Petition; Rollo, p. 46].

With regard to the Decision of this Court in the U.E. case, petitioner claims exemption therefrom
upon the ground that the Court's interpretation of a law cannot be applied retroactively to
parties who have relied upon the previous administrative interpretation which has not been
declared invalid or unconstitutional [Petition; Rollo, pp. 50-51 1. Petitioner further argues on this
point that if the court had intended to invalidate the MECS interpretation of the Decree, it
should have positively stated so in the Decision [Petition; Rollo, p. 50].

The Comment of the public respondents cite as settled jurisprudence applicable to the case at
bar, the ruling of this Court in the U.E. case, supra, which was reiterated in the subsequent cases
of University of Pangasinan Faculty Union v. University of Pangasinan et all and St. Louis Faculty
Club v. NLRC, et al.

Public respondents Deputy Minister of Labor and Employment and Regional Director of the
MOLE (Region V) likewise attack the validity of the Revised Implementing Rules and Regulations
of Pres. Dec. No. 451 cited by the petitioner insofar as said rules direct the allotment of the 60%
of incremental proceeds from tuition fee hikes for retirement plan, faculty development and
allowances. They argue that said rules and regulations were invalid for having been promulgated
in excess of the rule-making authority of the then Minister of Education under Pres. Dec. No. 451
which mandates that the 60% of incremental proceeds from tuition fee hikes should be allotted
solely for salary increases [Comment; Rollo, pp. 184-185]. Finally, with respect to the issue on
the allege unconstitutionality of Pres. Dec. No. 451, the public respondents posit that a
legislation (such as Pres. Dec. No. 451) which affects a particular class does not infringe the
constitutional guarantee of equal protection of the law as long as it applies uniformly and
without discrimination to everyone of that class [Comment; Rollo, p. 14].

3. Arguments raised in the Far Eastern University case

It is the petitioner's contention that in respect of Pres. Dec. No. 451, the decision of the NLRC is a
defiance of the rulings of this Court in the cases of University of the East v. U.E. Faculty,
Association et al. and of University of Pangasinan Faculty Union v. University of Pangasinan and
NLRC (supra). The Union submits that monetary benefits, other than increases in basic salary, are
not chargeable to the 60% incremental proceeds.

The respondent University in its Comment dated June 13, 1982 refers to Article 97(f) of the
Labor Code which provides a definition of the term "wages" to support its position that "salaries
or wages" as used in Pres. Dec. No. 451 should be interpreted to include other benefits in terms
of money.

As mentioned in the Cebu Institute of Technology case, the Solicitor General filed its Compliance
with this Court's resolution dated August 7, 1986 requiring him to manifest whether public
respondents maintain the position they have taken in these consolidated cases. The resolution of
September 25, 1986 required petitioners to Comment on said Compliance.

The Comment dated December 6, 1986 was received by this Court after petitioner Union was
required to show cause why no disciplinary action should be taken against them for failure to
comply earlier. The Union agreed with the position taken by the Solicitor General that under
Pres. Dec. No. 451, 60% of the tuition fee increases, shall answer exclusively for salary increase.
However, it expressed disagreement with the opinion that during the effectivity of B.P. Blg. 232,
the 60% ncremental proceeds shall answer not only for salary increases but also for other
employment benefits. The Union argues that whereas "Pres. Dec. No. 451 is a law on a particular
subject, viz., increase of tuition fee by educational institutions and how such increase shall be
allocated B.P. Blg. 232 is not a law on a particular subject of increase of tuition fee . . . ; at most it
is a general legislation on tuition fee as it touches on such subject in general, " [Comment on
Compliance; Rollo, p. 376], Suppletory to its argument that B.P. Blg. 232 did not impliedly repeal
Pres. Dec. No. 451, the Union also invokes the principle that a special or particular law cannot be
repealed by a general law.

RESOLUTION OF THE FIRST SUB-ISSUE

This Court has consistently held, beginning with the University of the East case, that if the
schools have no resources other than those derived from tuition fee increases, allowances and
benefits should be charged against the proceeds of tuition fee increases which the law allows for
return on investments under section 3(a) of Pres. Dec. No. 451, therefore, not against the 60%
portion allocated for increases in salaries and wages (See 117 SCRA at 571). This ruling was
reiterated in the University of Pangasinan case and in the Saint Louis University case.

There is no cogent reason to reverse the Court's ruling in the aforecited cases. Section 3(a) of
Pres. Dec. No. 451 imposes among the conditions for the approval of tuition fee increases, the
allocation of 60% per cent of the incremental proceeds thereof for increases in salaries or wages
of school personnel and not for any other item such as allowances or other fringe benefits. As
aptly put by the Court in University of Pangasinan Faculty Union v. University of Pangasinan,
supra:

... The sixty (60%) percent incremental proceeds from the tuition increase are to be devoted
entirely to wage or salary increases which means increases in basic salary. The law cannot be
construed to include allowances which are benefits over and above the basic salaries of the
employees. To charge such benefits to the 60% incremental proceeds would be to reduce the
increase in basic salary provided by law, an increase intended also to help the teachers and other
workers tide themselves and their families over these difficult economic times. [Italics supplied]
(127 SCRA 691, 702).
This interpretation of the law is consistent with the legislative intent expressed in the Decree
itself, i.e., to alleviate the sad plight of private schools and that of their personnel wrought by
slump in enrollment and increasing operational costs on the part of the schools, and the
increasing costs of living on the part of the personnel (Preamble, Pres. Dec. No. 451). While
coming to the aid of the private school system by simplifying the procedure for increasing tuition
fees, the Decree imposes as a condition for the approval of any such increase in fees, the
allocation of 60% of the incremental proceeds thereof, to increases in salaries or wages of school
personnel. This condition makes for a quid pro quo of the approval of any tuition fee hike by a
school, thereby assuring the school personnel concerned, of a share in its proceeds. The
condition having been imposed to attain one of the main objectives of the Decree, which is to
help the school personnel cope with the increasing costs of living, the same cannot be
interpreted in a sense that would diminish the benefit granted said personnel.

In the light of existing laws which exclude allowances from the basic salary or wage in the
computation of the amount of retirement and other benefits payable to an employee, this Court
will not adopt a different meaning of the terms "salaries or wages" to mean the opposite, i.e. to
include allowances in the concept of salaries or wages.

As to the alleged implementing rules and regulations promulgated by the then MECS to the
effect that allowances and other benefits may be charged against the 60% portion of the
proceeds of tuition fee increases provided for in Section 3(a) of Pres. Dec. No. 45 1, suffice it to
say that these were issued ultra vires, and therefore not binding upon this Court.

The rule-making authority granted by Pres. Dec. No. 451 is confined to the implementation of
the Decree and to the imposition of limitations upon the approval of tuition fee increases, to wit:

SEC. 4. Rules and Regulations. The Secretary of Education and Culture is hereby authorized,
empowered and directed to issue the requisite rules and regulations for the effective
implementation of this Decree. He may, in addition to the requirements and limitations provided
for under Sections 2 and 3 hereof, impose other requirements and limitations as he may deem
proper and reasonable.

The power does not allow the inclusion of other items in addition to those for which 60% of the
proceeds of tuition fee increases are allocated under Section 3(a) of the Decree.

Rules and regulations promulgated in accordance with the power conferred by law would have
the force and effect of law [Victorias Milling Company, Inc. v. Social Security Commission, 114
Phil. 555 (1962)] if the same are germane to the subjects of the legislation and if they conform
with the standards prescribed by the same law [People v. Maceren, G.R. No. L-32166, October
18, 1977, 79 SCRA 450]. Since the implementing rules and regulations cited by the private
schools adds allowances and other benefits to the items included in the allocation of 60% of the
proceeds of tuition fee increases expressly provided for by law, the same were issued in excess
of the rule-making authority of said agency, and therefore without binding effect upon the
courts. At best the same may be treated as administrative interpretations of the law and as such,
they may be set aside by this Court in the final determination of what the law means.

SECOND SUB-ISSUE

B. Whether or not allowances and other fringe benefits may be charged against the 60%
portion of the incremental proceeds of tuition fee increases upon the effectivity of the Education
Act of 1982 (B.P. Blg. 232).

1. Arguments raised in the Fabros case

In assailing MECS Order No. 25, s. 1985, petitioners argue that the matter of allocating the
proceeds from tuition fee increases is still governed by Pres. Dec. No. 451. It is their opinion that
section 42 of B.P. Blg. 232 did not repeal Pres. Dec. No. 451 for the following reasons: first, there
is no conflict between section 42 of B.P. Blg. 232 and section 3(a) of Pres. Dec. No. 451 or any
semblance of inconsistency to deduce a case of a repeal by implication: second, Pres. Dec. No.
451 is a specific law upon a particular subject-the purposes and distribution of the incremental
proceeds of tuition fee increases, while B.P. Blg. 232 is a general law on the educational system;
as such, a specific law is not repealed by a subsequent general law in the absence of a clear
intention; and third, Pres. Dec. No. 451 is still the only law on the subject of tuition fee increases
there being no prescription or provision in section 42 of B.P. Blg. 232 or elsewhere in the law.
They furthermore aver that the disputed MECS Order which imposed additional burdens against
the 60% incremental proceeds of tuition fee increases are not provided in either Pres. Dec. No.
451 or B.P. Blg. 232. The logical result as intimated by petitioners is that the inclusion of
paragraph 7.4 and related paragraphs 7 to 7.3 and 7.5 in the questioned MECS order
contravenes the statutory authority granted to the public respondent, and the same are
therefore, void.

Respondent PACU takes the contrary view contending that MECS Order No. 25, s. 1985, complies
with the mandate of section 42 of B.P. Blg. 232 which law had already repealed Pres. Dec. No.
451. PACU notes that the University of the East case invoked by petitioners is not applicable
because the issue in that case does not involve the effect of B.P. Blg. 232 on Pres. Dec. No. 451.
The Solicitor General, representing the public respondent, after giving a summary of the matters
raised by petitioner and respondent PACU, points out that the decisive issue in this case is
whether B.P. Big. 232 has repealed Pres. Dec. No. 451 because on the answer to this question
depends the validity of MECS Order No. 25, s. 1985. Public respondent holds the view consistent
with that of PACU on the matter of B.P. Blg. 232 having repealed Pres. Dec. No. 451. To support
this contention, the Solicitor General compared the respective provisions of the two laws to
show the inconsistency and incompatibility which would result in a repeal by implication.

RESOLUTION OF THE SECOND SUB-ISSUE

On the matter of tuition fee increases section 42 of B.P. Blg. 232 provides:

SEC. 42.Tuition and Other School Fees. Each private school shall determine its rate of tuition
and other school fees or charges. The rates and charges adopted by schools pursuant to this
provision shall be collectible and their application or use authorized, subject to rules and
regulations promulgated by the Ministry of Education, Culture and Sports. (Emphasis supplied).

The enactment of B.P. Blg. 232 and the subsequent issuance of MECS Order No. 25, s. 1985
revived the old controversy on the application and use of the incremental proceeds from tuition
fee increases. As can be gleaned from the pleadings and arguments of the parties in these cases,
one side, composed of the teachers and other employees of the private schools, insist on the
applicability of section 3(a) of Pres. Dec. No. 451 as interpreted arid applied in the University of
the East, University of Pangasinan and St Louis University cases, while the private schools uphold
the view that the matter of allocating the incremental proceeds from tuition fee increases is
governed by section 42 of B.P. Blg. 232 as implemented by the MECS Rules and Regulations. As
stated, the latter's argument is premised on the allegation that B.P. Blg. 232 impliedly repealed
Pres. Dec. No. 451.

On the second sub-issue, therefore, this Court upholds the view taken by the Solicitor General in
the Fabros case, that the decisive issue is whether B.P. Blg. 232 has repealed Pres. Dec. No. 451.

In recognition of the vital role of private schools in the country's educational system, the
government has provided measures to regulate their activities. As early as March 10, 1917, the
power to inspect private schools, to regulate their activities, to give them official permits to
operate under certain conditions and to revoke such permits for cause was granted to the then
Secretary of Public Instruction by Act No. 2706 as amended by Act No. 3075 and Commonwealth
Act No. 180. Republic Act No. 6139, enacted on August 31, 1970, provided for the regulation of
tuition and other fees charged by private schools in order to discourage the collection of
exorbitant and unreasonable fees. In an effort to simplify the "cumbersome and time
consuming" procedure prescribed under Rep. Act No. 6139 and "to alleviate the sad plight of
private schools," Pres. Dec. No. 451 was enacted on May 11, 1974. While this later statute was
being implemented, the legislative body envisioned a comprehensive legislation which would
introduce changes and chart directions in the educational system, hence, the enactment of B.P.
Blg. 232. What then was the effect of B.P. Blg. 232 on Pres. Dec. No. 451?

The Court after comparing section 42 of B.P. Blg. 232 and Pres. Dec. No. 451, particularly section
3(a) thereof, finds evident irreconcilable differences.

Under Pres. Dec. No. 451, the authority to regulate the imposition of tuition and other school
fees or charges by private schools is lodged with the Secretary of Education and Culture (Sec. 1),
where section 42 of B.P. Blg. 232 liberalized the procedure by empowering each private school to
determine its rate of tuition and other school fees or charges.

Pres. Dec. No. 451 provides that 60% of the incremental proceeds of tuition fee increases shall
be applied or used to augment the salaries and wages of members of the faculty and other
employees of the school, while B.P. Blg. 232 provides that the increment shall be applied or used
in accordance with the regulations promulgated by the MECS.

A closer look at these differences leads the Court to resolve the question in favor of repeal. As
pointed out by the Solicitor General, three aspects of the disputed provisions of law support the
above conclusion. First, the legislative authority under Pres. Dec. No. 451 retained the power to
apportion the incremental proceeds of the tuition fee increases; such power is delegated to the
Ministry of Education and Culture under B.P. Blg. 232. Second, Pres. Dec. No. 451 limits the
application or use of the increment to salary or wage increase, institutional development,
student assistance and extension services and return on investment, whereas B.P. Blg. 232 gives
the MECS discretion to determine the application or use of the increments. Third, the extent of
the application or use of the increment under Pres. Dec. No. 451 is fixed at the pre-determined
percentage allocations; 60% for wage and salary increases, 12% for return in investment and the
balance of 28% to institutional development, student assistance and extension services, while
under B.P. Blg. 232, the extent of the allocation or use of the increment is likewise left to the
discretion of the MECS.

The legislative intent to depart from the statutory limitations under Pres. Dec. No. 451 is
apparent in the second sentence of section 42 of B.P. Blg. 232. Pres. Dec. No. 451 and section 42
of B.P. Blg. 232 which cover the same subject matter, are so clearly inconsistent and
incompatible with each other that there is no other conclusion but that the latter repeals the
former in accordance with section 72 of B.P. Blg. 232 to wit:
Sec. 72. Repealing clause. All laws or parts thereof inconsistent with any provision of this Act
shall be deemed repealed or modified, as the case may be.

Opinion No. 16 of the Ministry of Justice dated January 29, 1985, quoted below, supports the
above conclusion:

Both P.D. No. 451 and B.P. Blg. 232 deal with the imposition of tuition and other school fees or
charges and their use and application, although the latter is broader in scope as it covers other
aspects of the education system. We note substantial differences or inconsistencies between the
provisions of the two laws. P.D. No. 451 prescribes certain limitations in the increase of tuition
and other school fees and their application, whereas the latter law, B.P. Blg. 232 s silent on the
matter. Under P.D. 451, rates of tuition/school fees need prior approval of the Secretary of
Education, Culture (now Minister of Education, Culture and Sports), who also determines the
reasonable rates for new school fees, whereas under B.P. Blg. 232, each private school
determines its rate of tuition and other school fees or charges. P.D. No. 451 authorizes the
Secretary of Education and Culture to issue requisite rules and regulations to implement the said
Decree and for that purpose, he is empowered to impose other requirements and limitations as
he may deem proper and reasonable in addition to the limitations prescribed by the Decree for
increases in tuition fees and school charges, particularly, the limitations imposed in the
allocation of increases in fees and charges, whereas under B.P. Blg. 232, the collection and
application or use of rates and charges adopted by the school are subject to rules and
regulations promulgated by the Ministry of Education, Culture and Sports without any mention
of the statutory limitations on the application or use of the fees or charges. The authority
granted to private schools to determine its rates of tuition and unconditional authority vested in
the Ministry of Education, Culture and Sports to determine by rules and regulations the
collection and application or use of tuition or fees rates and charges under B.P. Big. 232
constitute substantial and irreconcilable incompatibility with the provisions of P.D. No. 451,
which should be for that reason deemed to have been abrogated by the subsequent legislation.

Moreover, B.P. Blg. 232 is a comprehensive legislation dealing with the establishment and
maintenance of an integrated system of education and as such, covers the entire subject matter
of the earlier law, P.D. No. 451. The omission of the limitations or conditions imposed in P.D. No.
451 for increases in tuition fees and school charges is an indication of a legislative intent to do
away with the said limitations or conditions. (Crawford, supra, p. 674). It has also been said that

an act which purports to set out in full all that it intends to contain, operates as a repeal of
anything omitted which was contained in the old act and not included in the amendatory act."
(People vs. Almuete 69 SCRA 410; People vs. Adillo 68 SCRA 90) (Ministry of Justice, Op. No. 16,
s. 1985).
Having concluded that under B.P. Big. 232 the collection and application or use of tuition and
other school fees are subject only to the limitations under the rules and regulations issued by
the Ministry, the crucial point now shifts to the said implementing rules.

The guidelines and regulations on tuition and other school fees issued after the enactment of
B.P. Blg. 232 consistently permit the charging of allowances and other benefits against the 60%
incremental proceeds. Such was the tenor in the MECS Order No. 23, s. 1983; MECS Order No.
15, s. 1984; MECS Order No. 25, s. 1985; MECS Order No. 22, s. 1986; and DECS Order No. 37, s.
1987. The pertinent portion of the latest order reads thus:

In any case of increase at least sixty percent (60%) of the incremental proceeds should be
allocated for increases in or provisions for salaries or wages, allowances and fringe benefits of
faculty and other staff, including accruals to cost of living allowance, 13th month pay, social
security, medicare and retirement contribution and increases as may be provided in mandated
wage orders, collective bargaining agreements or voluntary employer practices.

The validity of these orders, particularly MECS Order No. 25, s. 1985, is attacked on the ground
that the additional burdens charged against ". . . the 60% of the proceeds of the increases in
tuition fees constitute both as [sic] an excess of statutory authority and as (sic) a substantial
impairment of the accrued, existing and protected rights and benefits of the members of faculty
and non-academic personnel of private schools." Memorandum for Petitioners, Rollo, p. 1911.
Petitioners alleged that these additional burdens under the MECS Order are not provided in the
law itself, either in section 42 of B.P. Blg. 232 or section 3(a) of Pres. Dec. No. 451, except
increases in salaries in the latter provision.

Section 42 of B.P. Blg. 232 grants to the Minister of Education (now Secretary of Education) rule-
making authority to fill in the details on the application or use of tuition fees and other school
charges. In the same vein is section 70 of the same law which states:

SEC. 70. Rule-making Authority. The Minister of Education, Culture and Sports charged with
the administration and enforcement of this Act, shall promulgate the necessary implementing
rules and regulations.

Contrary to the petitioners' insistence that the questioned rules and regulations contravene the
statutory authority granted to the Minister of Education, this Court finds that there was a valid
exercise of rule-making authority.
The statutory grant of rule-making power to administrative agencies like the Secretary of
Education is a valid exception to the rule on non-delegation of legislative power provided two
conditions concur, namely: 1) the statute is complete in itself, setting forth the policy to be
executed by the agency, and 2) said statute fixes a standard to which the latter must conform
[Vigan Electric Light Co., Inc. v. Public Service Commission, G.R. No. L-19850, January 30, 1964,
and Pelaez v. Auditor General, G. R. No. L-23825, December 24, 1965].

The Education Act of 1982 is "an act providing for the establishment and maintenance of an
integrated system for education " with the following basic policy:

It is the policy of the State to establish and maintain a complete, adequate and integrated
system of education relevant to the goals of national development. Toward this end, the
government shall ensure, within the context of a free and democratic system, maximum
contribution of the educational system to the attainment of the following national development
goals:

1. To achieve and maintain an accelerating rate of economic development and social


progress;

2. To assure the maximum participation of all the people in the attainment and enjoyment
of the benefits of such growth; and

3. To achieve and strengthen national unity and consciousness and preserve, develop and
promote desirable cultural, moral and spiritual values in a changing world.

The State shall promote the right of every individual to relevant quality education, regardless of
sex, age, creed, socioeconomic status, physical and mental conditions, racial or ethnic origin,
political or other affiliation. The State shall therefore promote and maintain equality of access to
education as well as the enjoyment of the benefits of education by all its citizens.

The State shall promote the right of the nation's cultural communities in the exercise of their
right to develop themselves within the context of their cultures, customs, traditions, interests
and belief, and recognizes education as an instrument for their maximum participation in
national development and in ensuring their involvement in achieving national unity. (Section 3,
Declaration of Basic Policy).
With the foregoing basic policy as well as, specific policies clearly set forth in its various
provisions, the Act is complete in itself and does not leave any part of the policy-making, a
strictly legislative function, to any administrative agency.

Coming now to the presence or absence of standards to guide the Minister of Education in the
exercise of rule-making power, the pronouncement in Edu v. Ericta [G.R. No. L-32096, October
24, 1970, 35 SCRA 481, 497] is relevant:

The standard may be either expressed or implied. If the former, the non-delegation objection is
easily met. The standard though does not have to be spelled out specifically. It could be implied
from the policy and purpose of the act considered as a whole. In the Reflector Law, clearly the
legislative objective is public safety. What is sought to be attained as in Calalang v. Williams is
"safe transit upon the roads." (Italics supplied).

Thus, in the recent case of Tablarin et al. v. Hon. Gutierrez, et al. (G.R. No. 78164, July 31, 1987],
the Court held that the necessary standards are set forth in Section 1 of the 1959 Medical Act,
i.e., "the standardization and regulation of medical education" as well as in other provisions of
the Act. Similarly, the standards to be complied with by Minister of Education in this case may be
found in the various policies set forth in the Education Act of 1982.

MECS Order No. 25, s. 1985 touches upon the economic relationship between some members
and elements of the educational community, i.e., the private schools and their faculty and
support staff. In prescribing the minimum percentage of tuition fee increments to be applied to
the salaries, allowances and fringe benefits of the faculty and support staff, the Act affects the
economic status and the living and working conditions of school personnel, as well as the
funding of the private schools.

The policies and objectives on the welfare and interests of the various members of the
educational community are found in section 5 of B.P. Blg. 232. which states:

SEC. 5. Declaration of Policy and Objectives. It is likewise declared government policy to foster,
at all times, a spirit of shared purposes and cooperation among the members and elements of
the educational community, and between the community and other sectors of society, in the
realization that only in such an atmosphere can the true goals and objectives of education be
fulfilled.

Moreover, the State shall:


1. Aid and support the natural right and duty of parents in the rearing of the youth through
the educational system.

2. Promote and safeguard the welfare and interests of the students by defining their rights
and obligations, according them privileges, and encouraging the establishment of sound
relationships between them and the other members of the school community.

3. Promote the social and economic status of an school personnel, uphold their rights,
define their obligations, and improve their living and working conditions and career prospects.

4. Extend support to promote the viability of those institutions through which parents,
students and school personnel seek to attain their educational goals.

On the other hand, the policy on the funding of schools in general, are laid down in section 33:

SEC. 33. Declaration of Policy. It is hereby declared to be a policy of the State that the national
government shall contribute to the financial support of educational programs pursuant to the
goals of education as declared in the Constitution. Towards this end, the government shall:

1. Adopt measures to broaden access to education through financial assistance and other
forms of incentives to schools, teachers, pupils and students; and

2. Encourage and stimulate private support to education through, inter alia, fiscal and
other assistance measures.

Given the abovementioned policies and objectives, there are sufficient standards to guide the
Minister of Education in promulgating rules and regulations to implement the provisions of the
Education Act of 1982, As in the Ericta and Tablarin cases, there is sufficient compliance with the
requirements of the non-delegation principle.

THIRD SUB-ISSUE
C. Whether or not schools and their employees may enter into a collective bargaining
agreement allocating more than 60% of said incremental proceeds for salary increases and other
benefits of said employees.

1. Arguments raised in the Biscocho and Valmonte cases

Assailed by the petitioners in the Biscocho and the Valmonte cases is the Order of the
respondent Minister of Labor directing the execution of a CBA between the school and the
respondent Espiritu Santo Parochial School Faculty Association which provides for an economic
package equivalent to 90% of the proceeds of tuition fee increases for school year 1985-1986,
another 90% for school year 1986-1987 and 85% for school year 1987-1988. Pursuant to said
Order, petitioners in the Biscocho case alleged that the parties had agreed to incorporate in their
CBA a provision which allocates one-half (1/2) of the 90% portion of the proceeds or 45% to
increases in the monthly basic salaries and the other one-half (1/2) or 45% to increases in
monthly living allowance.

The petitioners in the two cases seek the nullification of the MOLE Order for exactly opposite
reasons. In the Biscocho case, the controversy springs from what petitioners perceive to be a
diminution of the benefits to be received by the school employees insofar as the CBA allocates
only 45% for salary increases instead of 60%, which petitioners claim to be the portion set aside
by Pres. Dec. No. 451 for that purpose. Parenthetically, the case questions the allocation of the
remaining 45% of the 90% economic package under the CBA, to allowances. Stripped down to its
essentials, the question is whether or not the 90% portion of the proceeds of tuition fee
increases alloted for the economic package may be allocated for both salary increases and
allowances.

On the other hand, petitioners in the Valmonte case believe that the MOLE cannot order the
execution of a CBA which would allocate more than 60% of the proceeds of tuition fee increases
for salary increases of school employees. Furthermore, petitioners question the authority of the
then Minister of Labor and Employment to issue the aforequoted Order insofar as this allocates
the tuition fee increases of the respondent private school. According to them, only the Minister
of Education, Culture and Sports has the authority to promulgate rules and regulations on the
use of tuition fees and increases thereto, pursuant to the provisions of B.P. Blg. 232. They further
argue that the assailed Order collides with the provisions of Pres. Dec. No. 451 insofar as it
allocates 90% of the tuition fee increases for salary adjustments of the members of the
bargaining unit which exceeds the 60% of the said increases allocated by the Decree for the
same purpose.

Before delving further into the questions raised, this Court notes that in the Valmonte case,
respondent Minister and respondent Faculty Association raise a procedural objection to the
filing of the Petition: the standing of the petitioners to bring this suit. Both respondents decry
the petitioners' lack of the interest required in Rule 65 of the Rules of Court for the filing of the
Petition for certiorari and Prohibition, since the latter do not appear to be in any way aggrieved
by the enforcement of the Order. Petitioners-parents did not even participate in the proceedings
below which led to the issuance of the assailed Order.

This Court finds merit in the respondents' objection. Under Rule 65 of the Rules of Court (Secs. 1
and 2), only a person aggrieved by the act or proceeding in question may file a petition for
certiorari and/or prohibition. The Valmonte petition fails to indicate how the petitioners would
be aggrieved by the assailed Order. It appears that the petitioners are not parties and never at
any time intervened in the conciliation conferences and arbitration proceedings before the
respondent Minister. The parties therein, who stand to be directly affected by the Order of the
respondent Minister, do not contest the validity of said Order. The petition does not even state
that petitioners act as representative of the parents' association in the School or in behalf of
other parents similarly situated.

If indeed, petitioners Valmonte and Badiola are aggrieved by the said Order, they should have
intervened and moved for a reconsideration of respondent Minister's Order before filing the
instant petition. Petitioners failed to show that the case falls under any one of the recognized
exceptions to the rule that a motion for reconsideration should first be availed of before filing a
petition for certiorari and prohibition.

In view of the foregoing, the resolution of the third sub-issue will be based mainly on the
arguments raised in the Biscocho case.

RESOLUTION OF THE THIRD SUB-ISSUE

The Biscocho case involves the issue on the allocation of the incremental proceeds of the tuition
fee increases applied for by the respondent Espiritu Santo Parochial School for school years
1985-1986, 1986-1987, and 1987-1988. With the repeal of Pres. Dec. No. 451 by B.P. Blg. 232,
the allocation of the proceeds of any authorized tuition fee increase must be governed by
specific rules and regulations issued by the Minister (now Secretary) of Education pursuant to his
broadened rule making authority under section 42 of the new law. Thus, insofar as the proceeds
of the authorized tuition fee increases for school year 1985-1986 are concerned, the allocation
must conform with the pertinent section of MECS Order No. 25, s. 1985, to wit:

7. Application or Use of Tuition and Other School Fees or Charges.


xxx xxx xxx

7.4. Not less than sixty (60) percent of the incremental tuition proceeds shall be used for
salaries or wages, allowances and fringe benefits of faculty and support staff, including cost of
living allowance, imputed costs of contributed services, thirteenth (13th) month pay, retirement
fund contributions, social security, medicare, unpaid school personnel claims, and payments as
may be prescribed by mandated wage orders, collective bargaining agreements and voluntary
employer practices: Provided, That increases in fees specifically authorized for the purposes
fisted in paragraph 4.3.3 hereof shall be used entirely for those purposes.

xxx xxx xxx

With regard to the proceeds of the tuition fee increases for school year 1986-1987, the
applicable rules are those embodied in MECS Order No. 22, s. 1986 which made reference to
MECS Order No. 25, s. 1985, the pertinent portion of which is quoted above.

Finally, as to the proceeds of the tuition fee increases for school year 1987- 1988, DECS Order
No. 37, s. 1987 must apply:

c. Allocation of lncremental Proceeds

(1) In any case of increase at least sixty percent (60%) of the incremental proceeds should
be allocated for increases in or provisions for salaries or wages, allowances and fringe benefits of
faculty and other staff, including accruals to cost of living allowance, 13th month pay, social
security, medicare and retirement contributions and increases as may be provided in mandated
wage orders, collective bargaining agreements or voluntary employer practices.

(2) Provided, that in all cases of increase the allocation of the incremental proceeds shall be
without prejudice to the Supreme Court cases on the interpretation and applicability of existing
legislations on tuition and other fees especially on the allocation and use of any incremental
proceeds of tuition and other fees increases. (Emphasis supplied).

xxx xxx xxx


Based on the aforequoted MECS and DECS rules and regulations which implement BP Blg. 232,
the 60% portion of the proceeds of tuition fee increases may now be allotted for both salaries
and allowances and other benefits. The 60% figure is, however, a minimum which means that
schools and their employees may agree on a larger portion, or in this case, as much as 90% for
salaries and allowances and other benefits. This is not in anyway to allow diminution or loss of
the portion allotted for institutional development of the school concerned. Thus, paragraph 7.5
of MECS Order No. 25, series of 1985 specifically provides that other student fees and charges
like registration, library, laboratory or athletic fees shall be used exclusively for the purposes
indicated.

III RESOLUTION OF THE SPECIFIC ISSUES

CEBU INSTITUTE OF TECHNOLOGY CASE

Petitioner assigns three other errors in the petition for certiorari:

RESPONDENT MINISTER OF THE MINISTRY OF LABOR AND EMPLOYMENT COMMITTED GRAVE


ABUSE OF DISCRETION AMOUNTING TO A DENIAL OF DUE PROCESS OF LAW IN DIRECTLY
ISSUING THE ORDER DATED SEPTEMBER 29,1981 WITHOUT CONDUCTING A FORMAL
INVESTIGATION AND ARBITRATION PROCEEDINGS.

PUBLIC RESPONDENT ERRED IN NOT DECLARING THAT PETITIONER IS EXEMPTED AND/OR NOT
OBLIGED TO PAY SERVICE INCENTIVE LEAVE.

PUBLIC RESPONDENT ERRED IN NOT DECLARING THAT PRIVATE RESPONDENTS' CLAIMS FOR
COLA AND SERVICE INCENTIVE LEAVE ARE FULLY BARRED BY LACHES AND/OR EXTINGUISHED BY
PRESCRIPTION.
1. Petitioner assails the Order of the Minister of Labor on the ground that the same was
issued without the benefit of a hearing and was merely based on the report of the labor
management committee which is allegedly without power to pass upon the issues raised. On this
premise, petitioner claims that it was denied its right to due process.

Petitioner's contention is without merit. The Labor Management Committee was empowered to
investigate the complaint against the petitioner for non-payment of the cost of living allowance,
13th month pay and service incentive leave from 1974-1981 [Annex "F"; Rollo, p. 37]. In the
committee, petitioner was represented by its counsel, registrar and assistant accountant and in
the conferences that were held, the representatives of the petitioner were present.
Furthermore, the petitioner's position paper submitted to the committee reflects that in all the
deliberations, it was never denied the right to present evidence and be heard on all the issues
raised, particularly to demonstrate that it had complied with the various COLA, 13th month pay
and service incentive leave decrees. The evidence presented during the conferences and the
position paper of the parties were made the basis of the committee's report and
recommendation which in turn became the basis of the order of the Minister of Labor directing
the petitioner to pay the complainants their COLA and service incentive leave benefits.

It could not therefore be contended that the petitioner was deprived of his right to be heard
when it appears on the record that it was permitted to ventilate its side of the issues. There was
sufficient compliance with the requirements of due process. In the face of the well- settled
principle that administrative agencies are not strictly bound by the technical rules of procedure,
this Court dismisses the petitioner's claim that formal investigative and arbitration proceedings
should be conducted. "While a day in court is a matter of right in judicial proceedings, in
administrative proceedings it is otherwise since they rest upon different principles." [Cornejo v.
Gabriel and Provincial Board of Rizal, 41 Phil. 188 (1920); Tajonera v. Lamaroza, G.R. Nos. L-
48907 and L-49035, December 19,1981, 110 SCRA 438].

2. Going now to the matter of service incentive leave benefits, petitioner claims that
private respondents are engaged by the school on a contract basis as shown by the individual
teachers contract which defines the nature, scope and period of their employment; hence, they
are not entitled to the said benefit according to Rule V of the Implementing Rules and
Regulations of the Labor Code to wit:

Sec. 1. Coverage. This rule [on Service Incentive Leave] shall apply to all employees, except:

xxx xxx xxx

(d) Field personnel and other employees whose performance is unsupervised by the
employer including those who are engaged on task or contract basis, purely commission basis, or
those who are paid in a fixed amount for performing work irrespective of the time consumed in
the performance thereof; (MOLE Rules and Regulations, Rule V, Book III)

The phrase "those who are engaged on task or contract basis" should however, be related with
"field personnel " applying the rule on ejusdem generis that general and unlimited terms are
restrained and limited by the particular terms that they follow, [Vera v. Cuevas, G.R. No. L-33693,
May 31, 1979, 90 SCRA 379]. Clearly, petitioner's teaching personnel cannot be deemed field
personnel which refers "to non-agricultural employees who regularly perform their duties away
from the principal place of business or branch office of the employer and whose actual hours of
work in the field cannot be determined with reasonable certainty. [Par. 3, Article 82, Labor Code
of the Philippines]. Petitioner's claim that private respondents are not entitled to the service
incentive leave benefit cannot therefore be sustained.

3. As a last ditch effort to bar private respondents'claims, petitioner asserts that the same
are barred by laches and/or extinguished by prescription according to Article 291 of the Labor
Code which provides:

Art. 291. Money claims. All money claims arising from employer-employee , relations accruing
during the effectivity of this Code shall be filed within three (3) years from the time the cause of
action accrued; otherwise, they shall be forever barred.

All money claims accruing prior to the effectivity of this Code shall be filed with the appropriate
entities established under this Code within one (1) year from the date of effectivity, and shall be
processed or determined in accordance with implementing rules and regulations of the Code;
otherwise, they shall be forever barred.

xxx xxx xxx

Considering that the complaint alleging non-payment of benefits was filed only on February 11,
1981, petitioner argues that prescription has already set in.

From the aforequoted provision, it is not fully accurate to conclude that the entire claims for
COLA and service incentive leave are no longer recoverable. This Court finds no reason to disturb
the following pronouncement of the Minister of Labor:
xxx xxx xxx

Simply stated, claims for COLA under P.D. 525, which took effect on August 1, 1974, for the
months of August, September and October 1974 must be filed within one (1) year from
November 1, 1974, otherwise they shall be considered prescribed; claims under the same
decree that accrued on or after November 1, 1974 should be initiated within three (3) years from
the date of accrual thereof, otherwise the same shall be deemed extinguished. Although this
particular claim was filed on February 11, 1981, petitioners herein are entitled to COLA under
P.D. 525 from February 1978 up to the present since the COLA that accrued in February 1978 has
not yet prescribed at the time that the claim was filed in February 1981. In the same vein,
petitioners herein should be granted COLA under P.D. 1123 from February 1978 up to 1981
inasmuch as said decree became effective only on May 11, 1977. Further, petitioners are entitled
to the full amount of COLA provided under P.D.'s 1614, 1634, 1678 and 1713. It must be pointed
out that the earliest of the just cited four (4) decrees, i.e., P.D. 1614, just took effect on April 1,
1979. Thus, the prescriptive period under Art. 292 of the Labor Code, as amended, does not as
yet apply to money claims under the just mentioned decrees.

DIVINE WORD COLLEGE CASE

In assailing the disputed Order, petitioner contends that the public respondents acted with grave
and patent abuse of discretion amounting to lack of jurisdiction in that:

1. The Regional Director has no jurisdiction over money claims arising from employer-
employee relationship; and

2. The Regional Director and Deputy Minister of Labor adopted the report of the Labor
Standards Division without affording the petitioner the opportunity to be heard.

1. Petitioner school claims that the case at bar is a money claim and should therefore be
within the original and exclusive jurisdiction of the Labor Arbiter pursuant to article 217 of the
Labor Code, as amended.

It appears from the record, however, that the original complaint filed by ten (10) faculty
members of the Divine Word College was for non-compliance with Pres. Dec. No. 451 and with
Labor Code provisions on service incentive leave, holiday and rest day pay and which complaint
specifically prayed that an inspection of the College be conducted.
Contrary to the petitioner's protestation of lack of jurisdiction, the Secretary of Labor or his duly
authorized representatives (which includes Regional Directors) are accorded the power to
investigate complaints for non- compliance with labor laws, particularly those which deal with
labor standards such as payment of wages and other forms of compensation, working hours,
industrial safety, etc. This is provided for in article 128 of the Labor Code, as amended:

Art. 128. Visitorial and enforcement power.

(a) The Secretary of Labor or his duly authorized representatives including labor regulation
officers, shall have access to employers' records and premises at any time of the day or night,
whenever work is being undertaken therein, and the right to copy therefrom, to question any
employee and investigate any fact, condition or matter which may be necessary to determine
violations or which may aid in the enforcement of this Code and of any labor law, wage order or
rules and regulations issued pursuant thereto.

(b) The Secretary of Labor or his duly authorized representatives shall have the power to
order and administer, after due notice and hearing, compliance with the labor standards
provisions of this Code based on the findings of labor regulation officers or industrial safety
engineers made in the course of inspection, and to issue writs of execution to the appropriate
authority for the enforcement of their order, except in cases where the employer contests the
findings of the labor regulations officer and raises issues which cannot be resolved without
considering evidentiary matters that are not verifiable in the normal course of inspection.
(Emphasis supplied).

Furthermore, Policy Instruction No. 6 which deals with the distribution of jurisdiction over labor
cases restates inter alia that "(L)abor standards cases arising from violation of labor standards
laws discovered in the course of inspection or complaints where employer-employee relations
still exist" are under the exclusive original jurisdiction of the Regional Director.

Even assuming that respondent Regional Director was without jurisdiction to entertain the case
at bar, petitioner is now barred at this stage to claim lack of jurisdiction having actively
participated in the proceedings below. Petitioner never questioned the jurisdiction of the
respondent Regional Director.

2. The petitioner claims that it was never afforded the opportunity to be heard and was
therefore denied due process.
There is no dispute that an inspection of the College was conducted after a complaint by some
faculty members was filed with the Regional Office of the Ministry of Labor and Employment. A
report was submitted on the basis of the findings contained therein. Petitioner was furnished a
copy of said report to which it filed a comment. Finding this to be without merit, the Regional
Director issued an order giving petitioner ten (10) days to manifest its compliance with the
findings, otherwise, another would be issued to enforce payment. Petitioner appealed but
instead of resolving the memorandum of appeal, which the Regional Director treated as a
motion for reconsideration, said Director issued another Order dated August 2, 1983 directing
the payment of the employees' share in the sixty (60%) percent incremental proceeds. Petitioner
moved for a reconsideration of the latest order which the Regional Director, however, denied,
thereby elevating the case to the Office of the Minister of Labor and Employment.

The foregoing facts demonstrate that petitioner had the opportunity to refute the report on the
inspection conducted. It submitted a comment thereto, which was in effect its position paper.
The arguments therein and evidence attached thereto were considered by respondent Regional
Director in the order issued subsequently. They, therefore, had ample opportunity to present
their side of the controversy.

What due process contemplates is not merely the existence of an actual hearing. The "right to
be heard" focuses more on the substance rather than the form. In the case at bar, petitioner was
actually heard through the pleadings that it filed with the Regional Office V. As it itself admitted
in its petition that it was afforded the right to be heard on appeal [See Rollo, p. 581, petitioner
cannot therefore insist that it was denied due process.

FAR EASTERN UNIVERSITY CASE

Two other issues are raised in this petition, to wit:

WHETHER OR NOT 'TRANSPORTATION ALLOWANCE' SHOULD BE CONSIDERED AS 'EQUIVALENT


TO 13TH-MONTH PAY UNDER PRES. DEC. NO. 851.

WHETHER OR NOT LEGAL HOLIDAY PAY BENEFIT COULD BE VALIDLY WITHDRAWN AFTER BEING
PRACTICED CONTINUOUSLY FOR EIGHT (8) MONTHS.

1. The issue on the thirteenth (13th) month pay involves an interpretation of the provisions
of Pres. Dec. No. 851 which requires all employers "to pay all their employees receiving a basic
salary of not more than Pl,000 a month, regardless of the nature of the employment, a 13th-
month pay" (Sec. 1). However, "employer[s] already paying their employees a 13th-month pay or
its equivalent are not covered" (Sec. 2). (Emphasis supplied)

The Rules and Regulations Implementing Pres. Dec. No. 851 provide the following:

SEC. 3. Employees. The Decree shall apply to all employers except to: ...

c) Employers already paying their employees 13th-month or more in a calendar year or its
equivalent at the time of this issuance; ...

xxx xxx xxx

The term "its equivalent" as used in paragraph (c) hereof 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 employer, as well as non-monetary benefits. Where
an employer pays less than 1/1 2th of the employees basic salary, the employer shall pay the
difference.

In the case at bar, the 13th month pay is paid in the following manner:

FOR REGULAR EMPLOYEES:

Transportation Allowance (TA)

50% of basic for the first year of service plus additional 5% every year thereafter but not to
exceed 100% of basic salary
Christmas Bonus (CB)

50% of basic salary for the first year of service plus additional 5% every year thereafter but not
to exceed 100% of basic salary.

For employees who have served the University for more than 10 years, the University pays them
emoluments equivalent to the 14 months salaries.

13th Month Pay Formula:

Monthly Rate x No. of

months served for the year

Less TA/CB = 13th Mo. pay

12 months

FOR CASUAL EMPLOYEES:

13th Month Pay Formula:

Add salaries from 16 December of previous year to 15th December of present year [and] divide
by 12 months = 13th Mo. Pay (Rollo, pp. 60, 72).

The University's answer to the Union's claim of underpayment of the 13th month pay is that the
"transportation allowance" paid to its employees partakes the nature of a mid-year bonus which
under section 2 of Pres. Dec. No. 851 and section 3(c) of the Implementing Rules and
Regulations is equivalent to the 13th month pay,
The Labor Arbiter ordered FEU to pay the 13th month pay differentials of the complainants
reasoning that:

CLEARLY, transportation allowance cannot be considered as equivalent" of 13th month pay as it


is neither a Christmas bonus, mid-year bonus, profit sharing payment, or other cash bonuses,
pursuant to paragraphs (c) and (e), Section 3 of PD 851. The regularity of its payment further
cements this proposition.

PERFORCE, complainants are underpaid of their 13th month pay in an amount equivalent to 50%
of their basic salary for the lst year of service, plus additional 5% every year thereafter but not to
exceed 100% of their basic salary which, per respondent's formula, corresponds to their
transportation allowance. (Rollo, p. 61).

On appeal, the Third Division of the National Labor Relations Commission reversed the Labor
Arbiter's ruling by dismissing the complainant's claim for underpayment of the 13th month pay
for lack of merit. The NLRC ruled that:

From the above findings and conclusion, it is clear that insofar as employees with ten (10) years
of service or more are concerned, they receive the equivalent of one (1) month pay for
Christmas bonus and another one (1) month pay as transportation allowance or a total of
fourteen (14) months salary in a year. Obviously, this group of employees are fully paid of their
13th month pay and are not therefore subject to the instant claim. As it is only those with less
than ten (10) years of service are included or encompassed by the Labor Arbiter's resolution on
this particular issue. With this clarification, we shall now proceed to discuss the crux of the
controversy, that is, the determination of whether or not the so designated "transportation
allowance" being paid to the employees should be considered among those deemed equivalent
to 13th month pay. As adverted earlier, the Labor Arbiter opined that it cannot be so considered
as the equivalent of 13th month pay.

xxx xxx xxx

In passing upon the issue, we deemed it best to delve deeper into the nature and intendment of
the transportation allowances as designated by both the complainants and the respondent.
Complainants claim that the transportation allowance they enjoy has always been called and
termed allowance and never as bonus since the time the same was given to them. They assert
that it simply was intended as an allowance and not a bonus. It would appear however that
complainants do not dispute respondent's stand that transportation allowance is being paid only
every March of each year as distinguished from other allowances that are being paid on a
monthly basis or on a bimonthly basis; that the amount of transportation allowance to be paid is
dependent on the length of service of the employee concerned (i.e. 50% basic in the first year
and additional 5% for each succeeding years, etc.); that the said method of computing the
amount of the transportation allowance to be paid the complainants is Identical to that used in
determining Christmas bonus (respondent's exhibit 8) that the reason behind said transportation
allowance is to financially assist employees in meeting their tax obligations as the same become
due on or about the month of March of each year.

xxx xxx xxx

We are inclined to believe and so hold that by the manner by which said transportation
allowance is being paid (only once a year) as well as the method in determining the amount to
be paid (similar to Christmas bonus) and considering further the reason behind said payment
(easing the burden of taxpayer-employee), the said transportation allowance given out by
respondent while designating as such, partakes the nature of a mid-year bonus. It bears to note
in passing that in providing for transportation allowance, respondent was not compelled by law
nor by the CBA (Annex "A" of respondent's Appeal) as nowhere in the CBA nor in the Labor Code
can be found any provision on transportation allowance. It was therefore a benefit that stemmed
out purely from the voluntary act and generosity of the respondent FEU. Moreover, said
transportation allowance is only being paid once a year. On the other hand, regular allowances
not considered as 13th month pay equivalent under P.D. 851, to our mind, refer to those paid on
regular intervals and catering for specific employees' needs and requirements that recur on a
regular basis. Verily, if the intendment behind the disputed transportation allowance is to
answer for the daily recurring transportation expenses of the employees, the same should have
been paid to employees on regular periodic intervals. All indications, as we see it, point out to
conclusion that the disputed transportation allowance, while dominated as such apparently for
lack of better term, is in fact a form of bonus doled out by the respondent during the month of
March every year.

Hence, we hold that it is one of those that can very well be considered as equivalent to the 13th
month pay (Rollo, pp. 73, 74, 75, 76).

This Court sustains the aforequoted view of public respondent. The benefit herein designated as
"transportation allowance" is a form of bonus equivalent to the 13th month pay. Nevertheless,
where this does not amount to 1/12 of the employees basic salary, the employer shall pay the
difference.

The evident intention of the law was to grant an additional income in the form of a 13th month
pay to employees not already receiving the same. This Court ruled in National Federation of
Sugar Workers (NFSW) v. Ovejera [G.R. No. 59743, May 31, 1982, 114 SCRA 354].

Otherwise put, the intention was to grant some relief not to all workers but only to the
unfortunate ones not actually paid a 13th month salary or what amounts to it, by whatever
name called: but it was not envisioned that a double burden would be imposed on the employer
already paying his employees a 13th month pay or its equivalent whether out of pure
generosity or on the basis of a binding agreement and, in the latter case, regardless of the
conditional character of the grant (such as making the payment dependent on profit), so long as
there is actual payment. Otherwise, what was conceived to be a 13th month salary would in
effect become a 14th or possibly 15th month pay.

xxx xxx xxx

Pragmatic considerations also weigh heavily in favor of crediting both voluntary and contractual
bonuses for the purpose of determining liability for the 13th month pay. To require employers
(already giving their employees a 13th month salary or its equivalent) to give a second 13th
month pay would be unfair and productive of undesirable results. To the employer who had
acceded and is already bound to give bonuses to his employees, the additional burden of a 13th
month pay would amount to a penalty for his munificence or liberality. The probable reaction of
one so circumstanced would be to withdraw the bonuses or resist further voluntary grants for
fear that if and when a law is passed giving the same benefits, his prior concessions might not be
given due credit; and this negative attitude would have an adverse impact on the employees
(pp.369,370).

The case of Dole Philippines, Inc. v. Leogardo [G.R. No. 60018, October 23, 1982, 117 SCRA 938
(1982)], citing the ruling in the above case also pointed out that:

To hold otherwise would be to impose an unreasonable and undue burden upon those
employers who had demonstrated their sensitivity and concern for the welfare of their
employees. A contrary stance would indeed create an absurd situation whereby an employer
who started giving his employees the 13th month pay only because of the unmistakable force of
the law would be in a far better position than another who, by his own magnanimity or by
mutual agreement, had long been extending his employees the benefits contemplated under PD
No. 851, by whatever nomenclature these benefits have come to be known. Indeed, PD No. 851,
a legislation benevolent in its purpose, never intended to bring about such oppressive situation.
(p. 944)

2. Presidential Decree No. 570-A was issued on November 1, 1974 amending certain
articles of Presidential Decree No. 442 (Labor Code of the Philippines promulgated on May 1,
1974 which took effect six months thereafter). Section 28 thereof provides that:

Section 28. A new provision is hereby substituted in lieu of the original provision of Article 258 of
the same Code to read as follows:

Art. 258. Right to holiday pay-

(a) Every worker shall be paid his regular holidays, except in retail and service
establishments regularly employing less than ten (10) workers;

(b) The term "holiday" as used in this Chapter, shall include: New Year's day, Maundy
Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July,
the thirtieth of November, the twenty fifth and thirtieth of December and the day designated by
law for holding a general election.

(c) When employer may require work on holidays. The employer may require an employee
to work on any holiday but such employee shall be paid a compensation equivalent twice his
regular rate.

Presidential Decree No. 850 issued on December 16, 1975 also amending certain articles of Pres.
Dec. No. 442 adopted the aforequoted provision. Two months later, on February 16, 1976, the
Rules and Regulations Implementing the Labor Code, as amended, was released the pertinent
portion of which states that:

Section 2. Status of employees paid by the month. Employees who are uniformly paid by the
month, irrespective of the number of working days therein, with a salary of not less than the
statutory or established minimum wage shall be presumed to be paid for all days in the month
whether worked or not.

For this purpose, the monthly minimum wage shall not be less than the statutory minimum
wage multiplied by 365 days divided by twelve.

(e) Section 3. Holiday Pay. Every employer shall pay his employees their regular daily
wage for any unworked regular holiday.
As used in the Rule, the term 'holiday' shall exclusively refer to: New Year's Day, Maundy
Thursday, Good Friday, the ninth of April, the first of May, the twelfth of June, the fourth of July,
the thirtieth of November, the twenty-fifth and thirtieth of December and the day designated by
law for a general election or national referendum or plebiscite (MOLE Rules and Reg. Book III,
Rule IV, sec. 2 (1976).

After one week, on February 23, 1976, the Minister of Labor issued Policy Instruction No. 9, to
clarify further the right to holiday pay, thus:

The Rules Implementing PD 850 have clarified the policy in the implementation of the ten (10)
paid legal holidays. Before PD 850. the number of working days a year in a firm was considered
important in determining entitlement to the benefit. Thus, where an employee was working for
at least 313 days, he was definitely already paid. If he was working for less than 313, there was
no certainty whether the ten (10) paid legal holidays were already paid to him or not.

The ten (10) paid legal holidays law, to start with, is intended to benefit principally daily
employees. In the case of monthly, only those whose monthly salary did not yet include payment
for the ten (10) paid legal holidays are entitled to the benefit.

Under the rules implementing PD 850, this policy has been fully clarified to eliminate
controversies on the entitlement of monthly paid employees. The new determining rule is this: If
the monthly paid employee is receiving not less than P 240, the maximum monthly minimum
wage, and his monthly pay is uniform from January to December, he is presumed to be already
paid the ten (10) paid legal holidays. However, if deductions are made from his monthly salary
on account of holidays in months where they occur, then he is entitled to the ten (10) legal
holidays.

These new interpretations must be uniformly and consistently upheld.

This issuance shall take effect immediately.

In the meantime, respondent University paid its employees holiday pay for the following days:

DATE HOLIDAYS PAID


June 9, 1975 for the previous nine legal holidays

August, 1975 for the previous June 12 and July 4

Jan. 14, 1976 or the previous Nov. 30, Dec. 25

and 30 and Jan. 1

After January 14, 1976, however, the University ceased paying the holiday pay allegedly by
reason of Policy Instruction No. 9. Specifically, the University claimed that the monthly salary of
its employees was, as of 1976, more than P 240.00 without deductions from their monthly salary
on account of holidays in months where they occurred and that therefore, by virtue of Policy
Instruction No. 9, they were no longer entitled to the ten paid legal holidays.

Petitioners, upon the other hand, contend that Policy Instruction No. 9 could not have possibly
been the reason that prompted the University to withdraw such benefits from its faculty and
employees because said implementing rule was issued only on April 23, 1976 or four months
later.

The Labor Arbiter ruled in favor of the complainant Union for the reason that ". . . the payment
of the 10-paid legal holiday benefits from June 8, 1975 up to January 14, 1976 is considered an
employer practice that can no longer be withdrawn." [Decision; Rollo, p. 59].

As in the case of the 13th month pay, the NLRC reversed the Labor Arbiter's ruling. The NLRC
held that:

Apparently, Arbiter Ruben Aquino concluded that payment by the respondent of the legal
holiday pay preceded the effectivity of the Rules and Regulations Implementing P.D. 850 and
which rules took effect on February 16, 1976. Hence, his conclusion that the payment of the
legal holiday pay stemmed out from company practice and not from law. Tracing back, however,
the payments made by respondent of said holiday pay will show that, if ever, the same was
made pursuant to P.D. 570-A which took effect on November 1, 1974. Noteworthy is the
undisputed fact that respondent first paid its employees legal holiday pay in June 1975
corresponding to nine (9) legal holidays. It bears to note that from the time of the effectivity of
P.D. 570-A which was in November of 1974 up to June of 1975, the time respondent first paid
legal holiday pay for nine (9) legal holidays, there, were indeed more or less nine legal holidays
that transpired to wit: November 30, 1974, December 25, 1974, December 30, 1974, January 1,
1975, February 27, 1975 (Referendum Day), Maundy Thursday of 1975, Good Friday of 1975,
April 9, 1975 and finally, May 1st of 1975. We are therefore inclined to lend credence to
respondent's claim that the payment of legal holiday pay was in fact made pursuant to law, P.D.
570-A in particular, it is not one that arose out of company practice or policy.

Finding that said payment was made based on an honest although erroneous interpretation of
law, which interpretation was later on corrected by the issuance (sic) of Policy Instruction No. 9
and which issuance prompted respondent to withdraw the holiday pay benefits extended to the
employees who were paid on a regular monthly basis, and finding further that under Policy
Instructions No. 9, said subject employees are deemed paid their holiday pay as they were paid
on a monthly basis at a wage rate presumably above the statutory minimum, we believe and so
hold that the withdrawal of said holiday pay benefit was valid and justifiable under the
circumstances (Rollo, pp. 33-4).

This Court cannot sustain the foregoing decision of public respondent. Said decision relied on
Section 2, Rule IV, Book Ill of the implementing rules and on Policy Instruction No. 9 which were
declared by this Court to be null and void in Insular Bank of Asia and America Employee's Union
(IBAAEU) v. Inciong (G.R. No. 52415, October 23, 1984, 132 SCRA 6631. In disposing of the issue
at hand, this Court reiterates the ruling in that case, to wit:

WE agree with the petitioner's contention that Section 2, Rule IV, Book Ill of the implementing
rules and Policy Instruction No. 9 issued by the then Secretary of Labor are nun and void since in
the guise of clarifying the Labor Code's provision on holiday pay, they in fact amended them by
enlarging the scope of their exclusion.

xxx xxx xxx

It is elementary in the rules of statutory construction that when the language of the law is clear
and unequivocal the law must be taken to mean exactly what it says. In the case at bar, the
provisions of the Labor Code on the entitlement to the benefits of holiday pay are clear and
explicit it provides for both the coverage of and exclusion from the benefits. In Policy
Instruction No. 9, the then Secretary of Labor went as far as to categorically state that the
benefit is principally intended for daily paid employees, when the law clearly states that every
worker shall be paid their regular holiday pay. This is a flagrant violation of the mandatory
directive of Article 4 of the Labor Code, which states that "All doubts in the implementation and
interpretation of the provisions of this Code, including its implementing rules and regulations,
shall be resolved in favor of labor. " Moreover, it shall always be presumed that the legislature
intended to enact a valid and permanent statute which would have the most beneficial effect
that its language permits (Orlosky vs. Haskell, 155 A. 112). (pp. 673-4).

BISCOCHO CASE

At issue also in this petition is whether the 60% incremental proceeds may be subjected to
attorney's fees, negotiation fees, agency fees and the like.

The Court notes the fact that there are two classes of employees among the petitioners: (1)
those who are members of the bargaining unit and (2) those who are not members of the
bargaining unit. The first class may be further subdivided into two: those who are members of
the collective bargaining agent and those who are not.

It is clear that the questioned Order of the respondent Minister applies only to members of the
bargaining unit. The CBA prepared pursuant to said Order, however, covered employees who are
not members of the bargaining unit, although said CBA had not yet been signed at the time this
petition was filed on November 24, 1986. Assuming it was signed thereafter, the inclusion of
employees outside the bargaining unit should be nullified as this does not conform to said order
which directed private respondents to execute a CBA covering only members of the bargaining
unit.

Being outside the coverage of respondent Minister's order, and thus, not entitled to the
economic package involved therein, employees who are non- members of the bargaining unit
should not be assessed negotiation fees, attorney's fees, agency fees and the like, for the simple
reason that the resulting collective bargaining agreement does not apply to them. It should be
clear, however, that while non-members of the bargaining unit are not entitled to the economic
package provided by said order, they are, in lieu thereof, still entitled to their share in the 60%
incremental proceeds of increases in tuition or other school fees or charges.

As far as assessment of fees against employees of the collective bargaining unit who are not
members of the collective bargaining agent is concerned, Article 249 of the Labor Code, as
amended by B.P. Blg. 70, provides the rule:

Art. 249. Unfair labor practices of employers.-

xxx xxx xxx


(e) ... Employees of an appropriate collective bargaining unit who are not members of the
recognized collective bargaining agent may be assessed a reasonable fee equivalent to the dues
and other fees paid by members of the recognized collective bargaining agent, if such non- union
members accept the benefits under the collective agreement . . .

Employees of the collective bargaining unit who are not members of the collective bargaining
agent have to pay the foregoing fees if they accept the benefits under the collective bargaining
agreement and if such fees are not unreasonable. Petitioners who are members of the
bargaining unit failed to show that the equivalent of ten (10%) percent of their backwages
sought to be deducted is unreasonable.

WHEREFORE, the Court rules:

CEBU INSTITUTE OF TECHNOLOGY CASE

In G.R. No. 58870, the Order of respondent Minister of Labor and Employment dated September
29, 1981 is SUSTAINED insofar as it ordered petitioner Cebu Institute of Technology to pay its
teaching staff the following:

(1) Cost of living allowance under Pres. Dec.Nos.525 and 1123 from February 1978 up to
1981;

(2) Cost of living allowance under Pres. Dec. Nos. 1614, 1634, 1678 and 1713; and

(3) Service incentive leave due them from 1978.

The Temporary Restraining Order issued by this Court on December 7, 1981 is hereby LIFTED and
SET ASIDE. No costs.

DIVINE WORD COLLEGE CASE


The petition in G.R. No. 68345 is DENIED for lack of merit. The questioned Orders of respondent
Deputy Minister of Labor and Employment, dated December 19, 1983 and July 4, 1984 are
SUSTAINED insofar as said Orders denied the payment of the emergency cost of living allowances
of private respondents faculty teachers of the Divine Word College of Legazpi out of the sixty
(60%) incremental proceeds of tuition and other school fee increases collected during the
effectivity of Pres. Dec. No. 451. The Rules and Regulations implementing Pres. Dec. No. 451 are
hereby declared invalid for being ultra vires No costs.

FAR EASTERN UNIVERSITY CASE

The Decision of public respondent National Labor Relations Commission dated September 18,
1984 is REVERSED insofar as it affirmed in toto the dismissal of petitioner Far Eastern University
Employee Labor Union's claim under Pres. Dec. No. 451 and its claim for payment of holiday pay.
Private respondent Far Eastern University is therefore ordered to pay its employees the
following:

(1) Their sixty (60) percent share in the increases in tuition and other school fees or charges
which shall be allocated exclusively for increase in salaries or wages if the tuition or other school
fee increase was collected during the effectivity of Pres. Dec. No. 451;

(2) Their claim for holiday pay which was withdrawn since January 14, 1976 up to the
present.

The Decision of respondent National Labor Relations Commission, however, is SUSTAINED insofar
as it denied petitioner's claim for thirteenth (1 3th month pay. No costs.

FABROS CASE

In G.R. No. 70832, the Petition for certiorari and Prohibition is DISMISSED. MECS Order No. 25. s.
1985, particularly paragraphs 7.0 to 7.5 thereof, which provide for the use and application of
sixty (60%) percent of the increases in tuition and other school fees or charges, having been
issued pursuant to B.P. Blg. 232 which repealed Pres. Dec. No. 451, is hereby declared VALID. The
Temporary Restraining Order issued by this Court dated May 29, 1985 is LIFTED and SET ASIDE.
No costs.

BISCOCHO CASE
The assailed portions of the Order of the Minister of Labor and Employment dated April 14, 1986
are AFFIRMED. The collective bargaining agreement prepared pursuant thereto should, however,
be MODIFIED to cover only members of the bargaining unit. Only petitioners who are members
of the collective bargaining unit, if they accept the benefits under the resulting collective
bargaining agreement, shall be charged ten (10%) percent of the payable backwages as
negotiation fees. The Temporary Restraining Order dated November 25, 1986 is LIFTED and SET
ASIDE. No costs.

VALMONTE CASE

The petition in G.R. No. 76596 is DISMISSED for lack of merit.

Effective September 1, 1982, the application and use of the proceeds from increases in tuition
fees and other schools fees or charges shall be governed by section 42 of B.P. Blg. 232 as
implemented by the Rules and Regulations issued by the then Ministry, now Department of
Education, Culture and Sports. SO ORDERED.

Teehankee, C.J., Yap, Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Gancayco, Bidin and
Sarmiento, JJ., concur.

G.R. No. 81176 April 19, 1989

PLASTIC TOWN CENTER CORPORATION, petitioner,

vs.

NATIONAL LABOR RELATIONS COMMISSION AND NAGKAKAISANG LAKAS NG MANGGAGAWA


(NLM)-KATIPUNAN, respondents.

Generosa R. Jacinto for petitioner.

The Solicitor General for public respondent.


GUTIERREZ, JR., J.:

An issue in this petition is the interpretation of certain provisions of the Collective Bargaining
Agreement (CBA) between Plastic Town Center Corporation and the respondent union.

On September 7,1984, the respondent Nagkakaisang Lakas ng Manggagawa (NLM)-Katipunan


filed a complaint dated August 30, 1984 charging the petitioner with:

a. Violation of Wage Order No. 5, by crediting the Pl.00 per day increase in the CBA as part of the
compliance with said Wage Order No. 5, and y instead of thirty (30) days equivalent to one (1)
month as gratuity pay to resigning employees. (p. 3, Rollo)

b. Unfair labor practice thru violation of the CBA by giving only twenty-six (26) days pay instead
of thirty (30) days equivalent to one (1) month as gratuity pay to resigning employees. (p. 3,
Rollo)

On July 25,1985, Labor Arbiter Ruben Alberto ruled in favor of Plastic Town Center Corporation.
The pertinent portions of the decision read as follows:

... In this particular case, the P1.00 increase was ahead of the implementation of the CBA
provision or could be said was advantageous to complainant members, chronologically stated.
For the above cogent reason we can not fault respondent for its refusal to grant a second Pl.00
increase on July 1, 1984.

xxx xxx xxx

Complainant sustains the view that a month salary pertains to salary for 30 days, citing the
provision of the Civil Code on the matter.

Upon the other hand, respondents understanding of the controverted provision is pragmatic or
practical. Since the workers are paid on daily basis, it computed the salary received by the
worker in a month as a month salary. In this case the salary of 26 days is a month salary.

We agree with the respondent's interpretation. As daily wage earner, there would be no instance
that the worker would work for 30 days a month since work does not include Sunday or rest
days. In the mind of the daily worker in a month he could not expect a month salary exceeding
the equivalent of 26 days service. To award the daily wage earner pay for more than 26 days is
pay for days he does not work. But as regards the monthly- paid workers he expects his monthly
salary to be fixed which is a month salary. Hence, a distinction separates him with the daily
wages.

IN VIEW OF THE FOREGOING, the unfair labor practice charge should be, as it is hereby
dismissed for lack of legal and factual basis. (pp- 56-57, Rollo)

On August 30, 1987, the respondent labor union appealed to the National Labor Relations
Commission.

On June 30, 1987, the NLRC rendered the questioned decision with the following dispositive
portion:

WHEREFORE, the appealed decision is hereby reversed and the respondent is ordered to grant
Pl.00 increase for July 1, 1984 and the equivalent of thirty days salary in gratuity pay, as required
by its CBA with the complainants. (p. 39, Rollo)

The motion for reconsideration of said decision was denied on December 7, 1987. Hence, this
petition.

The applicable provisions of the CBA read as follows:

Section 1 -The company agrees to grant permanent regular rank and file workers covered
by this Agreement who have rendered at least one year of continuous service, across-the-board
wage increases as follows:

a. Effective 1 July, 1983-Pl.00 per worked day;


b Effective 1 July, 1984-Pl.00 per worked day;

c. Effective 1 July, 1985-Pl.00 per worked day;

Section 3- It is agreed and understood by the parties herein that the aforementioned
increase in pay shall be credited against future allowances or wage orders hereinafter
implemented or enforced by virtue of Letters of Instructions, Decrees and other labor legislation.
(pp. 36-37, Rollo)

Wage Order No. 4 provided for the integration of the mandatory emergency cost of living
allowances (ECOLA) under Presidential Decrees 1614,1634,1678 and 1713 into the basic pay of
all covered workers effective May 1, 1984. It further provided that after the integration, the
applicable statutory minimum daily wage rate must be complied with, which in this case is
P32.00.

The petitioner incurred a deficiency of P1.00 in the wage rate after integrating the ECOLA with
basic pay. So the petitioner advanced to May 1, 1984 or two months earlier the implementation
of the one-peso wage increase provided for in the CBA starting July 1, 1984 for the benefit of the
workers.

The petitioner argues that it did not credit the Pl.00 per day across the board increase under the
CBA as compliance with Wage Order No. 5 implemented on June 16,1984 since it gave an
additional P3.00 per day to the basic salary pursuant to said order. It, however, credited the Pl.00
a day increase to the requirement under Wage Order No. 4 to which the private respondents
allegedly did not object.

The other controverted provision of the CBA reads:

Section 2. It is the intention of both the COMPANY and the UNION, that the grant of gratuity pay
by the COMPANY herein set forth is to reward employees and laborers, who have rendered
satisfactory and efficient service with the COMPANY. THUS, in case of voluntary resignation,
which is not covered by Section 1 above, the COMPANY nevertheless agrees to grant a gratuity
pay to the resigning employee or laborer as follows:

1. Two to Five years of service : 1 month salary


2. Six (6) to Ten (10) yrs. of : Two and One-half (21/2)service months salary

3 Eleven (ll) to Fifteen yrs. of service : 4 months salary

4 Sixteen (16) to twenty yrs. of : 5 months

5 Twenty one yrs. of service and above : Twelve (12) months salary.

(p. 38, Rollo)

The petitioner alleges that one month salary for daily paid workers should be computed on the
basis of twenty-six (26) days and not thirty (30) days since daily wage workers do not work every
day of the month including Sundays and holidays.

The petition is devoid of merit.

The subject for interpretation in this petition for review is not the Labor Code or its
implementing rules and regulations but the provisions of the collective bargaining agreement
entered into by management and the labor union. As a contract, it constitutes the law between
the parties (Fegurin v. National Labor Relations Commission, 120 SCRA 910 [1983]) and in
interpreting contracts, the rules on contract must govern.

Contracts which are not ambiguous are to be interpreted according to their literal meaning and
should not be interpreted beyond their obvious intendment (Herrera v. Petrophil Corp., 146
SCRA 385 [1986]).

In the case at bar, the petitioner alleges that on May 1, 1984, it granted a Pl.00 increase pursuant
to Wage Order No. 4 which in consonance with Section 3 of the CBA was to be credited to the
July 1, 1984 increase under the CBA. It was, therefore, a July increase. Section 3 of the CBA,
however, clearly states that CBA granted increases shall be credited against future allowances or
wage orders. Thus, the CBA increase to be effected on July 1, 1984 can not be retroactively
applied to mean compliance with Wage Order No. 4 which took effect on May 1, 1984. The
words of the contract are plain and readily understandable so we find no need for any further
construction or interpretation petition (Dihiansan v. Court of Appeals, 153 SCRA 712 [1987]).
Furthermore, we agree with the NLRC as it held:

It is our finding that the respondent is bound by the CBA to grant an increase on July 1, 1984.

In this case, between July 1, 1983 and July 1, 1984, there were actually two increases mandated
by Wage Order No. 4 on May 1, 1984 and by Wage Order No. 5 on June 16,1984. The fact that
the respondent had complied with Wage Order No. 4 and Wage Order No. 5 does not relieve it
of its obligation to grant the P1.00 increase under the CBA. (pp. 37-38, Rollo)

With regards to the second issue, the petitioner maintains that under the principle of "fair day's
wage for fair day's labor", gratuity pay should be computed on the basis of 26 days for one
month salary considering that the employees are daily paid.

We find no abuse of discretion on the part of the NLRC in granting gratuity pay equivalent to one
month or 30 days salary .

We quote with favor the NLRC decision which states:

xxx xxx xxx

... To say that awarding the daily wage earner salary for more than 26 days is paying him for days
he does not work misses the point entirely. The issue here is not payment for days worked but
payment of gratuity pay equivalent to one month or 30 days salary. (p. 29, Rollo)

Looking into the definition of gratuity, we find the following in Moreno's Philippine Law
Dictionary, to wit:

Something given freely, or without recompense; a gift; something voluntarily given in return for
a favor or services; a bounty; a tip. -Pirovano v. De la Rama Steamship Co., 96 Phil. 357.

That paid to the beneficiary for past services rendered purely out of the generosity of the giver
or grantor.-Peralta v. Auditor General, 100 Phil. 1054.
Salary or compensation. The very term 'gratuity' differs from the words 'salary' or
'compensation' in leaving the amount thereof, within the limits of reason, to the arvitrament of
the giver.-Herranz & Garriz v. Barbudo,12 Phil. 9.

From the foregoing, gratuity pay is therefore, not intended to pay a worker for actual services
rendered. It is a money benefit given to the workers whose purpose is "to reward employees or
laborers, who have rendered satisfactory and efficient service to the company." (Sec. 2, CBA)
While it may be enforced once it forms part of a contractual undertaking, the grant of such
benefit is not mandatory so as to be considered a part of labor standard law unlike the salary,
cost of living allowances, holiday pay, leave benefits, etc., which are covered by the Labor Code.
Nowhere has it ever been stated that gratuity pay should be based on the actual number of days
worked over the period of years forming its basis. We see no point in counting the number of
days worked over a ten-year period to determine the meaning of "two and one- half months'
gratuity." Moreover any doubts or ambiguity in the contract between management and the
union members should be resolved in the light of Article 1702 of the Civil Code that:

In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the
safety and decent living for the laborer.

This is also in consonance with the principle enunciated in the Labor Code that all doubts should
be resolved in favor of the worker.

The Civil Code provides that when months are not designated by name, a month is understood
to be thirty (30) days. The provision applies under the circumstances of this case.

In view of the foregoing, the public respondent did not act with grave abuse of discretion when
it rendered the assailed decision which is in accordance with law and jurisprudence.

WHEREFORE, the petition is hereby DISMISSED for lack of merit.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.


G.R. No. 76746 July 27, 1987

DURABUILT RECAPPING PLANT & COMPANY and EDUARDO LAO, GENERAL MANAGER,
petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION, HON. COMM. RICARDO C. CASTRO, HON. ARBITER
AMELIA M. GULOY, KAPISANAN NG MGA MANGGAGAWA SA DURABUILT and REYNALDO
BODEGAS, respondents.

GUTIERREZ, JR., J.:

This is a petition to review the May 16, 1986 resolution of respondent National Labor Relations
Commission (NLRC) affirming the Labor Arbiter's order in NLRC Case No. NCR-73162083. The
sole issue raised is the proper basis for the computation of backwages in favor of an illegally
dismissed employee.

The facts of the case are simple and uncontroverted.

On July 11, 1983, a complaint for illegal dismissal was filed by respondent Reynaldo Bodegas,
against petitioner Durabuilt, a tire recapping company.

In a decision rendered by the Labor Arbiter on February 13, 1984, the private respondent was
ordered reinstated to his former position with full backwages, from the time he was terminated
up to the time he is actually reinstated, without loss of seniority rights and benefits accruing to
him.

The petitioners failed to file a seasonable appeal and entry of final judgment was made on July 8,
1985.

On August 8, 1985, the Acting Chief of Research and Information and the Corporation Auditing
Examiner of the then Ministry of Labor and Employment submitted a computation of backwages,
ECOLA, 13th month pay, sick and vacation leave benefits in favor of Reynaldo Bodegas in the
total amount of P24,316.38.
The petitioner filed its opposition to the computation on the ground that it contemplated a
straight computation of twenty six (26) working days in one month when the period covered by
the computation was intermittently interrupted due to frequent brownouts and machine trouble
and that respondent Bodegas had only a total of 250.75 days of attendance in 1982 due to
absences. According to the petitioner, Bodegas is entitled only to the amount of P3,834.05
broken down as follows: salaries P1,993.00; ECOLA P1,433.50, and 13th month pay
P407.55.

On October 23, 1985, the Labor Arbiter denied the opposition to the computation. The
petitioner appealed to the NLRC which, in an order dated May 16, 1986, affirmed the order of
the Labor Arbiter and dismissed the appeal.

Claiming grave abuse of discretion on the part of the public respondents, Durabuilt filed the
instant petition.

Backwages, in general, are granted on grounds of equity for earnings which a worker or
employee has lost due to his dismissal from work (New Manila Candy Workers Union
(NACONWA-PAFLU v. CIR, 86 SCRA 37).

The general principle is that an employee is entitled to receive as backwages all the amounts he
may have lost starting from the date of his dismissal up to the time of his reinstatement (Capital
Garment Corporation v. Ople, 117 SCRA 473; New Manila Candy Workers' Union (NACONWA-
PAFLU) v. CIR, supra).

In a line of cases, this Court has established a policy fixing the amount of backwages to a just and
reasonable level without qualification or deduction (Insular Life Assurance Co., Ltd. Employees'
Association-NATU v. Insular Life Assurance Co., Ltd., 76 SCRA 501; Feati University Club v. Feati
University, 58 SCRA 395; Mercury Drug Co., Inc. v. CIR, 56 SCRA 694). The respondents center
their attention on the above underlined portion of this policy. Hence, their contention that the
deductions cited by the petitioners cannot be made.

In their bid to recover a greater amount of backwages, the rationale of the policy has escaped
the respondents' consideration. In Insular Life Assurance Employees Association-NATU v. Insular
Life Assurance Co., Ltd. (76 SCRA 50) we held that to fix the amount of backwages without
qualification or deduction simply means that the workers are to be paid their backwages fixed as
of the time of their dismissal or strike without deduction for their earnings elsewhere during
their law-off and without qualification of their backwages as thus fixed; i.e. unqualified by any
wage increases or other benefits that may have been received by their co-workers who were not
dismissed or did not go on strike. The principle is justified "as a realistic, reasonable and
mutually beneficial solution for it relieves the employees from proving their earnings during
their law-offs and the employer from submitting counter proofs. It was meant to obviate the
twin evils of Idleness on the part of the employees and attrition and undue delay in satisfying
the award on the part of the employer" (New Manila Candy Workers Union NACONWA-PAFLU v.
CIR supra). The same was not to establish an inflexible rule of computation of any Backwages
due an employee.

The age-old rule governing the relation between labor and capital, or management and
employee of a "fair day's wage for a fair day's labor" remains as the basic factor in determining
employees' wages, and for that matter backwages. If there is no work performed by the
employee there can be no wage or pay unless, of course, the laborer was able, willing and ready
to work but was illegally locked out, or suspended (SSS v. SSS Supervisors Union-CUGCO, 117
SCRA 746).

The illegal dismissal of the private respondent is conceded by the petitioner. It is willing to pay
backwages. However, the petitioner argues that for days where no work was required and could
be done by its employees, no wages could have been earned and, thereafter, lost by said
employees to justify an award of backwages. We quote with approval the Solicitor General's
comment,* to wit:

From the indubitable facts on record, it appears that petitioners have valid reasons to claim that
certain days should not be considered days worked for purposes of computing private
respondent's backwages since their business was not in actual operation due to brownouts or
power interruption and the retrenchment of workers they had during the period of private
respondent's dismissal.

It cannot be denied that during the past years particularly in 1983, there was chronic electrical
power interruption resulting to disruption of business operations. To alleviate the situation, the
government thru the Ministry of Trade and Industry called on the industrial sector to resort to
the so-called Voluntary Loan Curtailment Plan (or VLCP), whereby brownouts or electrical power
interruption was scheduled by area. The program while it may have been called 1. voluntary"
was not so as electrical power consumers had no choice then due to the prevailing energy crisis.

Petitioners heeding the government's call, participated in the VLCP as indicated in their
statement of conformity dated November 23, 1982. Thus, beginning March 21, 1983 and every
Wednesday thereafter, petitioner's business (which indicentally is recapping rubber tires) was
not in actual operation. No less than the former Minister of Trade and Industry expressed his
gratitude to petitioners for participating in the VLCP. Petitioners substantiated claim therefore,
that the days during which they were not in operation due to the VLCP should be excluded in the
number of days worked for purposes of computing private respondents backwages stands
reasonable and should have been considered by the corporation auditing examiner.1avvphi1

Moreover, as early as May 1978, the Ministry of Labor and Employment, thru Policy Instruction
No. 36, has said that

2. Brownouts running for more than twenty minutes may not be treated as hours worked
provided that any of the following conditions are present;

a) The employees can leave their work place or go elsewhere whether within or without the
work premises; or

b) The employees can use the time effectively for their own interest.

It is of record that during electrical power interruptions, petitioners business was not in
operation. This was never disputed by private respondent.

Petitioners' claim that the period (December 1983) during which they effected retrenchment of
workers owing to economic crisis then prevailing likewise appears plausible. There is substantial
evidence consisting of reports to MOLE and Social Security System showing that petitioners had
laid off workers due to lack of raw materials. The petitioners payrolls submitted to support their
objection to computation indicate that the number of working days was reduced from the
normal weekly six working days to four working days for a great number of petitioners' workers.
Obviously, private respondent could not have been among those laid off, as at that time he was
already dismissed by petitioner. (Rollo, pp. 31-34).

Thus, we have held that where the failure of workers to work was not due to the employer's
fault, the burden of economic loss suffered by the employees should not be shifted to the
employer. Each party must bear his own loss (SSS v. SSS Supervisors' Union-CUGCO, supra; Pan-
American World Airways, Inc. v. CIR, 17 SCRA 813). As pointed out by the Solicitor General

... to allow payment of backwages of P24,316.68 as ordered by public respondents instead of


P3,834.16 as petitioners claim and which appears to be just and reasonable under the
circumstances of this case would not only be unconscionable but would be grossly unfair to
other employees who were not paid when petitioners' business was not in operation. (Rollo, p.
35).

Indeed, it would neither be fair nor just to allow respondent to recover something he has not
earned and could not have earned and to further penalize the petitioner company over and
above the losses it had suffered due to lack of raw materials and the energy-saving programs of
the government. The private respondent cannot be allowed to enrich himself at the expense of
the petitioner company. The computation of backwages should be based on daily rather than on
monthly pay schedules where, as in the case at bar, such basis is more realistic and accurate.
(Compania Maritima v. United Seamen's Union of the Philippines, 65 SCRA 393).

In conclusion, we again quote the Solicitor General's comment:

Finally, what strengthens petitioners claim for mitigated liability is their evident good faith as
manifested by their reinstatement of private respondent while the case for illegal dismissal was
still pending and their willingness to pay backwages. While it is true that as a general rule order
of reinstatement carries with it an award of backwages (Art. 280, Labor Code) this Honorable
Court did not only mitigate but absolved employers from liability of backwages where good faith
is evident (Findlay Millar Timber Co. v. PLASLU, 6 SCRA 26: Cromwell Com. Employees & Laborers
Union v. CIR, 13 SCRA 259, Norton and Harrison Labor Union v. Harrison Co. Inc. 15 SCRA 310;
PAL v. PALEA, 57 SCRA 489; Cruz v. MOLE, 120 SCRA 15). There is no indication, to paraphrase this
Honorable Court's ruling in Pantranco North Express Inc. v. NLRC (126 SCRA 526) that private
respondent was a "victim of arbitrary and high handed action. Rollo, pp. 34-35).

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED. The order of the Labor
Arbiter, Amelia M. Guloy in NLRC Case No. NCR-7-3162083, dated October 23, 1985, as affirmed
by the NLRC is SET ASIDE. The petitioner is ordered to pay private respondent his backwages
from the time he was terminated up to the time he was actually reinstated computed on the
basis of the number of days when petitioner's business was in actual operation. The number of
days where no work was required and could be done by petitioner's employees on account of
shutdowns due to electrical power interruptions, machine repair, and lack of raw materials are
not considered hours worked for purposes of computing the petitioner's obligation to
respondent employee. In no case shall the award exceed three year's backpay as above
computed.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

G.R. No. L-31832 October 23, 1982


SOCIAL SECURITY SYSTEM, petitioner,

vs.

SSS SUPERVISORS' UNION-CUGCO and COURT OF INDUSTRIAL RELATIONS, respondents.

Benjamin C. Pineda for respondent Union.

Filemon Q. Almazan for petitioners.

MELENCIO-HERRERA, J.:

This Petition seeks to review on certiorari the Orders of respondent Court of Industrial Relations
(CIR) on the issue of whether or not petitioner Social Security System (SSS) may be held liable for
the payment of wages of members of respondent Union who admittedly did not work during the
17-day strike declared in 1968 by the rank and file Union (the Philippine Association of Free
Labor Unions [PAFLU]).

For a brief factual background, it should be stated that the instant case is an offshoot of Case No.
46-IPA (49) certified to the CIR by the President of the Philippines for compulsory arbitration of
labor dispute between the SSS and the PAFLU concerning the interpretation of certain provisions
of their Collective Bargaining Agreement. The PAFLU had staged a strike in defiance of the CIR
Order of August 29, 1968 "enjoining the parties, for the sake of industrial peace . . . to maintain
the status quo-the Union not to declare any strike and the Management not to dismiss nor
suspend any of its employees nor to declare any lockout." On 3 September 1968, in that same
case, the SSS filed an Urgent Petition to declare the strike illegal.

On 26 September 1968, respondent Union (the SSS Supervisors' Union) filed a Motion for
Intervention in the said case averring, inter alia, that it had not participated in the strike: that its
members wanted to report for work but were prevented by the picketers from entering the work
premises; that under the circumstances, they were entitled to their salaries corresponding to the
duration of the strike, which could be deducted from the accrued leave credits of their
members.
The SSS had no objection to the intervention sought but opposed the demand for the payment
of salaries pertaining to the entire period of the strike.

In its Order of 12 March 1969, intervention was allowed by respondent Court, and pending
resolution of the claim for salaries, the SSS was directed to pay the same, chargeable in the
meantime to the accrued leave credits of the members 1 pending the determination of the
question of the illegality of the strike. Reconsideration of that Order sought by the SSS was
denied on 6 November 1969.

On 24 November 1969, respondent Court issued an Order 2 directing the CIR Examining Division
to compute immediately the money equivalent of the salaries of the members of respondent
Union as well as the salaries of those employees who were not members of the striking Union
(PAFLU) and to deposit the amount computed, for further disposition.

The SSS challenged on certiorari the said Orders before this Court (G.R. No. L-31234), particularly
the order to deposit, grounded on the overlapping membership in the two Unions and the
impossibility of compliance. We denied the Petition on 2 December 1969 and the proceedings
below were resumed.

Upon a joint Motion for clarification of its Order of 24 November 1969, respondent Court,
through Judge Joaquin M. Salvador, issued the Order of 3 March 1970, ordering the payment of
salaries of the members of respondent Union during the strike period, but not to be chargeable
to accrued leave credits. The reasons given were that this Court had already declared the strike
premature, and that the members of respondent Union had not participated in the strike and
had actually manifested their desire to work but could not cross the heavy picket lines during the
height of the strike.

The SSS moved to reconsider the Order of 3 March 1970 arguing that since respondent Union
members actually rendered no service at all during the strike, they were not entitled to the
payment of salaries. Respondent Court, en banc, denied reconsideration on 25 March 1970 for
lack of sufficient justification.

Contending that the Industrial Court had no authority to issue the Order dated 3 March 1970
and its Resolution en banc dated 25 March 1970, petitioner asks this Tribunal to have them
annulled.
We find for the petitioner based on the equitable tenet of a "fair day's wage for a fair day's
labor."

The age-old rule governing the relation between labor and capital or management and
employee is that of a 'fair day's wage for a fair day's labor.' If there is no work performed by the
employee there can be no wage or pay, unless of course the laborer was able, willing and ready
to work but was illegally locked out, dismissed or suspended. It is hardly fair or just for an
employee or laborer to fight or litigate against his employer on the employer's time.<re||
an1w> 3

In this case, the failure to work on the part of the members of respondent Union was due to
circumstances not attributable to themselves. But neither should the burden of the economic
loss suffered by them be shifted to their employer, the SSS, which was equally faultless,
considering that the situation was not a direct consequence of the employer's lockout or unfair
labor practice. Under the circumstances, it is but fair that each party must bear his own loss.

Considering, therefore, that the parties had no hand or participation in the situation they were
in, and that the stoppage of the work was not the direct consequence of the company's lockout
or unfair labor practice, 'the economic loss should not be shifted to the employer.' Justice and
equity demand that each must have to bear its own loss, thus placing the parties in equal footing
where none should profit from the other there being no fault of either. 4

WHEREFORE, we hereby set aside respondent Court's Order dated 3 March 1970 as affirmed by
its Resolution en banc dated 25 March 1970, without pronouncement as to costs.

SO ORDERED.

Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.

Teehankee (Chairman), J., is on leave.

SYLLABI/SYNOPSIS

SECOND DIVISION
[G.R. No. 122827. March 29, 1999]

LIDUVINO M. MILLARES, J. CAPISTRANO CORDITA, SHIRLEY P. UY, DIONISIO J. REQUINA, GABRIEL


A. DEJERO, NELSON T. GOMONIT, IMELDA IMPEYNADO SULPICIO B. SUMILE, MA. CONSUELO
AVIEL, SILVINO S. GUEVARRA, FIDEL DUMANHOG, NELFA T. POLOTAN, LEMUEL C. RISMA,
JUANITO M. GONZALES, ROGELIO B. CABATUAN, EPIFANCIO E. GANANCIAL, DOMINADOR D.
ATOK, CONRADO U. SERRANO, ISIDRO J. BARNAJA, ROMEO VIRTUDAZO, AVELINO NABLE, EDGAR
TAMPOS, ERNESTO ORIAS, DALMACIO LEGARAY, ROMEO R . BULA, ROBERTO G. GARCIA,
RUDOLFO SUZON, JERRY S. DANO, AUGUST G. ESCUDERO, OSCAR B. CATBAGAN, TEOFILO C.
SISON, NARCISO BULASA, ALBERTO CORTEZ, LILIA C. CABRERA, NESTOR A. ACASO, BIENVENIDO
MOZO, ISIDORO A. ALMENDAREZ, VICENTE M. PILONGO, ROBERTO N. LUMPOT, PATRICIO
BANDOLA, MANUEL S. ESPINA, ISIDRO K. BALCITA, JR., EMMANUEL O. ABRAHAM, OLEGARIO A.
EPIS, NESTOR D. PEREGRINO, RAMON A. USANAGA, PRESTO BARTOLOME, BRADY EMPEYNADO,
PORFERIO N. CONDADO, AQUILLO V. CORDOVA, LEONARDO ESTOSI, PACIFICO B. DACORINA,
PABLITO B. LLUBIT, ANTONIO DOZA, LEONITO LABADIA, EDGARDO BELLIZA, FEDENCIO P.
GEBERTAS, VIRGILIO D. GULBE, MANUEL A. LERIO, JR., ROGELIO B. OCAMIA, RODOLFO A.
CASTILLO, EDMUNDO L PLAZA, ROBERTO D. YAGONIA, JR., PETRONIO ESTELA, JR, CRISOLOGO A.
LOGRONIO, ERNESTO T. MORIO, ROGELIO M. DAVID, BENJAMIN U. ARLIGUE, APOLONIO
MUNDO, JR., NENE M. E NOSA, NILO B. BALAORO, GERONIMO S. CONVI, VICENTE R. TARAGOZA,
YOLANDO A. SALAZAR, MANUEL A. NERI, ROGELIO C. TICAR, ROBERTO A. MACALAM, MIGUEL
MACARIOLA, WALTERIO DAPADAP, SILVERIO CUAMAG, EUPARQUIO PLANOS, GILBERTO M. MIRA,
REYNALDO BACSARSA, DIOSDADO B. ABING, ARISTARCO V. SALON, TOMAS N. CATACTE,
RODOLFO MEMORIA, PAPENIANO CURIAS, JOSE S. CANDIA, DESIDERIO C. NAVARRO,
EMMANUEL O. ABRAHAM, JOSELITO D. ARLAN, FRANCISCO S. SANCHEZ, MANSUETO B. LINGGO,
ISIDRO BARNAJA, ROMEO S. CABRERA, LEODEGARIO CAINTIC, NESTOR G. BLANDO, FLORENCIO
B. DELIZO, MILAN M. ETES, GONZALO C. PADILLO, LEONARDO CAGAKIT, JOSEFINO E. DULGUIME,
PEPITO G. ARREZA, AMADOR G. CAGALAWAN, GAUDENCIO C. SARMIENTO, FLORENTINO J.
BRACAMONTE, DOMINADOR H. TY, LEOPOLDO T. SUPIL, JOSE A. DOHINOG, ANIANO T. REYES,
CARLITO G. UY, PLACIDO D. PADILLO, TERESITA C. ADRIANO, CANDIDO S. ADRIANO, and AVELINO
G. VENERACION, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, (FIFTH DIVISION),
and PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), respondents.

DECISION

BELLOSILLO, J.:

Petitioners numbering one hundred sixteen (116)[1] occupied the positions of Technical Staff,
Unit Manager, Section Manager, Department Manager, Division Manager and Vice President in
the mill site of respondent Paper Industries Corporation of the Philippines (PICOP) in Bislig,
Surigao del Sur. In 1992 PICOP suffered a major financial setback allegedly brought about by the
joint impact of restrictive government regulations on logging and the economic crisis. To avert
further losses, it undertook a retrenchment program and terminated the services of petitioners.
Accordingly, petitioners received separation pay computed at the rate of one (1) month basic pay
for every year of service. Believing however that the allowances they allegedly regularly received
on a monthly basis during their employment should have been included in the computation
thereof they lodged a complaint for separation pay differentials.

The allowances in question pertained to the following -

1. Staff/Manager's Allowance -

Respondent PICOP provides free housing facilities to supervisory and managerial employees
assigned in Bislig. The privilege includes free water and electric consumption. Owing however to
shortage of such facilities, it was constrained to grant Staff allowance instead to those who live in
rented houses outside but near the vicinity of the mill site. But the allowance ceases whenever a
vacancy occurs in the company's housing facilities. The former grantee is then directed to fill the
vacancy. For Unit, Section and Department Managers, respondent PICOP gives an additional
amount to meet the same kind of expenses called Manager's allowance.

2. Transportation Allowance -

To relieve respondent PICOP's motor pool in Bislig from a barrage of requests for company
vehicles and to stabilize company vehicle requirements it grants transportation allowance to key
officers and Managers assigned in the mill site who use their own vehicles in the performance of
their duties. It is a conditional grant such that when the conditions no longer obtain, the
privilege is discontinued. The recipients of this kind of allowance are required to liquidate it by
submitting a report with a detailed enumeration of expenses incurred.

3. Bislig Allowance -

The Bislig Allowance is given to Division Managers and corporate officers assigned in Bislig on
account of the hostile environment prevailing therein. But once the recipient is transferred
elsewhere outside Bislig, the allowance ceases.

Applying Art.,97, par. (f), of the Labor Code which defines if wage," the Executive Labor Arbiter
opined that the subject allowances, being customarily furnished by respondent PICOP and
regularly received by petitioners, formed part of the latter's wages. Resolving the controversy
from another angle, on the strength of the ruling in Santos v. NLRC[2] and Soriano v. NLRC[3]
that in the computation of separation pay account should be taken not just of the basic salary
but also of the regular allowances that the employee had been receiving, he concluded that the
allowances should be included in petitioners' base pay. Thus respondent PICOP was ordered on
28 April 1994 to pay petitioners Four Million Four Hundred Eighty-One Thousand Pesos
(P4,481,000.00) representing separation pay differentials plus ten per cent (10%) thereof as
attorney's fees.[4]

The National Labor Relations Commission (NLRC) did not share the view of the Executive Labor
Arbiter. On 7 October 1994 it set aside the assailed decision by decreeing that the allowances did
not form part of the salary base used in computing separation pay.[5]

Its ruling was based on the finding that the cases relied upon by the Executive Labor Arbiter
were inapplicable since they involved illegal dismissal where separation pay was granted in lieu
of reinstatement which was no longer feasible. Instead, what it considered in point was Estate of
the late Eugene J. Kneebone v. NLRC[6] where the Court held that representation and
transportation allowances were deemed not part of salary and should therefore be excluded in
the computation of separation benefits. Relating the present case with Art. 97, par. (f), of the
Labor Code, the NLRC likewise found that petitioners' allowances were contingency-based and
thus not included in their salaries. On 26 September 1995 reconsideration was denied.[7]

In this petition for certiorari, petitioners submit that their allowances are included in the
definition of "facilities" in Art. 97, par. (f), of the Labor Code, being necessary and indispensable
for their existence and subsistence. Furthermore they claim that their availment of the monetary
equivalent of those "facilities" on a monthly basis was characterized by permanency, regularity
and customariness. And to fortify their arguments they insist on the applicability of Santos,[8]
Soriano,[9] The Insular Life Assurance Company,[10] Planters Products, Inc.[11] and Songco[12]
which are all against the NLRC holding that the salary base in computing separation pay includes
not just the basic salary but also the regular allowances.

There is no showing of grave abuse of discretion on the part of the NLRC. In case of
retrenchment to prevent losses, Art. 283 of the the Labor Code imposes on the employer an
obligation to grant to the affected employees separation pay equivalent to one (1) month pay or
at least one-half (1/2) month pay for every year of service, whichever is higher. Since the law
speaks of "pay," the question arises, "What exactly does the term connote?" We correlate Art.
283 with Art. 97 of the same Code on definition of terms. "Pay" is not defined therein but
"wage." In Songco the Court explained that both words (as well as salary) generally refer to one
and the same meaning, i.e., a reward or recompense for services performed. Specifically, "wage"
is defined in letter (f) as the remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission
basis, or other method of calculating the same, which is payable by an employer to an employee
under a written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered and includes the fair and reasonable value, as determined
by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the
employer to the employee.
We invite attention to the above-underlined clause. Stated differently, when an employer
customarily furnishes his employee board, lodging or other facilities, the fair and reasonable
value thereof, as determined by the Secretary of Labor and Employment, is included in "wage."
In order to ascertain whether the subject allowances form part of petitioner's "wages," we
divide the discussion on the following - "customarily furnished;" "board, lodging or other
facilities;" and, "fair and reasonable value as determined by the Secretary of Labor."

"Customary" is founded on long-established and constant practice[13] connoting regularity.[14]


The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and
forming part of salary[15] because the nature of the grant is a factor worth considering. We
agree with the observation of the Office of the Solicitor General- that the subject allowances
were temporarily, not regularly, received by petitioners because -

In the case of the housing allowance, once a vacancy occurs in the company-provided housing
accommodations, the employee concerned transfers to the company premises and his housing
allowance is discontinued x x x x

On the other hand, the transportation allowance is in the form of advances for actual
transportation expenses subject to liquidation x x x given only to employees who have personal
cars.

The Bislig allowance is given to Division Managers and corporate officers assigned in Bislig,
Surigao del Norte. Once the officer is transferred outside Bislig, the allowance stops.[16]

We add that in the availment of the transportation allowance, respondent PICOP set another
requirement that the personal cars be used by the employees in the performance of their duties.
When the conditions for availment ceased to exist, the allowance reached the cutoff point. The
finding of the NLRC along the same line likewise merits concurrence, i.e., petitioners' continuous
enjoyment of the disputed allowances was based on contingencies the occurrence of which
wrote finis to such enjoyment.

Although it is quite easy to comprehend "board" and "lodging," it is not so with "facilities." Thus
Sec. 5, Rule VII, Book III, of the Rules Implementing the Labor Code gives meaning to the term as
including articles or services for the benefit of the employee or his family but excluding tools of
the trade or articles or service primarily for the benefit of the employer or necessary to the
conduct of the employer's business. The Staff /Manager's allowance may fall under "lodging" but
the transportation and Bislig allowances are not embraced in "facilities" on the main
consideration that they are granted as well as the Staff/Manager's allowance for respondent
PICOP's benefit and convenience, i.e., to insure that petitioners render quality performance. In
determining whether a privilege is a facility, the criterion is not so much its kind but its purpose.
[17] That the assailed allowances were for the benefit and convenience of respondent company
was supported by the circumstance that they were not subjected to withholding tax. Revenue
Audit Memo Order No. 1-87 pertinently provides -

3.2 x x x x transportation, representation or entertainment expenses shall not constitute taxable


compensation if:

(a) It is for necessary travelling and representation or entertainment expenses paid or incurred
by the employee in the pursuit of the trade or business of the employer, and

(b) The employee is required to, and does, make an accounting/liquidation for such expense in
accordance with the specific requirements of substantiation for such category or expense.

Board and lodging allowances furnished to an employee not in excess of the latter's needs and
given free of charge, constitute income to the latter except if such allowances or benefits are
furnished to the employee for the convenience of the employer and as necessary incident to
proper performance of his duties in which case such benefits or allowances do not constitute
taxable income.[18]

The Secretary of Labor and Employment under Sec. 6, Rule VII, Book III, of the Rules
Implementing the Labor Code may from time to time fix in appropriate issuances the "fair and
reasonable value of board, lodging and other facilities customarily furnished by an employer to
his employees." Petitioners' allowances do not represent such fair and reasonable value as
determined by the proper authority simply because the Staff/Manager's allowance and
transportation allowance were amounts given by respondent company in lieu of actual
provisions for housing and transportation needs whereas the Bislig allowance was given in
consideration of being assigned to the hostile environment then prevailing in Bislig.

The inevitable conclusion is that, as reached by the NLRC, subject allowances did not form part
of petitioners' wages.

In Santos[19] the Court decreed that in the computation of separation pay awarded in lieu of
reinstatement, account must be taken not only of the basic salary but also of transportation and
emergency living allowances. Later, the Court in Soriano, citing Santos, was general in its holding
that the salary base properly used in computing separation pay where reinstatement was no
longer feasible should include not just the basic salary but also the regular allowances that the
employee had been receiving. Insular merely reiterated the aforementioned rulings. The
rationale is not difficult to discern. It is the obligation of the employer to pay an illegally
dismissed employee the whole amount of his salaries plus all other benefits, bonuses and
general increases to which he would have been normally entitled had he not been dismissed and
had not stopped working.[20] The same holds true in case of retrenched employees. And thus
we applied Insular and Soriano in Planters in the computation of separation pay of retrenched
employees. Songco likewise involved retrenchment and was relied upon in Planters, Soriano and
Santos in determining the proper amount of separation pay. As culled from the foregoing
jurisprudence, separation pay when awarded to an illegally dismissed employee in lieu of
reinstatement or to a retrenched employee should be computed based not only on the basic
salary but also on the regular allowances that the employee had been receiving. But in view of
the previous discussion that the disputed allowances were not regularly received by petitioners
herein, there was no reason at all for petitioners to resort to the above cases.

Neither is Kneebone applicable, contrary to the finding of the NLRC, because of the difference in
factual circumstances. In Kneebone, the Court was tasked to resolve the issue whether the
representation and transportation allowances formed part of salary as to be considered in the
computation of retirement benefits. The ruling was in the negative on the main ground that the
retirement plan of the company expressly excluded such allowances from salary.

WHEREFORE, the petition is DISMISSED. The resolution of public respondent National Labor
Relations Commission dated 7 October 1994 holding that the Staff /Manager's, transportation
and Bislig allowances did not form part of the salary base used in computing the separation pay
of petitioners, as well as its resolution dated 26 September 1995 denying reconsideration, is
AFFIRMED. No costs.

SO ORDERED.

Puno, Mendoza, Quisumbing, and Buena, JJ., concur.

[1] Liduvino M. Millares, J. Capistrano Cordita, Shirley P. Uy, Dionisio J. Requina, Gabriel A.
Dejero, Nelson T. Gomonit, Imelda Impeynado, Sulpicio B. Sumile, Ma. Consuelo Aviel, Silvino S.
Guevarra, Fidel Dumanhog, Nelfa T. Polotan, Lemuel C. Risma, Juanito M. Gonzales, Rogelio B.
Cabatuan, Epifancio E. Ganancial, Dominador D. Atok, Conrado U. Serrano, Isidro J. Barnaja,
Romeo Virtudazo, Avelino Nable, Edgar Tampos, Ernesto Orias, Dalmacio Legaray, Romeo R. Bula,
Roberto G. Garcia, Rudolfo Suzon, Jerry S. Dano, August G. Escudero, Oscar B. Catbagan, Teofilo
C. Sison, Narciso Bulasa, Alberto Cortez, Lilia C. Cabrera, Nestor A. Acaso, Bienvenido Mozo,
Isidoro A. Almendarez, Vicente M. Pilongo, Roberto N. Lumpot, Patricio Bandola, Manuel S.
Espina, Isidro K. Balcita, Jr., Emmanuel O. Abraham, Olegario A. Epis, Nestor D. Peregrino, Ramon
A. Usanaga, Presto Bartolome, Brady Empeynado, Porferio N. Condado, Aquillo V. Cordova,
Leonardo Estosi, Pacifico B. Dacorina, Pablito B. Llubit, Antonio Doza, Leonito Labadia, Edgardo
Belliza, Fedencio P. Gebertas, Virgilio D. Gulbe, Manuel A. Lerio, Jr., Rogelio B. Ocamia, Rodolfo A.
Castillo, Edmundo L. Plaza, Roberto D. Yagonia, Jr., Petronio Estela, Jr., Crisologo A. Logronio,
Ernesto T. Morio, Rogelio M. David, Benjamin U. Arligue, Apolonio Mundo, Jr., Nene M. Espinosa,
Nilo B. Balaoro, Geronimo S. Convi, Vicente R. Taragoza, Yolando A. Salazar, Manuel A. Neri,
Rogelio C. Ticar, Roberto A. Macalam, Miguel Macariola, Walterio Dapadap, Silverio Cuamag,
Euparquio Planos, Gilberto M. Mira, Reynaldo Bacsarsa, Diosdado B. Abing, Aristarco V. Salon,
Tomas N. Catacte, Rodolfo Memoria, Papeniano Curias, Jose S. Candia, Desiderio C. Navarro,
Emmanuel O. Abraham, Joselito D. Arlan, Francisco S. Sanchez, Mansueto B. Linggo, Isidro
Barnaja, Romeo S. Cabrera, Leodegario Caintic, Nestor G. Blando, Florencio B. Delizo, Milan M.
Etes, Gonzalo C. Padillo, Leonardo Cagakit, Josefino E. Dulguime, Pepito G. Arreza, Amador G.
Cagalawan, Gaudencio C. Sarmiento, Florentino J. Bracamonte, Dominador H. Ty, Leopoldo T.
Supil, Jose A. Dohinog, Aniano T. Reyes, Carlito G. Uy, Placido D. Padillo, Teresita C. Adriano,
Candido S. Adriano, and Avelino G. Veneracion.

[2] G.R. No. 76721, 21 September 1987, 154 SCRA 166.

[3] G.R. No. 75510, 27 October 1987, 155 SCRA 124.

[4] Decision penned by Executive Labor Arbiter Conchita J. Martinez; Rollo, p. 68.

[5] Resolution penned by Commissioner Leon G. Gonzaga Jr. with the concurrence of Acting
Presiding Commissioner Oscar N. Abella; Rollo, p. 48.

[6] G.R. No. 77109, 8 November 1988, 167 SCRA 99.

[7] Rollo, p. 50.

[8] See Note 2.

[9] See Note 3.


[10] G.R. No. 74191, 21 December 1987, 156 SCRA 740.

[11] G.R. No. 78524, 20 January 1989, 169 SCRA 328.

[12] G.R. No. 50999-51000, 23 March 1990, 183 SCRA 610.

[13] Websters Third New International Dictionary, 1993 Ed., p. 559.

[14] Blacks Law Dictionary, Sixth Ed., p. 385.

[15] See Note 5.

[16] Rollo, p. 234.

[17] States Marine Corporation v. Cebu Seamens Association, Inc., No. L-12444, 28 February
1963, 7 SCRA 294.

[18] Rollo, pp. 239-240.

[19] Citing Pan-Philippine Life Insurance Corporation v. NLRC, G.R. No. 53721, 29 June 1982, 114
SCRA 866 where transportation allowance was included in the computation of back wages and
General Bank and Trust Company v. Court of Appeals, G.R. No. 42724, 9 April 1985, 135 SCRA
569 where housing allowance was included in the computation of separation pay that was
granted in lieu of reinstatement.

[20] East Asiatic Co., Ltd. v. Court of Industrial Relations, No. L-29068, 31 August 1971, 40 SCRA
521.
Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

C. PLANAS COMMERCIAL

G.R. No. 144619

and/or MARCIAL COHU,

Petitioners,

Present:

- versus -

*PUNO, Chairman,

AUSTRIA-MARTINEZ,
CALLEJO, SR.,

NATIONAL LABOR RELATIONS

TINGA, and

COMMISSION (Second Division),

**CHICO-NAZARIO, JJ.

ALFREDO OFIALDA,

DIOLETO MORENTE

Promulgated:

and RUDY ALLAUIGAN,

Respondents.

November 11, 2005

x------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari filed by C. Planas Commercial and/or Marcial
Cohu, (petitioners) assailing the Decision of the Court of Appeals (CA) dated January 19, 2000[1]
which affirmed in toto the decision of the National Labor Relations Commission (NLRC) and the
Resolution dated August 15, 2000[2] denying petitioners motion for reconsideration.

On September 14, 1993, Dioleto Morente, Rudy Allauigan and Alfredo Ofialda (private
respondents) together with 5 others[3] filed a complaint for underpayment of wages,
nonpayment of overtime pay, holiday pay, service incentive leave pay and premium pay for
holiday and rest day and night shift differential against petitioners with the Arbitration Branch of
the NLRC. The case was docketed as NLRC Case No. 00-09-05804-93.[4]

In their position paper, private respondents alleged that petitioner Cohu, owner of C. Planas
Commercial, is engaged in wholesale of plastic products and fruits of different kinds with more
than 24 employees; that private respondents were hired by petitioners on January 14, 1990,
May 14, 1990 and July 1, 1991, respectively, as helpers/laborers; that they were paid below the
minimum wage law for the past 3 years; that they were required to work for more than 8 hours a
day without overtime pay; that they never enjoyed holiday pay and did not have a rest day as
they worked for 7 days a week; and they were not paid service incentive leave pay although they
had been working for more than one year. Private respondent Ofialda asked for night shift
differential as he had worked from 8 p.m. to 8 a.m. the following day for more than one year.

Petitioners filed their comment admitting that private respondents were their helpers who used
to accompany the delivery trucks and helped in the loading and unloading of merchandise being
distributed to clients; that they usually started their work from 10 a.m. to 6 p.m.; that private
respondents stopped working with petitioners sometime in September 1993 as they were
already working in other establishments/stalls in Divisoria; that they only worked for 6 days a
week; that they were not entitled to holiday and service incentive leave pays for they were
employed in a retail and service establishment regularly employing less than ten workers.

On December 6, 1994, a decision[5] was rendered by the Labor Arbiter dismissing private
respondents money claims for lack of factual and legal basis. He made the following findings:

The basic issue raised before us is whether or not complainants are entitled to the money
claims.

The rule in this jurisdiction is that employers who are regularly employing not more than ten
workers in retail establishments are exempt from the coverage of the minimum wage law.

In connection therewith and in consonance with Sec. 1, Rule 131 of the Rules of Court, it is
incumbent upon the party to support affirmative allegation that an employer regularly employs
more than ten (10) workers.
In the case at bar, complainants failed to substantiate their claim that the respondent
establishment regularly employs twenty (sic) (24) workers.

Accordingly, we have no factual basis to grant salary differentials to complainants. In the same
context, under Sec. 1 (b), Rule IV and Sec. 1(g), Rule V of the Implementing Rules of the Labor
Code, complainants are not entitled to legal holiday pay and service incentive leave pay.

We also do not have sufficient factual basis to award overtime pay and premium pay for holiday
and rest day because complainants failed to substantiate that they rendered overtime and
during rest days.[6]

Private respondents filed their appeal with the NLRC which was opposed by petitioners.
However, pending the appeal, private respondents Morente[7] and Allauigan[8] filed their
respective motions to dismiss with release and quitclaim before the NLRC.

On September 30, 1997, the NLRC rendered its decision,[9] the dispostive portion of which
reads:

WHEREFORE, in view of all the foregoing considerations, the decision appealed from should be,
as it is hereby, MODIFIED by directing the respondent to pay Alfredo Ofialda, Diolito Morente
and Rudy Allauigan the total amount of Seventy-Five Thousand One Hundred Twenty Five Pesos
(P75,125.00) representing their combined salary differentials, holiday pay, and service incentive
leave pay.

The NLRC made the following ratiocinations:

On claims for underpayment/non-payment of legally mandated wages and fringe benefits where
exemption from coverage of the minimum wage law is put up as a defense, he who invokes such
an exemption (usually the employer) has the burden of showing the basis for the exemption like
for instance the fact of employing regularly less than ten workers.

In the instant case, complainants alleged that despite employing more than twenty-four (24)
workers in his establishment, hence covered by the minimum wage law, nevertheless the
individual respondent did not pay his workers the legal rates and benefits due them since their
employment. By way of answer, respondents countered that they employ less than ten (10)
persons, hence the money claims of complainants lack factual and legal basis.

Stated differently, against complainants charge of underpayment in wages and non-payment of


fringe benefits legally granted to them, the respondents raised the defense of exemption from
coverage of the minimum wage law and in support thereof alleged that they regularly employed
less than ten (10) workers to serve as basis for their exemption under the law, they
(respondents) must prove that they employed less than ten workers, instead of more than
twenty-four (24) workers as alleged by the complainants.

However, apart from their allegation, respondents presented no evidence to show the number
of workers they employed regularly. This failure is fatal to respondents defense. This in turn
brings us to the question of whether the complainants were underpaid and unpaid of legal
holiday pay and service incentive leave pay due them.

Stated earlier are the different amounts that each complainant was receiving by way of salary on
certain periods of their employment with respondents, which amounts according to
complainants are way below the minimum wage then prevailing. Considering that respondents
failed to present the payrolls or vouchers which could prove otherwise, the money claims
deserve favorable consideration.

Taking note of the 3 year prescription, the period covered is from September 14, 1990 to
September 14, 1993 when the instant case was filed, and based on a 6-day work per week, the
underpayment (salary differential), legal holiday pay, and service incentive leave pay due to
complainants, as computed, are as follows:

Salary Diff.

Holiday Pay

SILP

1. A. OFIALDA

P14,934.00
P2,362.00

P1,180.00

2. D. MORENTE

23,964.00

3,258.00

1,730.00

3. R. ALLAUIGAN

22,609.00

3,258.00

1,730.00

With respect to the other claims, i.e., overtime pay and premium pay for holiday and rest day,
We find no reason to disturb the Labor Arbiters ruling thereon, that there is no sufficient factual
basis to award the claims because complainants failed to substantiate that they rendered
overtime and during rest days. These claims, unlike claims for underpayment and non-payment
of fringe benefits mandated by law, need to be proven by the claimants.[10]

Petitioners filed a petition for certiorari[11] with prayer for temporary restraining order and
preliminary injunction before this Court on November 26, 1997. Respondents were required to
file their Comment but only public respondent NLRC, through the Solicitor General, complied
therewith. In a Resolution dated June 28, 1999,[12] the petition was referred to the CA pursuant
to our ruling in St. Martin Funeral Homes vs. NLRC.

On January 19, 2000,[13] the CA denied the petition for lack of merit and affirmed in toto the
NLRC decision. It said:

Having claimed exemption from the coverage of the minimum wage laws or order, it was
incumbent upon petitioner to prove such claim. Apart from simply denying private respondents
allegation that it employs more than 24 workers in its business, petitioner failed to adduce
evidence to prove that it is, indeed, a retail establishment which employs less than ten (10)
employees. Its failure to present records of its workers and their respective wages gives rise to
the presumption that these are adverse to its claims. Indeed, it is hard to believe that petitioner
does not keep such records. More so, considering private respondents claim that petitioner
employs more than twenty four (24) employees and engaged in both wholesale and retail
business of fruits by volume on CONTAINER BASIS, not by price of fruit, but by container size
retail, involving millions of pesos capital, fruits coming from China, Australia and the United
States (p. 170, Rollo).
Needless to say, the inclusion of respondents Morente and Allauigan in the NLRC award is in
order. In its decision, public respondent awarded P75,125.00, representing the combined salary
differentials, holiday pay and service incentive leave pay of all three (3) private respondents. Of
this, P28,952.00 is earmarked for respondent Morente, and P27,597.00 for respondent
Allauigan, both of whom executed quitclaims after receiving P3,000.00 and P6,000.00
respectively, from petitioner.

On this score, the Court quotes with approval the arguments advanced by the Solicitor General
thus:

While a compromise agreement or amicable settlement is not against public policy per se it must
be shown however that it was voluntarily entered into and represents a reasonable settlement,
and the consideration for the quitclaim is credible and reasonable (Santiago v. NLRC, 198 SCRA
111 [1991]). For the law usually looks with disfavor upon quitclaims and releases executed by
employees usually resulting from a compromise with their employers. (Velasco v. DOLE, 200
SCRA 201 [1991]). This is so because the employers and the employees obviously do not stand
on equal footing. Driven against the wall by the employer, the employee is in no position to
resist the money offered. (Lopez Sugar Corp v. FFW-PLU, 189 SCRA 179 [1990]).

Thus, Fuentes v. NLRC, 167 SCRA 767 (1988) enunciates:

In the absence of any showing that the compromise settlement and the quitclaims and releases
entered into and made by the employees were free, fair and reasonable- especially as to the
amount or consideration given by the employer in exchange therefore, the fact that they
executed the same and received their monetary benefits thereunder does not militate against
them. The Law does not consider as valid any agreement to receive less compensation than
what a worker is entitled to receive.

In the case at bar, it will be noticed that the vouchers dated September 13, 1995 and September
20, 1996 (pp. 194 and 197, NLRC Record), submitted by petitioners (pp. 191-192, Record), show
that private respondent Allauigan was only paid P6,000.00 and Morente, P3,000.00 --- when
they are legally entitled to receive P28,952.00 and P27,597.00, respectively. Under the
circumstances, subject compromise settlements cannot be considered valid and binding upon
the NLRC as they do not represent fair and reasonable settlements, nor do they demonstrate
voluntariness on the part of private respondents Morente and Allauigan. These employees
should still be paid the full amounts of their salary differentials, holiday pay and service incentive
leave pay less the amounts they had already received under the compromise settlements with
petitioners (pp. 174-175, Rollo).
Parenthetically, the Court notes that petitioner availed itself of this remedy without first seeking
a reconsideration of the assailed decision. As a general rule, certiorari will not lie unless an
inferior court, has through a motion for reconsideration, a chance to correct the errors imputed
to it. While the rule admits of exceptions, petitioner has not shown any reason for this Court not
to apply said rule, which would have justified outright dismissal of the petition were it not for
the Courts desire to resolve the case not on a technicality but on the merits.[14]

Petitioners motion for reconsideration was denied in a Resolution dated August 15, 2000.[15]

Hence, the instant petition for review on certiorari filed by petitioners.

Petitioners insist that C. Planas Commercial is a retail establishment principally engaged in the
sale of plastic products and fruits to the customers for personal use, thus exempted from the
application of the minimum wage law; that it merely leases and occupies a stall in the Divisoria
Market and the level of its business activity requires and sustains only less than ten employees
at a time. Petitioners contend that private respondents were paid over and above the minimum
wage required for a retail establishment, thus the Labor Arbiter is correct in ruling that private
respondents claim for underpayment has no factual and legal basis. Petitioners claim that since
private respondents alleged that petitioners employed 24 workers, it was incumbent upon them
to prove such allegation which private respondents failed to do.

Petitioners also contend that the CA erred in applying strictly the rules of evidence against them
by holding that it was incumbent upon them to prove that their company is exempted from the
minimum wage law. They contend that they could not present records of their workers and their
respective wages because by the very nature of their business, the system of management is
very loose and informal, thus salaries and wages are paid by merely handing the money to the
worker without the latter being required to sign anything as proof of receipt. Thus, it would be
unreasonable to insist upon petitioner to present documents that they do not possess or keep in
the first place.

We are not persuaded.

R.A. No. 6727 known as the Wage Rationalization Act provides for the statutory minimum wage
rate of all workers and employees in the private sector. Section 4 of the Act provides for
exemption from the coverage, thus:
Sec. 4.

...

(c) Exempted from the provisions of this Act are household or domestic helpers and persons
employed in the personal service of another, including family drivers.

Retail/service establishments regularly employing not more than ten (10) workers may be
exempted from the applicability of this Act upon application with and as determined by the
appropriate Regional Board in accordance with the applicable rules and regulations issued by the
Commission. Whenever an application for exemption has been duly filed with the appropriate
Regional Board, action on any complaint for alleged non-compliance with this Act shall be
deferred pending resolution of the application for exemption by the appropriate Regional Board.

In the event that applications for exemptions are not granted, employees shall receive the
appropriate compensation due them as provided for by this Act plus interest of one percent (1%)
per month retroactive to the effectivity of this Act.

Clearly, for a retail/service establishment to be exempted from the coverage of the minimum
wage law, it must be shown that the establishment is regularly employing not more than ten (10)
workers and had applied for exemptions with and as determined by the appropriate Regional
Board in accordance with the applicable rules and regulations issued by the Commission.
Petitioners main defense in controverting private respondents claim for underpayment of wages
is that they are exempted from the application of the minimum wage law, thus the burden of
proving[16] such exemption rests on petitioners. Petitioners had not shown any evidence to
show that they had applied for such exemption and if they had applied, the same was granted.

In Murillo vs. Sun Valley Realty, Inc.[17] where the respondents claim that petitioners therein are
not entitled to service incentive leave pay inasmuch as establishment employing less than ten
(10) employees are exempted by the Labor Code and the Implementing Rules from paying
service incentive leave pay, we held:

..the clear policy of the Labor Code is to include all establishments, except a few classes, under
the coverage of the provision granting service incentive leave to workers. Private respondents'
claim is that they fell within the exception. Hence, it was incumbent upon them to prove that
they belonged to a class excepted by law from the general rule. Specifically, it was the duty of
respondents, not of petitioners, to prove that there were less than ten (10) employees in the
company. Having failed to discharge its task, private respondents must be deemed to be covered
by the general rule, notwithstanding the failure of petitioners to allege the exact number of
employees of the corporation. In other words, petitioners must be deemed entitled to service
incentive leave.[18]
Moreover, in C. Planas Commercial vs. NLRC,[19] where herein petitioners are also involved in a
case filed by one of its employees, we ruled:

Petitioners invoke the exemption provided by law for retail establishments which employ not
more than ten (10) workers to justify their non-liability for the salary differentials in question.
They insist that PLANAS is a retail establishment leasing a very small and cramped stall in the
Divisoria market which cannot accommodate more than ten (10) workers in the conduct of its
business.

We are unconvinced. The records disclose de los Reyes' clear entitlement to salary differentials.
Well-settled is the rule that factual findings of labor officials who are deemed to have acquired
expertise in matters within their jurisdiction are generally accorded not only respect but even
finality and bind this Court when supported by substantial evidence or that amount of relevant
evidence which a reasonable mind might accept as adequate to justify a conclusion. Thus, as
long as their decisions are devoid of any unfairness or arbitratriness in the process of their
deduction from the evidence proferred by the parties before them, all that is left is our stamp of
finality by affirming the factual findings made by them. In this case, the award of salary
differentials by the NLRC in favor of de los Reyes was made pursuant to RA 6727 otherwise
known as the Wage Rationalization Act, and the Rules Implementing Wage Order Nos. NCR-01
and NCR-01-A and Wage Order Nos. NCR-02 and NCR-02-A.

Petitioners claim exemption under the aforestated law. However, the best proof that they could
have adduced was their approved application for exemption in accordance with applicable
guidelines issued by the Commission. Section 4, subpar. (c) of RA 6727 categorically provides:

Retail/service establishments regularly employing not more than ten (10) workers may be
exempted from the applicability of this Act upon application with and as determined by the
appropriate Regional Board in accordance with the applicable rules and regulations issued by the
Commission. Whenever an application for exemption has been duly filed with the appropriate
Regional Board, action on any complaint for alleged non-compliance with this Act shall be
deferred pending resolution of the application for exemption by the appropriate Regional Board.
In the event that applications for exemptions are not granted, employees shall receive the
appropriate compensation due them as provided for by this Act plus interest of one percent (1%)
per month retroactive to the effectivity of this Act (emphasis supplied).

Extant in the records is the fact that petitioners had persistently raised the matter of their
exemption from any liability for underpayment without substantiating it by showing compliance
with the aforecited provision of law. It bears stressing that the NLRC affirmed the Labor Arbiters
award of salary differentials due to underpayment on the ground that de los Reyes' claim
therefor was not even denied or rebutted by petitioners.
More importantly, NLRC correctly upheld the Labor Arbiter's finding that PLANAS employed
around thirty (30) workers. We have every reason to believe that petitioners need at least thirty
(30) persons to conduct their business considering that Manager Cohu did not submit any
employment record to prove otherwise. As employer, Manager Cohu ought to be the keeper of
the employment records of all his workers. Thus, it was well within his means to refute any
monetary claim alleged to be unpaid. His inability to produce the payrolls from their files
without any satisfactory explanation can be interpreted no less as suppression of vital evidence
adverse to PLANAS.

Petitioners aver that the CA erred in ruling that private respondents Morente and Allauigan are
still entitled to monetary awards despite the latters execution of release and quitclaims because
the settlement was not voluntarily entered into by private respondents. Petitioners insist that
both private respondents Morente and Allauigan voluntarily entered into an amicable settlement
with them on September 17 and 18, 1995, respectively; that they were the ones who initiated
the talks for settlement and who pegged the amount; that they both voluntarily appeared before
the Labor Arbiter to move for the dismissal of their case insofar as their claims are concerned as
well as submitted to the Labor Arbiter their respective quitclaims and releases which were duly
subscribed before the Labor Arbiter and duly notarized.

We find merit in petitioners argument.

It has been held that not all quitclaims are per se invalid or against public policy, except (1)
where there is clear proof that the waiver was wangled from an unsuspecting or gullible person,
or (2) where the terms of settlement are unconscionable on their face. In these cases, the law
will step in to annul the questionable transactions.[20] Such quitclaim and release agreements
are regarded as ineffective to bar the workers from claiming the full measure of their legal rights.
[21]

We find these two instances not present in private respondents Allauigan and Morentes case.
They failed to refute petitioners allegation that the settlement was voluntarily made as they had
not filed any pleadings before the CA. Notably, we have required private respondents to file their
comment on the instant petition, however, they failed to do so. They were then required to
show cause why they should not be disciplinarily dealt with or held in contempt.[22] However,
they still failed to file their comment, thus, they were imposed a fine of P1,000.00[23] which was
subsequently increased to P2,000.00 as there was still no compliance. In a Resolution dated July
22, 2002, the Court ordered the National Bureau of Investigation to arrest and detain private
respondents and the private respondents to file their comment.[24] As private respondents
could not be located at their given address and they are not known in their locality, the order of
arrest and commitment was returned unserved,[25] thus the Court required the Office of the
Solicitor General to file the comment in behalf of all the respondents.[26] The Court finds such
inaction on the part of private respondents Allauigan and Morente an indication that they
already relented in their claims and gives credence to petitioners claim that they had voluntarily
executed the release and quitclaim and the motion to dismiss.

The CA found that the subject compromise agreements are not valid considering that they did
not represent the fair and reasonable settlements, i.e., that private respondent Allauigan was
only paid P6,000.00 and Morente, P3,000.00 --- when they are legally entitled to receive
P28,952.00 and P27,597.00, respectively.

We do not agree. It bears stressing that at the time of the execution of the release and quitclaim,
the case filed by private respondents against petitioners was already dismissed by the Labor
Arbiter and it was pending appeal before the NLRC. Private respondents could have executed the
release and quitclaim because of a possibility that their appeal with the NLRC may not be
successful. Since there was yet no decision rendered by the NLRC when the quitclaims were
executed, it could not be said that the amount of the settlement is unconscionable. In any event,
no deception has been established that would justify the annulment of private respondents
quitclaims.[27] In Mercer vs. NLRC,[28] we held that:

In Samaniego v. NLRC, we ruled that: A quitclaim executed in favor of a company by an employee


amounts to a valid and binding compromise agreement between them."

Recently, we held that in the absence of any showing that petitioner was "coerced or tricked"
into signing the above-quoted Quitclaim and Release or that the consideration thereof was very
low, she is bound by the conditions thereof.

As computed by the NLRC, private respondent Alfredo Ofialda is entitled to the payment of
P14,934.00 as salary differential, P2,362.00 as legal holiday pay and P1,180.00 as service
incentive leave pay, all in the total amount of P18,476.00.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals dated
January 19, 2000 and its Resolution dated August 15, 2000 are AFFIRMED with MODIFICATION
that petitioners are ordered to pay private respondent Alfredo Ofialda the total amount of
P18,476.00 and the monetary awards in favor of private respondents Rudy Allauigan and Dioleto
Morente are hereby DELETED.

SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

Synopsis/Syllabi

SECOND DIVISION

[G.R. No. 111042. October 26, 1999]

AVELINO LAMBO and VICENTE BELOCURA, petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION and J.C. TAILOR SHOP and/or JOHNNY CO, respondents.

DECISION

MENDOZA, J.:

This is a petition for certiorari to set aside the decision[1] of the National Labor Relations
Commission (NLRC) which reversed the awards made by the Labor Arbiter in favor of petitioners,
except one for P4,992.00 to each, representing 13th month pay.

The facts are as follows.

Petitioners Avelino Lambo and Vicente Belocura were employed as tailors by private
respondents J.C. Tailor Shop and/or Johnny Co on September 10, 1985 and March 3, 1985,
respectively. They worked from 8:00 a.m. to 7:00 p.m. daily, including Sundays and holidays. As
in the case of the other 100 employees of private respondents, petitioners were paid on a piece-
work basis, according to the style of suits they made. Regardless of the number of pieces they
finished in a day, they were each given a daily pay of at least P64.00.

On January 17, 1989, petitioners filed a complaint against private respondents for illegal
dismissal and sought recovery of overtime pay, holiday pay, premium pay on holiday and rest
day, service incentive leave pay, separation pay, 13th month pay, and attorneys fees.

After hearing, Labor Arbiter Jose G. Gutierrez found private respondents guilty of illegal dismissal
and accordingly ordered them to pay petitioners claims. The dispositive portion of the Labor
Arbiters decision reads:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring the
complainants to have been illegally dismissed and ordering the respondents to pay the
complainants the following monetary awards:

AVELINO LAMBO VICENTE BELOCURA

I. BACKWAGES P64,896.00 P64,896.00

II. OVERTIME PAY 13,447.90 13,447.90

III. HOLIDAY PAY 1,399.30 1,399.30

IV. 13TH MONTH PAY 4,992.00 4,992.00

V. SEPARATION PAY 9,984.00 11,648.00

TOTAL P94,719.20 P96,383.20 = P191,102.40

Add: 10% Attorneys Fees 19,110.24

GRAND TOTAL P210,212.64

======

or a total aggregate amount of TWO HUNDRED TEN THOUSAND TWO HUNDRED TWELVE AND
64/100 (P210,212.64).
All other claims are dismissed for lack of merit.

SO ORDERED.[2]

On appeal by private respondents, the NLRC reversed the decision of the Labor Arbiter. It found
that petitioners had not been dismissed from employment but merely threatened with a closure
of the business if they insisted on their demand for a straight payment of their minimum wage,
after petitioners, on January 17, 1989, walked out of a meeting with private respondents and
other employees. According to the NLRC, during that meeting, the employees voted to maintain
the company policy of paying them according to the volume of work finished at the rate of
P18.00 per dozen of tailored clothing materials. Only petitioners allegedly insisted that they be
paid the minimum wage and other benefits. The NLRC held petitioners guilty of abandonment of
work and accordingly dismissed their claims except that for 13th month pay. The dispositive
portion of its decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is hereby vacated and a new one
entered ordering respondents to pay each of the complainants their 13th month pay in the
amount of P4,992.00. All other monetary awards are hereby deleted.

SO ORDERED.[3]

Petitioners allege that they were dismissed by private respondents as they were about to file a
petition with the Department of Labor and Employment (DOLE) for the payment of benefits such
as Social Security System (SSS) coverage, sick leave and vacation leave. They deny that they
abandoned their work.

The petition is meritorious.

First. There is no dispute that petitioners were employees of private respondents although they
were paid not on the basis of time spent on the job but according to the quantity and the quality
of work produced by them. There are two categories of employees paid by results: (1) those
whose time and performance are supervised by the employer. (Here, there is an element of
control and supervision over the manner as to how the work is to be performed. A piece-rate
worker belongs to this category especially if he performs his work in the company premises.);
and (2) those whose time and performance are unsupervised. (Here, the employers control is
over the result of the work. Workers on pakyao and takay basis belong to this group.) Both
classes of workers are paid per unit accomplished. Piece-rate payment is generally practiced in
garment factories where work is done in the company premises, while payment on pakyao and
takay basis is commonly observed in the agricultural industry, such as in sugar plantations where
the work is performed in bulk or in volumes difficult to quantify.[4] Petitioners belong to the first
category, i.e., supervised employees.

In determining the existence of an employer-employee relationship, the following elements


must be considered: (1) the selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the employees conduct.[5] Of
these elements, the most important criterion is whether the employer controls or has reserved
the right to control the employee not only as to the result of the work but also as to the means
and methods by which the result is to be accomplished.[6]

In this case, private respondents exercised control over the work of petitioners. As tailors,
petitioners worked in the companys premises from 8:00 a.m. to 7:00 p.m. daily, including
Sundays and holidays. The mere fact that they were paid on a piece-rate basis does not negate
their status as regular employees of private respondents. The term wage is broadly defined in
Art. 97 of the Labor Code as remuneration or earnings, capable of being expressed in terms of
money whether fixed or ascertained on a time, task, piece or commission basis. Payment by the
piece is just a method of compensation and does not define the essence of the relations.[7] Nor
does the fact that petitioners are not covered by the SSS affect the employer-employee
relationship.

Indeed, the following factors show that petitioners, although piece-rate workers, were regular
employees of private respondents: (1) within the contemplation of Art. 280 of the Labor Code,
their work as tailors was necessary or desirable in the usual business of private respondents,
which is engaged in the tailoring business; (2) petitioners worked for private respondents
throughout the year, their employment not being dependent on a specific project or season;
and, (3) petitioners worked for private respondents for more than one year.[8]

Second. Private respondents contend, however, that petitioners refused to report for work after
learning that the J.C. Tailoring and Dress Shop Employees Union had demanded their
(petitioners) dismissal for conduct unbecoming of employees. In support of their claim, private
respondents presented the affidavits[9] of Emmanuel Y. Caballero, president of the union, and
Amado Cabaero, member, that petitioners had not been dismissed by private respondents but
that practically all employees of the company, including the members of the union had asked
management to terminate the services of petitioners. The employees allegedly said they were
against petitioners request for change of the mode of payment of their wages, and that when a
meeting was called to discuss this issue, a petition for the dismissal of petitioners was presented,
prompting the latter to walk out of their jobs and instead file a complaint for illegal dismissal
against private respondents on January 17, 1989, even before all employees could sign the
petition and management could act upon the same.
To justify a finding of abandonment of work, there must be proof of a deliberate and unjustified
refusal on the part of an employee to resume his employment. The burden of proof is on the
employer to show an unequivocal intent on the part of the employee to discontinue
employment.[10] Mere absence is not sufficient. It must be accompanied by manifest acts
unerringly pointing to the fact that the employee simply does not want to work anymore.[11]

Private respondents failed to discharge this burden. Other than the self-serving declarations in
the affidavits of their two employees, private respondents did not adduce proof of overt acts of
petitioners showing their intention to abandon their work. On the contrary, the evidence shows
that petitioners lost no time in filing the case for illegal dismissal against private respondent. This
fact negates any intention on their part to sever their employment relationship.[12]
Abandonment is a matter of intention; it cannot be inferred or presumed from equivocal acts.
[13]

Third. Private respondents invoke the compromise agreement,[14] dated March 2, 1993,
between them and petitioner Avelino Lambo, whereby in consideration of the sum of
P10,000.00, petitioner absolved private respondents from liability for money claims or any other
obligations.

To be sure, not all quitclaims are per se invalid or against public policy. But those (1) where there
is clear proof that the waiver was wangled from an unsuspecting or gullible person or (2) where
the terms of settlement are unconscionable on their face are invalid. In these cases, the law will
step in to annul the questionable transaction.[15] However, considering that the Labor Arbiter
had given petitioner Lambo a total award of P94,719.20, the amount of P10,000.00 to cover any
and all monetary claims is clearly unconscionable. As we have held in another case,[16] the
subordinate position of the individual employee vis-a-vis management renders him especially
vulnerable to its blandishments, importunings, and even intimidations, and results in his
improvidently waiving benefits to which he is clearly entitled. Thus, quitclaims, waivers or
releases are looked upon with disfavor for being contrary to public policy and are ineffective to
bar claims for the full measure of the workers legal rights.[17] An employee who is merely
constrained to accept the wages paid to him is not precluded from recovering the difference
between the amount he actually received and that amount which he should have received.

Fourth. The Labor Arbiter awarded backwages, overtime pay, holiday pay, 13th month pay,
separation pay and attorneys fees, corresponding to 10% of the total monetary awards, in favor
of petitioners.

As petitioners were illegally dismissed, they are entitled to reinstatement with backwages.
Considering that petitioners were dismissed from the service on January 17, 1989, i.e., prior to
March 21, 1989,[18] the Labor Arbiter correctly applied the rule in the Mercury Drug case,[19]
according to which the recovery of backwages should be limited to three years without
qualifications or deductions. Any award in excess of three years is null and void as to the excess.
[20]

The Labor Arbiter correctly ordered private respondents to give separation pay. Considerable
time has lapsed since petitioners dismissal, so that reinstatement would now be impractical and
hardly in the best interest of the parties. In lieu of reinstatement, separation pay should be
awarded to petitioners at the rate of one month salary for every year of service, with a fraction
of at least six (6) months of service being considered as one (1) year.[21]

The awards for overtime pay, holiday pay and 13th month pay are in accordance with our finding
that petitioners are regular employees, although paid on a piece-rate basis.[22] These awards
are based on the following computation of the Labor Arbiter:

AVELINO LAMBO

I. BACKWAGES: Jan. 17/89 - Jan. 17/92 = 36 mos.

P 64.00/day x 26 days =

1,664.00/mo. x 36 mos. = P 59,904.00

13th Mo. Pay:

P 1,664.00/yr. x 3 yrs. = 4, 992.00 P64,896.00

II. OVERTIME PAY: Jan. 17/86 - Jan. 17/89

Jan. 17/86 - April 30/87 = 15 mos. & 12 days =


(15 mos. x 26 days + 12 days) = 402 days

*2 hours = 25%

402 days x 2 hrs./day = 804 hrs.

P 32.00/day 8 hrs. =

4.00/hr. x 25% =

1.00/hr. + P4.00/hr. =

5.00/hr. x 804 hrs. = P 4,020.00

May 1/87-Sept. 30/87 = 4 mos. & 26 days =

(4 mos. x 26 days + 26 days) = 130 days

130 days x 2 hrs./day = 260 hrs.

P 41.00/day 8 hrs. =

5.12/hr. x 25% =

1.28/hr. + P5.12/hr. =

6.40/hr. x 260 hrs. = P 1,664.00


Oct. 1/87-Dec. 13/87 = 2 mos. & 11 days =

(2 mos. x 26 days + 11 days) = 63 days

63 days x 2 hrs./day = 126 hrs.

P 49.00/day 8 hrs. =

6.12/hr. x 25% =

1.53/hr. + P6.12/hr. =

7.65/hr. x 126 hrs. = P963.90

Dec. 14/87 - Jan. 17/89 = 13 mos. & 2 days =

(13 mos. x 26 days + 2 days) = 340 days

340 days x 2 hrs./day = 680 hrs.

P 64.00/day 8 hrs. =

8.00/hr. x 25% =

2.00/hr. + P8.00/hr. =

10.00/hr. x 680 hrs. = P6,800.00 P13,447.90


III. HOLIDAY PAY: Jan. 17/86 - Jan. 17/89

Jan. 17/86 - April 30/87 = 12 RHs; 8 SHs

P 32.00/day x 200% =

64.00/day x 12 days = P768.00

32.00/day x 12 days = (384.00) P384.00

32.00/day x 30% =

9.60/day x 8 days = 76.80 460.80

May 1/87 - Sept. 30/87 = 3 RHs; 3 SHs

P 41.00/day x 200% =

82.00/day x 3 days = P246.00

41.00/day x 3 days = (123.00) P123.00

41.00/day x 30% =

12.30/day x 3 days = 36.90 159.90

Oct. 1/87 - Dec. 13/87 = 1 RH


P 49.00/day x 200% =

98.00/day x 1 day = P98.00

49.00/day x 1 day = (49.00) 49.00

Dec. 14/87 - Jan. 17/89 = 9 RHs; 8 SHs

P 64.00/day x 200% =

128.00/day x 9 days = P1,152.00

64.00/day x 9 days = (576.00) P 576.00

64.00/day x 30% =

19.20/day x 8 days = 153.60 729.60 1,399.30

IV. 13TH MO. PAY: Jan. 17/86 - Jan. 17/89 = 3 yrs.

P 64.00/day x 26 days =

1,664.00/yr. x 3 yrs. = 4,992.00

V. SEPARATION PAY: Sept. 10/85 - Jan. 17/92 = 6 yrs.

1,664.00/mo. x 6 yrs. = 9,984.00


TOTAL AWARD OF AVELINO LAMBO P94,719.20

======

VICENTE BELOCURA

I. BACKWAGES: Jan. 17/89 - Jan. 17/92 = 36 mos.

Same computation as A. Lambo P64,896.00

II. OVERTIME PAY: Jan. 17/86 - Jan. 17/89

Same computation as A. Lambo 13,447.90

III. HOLIDAY PAY: Jan. 17/86 - Jan. 17/89

Same computation as A. Lambo 1,399.30

IV. 13TH MO. PAY: Jan. 17/86 - Jan. 17/89

Same computation as A. Lambo 4,992.00

V. SEPARATION PAY: March 3/85 - Jan. 17/92 = 7 yrs.

P1,664.00/mo. x 7 yrs. = 11,648.00

TOTAL AWARD OF VICENTE BELOCURA P96,383.20


=====

SUMMARY

AVELINO LAMBO VICENTE BELOCURA

I. BACKWAGES P64,896.00 P64,896.00

II. OVERTIME PAY 13,447.90 13,447.90

III. HOLIDAY PAY 1,399.30 1,399.30

IV. 13TH MO. PAY 4,992.00 4,992.00

V. SEPARATION PAY 9,984.00 11,648.00

TOTAL P94,719.20 P96,383.20

= P191,102.40

ADD: 10% Attorneys Fees 19,110.24

GRAND TOTAL P 210,212.64

=======

Except for the award of attorneys fees in the amount of P19,110.24, the above computation is
affirmed. The award of attorneys fees should be disallowed, it appearing that petitioners were
represented by the Public Attorneys Office. With regard to petitioner Avelino Lambo, the amount
of P10,000.00 paid to him under the compromise agreement should be deducted from the total
award of P94,719.20. Consequently, the award to each petitioner should be as follows:

AVELINO LAMBO VICENTE BELOCURA

I. BACKWAGES P64,896.00 P 64,896.00

II. OVERTIME PAY 13,447.90 13,447.90

III. HOLIDAY PAY 1,399.30 1,399.30

IV. 13TH MONTH PAY 4,992.00 4,992.00

V. SEPARATION PAY 9,984.00 11,648.00

P 94,719.20

Less 10,000.00

TOTAL P84,719.20 P96,383.20

GRAND TOTAL P181,102.40

======

vvvvvvvvvv
WHEREFORE, the decision of the National Labor Relations Commission is SET ASIDE and another
one is RENDERED ordering private respondents to pay petitioners the total amount of One
Hundred Eighty-One Thousand One Hundred Two Pesos and 40/100 (P181,102.40), as computed
above.

SO ORDERED.

G.R. No. 102132. March 19, 1993.

DAVAO INTEGRATED PORT STEVEDORING SERVICES, petitioner, vs. RUBEN V. ABARQUEZ, in his
capacity as an accredited Voluntary Arbitrator and THE ASSOCIATION OF TRADE UNIONS (ATU-
TUCP), respondents.

Libron, Gaspar & Associates for petitioner.

Bansalan B. Metilla for Association of Trade Unions (ATUTUCP).

SYLLABUS

1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR RELATIONS; COLLECTIVE BARGAINING


AGREEMENT; DEFINED; NATURE THEREOF; CONSTRUCTION TO BE PLACED THEREON. A
collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a
contract executed upon request of either the employer or the exclusive bargaining
representative incorporating the agreement reached after negotiations with respect to wages,
hours of work and all other terms and conditions of employment, including proposals for
adjusting any grievances or questions arising under such agreement. While the terms and
conditions of a CBA constitute the law between the parties, it is not, however, an ordinary
contract to which is applied the principles of law governing ordinary contracts. A CBA, as a labor
contract within the contemplation of Article 1700 of the Civil Code of the Philippines which
governs the relations between labor and capital, is not merely contractual in nature but
impressed with public interest, thus, it must yield to the common good. As such, it must be
construed liberally rather than narrowly and technically, and the courts must place a practical
and realistic construction upon it, giving due consideration to the context in which it is
negotiated and purpose which it is intended to serve.

2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. It is thus erroneous for petitioner to isolate
Section 1, Article VIII of the 1989 CBA from the other related section on sick leave with pay
benefits, specifically Section 3 thereof, in its attempt to justify the discontinuance or withdrawal
of the privilege of commutation or conversion to cash of the unenjoyed portion of the sick leave
benefit to regular intermittent workers. The manner they were deprived of the privilege
previously recognized and extended to them by petitioner-company during the lifetime of the
CBA of October 16, 1985 until three (3) months from its renewal on April 15, 1989, or a period of
three (3) years and nine (9) months, is not only tainted with arbitrariness but likewise
discriminatory in nature. It must be noted that the 1989 CBA has two (2) sections on sick leave
with pay benefits which apply to two (2) distinct classes of workers in petitioner's company,
namely: (1) the regular non-intermittent workers or those workers who render a daily eight-hour
service to the company and are governed by Section 1, Article VIII of the 1989 CBA; and (2)
intermittent field workers who are members of the regular labor pool and the present regular
extra labor pool as of the signing of the agreement on April 15, 1989 or those workers who have
irregular working days and are governed by Section 3, Article VIII of the 1989 CBA. It is not
disputed that both classes of workers are entitled to sick leave with pay benefits provided they
comply with the conditions set forth under Section 1 in relation to the last paragraph of Section
3, to wit: (1) the employee-applicant must be regular or must have rendered at least one year of
service with the company; and (2) the application must be accompanied by a certification from a
company-designated physician. the phrase "herein sick leave privilege," as used in the last
sentence of Section 1, refers to the privilege of having a fixed 15-day sick leave with pay which,
as mandated by Section 1, only the non-intermittent workers are entitled to. This fixed 15-day
sick leave with pay benefit should be distinguished from the variable number of days of sick
leave, not to exceed 15 days, extended to intermittent workers under Section 3 depending on
the number of hours of service rendered to the company, including overtime pursuant to the
schedule provided therein. It is only fair and reasonable for petitioner-company not to stipulate
a fixed 15-day sick leave with pay for its regular intermittent workers since, as the term
"intermittent" implies, there is irregularity in their work-days. Reasonable and practical
interpretation must be placed on contractual provisions. Interpetatio fienda est ut res magis
valeat quam pereat. Such interpretation is to be adopted, that the thing may continue to have
efficacy rather than fail.

3. ID.; ID.; ID.; SICK LEAVE BENEFITS; NATURE AND PURPOSE. Sick leave benefits, like
other economic benefits stipulated in the CBA such as maternity leave and vacation leave
benefits, among others, are by their nature, intended to be replacements for regular income
which otherwise would not be earned because an employee is not working during the period of
said leaves. They are non-contributory in nature, in the sense that the employees contribute
nothing to the operation of the benefits. By their nature, upon agreement of the parties, they
are intended to alleviate the economic condition of the workers.

4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR; CASE AT BAR. Petitioner-


company's objection to the authority of the Voluntary Arbitrator to direct the commutation of
the unenjoyed portion of the sick leave with pay benefits of intermittent workers in his decision
is misplaced. Article 261 of the Labor Code is clear. The questioned directive of the herein public
respondent is the necessary consequence of the exercise of his arbitral power as Voluntary
Arbitrator under Article 261 of the Labor Code "to hear and decide all unresolved grievances
arising from the interpretation or implementation of the Collective Bargaining Agreement." We,
therefore, find that no grave abuse of discretion was committed by public respondent in issuing
the award (decision). Moreover, his interpretation of Sections 1 and 3, Article VIII of the 1989
CBA cannot be faulted with and is absolutely correct.

5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION AGAINST ELIMINATION OR


DIMINUTION OF BENEFITS; BENEFITS GRANTED PURSUANT TO COMPANY PRACTICE OR POLICY
CANNOT BE PEREMPTORILY WITHDRAWN. Whatever doubt there may have been early on was
clearly obliterated when petitioner-company recognized the said privilege and paid its
intermittent workers the cash equivalent of the unenjoyed portion of their sick leave with pay
benefits during the lifetime of the CBA of October 16, 1985 until three (3) months from its
renewal on April 15, 1989. Well-settled is it that the said privilege of commutation or conversion
to cash, being an existing benefit, the petitioner-company may not unilaterally withdraw, or
diminish such benefits. It is a fact that petitioner-company had, on several instances in the past,
granted and paid the cash equivalent of the unenjoyed portion of the sick leave benefits of some
intermittent workers. Under the circumstances, these may be deemed to have ripened into
company practice or policy which cannot be peremptorily withdrawn.

DECISION

ROMERO, J p:

In this petition for certiorari, petitioner Davao Integrated Port Services Corporation seeks to
reverse the Award 1 issued on September 10, 1991 by respondent Ruben V. Abarquez, in his
capacity as Voluntary Arbitrator of the National Conciliation and Mediation Board, Regional
Arbitration Branch XI in Davao City in Case No. AC-211-BX1-10-003-91 which directed petitioner
to grant and extend the privilege of commutation of the unenjoyed portion of the sick leave with
pay benefits to its intermittent field workers who are members of the regular labor pool and the
present regular extra pool in accordance with the Collective Bargaining Agreement (CBA)
executed between petitioner and private respondent Association of Trade Unions (ATU-TUCP),
from the time it was discontinued and henceforth.

The facts are as follows:

Petitioner Davao Integrated Port Stevedoring Services (petitioner-company) and private


respondent ATU-TUCP (Union), the exclusive collective bargaining agent of the rank and file
workers of petitioner-company, entered into a collective bargaining agreement (CBA) on October
16, 1985 which, under Sections 1 and 3, Article VIII thereof, provide for sick leave with pay
benefits each year to its employees who have rendered at least one (1) year of service with the
company, thus:
"ARTICLE VIII

Section 1. Sick Leaves The Company agrees to grant 15 days sick leave with pay each
year to every regular non-intermittent worker who already rendered at least one year of service
with the company. However, such sick leave can only be enjoyed upon certification by a company
designated physician, and if the same is not enjoyed within one year period of the current year,
any unenjoyed portion thereof, shall be converted to cash and shall be paid at the end of the
said one year period. And provided however, that only those regular workers of the company
whose work are not intermittent, are entitled to the herein sick leave privilege.

xxx xxx xxx

Section 3. All intermittent field workers of the company who are members of the Regular
Labor Pool shall be entitled to vacation and sick leaves per year of service with pay under the
following schedule based on the number of hours rendered including overtime, to wit:

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

Less than 750 NII NII

751 825 6 days 6 days

826 900 7 7

901 925 8 8

926 1,050 9 9
1,051 1,125 10 10

1,126 1,200 11 11

1,201 1,275 12 12

1,276 1,350 13 13

1,351 1,425 14 14

1,426 1,500 15 15

The conditions for the availment of the herein vacation and sick leaves shall be in accordance
with the above provided Sections 1 and 2 hereof, respectively."

Upon its renewal on April 15, 1989, the provisions for sick leave with pay benefits were
reproduced under Sections 1 and 3, Article VIII of the new CBA, but the coverage of the said
benefits was expanded to include the "present Regular Extra Labor Pool as of the signing of this
Agreement." Section 3, Article VIII, as revised, provides, thus:

"Section 3. All intermittent field workers of the company who are members of the Regular
Labor Pool and present Regular Extra Labor Pool as of the signing of this agreement shall be
entitled to vacation and sick leaves per year of service with pay under the following schedule
based on the number of hours rendered including overtime, to wit:

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

Less than 750 NII NII


751 825 6 days 6 days

826 900 7 7

901 925 8 8

926 1,050 9 9

1,051 1,125 10 10

1,126 1,200 11 11

1,201 1,275 12 12

1,276 1,350 13 13

1,351 1,425 14 14

1,426 1,500 15 15

The conditions for the availment of the herein vacation and sick leaves shall be in accordance
with the above provided Sections 1 and 2 hereof, respectively."

During the effectivity of the CBA of October 16, 1985 until three (3) months after its renewal on
April 15, 1989, or until July 1989 (a total of three (3) years and nine (9) months), all the field
workers of petitioner who are members of the regular labor pool and the present regular extra
labor pool who had rendered at least 750 hours up to 1,500 hours were extended sick leave with
pay benefits. Any unenjoyed portion thereof at the end of the current year was converted to
cash and paid at the end of the said one-year period pursuant to Sections 1 and 3, Article VIII of
the CBA. The number of days of their sick leave per year depends on the number of hours of
service per calendar year in accordance with the schedule provided in Section 3, Article VIII of
the CBA.

The commutation of the unenjoyed portion of the sick leave with pay benefits of the
intermittent workers or its conversion to cash was, however, discontinued or withdrawn when
petitioner-company under a new assistant manager, Mr. Benjamin Marzo (who replaced Mr.
Cecilio Beltran, Jr. upon the latter's resignation in June 1989), stopped the payment of its cash
equivalent on the ground that they are not entitled to the said benefits under Sections 1 and 3
of the 1989 CBA.

The Union objected to the said discontinuance of commutation or conversion to cash of the
unenjoyed sick leave with pay benefits of petitioner's intermittent workers contending that it is a
deviation from the true intent of the parties that negotiated the CBA; that it would violate the
principle in labor laws that benefits already extended shall not be taken away and that it would
result in discrimination between the non-intermittent and the intermittent workers of the
petitioner-company.

Upon failure of the parties to amicably settle the issue on the interpretation of Sections 1 and 3,
Article VIII of the 1989 CBA, the Union brought the matter for voluntary arbitration before the
National Conciliation and Mediation Board, Regional Arbitration Branch XI at Davao City by way
of complaint for enforcement of the CBA. The parties mutually designated public respondent
Ruben Abarquez, Jr. to act as voluntary arbitrator.

After the parties had filed their respective position papers, 2 public respondent Ruben Abarquez,
Jr. issued on September 10, 1991 an Award in favor of the Union ruling that the regular
intermittent workers are entitled to commutation of their unenjoyed sick leave with pay benefits
under Sections 1 and 3 of the 1989 CBA, the dispositive portion of which reads:

"WHEREFORE, premises considered, the management of the respondent Davao Integrated Port
Stevedoring Services Corporation is hereby directed to grant and extend the sick leave privilege
of the commutation of the unenjoyed portion of the sick leave of all the intermittent field
workers who are members of the regular labor pool and the present extra pool in accordance
with the CBA from the time it was discontinued and henceforth.

SO ORDERED."

Petitioner-company disagreed with the aforementioned ruling of public respondent, hence, the
instant petition.
Petitioner-company argued that it is clear from the language and intent of the last sentence of
Section 1, Article VIII of the 1989 CBA that only the regular workers whose work are not
intermittent are entitled to the benefit of conversion to cash of the unenjoyed portion of sick
leave, thus: ". . . And provided, however, that only those regular workers of the Company whose
work are not intermittent are entitled to the herein sick leave privilege."

Petitioner-company further argued that while the intermittent workers were paid the cash
equivalent of their unenjoyed sick leave with pay benefits during the previous management of
Mr. Beltran who misinterpreted Sections 1 and 3 of Article VIII of the 1985 CBA, it was well
within petitioner-company's rights to rectify the error it had committed and stop the payment of
the said sick leave with pay benefits. An error in payment, according to petitioner-company, can
never ripen into a practice.

We find the arguments unmeritorious.

A collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a
contract executed upon request of either the employer or the exclusive bargaining
representative incorporating the agreement reached after negotiations with respect to wages,
hours of work and all other terms and conditions of employment, including proposals for
adjusting any grievances or questions arising under such agreement.

While the terms and conditions of a CBA constitute the law between the parties, 3 it is not,
however, an ordinary contract to which is applied the principles of law governing ordinary
contracts. 4 A CBA, as a labor contract within the contemplation of Article 1700 of the Civil Code
of the Philippines which governs the relations between labor and capital, is not merely
contractual in nature but impressed with public interest, thus, it must yield to the common
good. As such, it must be construed liberally rather than narrowly and technically, and the courts
must place a practical and realistic construction upon it, giving due consideration to the context
in which it is negotiated and purpose which it is intended to serve. 5

It is thus erroneous for petitioner to isolate Section 1, Article VIII of the 1989 CBA from the other
related section on sick leave with pay benefits, specifically Section 3 thereof, in its attempt to
justify the discontinuance or withdrawal of the privilege of commutation or conversion to cash of
the unenjoyed portion of the sick leave benefit to regular intermittent workers. The manner they
were deprived of the privilege previously recognized and extended to them by petitioner-
company during the lifetime of the CBA of October 16, 1985 until three (3) months from its
renewal on April 15, 1989, or a period of three (3) years and nine (9) months, is not only tainted
with arbitrariness but likewise discriminatory in nature. Petitioner-company is of the mistaken
notion that since the privilege of commutation or conversion to cash of the unenjoyed portion of
the sick leave with pay benefits is found in Section 1, Article VIII, only the regular non-
intermittent workers and no other can avail of the said privilege because of the proviso found in
the last sentence thereof.

It must be noted that the 1989 CBA has two (2) sections on sick leave with pay benefits which
apply to two (2) distinct classes of workers in petitioner's company, namely: (1) the regular non-
intermittent workers or those workers who render a daily eight-hour service to the company and
are governed by Section 1, Article VIII of the 1989 CBA; and (2) intermittent field workers who
are members of the regular labor pool and the present regular extra labor pool as of the signing
of the agreement on April 15, 1989 or those workers who have irregular working days and are
governed by Section 3, Article VIII of the 1989 CBA.

It is not disputed that both classes of workers are entitled to sick leave with pay benefits
provided they comply with the conditions set forth under Section 1 in relation to the last
paragraph of Section 3, to wit: (1) the employee-applicant must be regular or must have
rendered at least one year of service with the company; and (2) the application must be
accompanied by a certification from a company-designated physician.

Sick leave benefits, like other economic benefits stipulated in the CBA such as maternity leave
and vacation leave benefits, among others, are by their nature, intended to be replacements for
regular income which otherwise would not be earned because an employee is not working
during the period of said leaves. 6 They are non-contributory in nature, in the sense that the
employees contribute nothing to the operation of the benefits. 7 By their nature, upon
agreement of the parties, they are intended to alleviate the economic condition of the workers.

After a careful examination of Section 1 in relation to Section 3, Article VIII of the 1989 CBA in
light of the facts and circumstances attendant in the instant case, we find and so hold that the
last sentence of Section 1, Article VIII of the 1989 CBA, invoked by petitioner-company does not
bar the regular intermittent workers from the privilege of commutation or conversion to cash of
the unenjoyed portion of their sick leave with pay benefits, if qualified. For the phrase "herein
sick leave privilege," as used in the last sentence of Section 1, refers to the privilege of having a
fixed 15-day sick leave with pay which, as mandated by Section 1, only the non-intermittent
workers are entitled to. This fixed 15-day sick leave with pay benefit should be distinguished
from the variable number of days of sick leave, not to exceed 15 days, extended to intermittent
workers under Section 3 depending on the number of hours of service rendered to the company,
including overtime pursuant to the schedule provided therein. It is only fair and reasonable for
petitioner-company not to stipulate a fixed 15-day sick leave with pay for its regular intermittent
workers since, as the term "intermittent" implies, there is irregularity in their work-days.
Reasonable and practical interpretation must be placed on contractual provisions. Interpetatio
fienda est ut res magis valeat quam pereat. Such interpretation is to be adopted, that the thing
may continue to have efficacy rather than fail. 8
We find the same to be a reasonable and practical distinction readily discernible in Section 1, in
relation to Section 3, Article VIII of the 1989 CBA between the two classes of workers in the
company insofar as sick leave with pay benefits are concerned. Any other distinction would
cause discrimination on the part of intermittent workers contrary to the intention of the parties
that mutually agreed in incorporating the questioned provisions in the 1989 CBA.

Public respondent correctly observed that the parties to the CBA clearly intended the same sick
leave privilege to be accorded the intermittent workers in the same way that they are both given
the same treatment with respect to vacation leaves - non-commutable and non-cumulative. If
they are treated equally with respect to vacation leave privilege, with more reason should they
be on par with each other with respect to sick leave privileges. 9 Besides, if the intention were
otherwise, during its renegotiation, why did not the parties expressly stipulate in the 1989 CBA
that regular intermittent workers are not entitled to commutation of the unenjoyed portion of
their sick leave with pay benefits?

Whatever doubt there may have been early on was clearly obliterated when petitioner-company
recognized the said privilege and paid its intermittent workers the cash equivalent of the
unenjoyed portion of their sick leave with pay benefits during the lifetime of the CBA of October
16, 1985 until three (3) months from its renewal on April 15, 1989. Well-settled is it that the said
privilege of commutation or conversion to cash, being an existing benefit, the petitioner-
company may not unilaterally withdraw, or diminish such benefits. 10 It is a fact that petitioner-
company had, on several instances in the past, granted and paid the cash equivalent of the
unenjoyed portion of the sick leave benefits of some intermittent workers. 11 Under the
circumstances, these may be deemed to have ripened into company practice or policy which
cannot be peremptorily withdrawn. 12

Moreover, petitioner-company's objection to the authority of the Voluntary Arbitrator to direct


the commutation of the unenjoyed portion of the sick leave with pay benefits of intermittent
workers in his decision is misplaced. Article 261 of the Labor Code is clear. The questioned
directive of the herein public respondent is the necessary consequence of the exercise of his
arbitral power as Voluntary Arbitrator under Article 261 of the Labor Code "to hear and decide
all unresolved grievances arising from the interpretation or implementation of the Collective
Bargaining Agreement." We, therefore, find that no grave abuse of discretion was committed by
public respondent in issuing the award (decision). Moreover, his interpretation of Sections 1 and
3, Article VIII of the 1989 CBA cannot be faulted with and is absolutely correct.

WHEREFORE, in view of the foregoing, the petition is DISMISSED. The award (decision) of public
respondent dated September 10, 1991 is hereby AFFIRMED. No costs.
SO ORDERED.

Feliciano, Bidin, Davide, Jr. and Melo, JJ., concur.

Gutierrez, Jr., on terminal leave.

G.R. No. L-57636 May 16, 1983

REYNALDO TIANGCO and VICTORIA TIANGCO, petitioners,

vs.

HON. VICENTE LEOGARDO, JR., as Deputy Minister of the Ministry of Labor and Employment,
AURELIO ILUSTRISIMO, ABRAHAM GILBUENA, ROGELIO CARABIO, JESUS GILBUENA, PEPITO
GILBUENA, DOMINADOR LASERNA, CLEMENTE VILLARUEL, RUSTOM OFQUERIA, ERNESTO
DIONG, GRACIANO DURANA, AGUEDO MARABE, SOLOMON CLARIN, ALCAFONE ESGANA, JUAN
CASTRO, ANTONIO GILBUENA, GREGORIO LAYLAY, DANIEL CABRERA, ROBERTO BAYON-ON, ELIAS
ESCARAN, ERNESTO BATOY, EDDIE BATOBALANOS, TOMAS CAPALAR, JUAN GIHAPON, JOSE
OFQUERIA, FRUTO GIHAPON, PEPITO BATOY, and SERAFIO YADAWON, respondents.

Florencio Pineda for petitioners.

The Solicitor General for respondents.

CONCEPCION, JR., J.:

Petition for certiorari and prohibition, with preliminary injunction and/or restraining order, to
annul and set aside the order of the respondent Deputy Minister of Labor which modified and
affirmed the order of Director of the National Capitol Region of the Ministry of Labor directing
the petitioners to pay the private respondents their legal holiday pay, service incentive pay, and
differentials in their emergency cost of living allowances.
The petitioner, Reynaldo Tiangco, is a fishing operator who owns the Reynaldo Tiangco Fishing
Company and a fleet of fishing vessels engaged in deep-sea fishing which operates from Navotas,
Rizal. His business is capitalized at P2,000,000.00, 1 while the petitioner, Victoria Tiangco, is a
fish broker whose business is capitalized at P100,000.00. 2

The private respondents, Aurelio Ilustrisimo, Pepito Gilbuena, Rogelio Carabio, Abraham
Gilbuena, Rustom Ofqueria, Ernesto Diong, Jesus Gilbuena, Clemente (Emerenciano) Villaruel,
Dominador Lacerna, and Graciano Durana, are batillos engaged by the petitioner Reynaldo
Tiangco to unload the fish catch from the vessels and take them to the Fish Stall of the petitioner
Victoria Tiangco. The private respondents, Eddie Batobalanos, Aguedo Marabe, Gregorio Laylay,
Fruto Gihapon, Solomon Clarin, Pepito Batoy, Jose Ofqueria, Daniel Cabrera, Juan Castro,
Alcafone Esgana, Tomas Capalar, Antonio Gilbuena, Ernesto Batoy, Serafio Yadawon, Juan
Gihapon, Elias Escaran and Roberto Bayon-on, were batillos engaged by Victoria Tiangco. 3 The
work of these batillos were limited to days of arrival of the fishing vessels and their working days
in a month are comparatively few. Their working hours average four (4) hours a day.

On April 8, 1980, the private respondents filed a complaint against the petitioners with the
Ministry of Labor and Employment for non-payment of their legal holiday pay and service
incentive leave pay, as well as underpayment of their emergency cost of living allowances which
used to be paid in full irrespective of their working days, but which were reduced effective
February, 1980, in contravention of Article 100 of the new Labor Code which prohibits the
elimination or diminution of existing benefits. 4

The petitioners denied the laborers' contention, claiming that the laborers were all given, in
addition to their regular daily wage, a daily extra pay in amounts ranging from 30 centavos to 10
pesos which are sufficient to offset the laborers' claim for service incentive leave and legal
holiday pay. As regards the claim for emergency allowance differentials, the petitioners admitted
that they discontinued their practice of paying their employees a fixed monthly allowance, and
effective February, 1980, they no longer paid allowances for non-working days. They argued,
however, that no law was violated as their refusal to pay allowances for non-working days is in
consonance with the principle of "no work, no allowance"; and that they could not pay private
respondents a fixed monthly allowance without risking the viability of their business. 5

Resolving the case, the Director of the National Capitol Region of the Ministry of Labor and
Employment ruled that the daily extra pay given to private respondents was a ,'production
incentive benefit", separate and distinct from the service incentive leave pay and legal holiday
pay, payment of which cannot be used to offset a benefit provided by law, and ordered the
petitioners to pay the private respondents their service incentive leave pay and legal holiday pay.
However, he denied the laborers' claim for differentials in the emergency cost of living allowance
for the reason that the emergency cost of living allowance accrues only when the laborers
actually work following the principle of "no work, no pay," and private respondents are not
entitled to a fixed monthly allowance since they work on a part time basis which average only
four (4) days a week. The private respondents should not be paid their allowances during non-
working days. 6

From this order, both parties appealed.

On May 22, 1981, the respondent Deputy Minister of Labor and Employment modified the order
and directed the petitioners to restore and pay the individual respondents their fixed monthly
allowance from March, 1980 and to pay them the amount of P58,860.00, as underpayment of
their living allowance from May, 1977 to February 21, 1980. 7

When their motion for the reconsideration of the above order was denied, the petitioners
interposed the present recourse.

The petitioners claim that the respondent Deputy Minister of Labor and Employment acted in
excess of jurisdiction, or with grave abuse of discretion in ordering them to pay the private
respondents a fixed monthly allowance from March, 1980, despite the "no work, no pay," law;
the private respondents' consent to receive an allowance for days worked for, as stated in their
appeal; and the findings of the Director of the National Capitol Region that private respondents
work for other employers and are part-time employees of the petitioners.

Indeed, the record shows that the private respondents work for the petitioners on a part-time
basis and their work average only four (4) days a week. It is not also disputed that the private
respondents work for more than one employer so that the private respondents should be paid
their living allowance only for the days they actually worked in a week or month and all the
employers of the employee shall share proportionately in the payment of the allowance of the
employee. Section 12 of the Rules and Regulations implementing P.D. 525 which made
mandatory the payment of emergency cost of living allowances to workers in the private section,
provides, as follows:

Section 12. Allowance on Daily Paid & Part Time employees. Employees who are paid
on a daily basis shall be paid their allowances for the number of days they actually worked in a
week or month, on the basis of the scales provided in Section 7 hereof.

In case of part-time employment, the allowances shall be paid in the amount proportionate to
the time worked by the employee, or higher. If employed by more than one employer, all
employers of such employee shall share proportionately in the payment of the allowance of the
employee.
Section 11 of the Rules implementing P.D. 1123, increasing the emergency allowance under P.D.
525, also provides, as follows:

Section 11. Allowances of full-time and part-time employees. Employees shall be paid in full
the monthly allowances on the basis of the scales provided in Section 3 hereof, regardless of the
number of their regular working days, if they incur no absence during the month. If they incur
absences, the amounts corresponding to their absences may be deducted from the monthly
allowance.

In case of part-time employment, the allowance to be paid shall be proportionate to the time
worked by the employee. This requirement shall apply to any employee with more than one
employer.

However, the respondent Deputy Minister of Labor and Employment correctly ruled that since
the petitioners had been paying the private respondents a fixed monthly emergency allowance
since November, 1976 up to February, 1980, as a matter of practice and/or verbal agreement
between the petitioners and the private respondents, the discontinuance of the practice and/or
agreement unilaterally by the petitioners contravened the provisions of the Labor Code,
particularly Article 100 thereof which prohibits the elimination or diminution of existing benefits.

Section 15 of the Rules on P.D. 525 and Section 16 of the Rules on P. D. 1123 also prohibits the
diminution of any benefit granted to the employees under existing laws, agreements, and
voluntary employer practice. Section 15 of the Rules on P.D. 525 provides, as follows:

Section 15. Relation to Agreement. Nothing herein shall prevent the employer and his
employees from entering into any agreement with terms more favorable to the employees than
those provided therein, or be construed to sanction the diminution of any benefit granted to the
employees under existing laws, agreements, and voluntary employer practice.

Section 16 of the Rules on P.D. 1123 similarly prohibits diminution of benefits. It provides, as
follows:

Section 16. Relation to other agreements. Nothing herein shall prevent employers from
granting allowances to their employees in excess of those provided under the Decree and the
Rules nor shall it be construed to countenance any reduction of benefits already being enjoyed.
The petitioners further claim that the respondent Deputy Minister of Labor and Employment
erred in ordering them to pay the amount of P58,860.00 to the private respondents as
underpayment of respondents' allowances from May, 1977 to February 20, 1980. The petitioners
contend that the emergency cost of living allowances of the private respondents had been paid
in full.

We find no merit in the contention. However, a revision of the amount due the private
respondents is in order for the reason that the respondent Deputy Minister of Labor and
Employment failed to take into consideration, in computing the amount due each worker, the
fact that the private respondents are employed by two different individuals whose businesses
are divergent and capitalized at various amounts, contrary to the provisions of P.D. 525 and
subsequent amendatory decrees, wherein the amount of the emergency cost of living allowance
to be paid to a worker is made to depend upon the capitalization of the business of his employer
or its total assets, whichever is higher. Thus, Section 7 of the Rules and Regulations
implementing P.D. 525 reads, as follows:

Section 7. Amount of Allowances. Every covered employer shall give to each of his employees
who is receiving less than P600.00 a month not less than the following allowances;

(a) P50.00 where the authorized capital stock or total assets, whichever is applicable and
higher, is 71 million or more;

(b) P30.00 where the authorized capital stock or total assets, whichever is applicable and
higher is at least P100,000.00 but less than P 1miilion and

(c) P15.00 where the authorized capital stock or total assets, whichever is applicable and
higher, is less than P100,000.00.

Nothing herein shall prevent employers from granting allowances to their employees who will
receive more than P600.00 a month, including the allowances. An employer, however, may grant
his employees an allowance which if added to their monthly salary, will not yield to them more
than P600.00 a month.

In this case, the private respondents admit that only ten (10) of them, namely: Aurelio
Ilustrisimo, Pepito Gilbuena, Rogelio Carabio, Abraham Gilbuena, Rustom Ofquiera, Ernesto
Diong, Jesus Gilbuena, Emerenciano Villaruel, Dominador Lacerna, and Graciano Durana, were
employees of the petitioner Reynaldo Tiangco, while the remaining seventeen (17) were
employed by the petitioner Victoria Tiangco. 8 Accordingly, the workers of the petitioner Victoria
Tiangco, whose business as fish broker is capitalized at P100,000.00, 9 should receive a lesser
amount of allowance (P30.00) than those workers employed by the petitioner Reynaldo Tiangco
whose business, as a fishing operator with a fleet of fishing vessels, is capitalized at more than
P2,000,000.00, and are entitled to receive a fixed monthly allowance of P50.00 a month, each.

After P.D. 525, the following amendatory decrees, directing the payment of additional
allowances to employees, were promulgated:

1. P.D. 1123. providing for an across-the-board increase of P60.00 a month effective May 1,
1977;

2. P.D. 1614, which directed the payment of P60.00 monthly allowance effective April 1,
1979;

3. P.D. 1634, which provided for the payment of an additional P60.00 a month effective
September 1, 1979, and another P30.00 a month beginning January 1, 1980; and

4. P.D. 1678,which directed the payment of an additional P2.00 a day from February 21,
1980.

Hence, for the period from November, 1976 to April 30, 1977, the petitioner Victoria Tiangco
should pay her workers a fixed monthly allowance of P 30.00, while the workers of the petitioner
Reynaldo Tiangco were entitled to a fixed monthly allowance of P50.00, each. The record shows
that during this period, the petitioner Victoria Tiangco was paying her workers a monthly
allowance of P30.00 each. 10 Accordingly, there was no underpayment for this period insofar as
her batillos are concerned. The petitioner Reynaldo Tiangco, however, paid his employees
P30.00, instead of P50.00, as mandated by law. 11 Therefore, there was an underpayment of
P20.00 a month for each batillo under his employ. For the 6-month period, he should pay his
workers differentials in the amount of P120.00 each.

For the period from May, 1977 to March 1979, the workers of the petitioner Victoria Tiangco
were entitled to a fixed monthly allowance of P90.00 in view of the promulgation of P.D. 1123
which granted an across-the-board increase of P60.00 a month in their allowances. For this
period, however, the said petitioner paid her workers only P60.00 a month, or a difference of
P30.00 a month. 12 There was, therefore, an underpayment of P690.00 for every batillo under
her employ for the 23-month period.

With the addition of P60.00 across-the-board increase in their allowances, the workers of the
petitioner Reynaldo Tiangco were entitled to receive a fixed monthly allowance of P110.00.
However, the record shows that his workers were only paid P60.00 a month, 13 or a difference of
P50.00 a month. Consequently, each batillo hired by him should be paid a differential of
P1,150.00 for the 23-month period.

For the period from April, 1979 to August, 1979, the employees of the petitioner Victoria
Tiangco were entitled to a fixed monthly allowance of P150.00 while the workers employed by
the petitioner Reynaldo Tiangco were entitled to an allowance of P170.00, pursuant to P.D. 1614.
The record shows, however, that both petitioners paid their workers only P120.00 a month. 14
There was a difference of P30.00 a month in the case of the petitioner Victoria Tiangco, and
P50.00, a month, in the case of the petitioner Reynaldo Tiangco. Hence, for this period, the
petitioner Victoria Tiangco should pay the amount of P150.00 to each batillo in her employ,
while the petitioner Reynaldo Tiangco should pay the amount of P250.00, as differentials in the
cost of living allowances of the workers under his employ.

Upon the promulgation of P.D. 1634, directing the payment of an additional P60.00 a month
effective September, 1979 and another P30.00 effective January 1, 1980, the workers of the
petitioner Victoria Tiangco were entitled to receive a fixed monthly allowance of P210.00 a
month from September, 1979, and P340.00, a month beginning January, 1980. The workers of
the petitioner Reynaldo Tiangco, upon the other hand, were entitled to a monthly allowance of
P230.00, effective September, 1979, and P260.00, a month beginning January, 1980. The record
shows, however, that both petitioners paid their workers the amounts of P180.00 a month for
the months of September to December, 1979, 15 and P210.00 a month for the months of
January and February, 1980. 16 There was underpayment, therefore, in the allowances of the
workers of the petitioner Victoria Tiangco in the amount of P30.00, a month, for the months of
September, 1979 to February, 1980, or P180.00 for each batillo in her employ. The private
respondents hired by the petitioner Reynaldo Tiangco, upon the other hand, are entitled to
differentials in the amount of P50.00 a month for the same period, or P300.00 each.

Then, beginning February, 21, 1980, the workers should be paid an additional P2.00, a day,
pursuant to P.D. 1678. The record shows that the petitioners had complied with this
requirement. 17 The petitioners, however, failed to pay the fixed monthly allowance of their
workers which was P240.00, in the case of the workers employed by the petitioner Victoria
Tiangco, and P260.00, in the case of the workers of the petitioner Reynaldo Tiangco. Thus, for
the month of March, 1980, the petitioner Victoria Tiangco paid her workers varying amounts,
the lowest of which was P30.00, paid to Eddie Batobalanos and Fruto Gihapon, and the highest
of which was P210.00, paid to Juan Gihapon and Roberto Bayonon. 18 Hence, there was
underpayment in their emergency cost of living allowances. But, since, the respondents
employed by Victoria Tiangco are wining to accept P50.00 a month as differentials for the
months of March, 1980 to May, 1980, 19 the workers employed by her should be paid P50.00,
each, for the month of March, 1980, except Juan Gihapon and Roberto Bayon-on who should be
paid P30.00, each, for the said month, having received the amount of P210.00, each as
allowance for that month.

For the month of April, 1980, the workers of the petitioner, Victoria Tiangco, were paid varying
amounts ranging from P120.00 to P210.00. 20 Hence, there was also underpayment in their
allowances. Accordingly, they should be paid the amount of P50.00, each, except for Juan
Gihapon, Antonio Gilbuena, Juan Castro, and Aguedo Marabe, who should be paid P40.00, each,
and Solomon Clarin, Daniel Cabrera, and Gregorio Laylay who should be paid P30.00 each.

For the month of May, 1980, the petitioner Victoria Tiangco, paid her workers varying amounts
less that what was provided for by law. 21 Hence, they should be paid the amount of P50.00,
each, for this month.

The petitioner, Reynaldo Tiangco, also paid the employees varying amounts, ranging from
P210.00 to P250.00, as emergency cost of living allowance, for the month of March, 22, 1980. 22
Since they were entitled to a fixed monthly allowance of P260.00, each, there was
underpayment in their cost of living allowances. Accordingly, the petitioner should pay the
respondent Pepito Gilbuena the amount of P50.00; the respondents Dominador Lacerna and
Graciano Durano, the amount of P40.00, each; the respondent Ernesto Diong, the amount of
P30.00; the respondents Rustom Ofqueria and Aurelio Ilustrisimo, the amount of P20.00, each;
and the respondents Abraham Gilbuena, Jesus Gilbuena, Rogelio Carabio, and Emerenciano
Villaruel, the amount of P10.00 each.

For the month of April, 1980, the workers of the petitioner Reynaldo Tiangco, were not also paid
their emergency cost of living allowance in full. 23 Hence, the said petitioner should pay his
workers the amount of P30.00 each, except for Pepito Gilbuena, who should be paid the amount
of P50.00, and Rustom Ofqueria, Jesus Gilbuena, and Graciano Durano, who are entitled to only
P40.00 each.

The petitioner, Reynaldo Tiangco did not also pay his workers their full cost of living allowance
for the month of May, 1980. The workers were paid varying amounts of P130.00 to P150.00,
instead of P260.00, as required by law. 24 Hence, they should be paid the amunt of P50.00 each
for the month of May, 1980.

WHEREFORE, the petitioners Victoria Tiangco and Reynaldo Tiangco should be, as they are
hereby, ordered to PAY the private respondents the following amounts as differentials in their
emergency cost of living allowance:
Petitioner Victoria Tiangco:

1.

Eddie Batobalanos.............

Pl,170.00

2.

Aguedo Morabe.................

1,160.00

3.

Gregorio Laylay..................

1,150.00

4.

Fruto Gihapon.....................

1,170.00

5.
Solomon Clarin ...................

1,150.00

6.

Pepito Batoy........................

1,170.00

7.

Jose Ofqueria.......................

1,170.00

8.

Daniel Cabrera.....................

1,150.00

9.

Juan Castro..........................

1,160.00
10.

Alcafone Esgana.................

1,170.00

11.

Tomas Capalar ....................

1,170.00

12.

Antonio Gilbuena................

1,160.00

13.

Ernesto Batoy......................

1,170.00

14.

Serapio Yadawon................
1,150.00

15.

Juan Gihapon.......................

1,140.00

16.

Elias Escaran ......................

1,150.00

17.

Roberto Bayon-on..............

1,130.00

Petitioner Reynaldo Tiangco:

1.

Aurelio Ilustrisimo............

P l,920.00
2.

Pepito Gilbuena.................

1,970.00

3.

Rogelio Carabio.................

1,910.00

4.

Abraham Gilbuena.............

1,910.00

5.

Rustom Ofqueria................

1,930.00

6.

Ernesto Diong....................
1,930.00

7.

Jesus Gilbuena...................

1,920.00

8.

Emerenciano Villaruel........

1,910.00

9.

Dominador Lacerna............

1,940.00

10.

Graciano Durano.................

1,950.00

With this modification, the judgment appealed from is AFFIRMED in all other respects. With
costs against the petitioners.

SO ORDERED.

Makasiar (Chairman), Aquino, Guerrero, Abad Santos, De Castro and Escolin JJ., concur.

G.R. No. L-24632 October 26, 1968

LEXAL LABORATORIES and/or JOSE ANGELES, Manager, petitioners,

vs.

NATIONAL CHEMICAL INDUSTRIES WORKERS UNION-PAFLU (Lexal Laboratories Chapter) and THE
COURT OF INDUSTRIAL RELATIONS, respondents.

Matias, Liboro & Benitez for petitioners.

F. M. de los Reyes for respondents.

SANCHEZ, J.:

Condensed, the question before us is this: Are per diems included in backpay? This problem
came about because of the implementation of the decision of the Court of Industrial Relations
(CIR) of June 29, 19631 directing petitioner Lexal Laboratories (Lexal) to reinstate Guillermo
Ponseca, a dismissed employee, to his former position "with full back wages from the day of his
dismissal up to the time he is actually reinstated without loss of his seniority rights and of such
other rights and privileges enjoyed by him prior to his lay-off."

CIR, confirming the report of its Chief Examiner and Economist, ruled in its order of February 16,
1965 that Ponseca was entitled to back wages from November 5, 1958 when he ceased
reporting for work, to November 24, 1963 a day prior to his reinstatement on November 25,
1963; and that for the number of days that he was supposed to be in Manila, he was to earn
P4.50 a day, and during the periods when he should have been in the provinces, P4.50 a day plus
a per diem of P4.00 or a total of P8.50 daily. This order was subsequently modified by CIR's
resolution of May 22, 1965 which directed the deduction of P5,000.00 previously paid Ponseca
under the judgment and P610.00 which Ponseca earned from other sources during his lay-off.
Petitioners vigorously objected to the inclusion of the P4.00 per diem in the computation of
Ponseca's back wages because the latter "did not actually spend for his meals and lodgings for
he was all the time in Manila, his station." CIR brushed this contention aside. Whereupon,
petitioners appealed to this Court from the order of February 16, 1965 and the resolution of
May 22, 1965.2

1. Our attention has not been drawn to a rule of law or jurisprudence which holds that per
diems are integral parts of regular wages or salaries. Neither is it suggested in the record that
per diems formed part of the terms of employment between petitioners and respondent union
(of which Ponseca is a member), or with Ponseca himself for that matter. Nor was
pronouncement made either in the original decision or in the questioned order and resolution of
CIR that per diems are part of back wages. CIR simply hit upon the idea that per diems should be
paid as part of the back wages because they were "paid to him regularly."

Per diem, the dictionary definition tells us, is "a daily allowance" given "for each day he (an
officer or employee) was away from his home base".3 It would seem to us that per diem is
intended to cover the cost of lodging and subsistence of officers and employees when the latter
are on duty outside of their permanent station.4 Lexal concedes that whenever its employee,
Guillermo Ponseca, was out of Manila, he was allowed a per diem of P4.00 broken down as
follows: P1.00 for breakfast; P1.00 for lunch; P1.00 for dinner; and P1.00 for lodging. Ponseca
during the period involved did not leave Manila. Therefore, he spent nothing for meals and
lodging outside of Manila. Because he spent nothing, there is nothing to be reimbursed. Since
per diems are in the nature of reimbursement, Ponseca should not be entitled to per diems.

Besides, back wages are what an employee has lost "in the way of wages" due to his dismissal.
So that, because Ponseca earned P4.50 a day, "then that is the amount which he lost daily by
reason of his dismissal, nothing more nothing less:"5

We, accordingly, rule that CIR erred in including per diems in the back wages due and payable to
Guillermo Ponseca.

2. The rest is a matter of mathematical computation but first to the facts. The union's
evidence is that since the last part of October, 1958 Ponseca had been reporting everyday to the
bodega of respondents.6 Anyway, prior to Ponseca's dismissal, he worked daily either in Manila
or in the provinces.7

But the order of February 15, 1965 credits Ponseca with 1,856 days for the period from
November 5, 1958 to November 24, 1963. We checked the accuracy of this figure. We found that
there should only be 1,846 days from November 5, 1958 to November 24, 1963, viz:
November 5, 1958 to December 31, 1958

57 days

January 1, 1959 to December 31, 1959

365 days

January 1, 1960 to December 31, 1960

366 days

January 1, 1961 to December 31, 1961

365 days

January 1, 1962 to December 31, 1962

365 days

January 1, 1963 to November 24, 1963

328 days

TOTAL

1,846 days
This brings us to the total amount due from Lexa1 to Guillermo Ponseca, as follows: .

1,846 days x P4.50

P8,307.00

Less: Advance payment

P5,000.00

Earnings from other sources

P610.00

P5,610.008

NET BACKPAY

P2,697.00 .

For the foregoing reasons, the order of February 16, 1965, and the resolution of May 22, 1965,
both of the Court of Industrial Relations, in its Case No. 2002-ULP, entitled "National Chemical
Industries Workers Union-PAFLU (Lexal Laboratories Chapter), Complainant, versus Lexal
Laboratories and Jose Angeles, its Manager, Respondents", are hereby modified; and

Judgment is hereby rendered ordering petitioner Lexal Laboratories to pay Guillermo Ponseca,
by way of net backpay, the sum of P2,697.00.
No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Castro, Angeles, Fernando and Capistrano, JJ.,
concur.

Zaldivar, J., is on leave.

G.R. No. 101761. March 24, 1993.

NATIONAL SUGAR REFINERIES CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS


COMMISSION and NBSR SUPERVISORY UNION, (PACIWU) TUCP, respondents.

Jose Mario C. Bunag for petitioner.

The Solicitor General and the Chief Legal Officer, NLRC, for public respondent.

Zoilo V. de la Cruz for private respondent.

DECISION

REGALADO, J p:

The main issue presented for resolution in this original petition for certiorari is whether
supervisory employees, as defined in Article 212 (m), Book V of the Labor Code, should be
considered as officers or members of the managerial staff under Article 82, Book III of the same
Code, and hence are not entitled to overtime rest day and holiday pay.

Petitioner National Sugar Refineries Corporation (NASUREFCO), a corporation which is fully


owned and controlled by the Government, operates three (3) sugar refineries located at
Bukidnon, Iloilo and Batangas. The Batangas refinery was privatized on April 11, 1992 pursuant
to Proclamation No. 50. 1 Private respondent union represents the former supervisors of the
NASUREFCO Batangas Sugar Refinery, namely, the Technical Assistant to the Refinery Operations
Manager, Shift Sugar Warehouse Supervisor, Senior Financial/Budget Analyst, General
Accountant, Cost Accountant, Sugar Accountant, Junior Financial/Budget Analyst, Shift Boiler
Supervisor,, Shift Operations Chemist, Shift Electrical Supervisor, General Services Supervisor,
Instrumentation Supervisor, Community Development Officer, Employment and Training
Supervisor, Assistant Safety and Security Officer, Head and Personnel Services, Head Nurse,
Property Warehouse Supervisor, Head of Inventory Control Section, Shift Process Supervisor, Day
Maintenance Supervisor and Motorpool Supervisor.

On June 1, 1988, petitioner implemented a Job Evaluation (JE) Program affecting all employees,
from rank-and-file to department heads. The JE Program was designed to rationalized the duties
and functions of all positions, reestablish levels of responsibility, and recognize both wage and
operational structures. Jobs were ranked according to effort, responsibility, training and working
conditions and relative worth of the job. As a result, all positions were re-evaluated, and all
employees including the members of respondent union were granted salary adjustments and
increases in benefits commensurate to their actual duties and functions.

We glean from the records that for about ten years prior to the JE Program, the members of
respondent union were treated in the same manner as rank-and file employees. As such, they
used to be paid overtime, rest day and holiday pay pursuant to the provisions of Articles 87, 93
and 94 of the Labor Code as amended. With the implementation of the JE Program, the
following adjustments were made: (1) the members of respondent union were re-classified
under levels S-5 to S-8 which are considered managerial staff for purposes of compensation and
benefits; (2) there was an increase in basic pay of the average of 50% of their basic pay prior to
the JE Program, with the union members now enjoying a wide gap (P1,269.00 per month) in
basic pay compared to the highest paid rank-and-file employee; (3) longevity pay was increased
on top of alignment adjustments; (4) they were entitled to increased company COLA of P225.00
per month; (5) there was a grant of P100.00 allowance for rest day/holiday work.

On May 11, 1990, petitioner NASUREFCO recognized herein respondent union, which was
organized pursuant to Republic Act NO. 6715 allowing supervisory employees to form their own
unions, as the bargaining representative of all the supervisory employees at the NASUREFCO
Batangas Sugar Refinery.

Two years after the implementation of the JE Program, specifically on June 20, 1990, the
members of herein respondent union filed a complainant with the executive labor arbiter for
non-payment of overtime, rest day and holiday pay allegedly in violation of Article 100 of the
Labor Code.

On January 7, 1991, Executive Labor Arbiter Antonio C. Pido rendered a decision 2 disposing as
follows:

"WHEREFORE, premises considered, respondent National Sugar refineries Corporation is hereby


directed to

1. pay the individual members of complainant union the usual overtime pay, rest day pay
and holiday pay enjoyed by them instead of the P100.00 special allowance which was
implemented on June 11, 1988; and

2. pay the individual members of complainant union the difference in money value
between the P100.00 special allowance and the overtime pay, rest day pay and holiday pay that
they ought to have received from June 1, 1988.

All other claims are hereby dismissed for lack of merit.

SO ORDERED."

In finding for the members therein respondent union, the labor ruled that the along span of time
during which the benefits were being paid to the supervisors has accused the payment thereof
to ripen into contractual obligation; at the complainants cannot be estopped from questioning
the validity of the new compensation package despite the fact that they have been receiving the
benefits therefrom, considering that respondent union was formed only a year after the
implementation of the Job Evaluation Program, hence there was no way for the individual
supervisors to express their collective response thereto prior to the formation of the union; and
the comparative computations presented by the private respondent union showed that the
P100.00 special allowance given NASUREFCO fell short of what the supervisors ought to receive
had the overtime pay rest day pay and holiday pay not been discontinued, which arrangement,
therefore, amounted to a diminution of benefits.

On appeal, in a decision promulgated on July 19, 1991 by its Third Division, respondent National
Labor Relations Commission (NLRC) affirmed the decision of the labor arbiter on the ground that
the members of respondent union are not managerial employees, as defined under Article 212
(m) of the Labor Code and, therefore, they are entitled to overtime, rest day and holiday pay.
Respondent NLRC declared that these supervisory employees are merely exercising
recommendatory powers subject to the evaluation, review and final action by their department
heads; their responsibilities do not require the exercise of discretion and independent judgment;
they do not participate in the formulation of management policies nor in the hiring or firing of
employees; and their main function is to carry out the ready policies and plans of the
corporation. 3 Reconsideration of said decision was denied in a resolution of public respondent
dated August 30, 1991. 4
Hence this petition for certiorari, with petitioner NASUREFCO asseverating that public
respondent commission committed a grave abuse of discretion in refusing to recognized the fact
that the members of respondent union are members of the managerial staff who are not
entitled to overtime, rest day and holiday pay; and in making petitioner assume the "double
burden" of giving the benefits due to rank-and-file employees together with those due to
supervisors under the JE Program.

We find creditable merit in the petition and that the extraordinary writ of certiorari shall
accordingly issue.

The primordial issue to be resolved herein is whether the members of respondent union are
entitled to overtime, rest day and holiday pay. Before this can be resolved, however it must of
necessity be ascertained first whether or not the union members, as supervisory employees, are
to be considered as officers or members of the managerial staff who are exempt from the
coverage of Article 82 of the Labor Code.

It is not disputed that the members of respondent union are supervisory employees, as defined
employees, as defined under Article 212(m), Book V of the Labor Code on Labor Relations, which
reads:

"(m) 'Managerial employee' is one who is vested with powers or prerogatives to lay down and
execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharged, assign
or discipline employees. Supervisory employees are those who, in the interest of the employer
effectively recommend such managerial actions if the exercise of such authority is not merely
routinary or clerical in nature but requires the use of independent judgment. All employees not
falling within any of those above definitions are considered rank-and-file employees of this
Book."

Respondent NLRC, in holding that the union members are entitled to overtime, rest day and
holiday pay, and in ruling that the latter are not managerial employees, adopted the definition
stated in the aforequoted statutory provision.

Petitioner, however, avers that for purposes of determining whether or not the members of
respondent union are entitled to overtime, rest day and holiday pay, said employees should be
considered as "officers or members of the managerial staff" as defined under Article 82, Book III
of the Labor Code on "Working Conditions and Rest Periods" and amplified in Section 2, Rule I,
Book III of the Rules to Implement the Labor Code, to wit:
"Art. 82 Coverage. The provisions of this title shall apply to employees in all establishments
and undertakings whether for profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer who are dependent on him
for support, domestic helpers, persons in the personal service of another, and workers who are
paid by results as determined by the Secretary of Labor in Appropriate regulations.

"As used herein, 'managerial employees' refer to those whose primary duty consists of the
management of the establishment in which they are employed or of a department or subdivision
thereof, and to other officers or members of the managerial staff." (Emphasis supplied.)

xxx xxx xxx

'Sec. 2. Exemption. The provisions of this rule shall not apply to the following persons if they
qualify for exemption under the condition set forth herein:

xxx xxx xxx

(b) Managerial employees, if they meet all of the following conditions, namely:

(1) Their primary duty consists of the management of the establishment in which they are
employed or of a department or subdivision thereof:

(2) They customarily and regularly direct the work of two or more employees therein:

(3) They have the authority to hire or fire other employees of lower rank; or their
suggestions and recommendations as to the hiring and firing and as to the promotion or any
other change of status of other employees are given particular weight.

(c) Officers or members of a managerial staff if they perform the following duties and
responsibilities:

(1) The primary duty consists of the performance of work directly related to management
policies of their employer;
(2) Customarily and regularly exercise discretion and independent judgment;

(3) (i) Regularly and directly assist a proprietor or a managerial employee whose primary
duty consists of the management of the establishment in which he is employed or subdivision
thereof; or (ii) execute under general supervision work along specialized or technical lines
requiring special training, experience, or knowledge; or (iii) execute under general supervision
special assignments and tasks; and

(4) Who do not devote more 20 percent of their hours worked in a work-week to activities
which are not directly and closely related to the performance of the work described in
paragraphs (1), (2), and above."

It is the submission of petitioner that while the members of respondent union, as supervisors,
may not be occupying managerial positions, they are clearly officers or members of the
managerial staff because they meet all the conditions prescribed by law and, hence, they are not
entitled to overtime, rest day and supervisory employees under Article 212 (m) should be made
to apply only to the provisions on Labor Relations, while the right of said employees to the
questioned benefits should be considered in the light of the meaning of a managerial employee
and of the officers or members of the managerial staff, as contemplated under Article 82 of the
Code and Section 2, Rule I Book III of the implementing rules. In other words, for purposes of
forming and joining unions, certification elections, collective bargaining, and so forth, the union
members are supervisory employees. In terms of working conditions and rest periods and
entitlement to the questioned benefits, however, they are officers or members of the managerial
staff, hence they are not entitled thereto.

While the Constitution is committed to the policy of social justice and the protection of the
working class, it should not be supposed that every labor dispute will be automatically decided
in favor of labor. Management also has its own rights which, as such, are entitled to respect and
enforcement in the interest of simple fair play. Out of its concern for those with less privileges in
life, this Court has inclined more often than not toward the worker and upheld his cause in his
conflicts with the employer. Such favoritism, however, has not blinded us to the rule that justice
is in every case for the deserving, to be dispensed in the light of the established facts and the
applicable law and doctrine. 5

This is one such case where we are inclined to tip the scales of justice in favor of the employer.

The question whether a given employee is exempt from the benefits of the law is a factual one
dependent on the circumstances of the particular case, In determining whether an employee is
within the terms of the statutes, the criterion is the character of the work performed, rather
than the title of the employee's position. 6

Consequently, while generally this Court is not supposed to review the factual findings of
respondent commission, substantial justice and the peculiar circumstances obtaining herein
mandate a deviation from the rule.

A cursory perusal of the Job Value Contribution Statements 7 of the union members will readily
show that these supervisory employees are under the direct supervision of their respective
department superintendents and that generally they assist the latter in planning, organizing,
staffing, directing, controlling communicating and in making decisions in attaining the company's
set goals and objectives. These supervisory employees are likewise responsible for the effective
and efficient operation of their respective departments. More specifically, their duties and
functions include, among others, the following operations whereby the employee:

1) assists the department superintendent in the following:

a) planning of systems and procedures relative to department activities;

b) organizing and scheduling of work activities of the department, which includes


employee shifting scheduled and manning complement;

c) decision making by providing relevant information data and other inputs;

d) attaining the company's set goals and objectives by giving his full support;

e) selecting the appropriate man to handle the job in the department; and

f) preparing annual departmental budget;

2) observes, follows and implements company policies at all times and recommends
disciplinary action on erring subordinates;
3) trains and guides subordinates on how to assume responsibilities and become more
productive;

4) conducts semi-annual performance evaluation of his subordinates and recommends


necessary action for their development/advancement;

5) represents the superintendent or the department when appointed and authorized by


the former;

6) coordinates and communicates with other inter and intra department supervisors when
necessary;

7) recommends disciplinary actions/promotions;

8) recommends measures to improve work methods, equipment performance, quality of


service and working conditions;

9) sees to it that safety rules and regulations and procedure and are implemented and
followed by all NASUREFCO employees, recommends revisions or modifications to said rules
when deemed necessary, and initiates and prepares reports for any observed abnormality within
the refinery;

10) supervises the activities of all personnel under him and goes to it that instructions to
subordinates are properly implemented; and

11) performs other related tasks as may be assigned by his immediate superior.

From the foregoing, it is apparent that the members of respondent union discharge duties and
responsibilities which ineluctably qualify them as officers or members of the managerial staff, as
defined in Section 2, Rule I Book III of the aforestated Rules to Implement the Labor Code, viz.:
(1) their primary duty consists of the performance of work directly related to management
policies of their employer; (2) they customarily and regularly exercise discretion and
independent judgment; (3) they regularly and directly assist the managerial employee whose
primary duty consist of the management of a department of the establishment in which they are
employed (4) they execute, under general supervision, work along specialized or technical lines
requiring special training, experience, or knowledge; (5) they execute, under general
supervision, special assignments and tasks; and (6) they do not devote more than 20% of their
hours worked in a work-week to activities which are not directly and clearly related to the
performance of their work hereinbefore described.

Under the facts obtaining in this case, we are constrained to agree with petitioner that the union
members should be considered as officers and members of the managerial staff and are,
therefore, exempt from the coverage of Article 82. Perforce, they are not entitled to overtime,
rest day and holiday.

The distinction made by respondent NLRC on the basis of whether or not the union members are
managerial employees, to determine the latter's entitlement to the questioned benefits, is
misplaced and inappropriate. It is admitted that these union members are supervisory
employees and this is one instance where the nomenclatures or titles of their jobs conform with
the nature of their functions. Hence, to distinguish them from a managerial employee, as
defined either under Articles 82 or 212 (m) of the Labor Code, is puerile and in efficacious. The
controversy actually involved here seeks a determination of whether or not these supervisory
employees ought to be considered as officers or members of the managerial staff. The
distinction, therefore, should have been made along that line and its corresponding conceptual
criteria.

II. We likewise no not subscribe to the finding of the labor arbiter that the payment of the
questioned benefits to the union members has ripened into a contractual obligation.

A. Prior to the JE Program, the union members, while being supervisors, received benefits
similar to the rank-and-file employees such as overtime, rest day and holiday pay, simply
because they were treated in the same manner as rank-and-file employees, and their basic pay
was nearly on the same level as those of the latter, aside from the fact that their specific
functions and duties then as supervisors had not been properly defined and delineated from
those of the rank-and-file. Such fact is apparent from the clarification made by petitioner in its
motion for reconsideration 8 filed with respondent commission in NLRC Case No. CA No. I-
000058, dated August 16, 1991, wherein, it lucidly explained:

"But, complainants no longer occupy the same positions they held before the JE Program. Those
positions formerly classified as 'supervisory' and found after the JE Program to be rank-and-file
were classified correctly and continue to receive overtime, holiday and restday pay. As to them,
the practice subsists.
"However, those whose duties confirmed them to be supervisory, were re-evaluated, their duties
re-defined and in most cases their organizational positions re-designated to confirm their
superior rank and duties. Thus, after the JE program, complainants cannot be said to occupy the
same positions." 9

It bears mention that this positional submission was never refuted nor controverted by
respondent union in any of its pleadings filed before herein public respondent or with this Court.
Hence, it can be safely concluded therefrom that the members of respondent union were paid
the questioned benefits for the reason that, at that time, they were rightfully entitled thereto.
Prior to the JE Program, they could not be categorically classified as members or officers of the
managerial staff considering that they were then treated merely on the same level as rank-and-
file. Consequently, the payment thereof could not be construed as constitutive of voluntary
employer practice, which cannot be now be unilaterally withdrawn by petitioner. To be
considered as such, it should have been practiced over a long period of time, and must be shown
to have been consistent and deliberate. 10

The test or rationale of this rule on long practice requires an indubitable showing that the
employer agreed to continue giving the benefits knowingly fully well that said employees are not
covered by the law requiring payment thereof. 11 In the case at bar, respondent union failed to
sufficiently establish that petitioner has been motivated or is wont to give these benefits out of
pure generosity.

B. It remains undisputed that the implementation of the JE Program, the members of


private respondent union were re-classified under levels S-5 S-8 which were considered under
the program as managerial staff purposes of compensation and benefits, that they occupied re-
evaluated positions, and that their basic pay was increased by an average of 50% of their basic
salary prior to the JE Program. In other words, after the JE Program there was an ascent in
position, rank and salary. This in essence is a promotion which is defined as the advancement
from one position to another with an increase in duties and responsibilities as authorized by law,
and usually accompanied by an increase in salary. 12

Quintessentially, with the promotion of the union members, they are no longer entitled to the
benefits which attach and pertain exclusively to their positions. Entitlement to the benefits
provided for by law requires prior compliance with the conditions set forth therein. With the
promotion of the members of respondent union, they occupied positions which no longer met
the requirements imposed by law. Their assumption of these positions removed them from the
coverage of the law, ergo, their exemption therefrom.

As correctly pointed out by petitioner, if the union members really wanted to continue receiving
the benefits which attach to their former positions, there was nothing to prevent them from
refusing to accept their promotions and their corresponding benefits. As the sating goes by, they
cannot have their cake and eat it too or, as petitioner suggests, they could not, as a simple
matter of law and fairness, get the best of both worlds at the expense of NASUREFCO.

Promotion of its employees is one of the jurisprudentially-recognized exclusive prerogatives of


management, provided it is done in good faith. In the case at bar, private respondent union has
miserably failed to convince this Court that the petitioner acted implementing the JE Program.
There is no showing that the JE Program was intended to circumvent the law and deprive the
members of respondent union of the benefits they used to receive.

Not so long ago, on this particular score, we had the occasion to hold that:

". . . it is the prerogative of the management to regulate, according to its discretion and
judgment, all aspects of employment. This flows from the established rule that labor law does
not authorize the substitution of the judgment of the employer in the conduct of its business.
Such management prerogative may be availed of without fear of any liability so long as it is
exercised in good faith for the advancement of the employer's interest and not for the purpose
of defeating on circumventing the rights of employees under special laws or valid agreement and
are not exercised in a malicious, harsh, oppressive, vindictive or wanton manner or out of malice
or spite." 13

WHEREFORE, the impugned decision and resolution of respondent National Labor Relations
Commission promulgated on July 19, 1991 and August 30, 1991, respectively, are hereby
ANNULLED and SET ASIDE for having been rendered and adopted with grave abuse of discretion,
and the basic complaint of private respondent union is DISMISSED.

Narvasa, C . J ., Padilla, Nocon and Campos, Jr., JJ., concur.

G.R. No. L-12444 February 28, 1963

STATES MARINE CORPORATION and ROYAL LINE, INC., petitioners,

vs.

CEBU SEAMEN'S ASSOCIATION, INC., respondent.

Pedro B. Uy Calderon for petitioners.


Gaudioso C. Villagonzalo for respondent.

PAREDES, J.:

Petitioners States Marine Corporation and Royal Line, Inc. were engaged in the business of
marine coastwise transportation, employing therein several steamships of Philippine registry.
They had a collective bargaining contract with the respondent Cebu Seamen's Association, Inc.
On September 12, 1952, the respondent union filed with the Court of Industrial Relations (CIR), a
petition (Case No. 740-V) against the States Marine Corporation, later amended on May 4, 1953,
by including as party respondent, the petitioner Royal Line, Inc. The Union alleged that the
officers and men working on board the petitioners' vessels have not been paid their sick leave,
vacation leave and overtime pay; that the petitioners threatened or coerced them to accept a
reduction of salaries, observed by other shipowners; that after the Minimum Wage Law had
taken effect, the petitioners required their employees on board their vessels, to pay the sum of
P.40 for every meal, while the masters and officers were not required to pay their meals and that
because Captain Carlos Asensi had refused to yield to the general reduction of salaries, the
petitioners dismissed said captain who now claims for reinstatement and the payment of back
wages from December 25, 1952, at the rate of P540.00, monthly.

The petitioners' shipping companies, answering, averred that very much below 30 of the men
and officers in their employ were members of the respondent union; that the work on board a
vessel is one of comparative ease; that petitioners have suffered financial losses in the operation
of their vessels and that there is no law which provides for the payment of sick leave or vacation
leave to employees or workers of private firms; that as regards the claim for overtime pay, the
petitioners have always observed the provisions of Comm. Act No. 444, (Eight-Hour Labor Law),
notwithstanding the fact that it does not apply to those who provide means of transportation;
that the shipowners and operators in Cebu were paying the salaries of their officers and men,
depending upon the margin of profits they could realize and other factors or circumstances of
the business; that in enacting Rep. Act No. 602 (Minimum Wage Law), the Congress had in mind
that the amount of P.40 per meal, furnished the employees should be deducted from the daily
wages; that Captain Asensi was not dismissed for alleged union activities, but with the expiration
of the terms of the contract between said officer and the petitioners, his services were
terminated.

A decision was rendered on February 21, 1957 in favor of the respondent union. The motion for
reconsideration thereof, having been denied, the companies filed the present writ of certiorari,
to resolve legal question involved. Always bearing in mind the deep-rooted principle that the
factual findings of the Court of Industrial Relations should not be disturbed, if supported by
substantial evidence, the different issues are taken up, in the order they are raised in the brief
for the petitioners.
1. First assignment of error. The respondent court erred in holding that it had jurisdiction over
case No. 740-V, notwithstanding the fact that those who had dispute with the petitioners, were
less than thirty (30) in number.

The CIR made a finding that at the time of the filing of the petition in case No. 740-V, respondent
Union had more than thirty members actually working with the companies, and the court
declared itself with jurisdiction to take cognizance of the case. Against this order, the herein
petitioners did not file a motion for reconsideration or a petition for certiorari. The finding of fact
made by the CIR became final and conclusive, which We are not now authorized to alter or
modify. It is axiomatic that once the CIR had acquired jurisdiction over a case, it continues to
have that jurisdiction, until the case is terminated (Manila Hotel Emp. Association v. Manila Hotel
Company, et al., 40 O.G. No. 6, p. 3027). It was abundantly shown that there were 56 members
who signed Exhibits A, A-I to A-8, and that 103 members of the Union are listed in Exhibits B, B-1
to B-35, F, F-1 and K-2 to K-3. So that at the time of the filing of the petition, the respondent
union had a total membership of 159, working with the herein petitioners, who were presumed
interested in or would be benefited by the outcome of the case (NAMARCO v. CIR, L-17804, Jan.
1963). Annex D, (Order of the CIR, dated March 8, 1954), likewise belies the contention of herein
petitioner in this regard. The fact that only 7 claimed for overtime pay and only 7 witnesses
testified, does not warrant the conclusion that the employees who had some dispute with the
present petitioners were less than 30. The ruling of the CIR, with respect to the question of
jurisdiction is, therefore, correct.

2. Second assignment of error. The CIR erred in holding, that inasmuch as in the shipping
articles, the herein petitioners have bound themselves to supply the crew with provisions and
with such "daily subsistence as shall be mutually agreed upon" between the master and the
crew, no deductions for meals could be made by the aforesaid petitioners from their wages or
salaries.

3. Third assignment of error. The CIR erred in holding that inasmuch as with regard to meals
furnished to crew members of a vessel, section 3(f) of Act No. 602 is the general rule, which
section 19 thereof is the exception, the cost of said meals may not be legally deducted from the
wages or salaries of the aforesaid crew members by the herein petitioners.

4. Fourth assignment of error. The CIR erred in declaring that the deduction for costs of meals
from the wages or salaries after August 4, 1951, is illegal and same should be reimbursed to the
employee concerned, in spite of said section 3, par. (f) of Act No. 602.

It was shown by substantial evidence, that since the beginning of the operation of the
petitioner's business, all the crew of their vessels have been signing "shipping articles" in which
are stated opposite their names, the salaries or wages they would receive. All seamen, whether
members of the crew or deck officers or engineers, have been furnished free meals by the ship
owners or operators. All the shipping articles signed by the master and the crew members,
contained, among others, a stipulation, that "in consideration of which services to be duly
performed, the said master hereby agrees to pay to the said crew, as wages, the sums against
their names respectively expressed in the contract; and to supply them with provisions as
provided herein ..." (Sec. 8, par. [b], shipping articles), and during the duration of the contract
"the master of the vessel will provide each member of the crew such daily subsistence as shall
be mutually agreed daily upon between said master and crew; or, in lieu of such subsistence the
crew may reserve the right to demand at the time of execution of these articles that adequate
daily rations be furnished each member of the crew." (Sec. 8, par. [e], shipping articles). It is,
therefore, apparent that, aside from the payment of the respective salaries or wages, set
opposite the names of the crew members, the petitioners bound themselves to supply the crew
with ship's provisions, daily subsistence or daily rations, which include food.

This was the situation before August 4, 1951, when the Minimum Wage Law became effective.
After this date, however, the companies began deducting the cost of meals from the wages or
salaries of crew members; but no such deductions were made from the salaries of the deck
officers and engineers in all the boats of the petitioners. Under the existing laws, therefore, the
query converges on the legality of such deductions. While the petitioners herein contend that
the deductions are legal and should not be reimbursed to the respondent union, the latter,
however, claims that same are illegal and reimbursement should be made.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to
prove their case not covered by this stipulation of facts. 1wph1.t

We hold that such deductions are not authorized. In the coastwise business of transportation of
passengers and freight, the men who compose the complement of a vessel are provided with
free meals by the shipowners, operators or agents, because they hold on to their work and
duties, regardless of "the stress and strain concomitant of a bad weather, unmindful of the
dangers that lurk ahead in the midst of the high seas."

Section 3, par. f, of the Minimum Wage Law, (R.A. No. 602), provides as follows

(f) Until and unless investigations by the Secretary of Labor on his initiative or on petition of any
interested party result in a different determination of the fair and reasonable value, the
furnishing of meals shall be valued at not more than thirty centavos per meal for agricultural
employees and not more than forty centavos for any other employees covered by this Act, and
the furnishing of housing shall be valued at not more than twenty centavos daily for agricultural
workers and not more than forty centavos daily for other employees covered by this Act.
Petitioners maintain, in view of the above provisions, that in fixing the minimum wage of
employees, Congress took into account the meals furnished by employers and that in fixing the
rate of forty centavos per meal, the lawmakers had in mind that the latter amount should be
deducted from the daily wage, otherwise, no rate for meals should have been provided.

However, section 19, same law, states

SEC. 19. Relations to other labor laws and practices. Nothing in this Act shall deprive an
employee of the right to seek fair wages, shorter working hours and better working conditions
nor justify an employer in violating any other labor law applicable to his employees, in reducing
the wage now paid to any of his employees in excess of the minimum wage established under
this Act, or in reducing supplements furnished on the date of enactment.

At first blush, it would appear that there exists a contradiction between the provisions of section
3(f) and section 19 of Rep. Act No. 602; but from a careful examination of the same, it is evident
that Section 3(f) constitutes the general rule, while section 19 is the exception. In other words, if
there are no supplements given, within the meaning and contemplation of section 19, but
merely facilities, section 3(f) governs. There is no conflict; the two provisions could, as they
should be harmonized. And even if there is such a conflict, the respondent CIR should resolve
the same in favor of the safety and decent living laborers (Art. 1702, new Civil Code)..

It is argued that the food or meals given to the deck officers, marine engineers and unlicensed
crew members in question, were mere "facilities" which should be deducted from wages, and
not "supplements" which, according to said section 19, should not be deducted from such
wages, because it is provided therein: "Nothing in this Act shall deprive an employee of the right
to such fair wage ... or in reducing supplements furnished on the date of enactment." In the case
of Atok-Big Wedge Assn. v. Atok-Big Wedge Co., L-7349, July 19, 1955; 51 O.G. 3432, the two
terms are defined as follows

"Supplements", therefore, constitute extra remuneration or special privileges or benefits given


to or received by the laborers over and above their ordinary earnings or wages. "Facilities", on
the other hand, are items of expense necessary for the laborer's and his family's existence and
subsistence so that by express provision of law (Sec. 2[g]), they form part of the wage and when
furnished by the employer are deductible therefrom, since if they are not so furnished, the
laborer would spend and pay for them just the same.

In short, the benefit or privilege given to the employee which constitutes an extra remuneration
above and over his basic or ordinary earning or wage, is supplement; and when said benefit or
privilege is part of the laborers' basic wages, it is a facility. The criterion is not so much with the
kind of the benefit or item (food, lodging, bonus or sick leave) given, but its purpose.
Considering, therefore, as definitely found by the respondent court that the meals were freely
given to crew members prior to August 4, 1951, while they were on the high seas "not as part of
their wages but as a necessary matter in the maintenance of the health and efficiency of the
crew personnel during the voyage", the deductions therein made for the meals given after
August 4, 1951, should be returned to them, and the operator of the coastwise vessels affected
should continue giving the same benefit..

In the case of Cebu Autobus Company v. United Cebu Autobus Employees Assn., L-9742, Oct. 27,
1955, the company used to pay to its drivers and conductors, who were assigned outside of the
City limits, aside from their regular salary, a certain percentage of their daily wage, as allowance
for food. Upon the effectivity of the Minimum Wage Law, however, that privilege was stopped by
the company. The order CIR to the company to continue granting this privilege, was upheld by
this Court.

The shipping companies argue that the furnishing of meals to the crew before the effectivity of
Rep. Act No. 602, is of no moment, because such circumstance was already taken into
consideration by Congress, when it stated that "wage" includes the fair and reasonable value of
boards customarily furnished by the employer to the employees. If We are to follow the theory
of the herein petitioners, then a crew member, who used to receive a monthly wage of P100.00,
before August 4, 1951, with no deduction for meals, after said date, would receive only P86.00
monthly (after deducting the cost of his meals at P.40 per meal), which would be very much less
than the P122.00 monthly minimum wage, fixed in accordance with the Minimum Wage Law.
Instead of benefiting him, the law will adversely affect said crew member. Such interpretation
does not conform with the avowed intention of Congress in enacting the said law.

One should not overlook a fact fully established, that only unlicensed crew members were made
to pay for their meals or food, while the deck officers and marine engineers receiving higher pay
and provided with better victuals, were not. This pictures in no uncertain terms, a great and
unjust discrimination obtaining in the present case (Pambujan Sur United Mine Workers v. CIR, et
al., L-7177, May 31, 1955).

Fifth, Sixth and Seventh assignments of error. The CIR erred in holding that Severino Pepito, a
boatsman, had rendered overtime work, notwithstanding the provisions of section 1, of C.A. No.
444; in basing its finding ofthe alleged overtime, on the uncorroborated testimony of said
Severino Pepito; and in ordering the herein petitioners to pay him. Severino Pepito was found by
the CIR to have worked overtime and had not been paid for such services. Severino Pepito
categorically stated that he worked during the late hours of the evening and during the early
hours of the day when the boat docks and unloads. Aside from the above, he did other jobs such
as removing rusts and cleaning the vessel, which overtime work totalled to 6 hours a day, and of
which he has not been paid as yet. This statement was not rebutted by the petitioners. Nobody
working with him on the same boat "M/V Adriana" contrawise. The testimonies of boatswains of
other vessels(M/V Iruna and M/V Princesa), are incompetent and unreliable. And considering
the established fact that the work of Severino Pepito was continuous, and during the time he
was not working, he could not leave and could not completely rest, because of the place and
nature of his work, the provisions of sec. 1, of Comm. Act No. 444, which states "When the work
is not continuous, the time during which the laborer is not working and can leave his working
place and can rest completely shall not be counted", find no application in his case.

8. Eighth assignment of error. The CIR erred in ordering petitioners to reinstate Capt. Carlos
Asensi to his former position, considering the fact that said officer had been employed since
January 9, 1953, as captain of a vessel belonging to another shipping firm in the City of Cebu.

The CIR held

Finding that the claims of Captain Carlos Asensi for back salaries from the time of his alleged lay-
off on March 20, 1952, is not supported by the evidence on record, the same is hereby
dismissed. Considering, however, that Captain Asensi had been laid-off for a long time and that
his failure to report for work is not sufficient cause for his absolute dismissal, respondents are
hereby ordered to reinstate him to his former job without back salary but under the same terms
and conditions of employment existing prior to his lay-off, without loss of seniority and other
benefits already acquired by him prior to March 20, 1952. This Court is empowered to reduce
the punishment meted out to an erring employee (Standard Vacuum Oil Co., Inc. v. Katipunan
Labor Union, G.R. No. L-9666, Jan. 30, 1957). This step taken is in consonance with section 12 of
Comm. Act 103, as amended." (p. 16, Decision, Annex 'G').

The ruling is in conformity with the evidence, law and equity.

Ninth and Tenth assignments of error. The CIR erred in denying a duly verified motion for new
trial, and in overruling petitioner's motion for reconsideration.

The motion for new trial, supported by an affidavit, states that the movants have a good and
valid defense and the same is based on three orders of the WAS (Wage Administration Service),
dated November 6, 1956. It is alleged that they would inevitably affect the defense of the
petitioners. The motion for new trial is without merit. Having the said wage Orders in their
possession, while the case was pending decision, it was not explained why the proper move was
not taken to introduce them before the decision was promulgated. The said wage orders, dealing
as they do, with the evaluation of meals and facilities, are irrelevant to the present issue, it
having been found and held that the meals or food in question are not facilities but
supplements. The original petition in the CIR having been filed on Sept. 12, 1952, the WAS could
have intervened in the manner provided by law to express its views on the matter. At any rate,
the admission of the three wage orders have not altered the decision reached in this case.

IN VIEW HEREOF, the petition is dismissed, with costs against the petitioners.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Dizon, Regala
and Makalintal, JJ., concur.

G.R. No. 74156 June 29, 1988

GLOBE MACKAY CABLE AND RADIO CORPORATION, FREDERICK WHITE and JESUS SANTIAGO,
petitioners,

vs.

NATIONAL LABOR RELATIONS COMMISSION, FFW-GLOBE MACKAY EMPLOYEES UNION and EDA
CONCEPCION, respondents.

Castillo, Laman, Tan & Pantaleon for petitioners.

Edwin D. Dellaban for private respondents.

MELENCIO-HERRERA, J.:

A special civil action for certiorari with a prayer for a Temporary Restraining Order to enjoin
respondents from enforcing the Decision of 10 March 1986 of the National Labor Relations
Commission (NLRC), in NCR Case No. 1-168-85 entitled "FFW-Globe Mackay Employees Union, et
al., vs. Globe Mackay Cable & Radio Corporation, et al.," the dispositive portion of which reads:

WHEREFORE, premises considered, the appealed Decision is as it is hereby SET ASIDE and
another one issued:
1. Declaring respondents-appellees (petitioners herein) guilty of illegal deductions of cost-
of-living allowance;

2. Ordering respondents-appellees to pay complainants-appellants their back allowances


reckoned from the time of illegal deduction; and

3. Ordering respondents-appellees from further illegally deducting the allowances of


complainants-appellants.

SO ORDERED.

Presiding Commissioner of the NLRC, Diego P. Atienza, concurred in the result, while
Commissioner Cleto T. Villaltuya dissented and voted to affirm in toto the Labor Arbiter's
Decision.

On 19 May 1986, we issued the Temporary Restraining Order enjoining respondents from
enforcing the assailed Decision. On 2 September 1987, we gave due course to the petition and
required the submittal of memoranda, by the parties, which has been complied with.

The facts follow:

Wage Order No. 6, which took effect on 30 October 1984, increased the cost-of-living allowance
of non-agricultural workers in the private sector. Petitioner corporation complied with the said
Wage Order by paying its monthly-paid employees the mandated P3.00 per day COLA. However,
in computing said COLA, Petitioner Corporation multiplied the P 3.00 daily COLA by 22 days,
which is the number of working days in the company.

Respondent Union disagreed with the computation of the monthly COLA claiming that the daily
COLA rate of P3.00 should be multiplied by 30 days to arrive at the monthly COLA rate. The
union alleged furthermore that prior to the effectivity of Wage Order No. 6, Petitioner
Corporation had been computing and paying the monthly COLA on the basis of thirty (30) days
per month and that this constituted an employer practice, which should not be unilaterally
withdrawn.
After several grievance proceedings proved futile, the Union filed a complaint against Petitioner
Corporation, its President, F. White, and Vice-President, J. Santiago, for illegal deduction,
underpayment, unpaid allowances, and violation of Wage Order No. 6. Petitioners White and
Santiago were sought to be held personally liable for the money claims thus demanded.

Labor Arbiter Adelaido F. Martinez sustained the position of Petitioner Corporation by holding
that since the individual petitioners acted in their corporate capacity they should not have been
impleaded; and that the monthly COLA should be computed on the basis of twenty two (22)
days, since the evidence showed that there are only 22 paid days in a month for monthly-paid
employees in the company. His reasoning, inter alia, was as follows:

To compel the respondent company to use 30 days in a month to compute the allowance and
retain 22 days for vacation and sick leave, overtime pay and other benefits is inconsistent and
palpably unjust. If 30 days is used as divisor, then it must be used for the computation of all
benefits, not just the allowance. But this is not fair to complainants, not to mention that it will
contravene the provision of the parties' CBA.

On appeal, the NLRC reversed the Labor Arbiter, as heretofore stated, and held that Petitioner
Corporation was guilty of illegal deductions, upon the following considerations: (1) that the
P3.00 daily COLA under Wage Order No. 6 should be paid and computed on the basis of thirty
(30) days instead of twenty-two (22) days since workers paid on a monthly basis are entitled to
COLA on Saturdays, Sundays and legal holidays "even if unworked;" (2) that the full allowance
enjoyed by Petitioner Corporation's monthly-paid employees before the CBA executed between
the parties in 1982 constituted voluntary employer practice, which cannot be unilaterally
withdrawn; and (3) that petitioners White and Santiago were properly impleaded as respondents
in the case below.

Hence, this Petition, anchored on the charge of grave abuse of discretion by the NLRC.

We are constrained to reverse the reversal.

Section 5 of the Rules Implementing Wage Orders Nos. 2, 3, 5 and 6 uniformly read as follows:

Section 5. Allowance for Unworked Days.


All covered employees shall be entitled to their daily living allowance during the days that they
are paid their basic wage, even if unworked. (Emphasis supplied)

The primordial consideration, therefore, for entitlement to COLA is that basic wage is being paid.
In other words, the payment of COLA is mandated only for the days that the employees are paid
their basic wage, even if said days are unworked. So that, on the days that employees are not
paid their basic wage, the payment of COLA is not mandated. As held in University of Pangasinan
Faculty Union vs. University of Pangasinan, L-63122, February 20, 1984, 127 SCRA 691):

... it is evident that the intention of the law is to grant ECOLA upon the payment of basic wages.
Hence, we have the principle of 'No Pay, No ECOLA.

Applied to monthly-paid employees if their monthly salary covers all the days in a month, they
are deemed paid their basic wages for all those days and they should be entitled to their COLA
on those days "even if unworked," as the NLRC had opined. Peculiar to this case, however, is the
circumstance that pursuant to the Collective Bargaining Agreement (CBA) between Petitioner
Corporation and Respondent Union, the monthly basic pay is computed on the basis of five (5)
days a week, or twenty two (22) days a month. Thus, the pertinent provisions of that Agreement
read:

Art. XV(a)Eight net working hours shall constitute the regular work day for five days.

Art. XV(b)Forty net hours of work, 5 working days, shall constitute the regular work week.

Art. XVI, Sec. 1(b)All overtime worked in excess of eight net hours daily or in excess of 5 days
weekly shall be computed on hourly basis at the rate of time and one half.

The Labor Arbiter also found that in determining the hourly rate of monthly paid employees for
purposes of computing overtime pay, the monthly wage is divided by the number of actual work
days in a month and then, by eight (8) working hours. If a monthly-paid employee renders
overtime work, he is paid his basic salary rate plus one-half thereof. For example, after
examining the specimen payroll of employee Jesus L. Santos, the Labor Arbiter found:

the employee Jesus L. Santos, who worked on Saturday and Sunday was paid base pay plus 50%
premium. This is over and above his monthly basic pay as supported by the fact that base pay
was paid. If the 6th and 7th days of the week are deemed paid even if unworked and included in
the monthly salary, Santos should not have been paid his base pay for Saturday and Sunday but
should have received only the 50% overtime premium.

Similarly, the specimen payrolls of employees, Dennis Dungon and Rene Sanvictores, showed
that in computing the vacation and sick leaves of the employees, Petitioner Corporation
consistently used twenty-two (22) days.

Under the peculiar circumstances obtaining, therefore, where the company observes a 5-day
work week, it will have to be held that the COLA should be computed on the basis of twenty two
(22) days, which is the period during which the monthly-paid employees of Petitioner
Corporation receive their basic wage. The CBA is the law between the parties and, if not
acceptable, can be the subject of future re-negotiation.

2) Payment in full by Petitioner Corporation of the COLA before the execution of the CBA in
1982 and in compliance with Wage Orders Nos. 1 (26 March 1981) to 5 (11 June 1984), should
not be construed as constitutive of voluntary employer practice, which cannot now be
unilaterally withdrawn by petitioner. To be considered as such, it should have been practiced
over a long period of time, and must be shown to have been consistent and deliberate.
Adequate proof is wanting in this respect. The test of long practice has been enunciated thus:

... Respondent Company agreed to continue giving holiday pay knowing fully well that said
employees are not covered by the law requiring payment of holiday pay.' (Oceanic Pharmacal
Employees Union [FFW] vs. Inciong, L-50568, November 7, 1979, 94 SCRA 270). (Emphasis ours)

Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the
implementation of the Wage Orders. It was only when the Rules Implementing Wage Order No.
4 were issued on 21 May 1984 that a formula for the conversion of the daily allowance to its
monthly equivalent was laid down, thus:

Section 3. Application of Section 2--

xxx xxx xxx

(a) Monthly rates for non-agricultural workers covered Under PDs 1614, 1634, 1678 and 1713:
xxx xxx xxx

(3) For workers who do not work and are not considered paid on Saturdays and Sundays:

P60 + P90 + P60 + (P2.00 x 262) divided by 12 = P 253.70 (Emphasis ours)

As the Labor Arbiter had analyzed said formula:

Under the aforecited formula/guideline, issued for the first time, when applied to a company like
respondent which observes a 5-day work week (or where 2 days in a week, not necessarily
Saturday and Sunday, are not considered paid), the monthly equivalent of a daily allowance is
arrived at by multiplying the daily allowance by 262 divided by 12. This formula results in the
equivalent of 21.8 days in a month.

Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous
application of the law. Payment may be said to have been made by reason of a mistake in the
construction or application of a "doubtful or difficult question of law." (Article 2155, 1 in relation
to Article 2154 2 of the Civil Code). Since it is a past error that is being corrected, no vested right
may be said to have arisen nor any diminution of benefit under Article 100 of the Labor Code 3
may be said to have resulted by virtue of the correction.

With the conclusions thus reached, there is no further need to discuss the liability of the officers
of Petitioner Corporation.

WHEREFORE, certiorari is granted, the Decision of the National Labor Relations Commission,
dated 10 March 1986, is SET ASIDE, and the Decision of the Labor Arbiter, dated 9 May 1985, is
hereby REINSTATED. The Temporary Restraining Order heretofore issued is hereby made
permanent.

SO ORDERED.

Yap, C.J., Paras, and Sarmiento, JJ., concur.


Padilla, J., took no part.

SYLLABI/SYNOPSIS

FIRST DIVISION

[G.R. No. 127598. January 27, 1999]

MANILA ELECTRIC COMPANY, petitioner, vs. THE HONORABLE SECRETARY OF LABOR LEONARDO
QUISUMBING AND MERALCO EMPLOYEES AND WORKERS ASSOCIATION (MEWA), respondents.

DECISION

MARTINEZ, J.:

In this petition for certiorari, the Manila Electric Company (MERALCO) seeks to annul the orders
of the Secretary of labor dated August 19, 1996 and December 28, 1996, wherein the Secretary
required MERALCO and its rank and file union- the Meralco Workers Association (MEWA) to
execute a collective bargaining agreement (CBA) for the remainder of the parties 1992-1997 CBA
cycle, and to incorporate in this new CBA the Secretarys dispositions on the disputed economic
and non-economic issues.

MEWA is the duly recognized labor organization of the rank-and-file employees of MERALCO.

On September 7, 1995, MEWA informed MERALCO of its intention to re-negotiate the terms and
conditions of their existing 1992-1997 Collective Bargaining Agreement (CBA) covering the
remaining period of two years starting from December 1, 1995 to November 30, 1997.[1]
MERALCO signified its willingness to re-negotiate through its letter dated October 17, 1995[2]
and formed a CBA negotiating panel for the purpose. On November 10, 1995, MEWA submitted
its proposal[3] to MERALCO, which, in turn, presented a counter-proposal. Thereafter, collective
bargaining negotiations proceeded. However, despite the series of meetings between the
negotiating panels of MERALCO and MEWA, the parties failed to arrive at terms and conditions
acceptable to both of them.

On April 23, 1996, MEWA filed a Notice of Strike with the National Capital Region Branch of the
National Conciliation and Mediation Board (NCMB) of the Department of Labor and Employment
(DOLE) which was docketed as NCMB-NCR-NS-04-152-96, on the grounds of bargaining deadlock
and unfair labor practices. The NCMB then conducted a series of conciliation meetings but the
parties failed to reach an amicable settlement. Faced with the imminence of a strike, MERALCO
on May 2, 1996, filed an Urgent Petition[4] with the Department of Labor and Employment
which was docketed as OS-AJ No. 0503[1]96 praying that the Secretary assume jurisdiction over
the labor dispute and to enjoin the striking employees to go back to work.

The Labor Secretary granted the petition through its Order[5] of May 8, 1996, the dispositive
portion of which reads:

WHEREFORE, premises considered, this Office now assumes jurisdiction over the labor dispute
obtaining between the parties pursuant to Article 263 (g) of the Labor Code. Accordingly, the
parties are here enjoined from committing any act that may exacerbate the situation. To speed
up the resolution of the dispute, the parties are also directed to submit their respective Position
Papers within ten (10) days from receipt.

Undersecretary Jose M. Espanol, Jr. is deputized to conduct conciliation conferences between


the parties to bridge their differences and eventually hammer out a solution that is mutually
acceptable. He shall be assisted by the Legal Service.

SO ORDERED.

Thereafter, the parties submitted their respective memoranda and on August 19, 1996, the
Secretary resolved the labor dispute through an Order,[6] containing the following awards:

ECONOMIC DEMANDS

Wage increase - P2,300.00 for the first year covering the

period from December 1, 1995 to November 30, 1996

- P2,200.00 for the second year covering

the period December 1, 1996 to November 30, 1997.

Red Circle Rate (RCR) Allowance- all RCR allowances (promotional increases that go beyond the
maximum range of a job classification salary) shall be integrated into the basic salary of
employees effective December 1, 1995.
Longevity Allowance- the integration of the longevity allowance into the basic wage is denied;
the present policy is maintained.

Longevity Increase- the present longevity bonus is maintained but the bonus shall be
incorporated into the new CBA.

Sick Leave- MEWAs demand for upgrading is denied; the companys present policy is maintained.
However, those who have not used the sick leave benefit during a particular year shall be
entitled to a one-day sick leave incentive.

Sick leave reserve- the present reserve of 25 days shall be reduced to 15 days; the employee has
the option either to convert the excess of 10 days to cash or let it remain as long as he wants. In
case he opts to let it remain, he may later on convert it to cash at his retirement or separation.

Vacation Leave - MEWAs demand for upgrading denied & the companys present policy is
maintained which must be incorporated into the new CBA but scheduled vacation leave may be
rounded off to one full day at a time in case of a benefit involving a fraction of a day.

Union Leave- of MEWAs officers, directors or stewards assigned to perform union duties or
legitimate union activity is increased from 30 to 40 Mondays per month.

Maternity, Paternity and Funeral leaves- the existing policy is to be maintained and must be
incorporated in the new CBA unless a new law granting paternity leave benefit is enacted which
is superior to what the company has already granted.

Birthday Leave - unions demand is granted. If birthday falls on the employees rest day or on a
non-working holiday, the worker shall be entitled to go on leave with pay on the next working
day.

Group Hospitalization & Surgical Insurance Plan (GHSIP) and Health Maintenance Plan (HMP)-
present policy is maintained insofar as the cost sharing is concerned- 70% for the Company and
30% for MEWA.

Health Maintenance Plan (HMP) for dependents - subsidized dependents increased from three
to five dependents.

Longevity Bonus- is increased from P140.00 to P200.00 for every year of service to be received
by the employee after serving the Company for 5 years.

Christmas Bonus and Special Christmas Grant- MEWAs demand of one month salary as
Christmas Bonus and two months salary as Special Christmas Grant is granted and to be
incorporated in the new CBA.

Midyear Bonus- one months pay to be included in the CBA.

Anniversary Bonus - unions demand is denied.

Christmas Gift Certificate - company has the discretion as to whether it will give it to its
employees.

Retirement Benefits:

a. Full retirement-present policy is maintained;

b. one cavan of rice per month is granted to retirees;

c. special retirement leave and allowance-present policy is maintained;

d. HMP coverage for retirees- HMP coverage is granted to retirees who have not reached the age
of 70, with MERALCO subsidizing 100% of the monthly premium; those over 70 are entitled to
not more than 30 days of hospitalization at the J.F. Cotton Hospital with the company
shouldering the entire cost.

e. HMP coverage for retirees dependents is denied


f. Monthly pension of P3,000.00 for each retiree is denied.

g. Death benefit for retirees beneficiaries is denied.

Optional retirement - unions demand is denied; present policy is maintained; employee is


eligible for optional retirement if he has rendered at least 18 years of service.

Dental, Medical and Hospitalization Benefits- grant of all the allowable medical, surgical, dental
and annual physical examination benefits, including free medicine whenever the same is not
available at the JFCH.

Resignation benefits- unions demand is denied.

Night work- union demand is denied but present policy must be incorporated in CBA.

Shortswing- work in another shift within the same day shall be considered as the employees
work for the following day and the employee shall be given additional four (4) hours straight
time and the applicable excess time premium if he works beyond 8 hours in the other shift.

High Voltage allowance- is increased from P45.00 to P55.00 to be given to any employee
authorized by the Safety Division to perform work on or near energized bare lines & bus
including stockman drivers & crane operators and other crew members on ground.

High Pole Allowance- is increased from P30.00 to P40.00 to be given to those authorized to climb
poles up to at least 60 ft. from the ground. Members of the team including stockman drivers,
crane operators and other crew members on the ground, are entitled to this benefit.

Towing Allowance- where stockmen drive tow trailers with long poles and equipment on board,
they shall be entitled to a towing allowance of P20.00 whether they perform the job on regular
shift or on overtime.

Employees Cooperative- a loan of P3 M seed money is granted to the proposed establishment of


a cooperative, payable in twenty (20) years starting one year from the start of operations.
Holdup Allowance- the union demand is denied; the present policy shall be maintained.

Meal and Lodging Allowance- shall be increased effective December 1, 1995 as follows:

Breakfast - from P25.00 to P35.00

Lunch - from P35.00 to P45.00

Dinner - from P35.00 to P45.00

Lodging - from P135.00 to P180.00 a night in all MERALCO franchise areas

Payroll Treatment for Accident while on Duty- an employee shall be paid his salary and allowance
if any is due plus average excess time for the past 12 months from the time of the accident up to
the time of full recovery and placing of the employee back to normal duty or an allowance of
P2,000.00, whichever is higher.

Housing and Equity Assistance Loan- is increased to P60,000.00; those who have already availed
of the privilege shall be allowed to get the difference.

Benefits for Collectors:

a. Company shall reduce proportionately the quota and monthly average product level (MAPL) in
terms of equivalent bill assignment when an employee is on sick leave and paid vacation leave.

b. When required to work on Saturdays, Sundays and holidays, an employee shall receive P60.00
lunch allowance and applicable transportation allowance as determined by the Company and
shall also receive an additional compensation to one day fixed portion in addition to lunch and
transportation allowance.

c. The collector shall be entitled to an incentive pay of P25.00 for every delinquent account
disconnected.
d. When a collector voluntarily performs other work on regular shift or overtime, he shall be
entitled to remuneration based on his computed hourly compensation and the reimbursement
of actually incurred transportation expenses.

e. Collectors shall be provided with bobcat belt bags every year

f. Collectors cash bond shall be deposited under his capital contribution to MESALA.

g. Collectors quota and MAPL shall be proportionately reduced during typhoons, floods,
earthquakes and other similar force majeure events when it is impossible for a collector to
perform collection work.

Political Demands:

a. Scope of the collective bargaining unit- the collective bargaining unit shall be composed of all
regular rank-and-file employees hired by the company in all its offices and operative centers
throughout its franchise area and those it may employ by reason of expansion, reorganization or
as a result of operational exigencies.

b. Union recognition and security -

i. The union shall be recognized by the Company as sole and exclusive bargaining representative
of the rank-and-file employees included in the bargaining unit. The Company shall agree to meet
only with Union officers and its authorized representatives on all matters involving the Union
and all issues arising from the implementation and interpretation of the new CBA.

ii. The union shall meet with the newly regularized employees for a period not to exceed four (4)
hours, on company time, to acquaint the new regular employees of the rights, duties and
benefits of Union membership.

iii. The right of all rank-and-file employees to join the union shall be recognized in accordance
with the maintenance of membership principle as a form of union security.
c. Transfer of assignment and job security-

i. No transfer of an employee from one position to another shall be made if motivated by


considerations of sex, race, creed, political and religious belief, seniority or union activity.

ii. If the transfer is due to the reorganization or decentralization, the distance from the
employees residence shall be considered unless the transfer is accepted by the employee. If the
transfer is extremely necessary, the transfer shall be made within the offices in the same district.

iii. Personnel hired through agencies or contractors to perform the work done by covered
employees shall not exceed one month. If extension is necessary, the union shall be informed.
But the Company shall not permanently contract out regular or permanent positions that are
necessary in the normal operation of the Company.

d. Check off Union Dues- where the union increases its dues as approved by the Board of
Directors, the Company shall check off such increase from the salaries of union members after
the union submits check off authorizations signed by majority of the members. The Company
shall honor only those individual authorizations signed by the majority of the union members
and collectively submitted by the union to the Companys Salary Administration.

e. Payroll Reinstatement- shall be in accordance with Article 223, p. 3 of the Labor Code.

f. Union Representation in Committees- the union is allowed to participate in policy formulation


and in the decision-making process on matters affecting their rights and welfare, particularly in
the Uniform Committee, the Safety Committee and other committees that may be formed in the
future.

Signing Bonus- P4,000.00 per member of the bargaining unit for the conclusion of the CBA

Existing benefits already granted by the Company but which are not expressly or impliedly
repealed in the new agreement shall remain subsisting and shall be included in the new
agreement to be signed by the parties effective December 1, 1995.

On August 30, 1996, MERALCO filed a motion for reconsideration[7] alleging that the Secretary
of Labor committed grave abuse of discretion amounting to lack or excess of jurisdiction:

1. in awarding to MEWA a package that would cost at least P1.142 billion, a package that is
grossly excessive and exorbitant, would not be affordable to MERALCO and would imperil its
viability as a public utility affected with national interest.

2. in ordering the grant of a P4,500.00 wage increase, as well as a new and improved fringe
benefits, under the remaining two (2) years of the CBA for the rank-and-file employees.

3. in ordering the incorporation into the CBA of all existing employee benefits, on the one hand,
and those that MERALCO has unilaterally granted to its employees by virtue of voluntary
company policy or practice, on the other hand.

4. in granting certain political demands presented by the union.

5. in ordering the CBA to be effective December 1995 instead of August 19, 1996 when he
resolved the dispute.

MERALCO filed a supplement to the motion for reconsideration on September 18, 1995, alleging
that the Secretary of Labor did not properly appreciate the effect of the awarded wages and
benefits on MERALCOs financial viability.

MEWA likewise filed a motion asking the Secretary of Labor to reconsider its Order on the wage
increase, leaves, decentralized filing of paternity and maternity leaves, bonuses, retirement
benefits, optional retirement, medical, dental and hospitalization benefits, short swing and
payroll treatment. On its political demands, MEWA asked the Secretary to rule its proposal to
institute a Code of Discipline for its members and the unions representation in the
administration of the Pension Fund.

On December 28, 1996, the Secretary issued an Order[8] resolving the parties separate motions,
the modifications of the August 19, 1996 Order being highlighted hereunder:

1) Effectivity of Agreement - December 1, 1995 to November 30, 1997.


Economic Demands

2) Wage Increase:

First year - P2,200.00 per month;

Second year - P2,200.00 per month.

3) Integration of Red Circle Rate (RCR) and Longevity Allowance into Basic Salary -the RCR
allowance shall be integrated into the basic salary of employees as of August 19, 1996 (the date
of the disputed Order).

4) Longevity Bonus - P170 per year of service starting from 10 years of continuous service.

5) Vacation Leave - The status quo shall be maintained as to the number of vacation leave but
employees scheduled vacation may be taken one day at a time in the manner that this has been
provided in the supervisory CBA.

6) Sick Leave Reserve - is reduced to 15 days, with any excess payable at the end of the year. The
employee has the option to avail of this cash conversion or to accumulate his sick leave credits
up to 25 days for conversion to cash at retirement or separation from the service.

7) Birthday Leave - the grant of a day off when an employees birthday falls on a non-working day
is deleted.

8) Retirement Benefits for Retirees - The benefits granted shall be effective on August 19, 1996,
the date of the disputed order up to November 30, 1997, which is the date the CBA expires and
shall apply to those who are members of the bargaining unit at the time the award is made.

One sack of rice per quarter of the year shall be given to those retiring between August 19, 1996
and November 30, 1997.

On HMP Coverage for Retirees- The parties maintain the status quo, that is, with the Company
complying with the present arrangement and the obligations to retirees as is.

9) Medical, Dental and Hospitalization Benefits - The cost of medicine unavailable at the J.F.
Cotton Hospital shall be in accordance with MERALCOs Memorandum dated September 14,
1976.

10) GHSIP and HMP for Dependents - The number of dependents to be subsidized shall be
reduced from 5 to 4 provided that their premiums are proportionately increased.

11) Employees Cooperative - The original award of P3 million pesos as seed money for the
proposed Cooperative is reduced to P1.5 million pesos.

12) Shortswing - the original award is deleted.

13) Payroll Treatment for Accident on Duty - Company ordered to continue its present practice
on payroll treatment for accident on duty without need to pay the excess time the Union
demanded.

Political Demands:

14) Scope of the collective bargaining unit - The bargaining unit shall be composed of all rank
and file employees hired by the Company in accordance with the original Order.

15) Union recognition and security - The incorporation of a closed shop form of union security in
the CBA; the Company is prohibited from entertaining individuals or groups of individuals only
on matters that are exclusively within the domain of the union; the Company shall furnish the
union with a complete list of newly regularized employees within a week from regularization so
that the Union can meet these employees on the Unions and the employees own time.

16) Transfer of assignment and job security - Transfer is a prerogative of the Company but the
transfer must be for a valid business reason, made in good faith and must be reasonably
exercised. The CBA shall provide that No transfer of an employee from one position to another,
without the employees written consent, shall be made if motivated by considerations of sex,
race, creed, political and religious belief, age or union activity.
17) Contracting Out - The Company has the prerogative to contract out services provided that
this move is based on valid business reasons in accordance with law, is made in good faith, is
reasonably exercised and, provided further that if the contracting out involves more than six
months, the Union must be consulted before its implementation.

18) Check off of union dues

In any increase of union dues or contributions for mandatory activities, the union must submit to
the Company a copy of its board resolution increasing the union dues or authorizing such
contributions;

If a board resolution is submitted, the Company shall deduct union dues from all union members
after a majority of the union members have submitted their individual written authorizations.
Only those check-off authorizations submitted by the union shall be honored by the Company.

With respect to special assessments, attorneys fees, negotiation fees or any other extraordinary
fees, individual authorizations shall be necessary before the company may so deduct the same.

19) Union Representation in Committees - The union is granted representation in the Safety
Committee, the Uniform Committee and other committees of a similar nature and purpose
involving personnel welfare, rights and benefits as well as duties.

Dissatisfied, petitioner filed this petition contending that the Secretary of Labor gravely abused
his discretion:

1). . . in awarding wage increases of P2,200.00 for 1996 and P2,200.00 for 1997;

2) . . . in awarding the following economic benefits:

a. Two months Christmas bonus;

b. Rice Subsidy and retirement benefits for retirees;


c. Loan for the employees cooperative;

d. Social benefits such as GHSIP and HMP for dependents, employees cooperative and housing
equity assistance loan;

e. Signing bonus;

f. Integration of the Red Circle Rate Allowance

g. Sick leave reserve of 15 days

h. The 40-day union leave;

i. High pole/high voltage and towing allowance;

and

j. Benefits for collectors

3) . . . in expanding the scope of the bargaining unit to all regular rank and file employees hired
by the company in all its offices and operating centers and those it may employ by reason of
expansion, reorganization or as a result of operational exigencies;

4) . . . in ordering for a closed shop when his original order for a maintenance of membership
arrangement was not questioned by the parties;

5) . . . in ordering that Meralco should consult the union before any contracting out for more
than six months;

6) . . . in decreeing that the union be allowed to have representation in policy and decision
making into matters affecting personnel welfare, rights and benefits as well as duties;

7) . . . in ruling for the inclusion of all terms and conditions of employment in the collective
bargaining agreement;

8) . . . in exercising discretion in determining the retroactivity of the CBA;

Both MEWA and the Solicitor General; on behalf of the Secretary of Labor, filed their comments
to the petition. While the case was also set for oral argument on Feb 10, 1997, this hearing was
cancelled due to MERALCO not having received the comment of the opposing parties. The
parties were instead required to submit written memoranda, which they did. Subsequently, both
petitioner and private respondent MEWA also filed replies to the opposing parties Memoranda,
all of which We took into account in the resolution of this case.

The union disputes the allegation of MERALCO that the Secretary abused his discretion in issuing
the assailed orders arguing that he acted within the scope of the powers granted him by law and
by the Constitution. The union contends that any judicial review is limited to an examination of
the Secretarys decision-making/discretion - exercising process to determine if this process was
attended by some capricious or whimsical act that constitutes grave abuse; in the absence of
such abuse, his findings - considering that he has both jurisdiction and expertise to make them -
are valid.

The unions position is anchored on two premises:

First, no reviewable abuse of discretion could have attended the Secretarys arbitral award
because the Secretary complied with constitutional norms in rendering the dispute award. The
union posits that the yardstick for comparison and for the determination of the validity of the
Secretarys actions should be the specific standards laid down by the Constitution itself. To the
union, these standards include the State policy on the promotion of workers welfare,[9] the
principle of distributive justice,[10] the right of the State to regulate the use of property,[11] the
obligation of the State to protect workers, both organized and unorganized, and insure their
enjoyment of humane conditions of work and a living wage, and the right of labor to a just share
in the fruits of production.[12]

Second, no reversible abuse of discretion attended the Secretarys decision because the Secretary
took all the relevant evidence into account, judiciously weighed them, and rendered a decision
based on the facts and law. Also, the arbitral award should not be reversed given the Secretarys
expertise in his field and the general rule that findings of fact based on such expertise is
generally binding on this Court.

To put matters in proper perspective, we go back to basic principles. The Secretary of Labors
statutory power under Art. 263 (g) of the Labor Code to assume jurisdiction over a labor dispute
in an industry indispensable to the national interest, and, to render an award on compulsory
arbitration, does not exempt the exercise of this power from the judicial review that Sec. 1, Art.
8 of the Constitution mandates. This constitutional provision states:

Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the government.

Under this constitutional mandate, every legal power of the Secretary of Labor under the Labor
Code, or, for that matter, any act of the Executive, that is attended by grave abuse of discretion is
subject to review by this Court in an appropriate proceeding. To be sure, the existence of an
executive power alone - whether granted by statute or by the Constitution - cannot exempt the
executive action from judicial oversight, interference or reversal when grave abuse of discretion
is, or is alleged to be, present. This is particularly true when constitutional norms are cited as the
applicable yardsticks since this Court is the final interpreter of the meaning and intent of the
Constitution.[13]

The extent of judicial review over the Secretary of Labors arbitral award is not limited to a
determination of grave abuse in the manner of the secretarys exercise of his statutory powers.
This Court is entitled to, and must - in the exercise of its judicial power - review the substance of
the Secretarys award when grave abuse of discretion is alleged to exist in the award, i.e., in the
appreciation of and the conclusions the Secretary drew from the evidence presented.

The natural and ever present limitation on the Secretarys acts is, of course, the Constitution. And
we recognize that indeed the constitutional provisions the union cited are State policies on labor
and social justice that can serve as standards in assessing the validity of a Secretary of Labors
actions. However, we note that these provisions do not provide clear, precise and objective
standards of conduct that lend themselves to easy application. We likewise recognize that the
Constitution is not a lopsided document that only recognizes the interests of the working man; it
too protects the interests of the property owner and employer as well.[14]

For these reasons - and more importantly because a ruling on the breadth and scope of the
suggested constitutional yardsticks is not absolutely necessary in the disposition of this case - we
shall not use these yardsticks in accordance with the time-honored practice of avoiding
constitutional interpretations when a decision can be reached using non-constitutional
standards. We have repeatedly held that one of the essential requisites for a successful judicial
inquiry into constitutional questions is that the resolution of the constitutional question must be
necessary in deciding the case.[15]

In this case we believe that the more appropriate and available standard - and one does not
require a constitutional interpretation - is simply the standard of reasonableness. In laymans
terms, reasonableness implies the absence of arbitrariness;[16] in legal parlance, this translates
into the exercise of proper discretion and to the observance of due process. Thus, the question
we have to answer in deciding this case is whether the Secretarys actions have been reasonable
in light of the parties positions and the evidence they presented.
MEWAs second premise - i.e., that the Secretary duly considered the evidence presented - is the
main issue that we shall discuss at length below. Additionally, MEWA implied that we should take
great care before reading an abuse of discretion on the part of the Secretary because of his
expertise on labor issues and because his findings of fact deserve the highest respect from this
Court.

This Court has recognized the Secretary of Labors distinct expertise in the study and settlement
of labor disputes falling under his power of compulsory arbitration.[17] It is also well-settled that
factual findings of labor administrative officials, if supported by substantial evidence, are entitled
not only to great respect but even to finality.[18] We, therefore, have no difficulty in accepting
the unions caveat on how to handle a Secretary of Labors arbitral award.

But at the same time, we also recognize the possibility that abuse of discretion may attend the
exercise of the Secretarys arbitral functions; his findings in an arbitration case are usually based
on position papers and their supporting documents (as they are in the present case), and not on
the thorough examination of the parties contending claims that may be present in a court trial
and in the face-to-face adversarial process that better insures the proper presentation and
appreciation of evidence.[19] There may also be grave abuse of discretion where the board,
tribunal or officer exercising judicial function fails to consider evidence adduced by the parties.
[20] Given the parties positions on the justiciability of the issues before us, the question we have
to answer is one that goes into the substance of the Secretarys disputed orders: Did the
Secretary properly consider and appreciate the evidence presented before him?

We find, based on our consideration of the parties positions and the evidence on record, that
the Secretary of Labor disregarded and misappreciated evidence, particularly with respect to the
wage award. The Secretary of Labor apparently also acted arbitrarily and even whimsically in
considering a number of legal points; even the Solicitor General himself considered that the
Secretary gravely abused his discretion on at least three major points: (a) on the signing bonus
issue; (b) on the inclusion of confidential employees in the rank and file bargaining unit, and (c)
in mandating a union security closed-shop regime in the bargaining unit.

We begin with a discussion on the wages issue. The focal point in the consideration of the wage
award is the projected net income for 1996 which became the basis for the 1996 wage award,
which in turn - by extrapolation - became the basis for the (2nd Year) 1997 award. MERALCO
projected that the net operating income for 1996 was 14.7% above the 1999 level or a total net
operating income of 4.171 Billion, while the union placed the 1996 net operating income at
5.795 Billion.

MERALCO based its projection on the increase of the income for the first 6 months of 1996 over
the same period in 1995. The union, on the other hand, projected that the 1996 income would
increase by 29% to 35% because the consumption of electric power is at its highest during the
last two quarters with the advent of the Yuletide season. The union likewise relied heavily on a
newspaper report citing an estimate by an all Asia capital financial analyst that the net operating
income would amount to 5.795 Billion.[21]

Based essentially on these considerations, the Secretary made the following computations and
ordered his disputed wage award:

Projected net operating

Income for 1996 5,795,000,000

Principals and interests 1,426,571,703

Dividends at 1995 rate 1,636,949,000

Net amount left with the Company 2,729,479,297

Add: Tax credit equivalent to 35% of labor cost 231,804,940

Companys net operating income 2,961,284,237

For 1997, the projected income is P7,613,612 which can easily absorb the incremental increase
of P2,200 per month or a total of P4,500 during the last year of the CBA period.

xxxxxxxxx

An overriding aim is to estimate the amount that is left with the Company after the awarded
wages and benefits and the companys customary obligations are paid. This amount can be the
source of an item not found in the above computations but which the Company must provide
for, that is - the amount the company can use for expansion.
Considering the expansion plans stated in the Companys Supplement that calls for capital
expenditures of 6 billion, 6.263 billion and 5.802 billion for 1996, 1997 and 1998 respectively, We
conclude that our original award of P2,300 per month for the first year and P2,200 for the
second year will still leave much by way of retained income that can be used for expansion.[22]
(Underscoring ours.)

We find after considering the records that the Secretary gravely abused his discretion in making
this wage award because he disregarded evidence on record. Where he considered MERALCOs
evidence at all, he apparently misappreciated this evidence in favor of claims that do not have
evidentiary support. To our mind, the MERALCO projection had every reason to be reliable
because it was based on actual and undisputed figures for the first six months of 1996.[23] On
the other hand, the union projection was based on a speculation of Yuletide consumption that
the union failed to substantiate. In fact, as against the unions unsubstantiated Yuletide
consumption claim, MERALCO adduced evidence in the form of historical consumption data
showing that a lengthy consumption does not tend to rise during the Christmas period.[24]
Additionally, the All-Asia Capital Report was nothing more than a newspaper report that did not
show any specific breakdown or computations. While the union claimed that its cited figure is
based on MERALCOs 10-year income stream,[25] no data or computation of this 10-year stream
appear in the record.

While the Secretary is not expected to accept the company-offered figures wholesale in
determining a wage award, we find it a grave abuse of discretion to completely disregard data
that is based on actual and undisputed record of financial performance in favor of the third-hand
and unfounded claims the Secretary eventually relied upon. At the very least, the Secretary
should have properly justified his disregard of the company figures. The Secretary should have
also reasonably insured that the figure that served as the starting point for his computation had
some substantial basis.

Both parties extensely discussed the factors that the decision maker should consider in making a
wage award. While We do not seek to enumerate in this decision the factors that should affect
wage determination, we must emphasize that a collective bargaining dispute such as this one
requires due consideration and proper balancing of the interests of the parties to the dispute
and of those who might be affected by the dispute. To our mind, the best way in approaching
this task holistically is to consider the available objective facts, including, where applicable,
factors such as the bargaining history of the company, the trends and amounts of arbitrated and
agreed wage awards and the companys previous CBAs, and industry trends in general. As a rule,
affordability or capacity to pay should be taken into account but cannot be the sole yardstick in
determining the wage award, especially in a public utility like MERALCO. In considering a public
utility, the decision maker must always take into account the public interest aspects of the case;
MERALCOs income and the amount of money available for operating expenses - including labor
costs - are subject to State regulation. We must also keep in mind that high operating costs will
certainly and eventually be passed on to the consuming public as MERALCO has bluntly warned
in its pleadings.

We take note of the middle ground approach employed by the Secretary in this case which we
do not necessarily find to be the best method of resolving a wage dispute. Merely finding the
midway point between the demands of the company and the union, and splitting the difference
is a simplistic solution that fails to recognize that the parties may already be at the limits of the
wage levels they can afford. It may lead to the danger too that neither of the parties will engage
in principled bargaining; the company may keep its position artificially low while the union
presents an artificially high position, on the fear that a Solomonic solution cannot be avoided.
Thus, rather than encourage agreement, a middle ground approach instead promotes a play safe
attitude that leads to more deadlocks than to successfully negotiated CBAs.

After considering the various factors the parties cited, we believe that the interests of both labor
and management are best served by a wage increase of P1,900.00 per month for the first year
and another P1,900.00 per month for the second year of the two-year CBA term. Our reason for
this is that these increases sufficiently protects the interest of the worker as they are roughly
15% of the monthly average salary of P11,600.00.[26] They likewise sufficiently consider the
employers costs and its overall wage structure, while at the same time, being within the range
that will not disrupt the wage trends in Philippine industries.

The records shows that MERALCO, throughout its long years of existence, was never remiss in its
obligation towards its employees. In fact, as a manifestation of its strong commitment to the
promotion of the welfare and well-being of its employees, it has consistently improved their
compensation package. For instance, MERALCO has granted salary increases[27] through the
collective bargaining agreement the amount of which since 1980 for both rank-and-file and
supervisory employees were as follows:

AMOUNT OF CBA INCREASES

DIFFERENCE

CBA COVERAGE

RANK-AND-FILE
SUPERVISORY

AMOUNT

PERCENT

1980

230.00

342.50

112.50

48.91%

1981

210.00

322.50

112.50

53.57
1982

200.00

312.50

112.50

56.25

TOTAL

640.00

977.50

337.50

52.73

1983

320.00

432.50
112.50

35.16

1984

350.00

462.50

112.50

32.14

1985

370.00

482.50

112.50

30.41
TOTAL

1,040.00

1,377.50

337.50

32.45

1986

860.00

972.50

112.50

13.08

1987

640.00

752.50
112.50

17.58

1988

600.00

712.50

112.50

18.75

TOTAL

2,100.00

2,437.50

337.50

16.07

1989
1,100.00

1,212.50

112.50

10.23

1990

1,200.00

1,312.50

112.50

9.38

1991

1,300.00

1,412.50

112.50
8.65

TOTAL

3,600.00

3,937.50

337.50

9.38

1992

1,400.00

1,742.50

342.50

24.46

1993
1,350.00

1,682.50

332.50

24.63

1994

1,150.00

1,442.50

292.50

25.43

TOTAL

3,900.00

4,867.50

967.50
24.81

Based on the above-quoted table, specifically under the column RANK-AND-FILE, it is easily
discernible that the total wage increase of P3,800.00 for 1996 to 1997 which we are granting in
the instant case is significantly higher than the total increases given in 1992 to 1994, or a span of
three (3) years, which is only P3,900.00 a month. Thus, the Secretarys grant of P2,200.00
monthly wage increase in the assailed order is unreasonably high a burden for MERALCO to
shoulder.

We now go to the economic issues.

1. CHRISTMAS BONUS

MERALCO questions the Secretarys award of Christmas bonuses on the ground that what it had
given its employees were special bonuses to mark or celebrate special occasions, such as when
the Asia Money Magazine recognized MERALCO as the best managed company in Asia. These
grants were given on or about Christmas time, and the timing of the grant apparently led the
Secretary to the conclusion that what were given were Christmas bonuses given by way of a
company practice on top of the legally required 13th month pay.

The Secretary in granting the two-month bonus, considered the following factual finding, to wit:

We note that each of the grant mentioned in the commonly adopted table of grants has a special
description. Christmas bonuses were given in 1988 and 1989. However, the amounts of bonuses
given differed. In 1988, it was P1,500. In 1989, it was month salary. The use of Christmas bonus
title stopped after 1989. In 1990, what was given was a cash gift of months salary. The grants
thereafter bore different titles and were for varying amounts. Significantly, the Company
explained the reason for the 1995 bonuses and this explanation was not substantially
contradicted by the Union.

What comes out from all these is that while the Company has consistently given some amount
by way of bonuses since 1988, these awards were not given uniformly as Christmas bonuses or
special Christmas grants although they may have been given at or about Christmas time.
xxxxxxxxx

The Company is not therefore correct in its position that there is not established practice of
giving Christmas bonuses that has ripened to the status of being a term and condition of
employment. Regardless of its nomenclature and purpose, the act of giving this bonus in the
spirit of Christmas has ripened into a Company practice.[28]

It is MERALCOs position that the Secretary erred when he recognized that there was an
established practice of giving a two-month Christmas bonus based on the fact that bonuses were
given on or about Christmas time. It points out that the established practice attributed to
MERALCO was neither for a considerable period of time nor identical in either amount or
purpose. The purpose and title of the grants were never the same except for the Christmas
bonuses of 1988 and 1989, and were not in the same amounts.

We do not agree.

As a rule, a bonus is not a demandable and enforceable obligation;[29] it may nevertheless be


granted on equitable consideration[30] as when the giving of such bonus has been the
companys long and regular practice.[31] To be considered a regular practice, the giving of the
bonus should have been done over a long period of time, and must be shown to have been
consistent and deliberate.[32] Thus we have ruled in National Sugar Refineries Corporation vs.
NLRC:[33]

The test or rationale of this rule on long practice requires an indubitable showing that the
employer agreed to continue giving the benefits knowing fully well that said employees are not
covered by the law requiring payment thereof.

In the case at bar, the record shows the MERALCO, aside from complying with the regular 13th
month bonus, has further been giving its employees an additional Christmas bonus at the tail-
end of the year since 1988. While the special bonuses differed in amount and bore different
titles, it can not be denied that these were given voluntarily and continuously on or about
Christmas time. The considerable length of time MERALCO has been giving the special grants to
its employees indicates a unilateral and voluntary act on its part, to continue giving said benefits
knowing that such act was not required by law.

Indeed, a company practice favorable to the employees has been established and the payments
made by MERALCO pursuant thereto ripened into benefits enjoyed by the employees.
Consequently, the giving of the special bonus can no longer be withdrawn by the company as
this would amount to a diminution of the employees existing benefits.[34]

We can not, however, affirm the Secretarys award of a two-month special Christmas bonus to
the employees since there was no recognized company practice of giving a two-month special
grant. The two-month special bonus was given only in 1995 in recognition of the employees
prompt and efficient response during the calamities. Instead, a one-month special bonus, We
believe, is sufficient, this being merely a generous act on the part of MERALCO.

2. RICE SUBSIDY and RETIREMENT BENEFITS for RETIREES

It appears that the Secretary of Labor originally ordered the increase of the retirement pay, rice
subsidy and medical benefits of MERALCO retirees. This ruling was reconsidered based on the
position that retirees are no longer employees of the company and therefore are no longer
bargaining members who can benefit from a compulsory arbitration award. The Secretary,
however, ruled that all members of the bargaining unit who retire between August 19, 1996 and
November 30, 1997 (i.e., the term of the disputed CBA under the Secretarys disputed orders) are
entitled to receive an additional rice subsidy.

The question squarely brought in this petition is whether the Secretary can issue an order that
binds the retirement fund. The company alleges that a separate and independent trust fund is
the source of retirement benefits for MERALCO retirees, while the union maintains that
MERALCO controls these funds and may therefore be compelled to improve this benefit in an
arbitral award.

The issue requires a finding of fact on the legal personality of the retirement fund. In the
absence of any evidence on record indicating the nature of the retirement funds legal
personality, we rule that the issue should be remanded to the Secretary for reception of
evidence as whether or not the MERALCO retirement fund is a separate and independent trust
fund. The existence of a separate and independent juridical entity which controls an irrevocable
retirement trust fund means that these retirement funds are beyond the scope of collective
bargaining: they are administered by an entity not a party to the collective bargaining and the
funds may not be touched without the trustees conformity.

On the other hand, MERALCO control over these funds means that MERALCO may be compelled
in the compulsory arbitration of a CBA deadlock where it is the employer, to improve retirement
benefits since retirement is a term or condition of employment that is a mandatory subject of
bargaining.
3. EMPLOYEES COOPERATIVE

The Secretarys disputed ruling requires MERALCO to provide the employees covered by the
bargaining unit with a loan of 1.5 Million as seed money for the employees formation of a
cooperative under the Cooperative Law, R.A. 6938. We see nothing in this law - whether
expressed or implied - that requires employers to provide funds, by loan or otherwise, that
employees can use to form a cooperative. The formation of a cooperative is a purely voluntary
act under this law, and no party in any context or relationship is required by law to set up a
cooperative or to provide the funds therefor. In the absence of such legal requirement, the
Secretary has no basis to order the grant of a 1.5 million loan to MERALCO employees for the
formation of a cooperative. Furthermore, we do not see the formation of an employees
cooperative, in the absence of an agreement by the collective bargaining parties that this is a
bargainable term or condition of employment, to be a term or condition of employment that can
be imposed on the parties on compulsory arbitration.

4. GHSIP, HMP BENEFITS FOR DEPENDENTS and HOUSING EQUITY LOAN

MERALCO contends that it is not bound to bargain on these benefits because these do not relate
to wages, hours of work and other terms and conditions of employment hence, the denial of
these demands cannot result in a bargaining impasse.

The GHSIP, HMP benefits for dependents and the housing equity loan have been the subject of
bargaining and arbitral awards in the past. We do not see any reason why MERALCO should not
now bargain on these benefits. Thus, we agree with the Secretarys ruling:

x x x Additionally and more importantly, GHSIP and HMP, aside from being contributory plans,
have been the subject of previous rulings from this Office as bargainable matters. At this point,
we cannot do any less and must recognize that GHSIP and HMP are matters where the union can
demand and negotiate for improvements within the framework of the collective bargaining
system.[35]

Moreover, MERALCO have long been extending these benefits to the employees and their
dependents that they now become part of the terms and conditions of employment. In fact,
MERALCO even pledged to continue giving these benefits. Hence, these benefits should be
incorporated in the new CBA.
With regard to the increase of the housing equity grant, we find P60,000.00 reasonable
considering the prevailing economic crisis.

5. SIGNING BONUS

On the signing bonus issue, we agree with the positions commonly taken by MERALCO and by
the Office of the Solicitor General that the signing bonus is a grant motivated by the goodwill
generated when a CBA is successfully negotiated and signed between the employer and the
union. In the present case, this goodwill does not exist. In the words of the Solicitor General:

When negotiations for the last two years of the 1992-1997 CBA broke down and the parties
sought the assistance of the NCMB, but which failed to reconcile their differences, and when
petitioner MERALCO bluntly invoked the jurisdiction of the Secretary of Labor in the resolution
of the labor dispute, whatever goodwill existed between petitioner MERALCO and respondent
union disappeared. xxx.[36]

In contractual terms, a signing bonus is justified by and is the consideration paid for the goodwill
that existed in the negotiations that culminated in the signing of a CBA. Without the goodwill,
the payment of a signing bonus cannot be justified and any order for such payment, to our mind,
constitutes grave abuse of discretion. This is more so where the signing bonus is in the not
insignificant total amount of P16 Million.

6. RED-CIRCLE-RATE ALLOWANCE

An RCR allowance is an amount, not included in the basic salary, that is granted by the company
to an employee who is promoted to a higher position grade but whose actual basic salary at the
time of the promotion already exceeds the maximum salary for the position to which he or she is
promoted. As an allowance, it applies only to specifics individuals whose salary levels are unique
with respect to their new and higher positions. It is for these reasons that MERALCO prays that it
be allowed to maintain the RCR allowance as a separate benefit and not be integrated in the
basic salary.

The integration of the RCR allowance in the basic salary of the employees had consistently been
raised in the past CBAs (1989 and 1992) and in those cases, the Secretary decreed the
integration of the RCR allowance in the basic salary. We do not see any reason why it should not
be included in the present CBA. In fact, in the 1995 CBA between MERALCO and the supervisory
union (FLAMES), the integration of the RCR allowance was recognized. Thus, Sec. 4 of the CBA
provides:

All Red-Circle-Rate Allowance as of December 1, 1995 shall be integrated in the basic salary of
the covered employees who as of such date are receiving such allowance. Thereafter, the
company rules on RCR allowance shall continue to be observed/applied.[37]

For purposes of uniformity, we affirm the Secretarys order on the integration of the RCR
allowance in the basic salary of the employees.

7. SICK LEAVE RESERVE OF 15 DAYS

MERALCO assails the Secretarys reduction of the sick leave reserve benefit from 25 days to 15
days, contending that the sick leave reserve of 15 days has reached the lowest safe level that
should be maintained to give employees sufficient buffer in the event they fall ill.

We find no compelling reason to deviate from the Secretarys ruling that the sick leave reserve is
reduced to 15 days, with any excess convertible to cash at the end of the year. The employee has
the option to avail of this cash conversion or to accumulate his sick leave credits up to 25 days
for conversion to cash at his retirement or separation from the service. This arrangement is, in
fact, beneficial to MERALCO. The latter admits that the diminution of this reserve does not
seriously affect MERALCO because whatever is in reserve are sick leave credits that are payable
to the employee upon separation from service. In fact, it may be to MERALCOs financial interest
to pay these leave credits now under present salary levels than pay them at future higher salary
levels.[38]

8. 40-DAY UNION LEAVE

MERALCO objects to the demand increase in union leave because the union leave granted to the
union is already substantial. It argues that the union has not demonstrated any real need for
additional union leave.

The thirty (30) days union leave granted by the Secretary, to our mind, constitute sufficient time
within which the union can carry out its union activities such as but not limited to the election of
union officers, selection or election of appropriate bargaining agents, conduct referendum on
union matters and other union-related matters in furtherance of union objectives. Furthermore,
the union already enjoys a special union leave with pay for union authorized representatives to
attend work education seminars, meetings, conventions and conferences where union
representation is required or necessary, and Paid-Time-off for union officers, stewards and
representatives for purpose of handling or processing grievances.

9. HIGH VOLTAGE/HIGH POLE/TOWING ALLOWANCE

MERALCO argues that there is no justification for the increase of these allowances. The
personnel concerned will not receive any additional risk during the life of the current CBA that
would justify the increase demanded by the union. In the absence of such risk, then these
personnel deserve only the same salary increase that all other members of the bargaining unit
will get as a result of the disputed CBA. MERALCO likewise assails the grant of the high
voltage/high pole allowance to members of the team who are not exposed to the high
voltage/high pole risks. The risks that justify the higher salary and the added allowance are
personal to those who are exposed to those risks. They are not granted to a team because some
members of the team are exposed to the given risks.

The increase in the high-voltage allowance (from P45.00 to P55.00), high-pole allowance (from
P30.00 to P40.00), and towing allowance is justified considering the heavy risk the employees
concerned are exposed to. The high-voltage allowance is granted to an employee who is
authorized by the company to actually perform work on or near energized bare lines and bus,
while the high-pole allowance is given to those authorized to climb poles on a height of at least
60 feet from the ground to work thereat. The towing allowance, on the other hand, is granted to
the stockman drivers who tow trailers with long poles and equipment on board. Based on the
nature of the job of these concerned employees, it is imperative to give them these additional
allowances for taking additional risks. These increases are not even commensurate to the danger
the employees concerned are subjected to. Besides, no increase has been given by the company
since 1992.[39]

We do not, however, subscribe to the Secretarys order granting these allowances to the
members of the team who are not exposed to the given risks. The reason is obvious- no risk, no
pay. To award them the said allowances would be manifestly unfair for the company and even to
those who are exposed to the risks, as well as to the other members of the bargaining unit who
do not receive the said allowances.

10. BENEFITS FOR COLLECTORS

MERALCO opposes the Secretarys grant of benefits for collectors on the ground that this is
grossly unreasonable both in scope and on the premise it is founded.
We have considered the arguments of the opposing parties regarding these benefits and find the
Secretarys ruling on the (a) lunch allowance; (b) disconnection fee for delinquent accounts; (c)
voluntary performance of other work at the instance of the Company; (d) bobcat belt bags; and
(e) reduction of quota and MAPL during typhoons and other force majeure events, reasonable
considering the risks taken by the company personnel involved, the nature of the employees
functions and responsibilities and the prevailing standard of living. We do not however subscribe
to the Secretarys award on the following:

(a) Reduction of quota and MAPL when the collector is on sick leave because the previous CBA
has already provided for a reduction of this demand. There is no need to further reduce this.

(b) Deposit of cash bond at MESALA because this is no longer necessary in view of the fact that
collectors are no longer required to post a bond.

We shall now resolve the non-economic issues.

1. SCOPE OF THE BARGAINING UNIT

The Secretarys ruling on this issue states that:

a. Scope of the collective bargaining unit. The union is demanding that the collective bargaining
unit shall be composed of all regular rank and file employees hired by the company in all its
offices and operating centers through its franchise and those it may employ by reason of
expansion, reorganization or as a result of operational exigencies. The law is that only
managerial employees are excluded from any collective bargaining unit and supervisors are now
allowed to form their own union (Art. 254 of the Labor Code as amended by R.A. 6715). We
grant the union demand.

Both MERALCO and the Office of the Solicitor General dispute this ruling because if disregards
the rule We have established on the exclusion of confidential employee from the rank and file
bargaining unit.

In Pier 8 Arrastre vs. Confesor and General Maritime and Stevedores Union,[40] we ruled that:
Put another way, the confidential employee does not share in the same community of interest
that might otherwise make him eligible to join his rank and file co-workers, precisely because of
a conflict in those interests.

Thus, in Metrolab Industries vs. Roldan-Confesor,[41] We ruled:

..that the Secretarys order should exclude the confidential employees from the regular rank and
file employees qualified to become members of the MEWA bargaining unit.

From the foregoing disquisition, it is clear that employees holding a confidential position are
prohibited from joining the union of the rank and file employees.

2. ISSUE OF UNION SECURITY

The Secretary in his Order of August 19, 1996,[42] ruled that:

b. Union recognition and security. The union is proposing that it be recognized by the Company
as sole and exclusive bargaining representative of the rank and file employees included in the
bargaining unit for the purpose of collective bargaining regarding rates of pay, wages, hours of
work and other terms and conditions of employment. For this reason, the Company shall agree
to meet only with the Union officers and its authorized representatives on all matters involving
the Union as an organization and all issues arising from the implementation and interpretation of
the new CBA. Towards this end, the Company shall not entertain any individual or group of
individuals on matters within the exclusive domain of the Union.

Additionally, the Union is demanding that the right of all rank and file employees to join the
Union shall be recognized by the Company. Accordingly, all rank and file employees shall join the
union.

xxxxxxxxx

These demands are fairly reasonable. We grant the same in accordance with the maintenance of
membership principle as a form of union security."
The Secretary reconsidered this portion of his original order when he said in his December 28,
1996 order that:

x x x. when we decreed that all rank and file employees shall join the Union, we were actually
decreeing the incorporation of a closed shop form of union security in the CBA between the
parties. In Ferrer v. NLRC, 224 SCRA 410, the Supreme Court ruled that a CBA provision for a
closed shop is a valid form of union security and is not a restriction on the right or freedom of
association guaranteed by the Constitution, citing Lirag v. Blanco, 109 SCRA 87.

MERALCO objected to this ruling on the grounds that: (a) it was never questioned by the parties;
(b) there is no evidence presented that would justify the restriction on employee's union
membership; and (c) the Secretary cannot rule on the union security demand because this is not
a mandatory subject for collective bargaining agreement.

We agree with MERALCOs contention.

An examination of the records of the case shows that the union did not ask for a closed shop
security regime; the Secretary in the first instance expressly stated that a maintenance of
membership clause should govern; neither MERALCO nor MEWA raised the issue of union
security in their respective motions for reconsideration of the Secretarys first disputed order;
and that despite the parties clear acceptance of the Secretarys first ruling, the Secretary motu
proprio reconsidered his maintenance of membership ruling in favor of the more stringent union
shop regime.

Under these circumstances, it is indubitably clear that the Secretary gravely abused his discretion
when he ordered a union shop in his order of December 28, 1996. The distinctions between a
maintenance of membership regime from a closed shop and their consequences in the
relationship between the union and the company are well established and need no further
elaboration.

Consequently, We rule that the maintenance of membership regime should govern at MERALCO
in accordance with the Secretarys order of August 19, 1996 which neither party disputed.

3. THE CONTRACTING OUT ISSUE


This issue is limited to the validity of the requirement that the union be consulted before the
implementation of any contracting out that would last for 6 months or more. Proceeding from
our ruling in San Miguel Employees Union-PTGWO vs Bersamina,[43] (where we recognized that
contracting out of work is a proprietary right of the employer in the exercise of an inherent
management prerogative) the issue we see is whether the Secretarys consultation requirement
is reasonable or unduly restrictive of the companys management prerogative. We note that the
Secretary himself has considered that management should not be hampered in the operations of
its business when he said that:

We feel that the limitations imposed by the union advocates are too specific and may not be
applicable to the situations that the company and the union may face in the future. To our mind,
the greater risk with this type of limitation is that it will tend to curtail rather than allow the
business growth that the company and the union must aspire for. Hence, we are for the general
limitations we have stated above because they will allow a calibrated response to specific future
situations the company and the union may face.[44]

Additionally, We recognize that contracting out is not unlimited; rather, it is a prerogative that
management enjoys subject to well-defined legal limitations. As we have previously held, the
company can determine in its best business judgment whether it should contract out the
performance of some of its work for as long as the employer is motivated by good faith, and the
contracting out must not have been resorted to circumvent the law or must not have been the
result of malicious or arbitrary action.[45] The Labor Code and its implementing rules also
contain specific rules governing contracting out (Department of Labor Order No. 10, May 30,
1997, Sections. 1-25).

Given these realities, we recognize that a balance already exist in the parties relationship with
respect to contracting out; MERALCO has its legally defined and protected management
prerogatives while workers are guaranteed their own protection through specific labor
provisions and the recognition of limits to the exercise of management prerogatives. From these
premises, we can only conclude that the Secretarys added requirement only introduces an
imbalance in the parties collective bargaining relationship on a matter that the law already
sufficiently regulates. Hence, we rule that the Secretarys added requirement, being
unreasonable, restrictive and potentially disruptive should be struck down.

4. UNION REPRESENTATION IN COMMITTEES

As regards this issue, We quote with approval the holding of the Secretary in his Order of
December 28, 1996, to wit:
We see no convincing reason to modify our original Order on union representation in
committees. It reiterates what the Article 211 (A)(g) of the Labor Codes provides: To ensure the
participation of workers in decision and policy-making processes affecting their rights, duties and
welfare. Denying this opportunity to the Union is to lay the claim that only management has the
monopoly of ideas that may improve management strategies in enhancing the Companys
growth. What every company should remember is that there might be one among the Union
members who may offer productive and viable ideas on expanding the Companys business
horizons. The unions participation in such committees might just be the opportune time for
dormant ideas to come forward. So, the Company must welcome this development (see also PAL
v. NLRC, et. al., G.R. 85985, August 13, 1995). It must be understood, however, that the
committees referred to here are the Safety Committee, the Uniform Committee and other
committees of a similar nature and purpose involving personnel welfare, rights and benefits as
well as duties.

We do not find merit in MERALCOs contention that the above-quoted ruling of the Secretary is
an intrusion into the management prerogatives of MERALCO. It is worthwhile to note that all the
Union demands and what the Secretarys order granted is that the Union be allowed to
participate in policy formulation and decision-making process on matters affecting the Union
members right, duties and welfare as required in Article 211 (A)(g) of the Labor Code. And this
can only be done when the Union is allowed to have representatives in the Safety Committee,
Uniform Committee and other committees of a similar nature. Certainly, such participation by
the Union in the said committees is not in the nature of a co-management control of the
business of MERALCO. What is granted by the Secretary is participation and representation.
Thus, there is no impairment of management prerogatives.

5. INCLUSION OF ALL TERMS AND CONDITIONS IN THE CBA

MERALCO also decries the Secretarys ruling in both the assailed Orders that-

All other benefits being enjoyed by the companys employees but which are not expressly or
impliedly repealed in this new agreement shall remain subsisting and shall likewise be included
in the new collective bargaining agreement to be signed by the parties effective December 1,
1995.[46]

claiming that the above-quoted ruling intruded into the employers freedom to contract by
ordering the inclusion in the new CBA all other benefits presently enjoyed by the employees
even if they are not incorporated in the new CBA. This matter of inclusion, MERALCO argues, was
never discussed and agreed upon in the negotiations; nor presented as issues before the
Secretary; nor were part of the previous CBAs between the parties.
We agree with MERALCO.

The Secretary acted in excess of the discretion allowed him by law when he ordered the
inclusion of benefits, terms and conditions that the law and the parties did not intend to be
reflected in their CBA.

To avoid the possible problems that the disputed orders may bring, we are constrained to rule
that only the terms and conditions already existing in the current CBA and was granted by the
Secretary (subject to the modifications decreed in this decision) should be incorporated in the
CBA, and that the Secretarys disputed orders should accordingly be modified.

6. RETROACTIVITY OF THE CBA

Finally, MERALCO also assails the Secretarys order that the effectivity of the new CBA shall
retroact to December 1, 1995, the date of the commencement of the last two years of the
effectivity of the existing CBA. This retroactive date, MERALCO argues, is contrary to the ruling of
this Court in Pier 8 Arrastre and Stevedoring Services, Inc. vs. Roldan-Confessor[47] which
mandates that the effective date of the new CBA should be the date the Secretary of Labor has
resolved the labor disputes.

On the other hand, MEWA supports the ruling of the Secretary on the theory that he has plenary
power and discretion to fix the date of effectivity of his arbitral award citing our ruling in St.
Lukes Medical Center, Inc. vs. Torres.[48] MEWA also contends that if the arbitral award takes
effect on the date of the Secretary Labors ruling on the parties motion for reconsideration (i.e.,
on December 28, 1996), an anomaly situation will result when CBA would be more than the 5-
year term mandated by Article 253-A of the Labor Code.

However, neither party took into account the factors necessary for a proper resolution of this
aspect. Pier 8, for instance, does not involve a mid-term negotiation similar to this case, while St.
Lukes does not take the hold over principle into account, i.e., the rule that although a CBA has
expired, it continues to have legal effects as between the parties until a new CBA has been
entered into.[49]

Article 253-A serves as the guide in determining when the effectivity of the CBA at bar is to take
effect. It provides that the representation aspect of the CBA is to be for a term of 5 years, while
x x x [A]ll other provisions of the Collective Bargaining Agreement shall be re-negotiated not
later than 3 years after its execution. Any agreement on such other provisions of the Collective
Bargaining Agreement entered into within 6 months from the date of expiry of the term of such
other provisions as fixed in such Collective Bargaining Agreement shall retroact to the day
immediately following such date. If such agreement is entered into beyond 6 months, the parties
shall agree on the duration of the effectivity thereof. x x x.

Under these terms, it is clear that the 5-year term requirement is specific to the representation
aspect. What the law additionally requires is that a CBA must be re-negotiated within 3 years
after its execution. It is in this re-negotiation that gives rise to the present CBA deadlock.

If no agreement is reached within 6 months from the expiry date of the 3 years that follow the
CBA execution, the law expressly gives the parties - not anybody else - the discretion to fix the
effectivity of the agreement.

Significantly, the law does not specifically cover the situation where 6 months have elapsed but
no agreement has been reached with respect to effectivity. In this eventuality, we hold that any
provision of law should then apply for the law abhors a vacuum.[50]

One such provision is the principle of hold over, i.e., that in the absence of a new CBA, the
parties must maintain the status quo and must continue in full force and effect the terms and
conditions of the existing agreement until a new agreement is reached.[51] In this manner, the
law prevents the existence of a gap in the relationship between the collective bargaining parties.
Another legal principle that should apply is that in the absence of an agreement between the
parties, then, an arbitrated CBA takes on the nature of any judicial or quasi-judicial award; it
operates and may be executed only respectively unless there are legal justifications for its
retroactive application.

Consequently, we find no sufficient legal ground on the other justification for the retroactive
application of the disputed CBA, and therefore hold that the CBA should be effective for a term
of 2 years counted from December 28, 1996 (the date of the Secretary of Labors disputed order
on the parties motion for reconsideration) up to December 27, 1999.

WHEREFORE, the petition is granted and the orders of public respondent Secretary of Labor
dated August 19, 1996 and December 28, 1996 are set aside to the extent set forth above. The
parties are directed to execute a Collective Bargaining Agreement incorporating the terms and
conditions contained in the unaffected portions of the Secretary of Labors order of August 19,
1996 and December 28, 1996, and the modifications set forth above. The retirement fund issue
is remanded to the Secretary of Labor for reception of evidence and determination of the legal
personality of the MERALCO retirement fund.

SO ORDERED.

Davide, Jr., C.J. (Chairman), Melo, Kapunan, and Pardo, JJ., concur.

[1] Annex A of Petition, Rollo. p. 93.

[2] Annex B of Petition, Rollo. p. 94.

[3] Annex 5 of MEWAs Comment, Rollo. pp. 852-879:

1. Wage increase 1995 P4,000.00/month

1996 P3,000.00/month

2. Integration of RCR and longevity allowances into the basic salary.

3. Longevity increase in the amount of P30.00 a year.

4. Sick leave upgraded from 21 to 31 days depending on length of service and sick leave reserve
reduced to 15 days.

5. Vacation leave 24 days minimum 32 days maximum.

6. Union leave with pay for 50 Mondays per month.

7. Maternity Leave- 70 days-normal delivery

90 days caesarian

Paternity leave 10 days normal

14 days caesarian

8 days miscarriage.

8. Funeral leave 12 days 6 days.

9. Birthday leave falls on regular working day leave with pay/regular day off entitled next
working day non-working holiday next working day.
10. Group hospitalization and surgical insurance plan (GHSIP) and health and maintenance plan
(HMP) for dependents.

11. Longevity bonus.

12. Christmas bonus equivalent to one months salary & allowance

and special Christmas grant (incorporated in the CBA) equivalent to two months pay to be given
in the middle of November and second week of December.

13. Mid-year bonus incorporated in the CBA.

14. Anniversary bonus P6,000.00/1st year P8,000.00 2nd year.

15. Christmas Gift Certificate

16. Retirement

17. Dental, medical and hospitalization benefits

18. Resignation benefit for employees who served for at least 7 years.

19. Night work 50% of employees basic salary.

20. Shortswing an employee after resting for not more than 8 hours is required to work in
another shift is considered employees work for the following day and given additional 4 hours
straight time.

21. High voltage/high pole allowance for P45.00 to P75.00.

22. Employees Cooperative to provide the seed money of P3,000,000.00.

23. Hold-up allowance pay P5,000.00 value of personal belonging taken from accountable officer.

24. Fieldmens rubber shoes

25. Uniforms

26. Calamity leave

27. Danger exposure allowance

28. Meal and lodging allowance breakfast - P40.00

Lunch - P60.00

Dinner - P60.00

Lodging - P200/night

29. Payroll treatment for accident while on duty

30. Housing equity assistance loan increased to P60,000.00


31. Female employees uniforms, and

32. Benefits for collectors.

The Unions political demands consist of:

1. The scope of the collective bargaining unit all regular rank and file hired by the company in all
its offices.

1. Union recognition and security all rank & file employees to join the union

2. allow union to meet with the newly regularized employees for a period not exceeding 4 hours
excused for work.

3. Transfer of assignment and job security

4. Check-off of union dues

5. Payroll reinstatement

6. Union representation in committees

7. Signing bonus of P7,000.00.

[4] Annex G of Petition, Rollo. pp. 120-122.

[5] Annex H of Petition, Rollo. pp. 124-125.

[6] Annex M, Rollo. pp. 319-340.

[7] Annex N of Petition, Rollo. pp. 341-394.

[8] Annex V of Petition, Rollo. pp. 661-715.

[9] Section 18, Article 2 of the 1987 Constitution.

[10] Section 6, Article 12, Id.

[11] Section 1, Article 13, Id.


[12] Section 3, Article 12 and Section 3[3], Article 15 of the 1987 Constitution.

[13] Phil. Scout Veteran Security vs. NLRC, 262 SCRA 112 [1996], citing Insular Bank of Asia and
America Employees Union (IBAAEU) vs. Inciong, 132 SCRA 663 [1984]; Endencia vs. David, 93
Phil. 696 [1953].

[14] Section 3, pars. 3 & 4, Article 13 of the 1987 Constitution.

[15] Garcia vs. Exec. Secretary, 204 SCRA 516 [1991]; Dumlao vs. Comelec, 95 SCRA 390 [1980];
Assoc. of Small Landowners of the Phil. vs. Secretary of Agrarian Reform, 175 SCRA 343 [1989].

[16] Taxicab Operators of Metro Manila, Inc. vs. Board of Transportation, 117 SCRA 597 [1982].

[17] Pier 8 Arrastre and Stevedoring Services, Inc. vs. Roldan-Confessor, 241 SCRA 295 [1995].

[18] American Home Assurance Company vs. NLRC, 259 SCRA 280 [1996]; Lopez Sugar Corp. vs.
Federation of Free Workers, et al., 189 SCRA 179 [1990].

[19] PAL vs. Confesor, 231 SCRA 41 [1994].

[20] PAL vs. Confesor, Id.; Caltex Filipino Managers Supervisors vs. CIR, 44 SCRA 350 [1972];
Labor ng Pagkakaisa sa Peter-Paul vs. CIR, 96 Phil. 63 [1954].

[21] See Annex B of the Unions Rejoinder to Companys Opposition to Unions Motion for
Reconsideration, Rollo. p.1521.

[22] Annex V of Petition, Rollo. p. 694.

[23] Annex S of Petition, Rollo. p. 596..


[24] Annex W of Petition, Rollo. p. 716.

[25] A formula used by the Court in determining the reasonableness of the wages award in PAL
vs. Confesor, supra.

[26] Annex I, Rollo. p. 133:

The MERALCO rank and file employee receives a monthly salary of P11,601 as against the
median salary of P9,620 monthly and the weighted average salary of P9,729 monthly prevailing
in the community. This means that Meralcos average monthly salary rate for its rank and file
employees is 20.60 percent higher than the median salary and 19.24 percent higher than the
weighted average salary enjoyed by other rank and file employees within the community.

[27] Annex K, Rollo. p. 221.

[28] Annex V of Petition, Rollo. pp. 700-701.

[29] Azucena, The Labor Code, Vol. 1, 1996 Ed., p. 314.

[30] Philippine Education Co., Inc. vs Court of Industrial Relations, 92 SCRA 381 [1979].

[31] Liberation Steamship Co., Inc. vs CIR, 23 Phil. 1105 [1968]; National Development Co. vs.
CIR, 23 Phil. 1106; Heacock Co. vs. NLU, 95 Phil. 553; NWSA vs NWSA Consolidated Labor Union,
21 SCRA 203 [1967].

[32] Globe Mackay Cable and Radio Corporation vs. NLRC, 163 SCRA 71 [1988].

[33] 220 SCRA 463 [1993].

[34] Article 100 of the Labor Code; Davao Fruits Corporation vs. Associate Labor Union, 225 SCRA
567 [1993].
[35] Annex V of Petition, Rollo. p. 704.

[36] See Rollo. p. 1786.

[37] Annex E of the Unions Rejoinder to Companys Opposition to Unions Motion for
Reconsideration, Rollo. p. 1525.

[38] MERALCOs Memorandum, Rollo. p. 1721.

[39] MEWA s Memorandum, p. 37.

[40] 214 SCRA 295 [1995] citing Golden Farms, Inc. vs. Calleja, 175 SCRA 471 [1989]; Philips
Industrial Development, Inc. vs. NLRC, 210 SCRA 348 [1992]; National Association of Trade
Unions-Republic Planters Bank Supervisors Chapter vs. Hon. Ruben Torres, 239 SCRA 546 [1994].

[41] 254 SCRA 182.

[42] Annex M of Petition, Rollo. p. 338.

[43] 186 SCRA 496 [1990].

[44] Annex V of Petition, Rollo. pp. 713-714.

[45] De Ocampo vs. NLRC, 213 SCRA 652 [1992].

[46] Annex M of Petition, Rollo, p. 340.

[47] 241 SCRA 294, 307 [1995].


[48] 223 SCRA 779 [1993].

[49] Lopez Sugar Corporation vs. Federation of Free Workers, 189 SCRA 179 [1990].

[50] Duldulao vs. Ramos, 91 Phil. 2611; Rivera vs. Court of Appeals, 176 SCRA 169 [1989].

[51] National Congress of Unions in the Sugar Industry vs. Ferrer-Calleja, 205 SCRA 478 [1995].

G.R. No. L-5276 March 3, 1953

ATOK-BIG WEDGE MINING CO., INC., petitioner,

vs.

ATOK-BIG WEDGE MUTUAL BENEFIT ASSOCIATION, respondent.

Vicente Hilado, Pedro Lopez and Artemio A. Almendral for petitioner.

Sanidad, Ayson and Casia for respondent.

LABRADOR, J.:

This is an appeal by certiorari against a decision of the Court of Industrial Relations. On


September 4, 1950, demand was submitted to petitioner by respondent union through its
officers for various concession, among which were (a) an increase of P0.50 in wages, (b)
commutation of sick and vacation leave if not enjoyed during the year, (c) various privileges,
such as free medical care, medicine, and hospitalization, (d) right to a closed shop, check off,
etc., (e) no dismissal without prior just cause and with a prior investigation, etc. Some of the
demands, were granted by the petitioner, and the other were rejected, and so hearings were
held and evidence submitted on the latter. After the hearing the respondent court rendered a
decision, the most important provisions of which were those fixing the minimum wage for the
laborers at P3.20, declaring that additional compensation representing efficiency bonus should
not be included as part of the wage, and making the award effective from September 4, 1950. It
is against these portion of the decision that this appeal is taken.
On the issue of the wage, it is contended by petitioner that as the respondent court found that
the laborer and his family at least need the amount of P2.58 for food, this should be the basis for
the determination of his wage, not what he actually spends; that it is not justifiable to fix a wage
higher than that provided by Republic Act No. 602; and that respondent union made the
demand in accordance with a pernicious practice of claiming more after an original demand is
granted. The respondent court found that P2.58 is the minimum amount actually needed by the
laborer and his family. That does not mean that it is his actual expense. A person's needs
increase as his means increase. This is true not only as to food but as to everything else
education, clothing, entertainment, etc. The law guarantees the laborer a fair and just wage. The
minimum must be fair and just. The "minimum wage" can by no means imply only the actual
minimum. Some margin or leeway must be provided, over and above the minimum, to take care
of contingencies such as increase of prices of commodities and desirable improvement in his
mode of living. Certainly, the amount of P0.22 a day (difference between P2.80 fixed and P2.58
actual) is not excessive for this purpose. That the P3 minimum wage fixed in the law is still far
below what is considered a fair and just minimum is shown by the fact that this amount is only
for the year after the law takes effect, as thereafter the law fixes it at P4. Neither may it be
correctly contended that the demand for increase is due to an alleged pernicious practice.
Frequent demands for increase are indicative of a healthy spirit of wakefulness to the demands
of a progressing and an increasingly more expensive world. We, therefore, find no reason or
ground for disturbing the finding contained in the decision fixing the amount of P3.20 as the
minimum wage.

It is next contended that the efficiency bonus paid the laborer should have been included in his
(minimum) wage, in the same manner as the value of living quarters. Whether or not bonus
forms part of wages depends upon the circumstances or condition for its payment. If it is an
additional compensation which the employer promised and agreed to give without any
conditions imposed for its payment, such as success of business or greater production or output,
then it is part of the wage. But if it is paid only if profits are realized or a certain amount of
productivity achieved, it cannot be considered part of the wages. In the case at bar, it is not
payable to all but to laborers only. It is also paid on the basis of actual production or actual work
accomplished. If the desired goal of production is not obtained or the amount of actual work
accomplished, the bonus does not accrue. It is evidence that under the circumstances it is paid
only when the labor becomes more efficient or more productive. It is only an inducement for
efficiency, a prize therefor, not a part of the wage.

The last question raised in the appeal is the grant of the increase from September 4, 1950, the
date of the presentation of the original demand, instead of from April 5, 1951, the date of the
amended demand. The decision states:

Both parties agreed that any award should be retroactive to the date of the presentation of the
demand, which is September 4, 1950. (Annex A, p. 5.)
The terms of the stipulation are clearly against petitioner's contention. There being no question
as to its (agreement) existence, the same must be given force and effect.

The petition is hereby dismissed, with costs.

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.

EN BANC

[G.R. No. 107487. September 29, 1997]

THE MANILA BANKING CORPORATION (Manilabank) and ARNULFO B. AURELLANO in his capacity
as Statutory Receiver of Manilabank, petitioners, vs. THE NATIONAL LABOR RELATIONS
COMMISSION, VICTOR L. MENDOZA, RODOLFO VE. TIMBOL, RUBEN G. ASEDILLO, FLORINDA S.
DAYRIT, and 19 other Senior Officers similarly situated; HORACE REYES and 14 other Senior
Managers similarly situated; AURORA VILLACERAN and 34 other Assistant Managers similarly
situated; CONSUELO RIZARRI, EMERENCIANA SAMSON, BRENDA C. BERMUDEZ, FLORYPEE
ABRIGO, EMMA BALDERAMA, and 211 other Junior Officers similarly situated, respondents.

[G.R. No. 107902. September 29, 1997]

THE MANILA BANKING CORPORATION (Manilabank) and ARNULFO B. AURELLANO in his capacity
as Statutory Receiver of Manilabank, petitioners, vs. THE NATIONAL LABOR RELATIONS
COMMISSION-NCR, LABOR ARBITER FELIPE PATI and VICTOR L. MENDOZA, RODOLFO VE.
TIMBOL, RUBEN G. ASEDILLO, FLORINDA S. DAYRIT, and 19 other Senior Officers similarly
situated; HORACE REYES, JOSE BELMONTE and 14 other Senior Managers and 53 Managers
similarly situated; AURORA VILLACERAN and 34 other Assistant Managers similarly situated;
CONSUELO RIZARRI, EMERENCIANA SAMSON, BRENDA C. BERMUDEZ, FLORYPEE ABRIGO, EMMA
BALDERAMA, and 211 other Junior Officers similarly situated, respondents.

DECISION

KAPUNAN, J.:
The principal issue presented for resolution in these petitions for certiorari[1] under Rule 65 of
the Rules of Court is whether or not public respondent National Labor Relations Commission
(NLRC) committed grave abuse of discretion in affirming with slight modifications Labor Arbiter
Felipe Patis decision awarding herein private respondents claim of P193,338,212.33 consisting
of:

1. Wage increase of 25% of gross monthly wage from January 1985 to December 1988;

2. Christmas Bonus of one and one-half (1-1/2) months pay from December 1985 to December
1987;

3. Mid-year Bonus of one (1) month pay from 1985 to 1988, inclusive;

4. Profit Sharing of 5% of net profit for 1985 and 1986;

5. Differentials on accrued leaves, retirement benefits and Christmas and Mid-year bonuses;

6. Longevity pay, Loyalty Bonus and Medical, Dental and Optical Benefits;

7. Uniform allowance of P600.00 per year from January 1985 to January 1988, inclusive;

8. One-half (1/2) month pay 1987 Christmas Bonus which was deducted from the retirement
benefit of each complainant;

9. Travel Plan and Car Plan with respect to the 23 complainants Senior Officers; and

10. Car Plan and Gasoline Allowance benefits with respect to the 15 complainants, Senior
Managers and 54 Assistant Managers.

annual interest thereon of 12% and attorneys fees amounting to 10% of the said amount.
The antecedents show that on June 5, 1984, petitioner Manila Banking Corporation
(Manilabank) was placed under comptrollership by then Central Bank Governor Jose B.
Fernandez in view of the banks financial distress.[2]

The decision of the Monetary Board of the Central Bank was based on the findings that the bank
was experiencing liquidity problems and had incurred chronic reserve deficiencies against
deposit liabilities. In fact on May 23, 1984, a month before it was placed under comptrollership,
Manilabank was prohibited by the Monetary Board from granting new loans and making new
investments except investments in government securities with Central Bank support, and from
declaring cash or stock dividends.[3]

A February 19, 1986 Central Bank report on Manilabanks financial condition as of December 31,
1985 disclosed, among other things, that the banks operations for the preceding year resulted in
a net loss of P362.4 million. It likewise revealed that the banks financial condition continued to
deteriorate.[4]

Consequently, on May 22, 1987, the Monetary Board issued Resolution No. 505 prohibiting
Manilabank from doing business in the Philippines. The said resolution reads:

Finding to be true the statements of the Assistant to the Governor and Officer-in-Charge,
Supervision and Examination Sector (SES) Department I, in his memorandum dated April 28,
1987 submitting a report on the financial condition of the Manila Banking Corporation (TMBC) as
of March 31, 1987, that the financial condition of TMBC is one of insolvency and its continuance
in business would involve probable loss to its depositors and creditors and considering, among
other things, that:

1. During the 3-month period January 1 to March 31, 1987, TMBC incurred losses of 62.3
million , before interest on Central Bank overdraft and penalties on reserve deficiencies (242.9
million for the three months);

2. Prior notices had been made to TMBC of a condition which may be considered as one
indicating insolvency as defined under Sec. 29 of R.A. No. 265, as amended, in various letters of
Mr. Antonio T. Castro, Jr., Special Assistant to the Governor and Head, SES Department I, dated
December 9, 1985, December 13, 1985 and October 16, 1986 and in a letter of the Governor,
dated February 27, 1987;

3. Mr. Vicente G. Puyat, in response to his request conveyed by Mrs. Reyes to the Monetary
Board, for a chance to appear before the Monetary Board in representation of the majority
stockholders of TMBC, in connection with the rehabilitation plan for TMBC, had been invited
three times to appear before the Board: first, on May 13, 1987, then on May 18, 1987 upon his
request, and on May 22, 1987, which invitations he did not respond to himself and neither did
he attend the Board meetings held on May 18, 1987 and May 22, 1987;

4. TMBC has not submitted a rehabilitation plan accepted to the Central Bank; and

5. The said Assistant to the Governor, who was present during the Monetary Board meeting held
on May 22, 1987, had categorically confirmed that, after considering all the adjustments, TMBC
would still be insolvent even with an additional capital infusion of P500 million.

the Board decided as follows:

1. To prohibit TMBC to do business in the Philippines and place its assets and affairs under
receivership in accordance with the provisions of Section 29 of R.A. No. 265, as amended; and

2. To designate the Assistant to the Governor and Officer-in-Charge, SES Department I, as


Receiver of TMBC, to immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for the benefit of its creditors
exercising all the powers necessary for these purposes including, but not limited to, bringing
suits and foreclosing mortgages in its name.[5]

Thereafter, Feliciano Miranda, Jr. was designated as receiver. He immediately took charge of the
banks assets and liabilities. He likewise terminated the employment of about 343 officers and
top managers of the bank. All these officers and top managers, who are private respondents
herein, were paid whatever separation and/or retirement benefits were due them.

On November 11, 1988, the Monetary Board issued Resolution No. 1003 ordering the liquidation
of Manilabank on account of insolvency. The resolution reads as follows:

Having determined and confirmed on the basis of the memorandum of the Special Assistant to
the Governor and Head, Supervision and Examination Sector (SES) Department I, and Receiver,
The Manila Banking Corporation (TMBC), dated November 4, 1988, submitting a report on the
financial condition of TMBC as of July 31, 1988, that the financial condition of the bank
continues to be one of insolvency and it can no longer resume business with safety to its
depositors, creditors and the general public, considering the opinion of the Central Bank legal
counsel that, with the Supreme Courts decision dated March 10, 1988 (a) setting aside the
decision of the Court of Appeals sustaining the decision of the Regional Trial Court to issue a writ
of preliminary injunction dated July 14, 1987 against the enforcement of Monetary Board
Resolution No. 505 dated May 22, 1987, (b) dissolving the said writ of preliminary injunction,
and (c) making permanent the temporary restraining order issued by the Supreme Court on
February 16, 1988, the liquidation of TMBC may now be ordered by the Monetary Board and
that its authority to order such liquidation is not affected by the pendency of Civil Case No. 87-
40659 nor of the Supreme Courts resolution of March 10, 1988 (enjoining the Court of Appeals
from interfering in the receivership of TMBC), the Board decided as follows:

1. To order the liquidation of TMBC in accordance with Section 29 of R.A. No. 265, as amended;
and

2. To designate Mr. Renan V. Santos, Special Assistant to the Governor, and Head, Supervision
and Examination Sector Department V, as Liquidator of TMBC.[6]

Of even date, private respondents filed a complaint against ManilaBank and its statutory receiver
with the arbitration branch of the National Labor Relations Commission (NLRC) claiming
entitlement to the following additional benefits alleged to have accrued from 1984 to their
effective dates of termination, viz: (a) Wage increases; (b) Christmas bonuses; (c) Mid-year
bonuses; (d) Profit sharing; (e) Car and travel plans; (f) Gasoline allowances; (g) Differentials on
accrued leaves, retirement and other bonuses; (h) Longevity pay and loyalty pay; (i) Medical,
dental and optical benefits; and (j) Uniform allowances.[7] Such claims to entitlement of the
foregoing benefits was based on Manilabanks alleged practice, policy and tradition of awarding
said benefits. They contended that the policy has ripened into vested property rights in their
favor.

Manila bank, on its part, alleged that the additional benefits sought are without basis in fact and
in law. It argued that the same are conferred by management only when it deems necessary to
do so. The award of the said benefits is in the nature of a management prerogative which, it
contended, can be withheld by management upon a clear showing that the company is not in a
position to grant them either because of financial difficulties or circumstances which do not
warrant conferment of such benefits. And since it was experiencing financial distress, it claimed
that it was in no position to give the benefits sought. Additionally, it asseverated that it was
deprived of its right to present evidence in a full-blown trial by the labor arbiter.

On November 14, 1989, Labor Arbiter Felipe Pati rendered his decision ordering Manilabank and
its statutory receiver to pay in full all the claims of private respondents amounting to
P193,338,212.33, plus 12% interest annually and 10% of the total award as attorneys fees. The
dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the complainants and against the
respondents, ordering and authorizing the Receiver RENAN V. SANTOS to pay, pursuant to the
provisions of Article 110 of the Labor Code, as amended:

1.The complainants the net amount of claims due appearing opposite the name of each
complainant listed in the Computation of Net Claim consisting of six (6) pages hereto attached
and made part of this Decision;

2.The complainants counsel the amount equal to 10% of the total amount awarded to
complainants in this action as attorneys fees.

SO ORDERED.[8]

On November 25, 1989, petitioners Manilabank and the CB statutory receiver appealed to the
NLRC and posted an appeal bond in the form of a certification from the Central Bank to the
effect that the portion of Manilabanks funds in an amount equal to that of the total award of the
labor arbiter, has been reserved and set aside by the Central Bank to answer for the private
respondents claims should they finally be adjudged to be entitled thereto.

On December 8, 1989, private respondents opposed the appeal and filed a motion for the
issuance of a writ of execution of the labor arbiters judgment on the ground that the Central
Bank certification cannot be considered as an appeal bond.

On June 21, 1991, the NLRC issued an order requiring petitioners to deposit with the Cashier of
the NLRC a cash bond or its equivalent in treasury bills, warrants and/or other government
securities in the amount of P193,000,000.00, plus ten percent (10%) thereof as attorneys fees
within ten (10) days from receipt thereof.

On July 5, 1991, petitioners moved to reconsider said order. However, pending resolution of said
motion for reconsideration, petitioners submitted to the NLRC a Certificate of Time Deposit
issued by the Philippine National Bank (PNB) in the amount of P212,700,000.00, payable to the
receiver of Manilabank.
On January 16, 1992, the NLRC held a hearing where the parties agreed that the certificate of
time deposit submitted by Manilabank to the NLRC be considered substantial compliance of the
requirement of an appeal bond, on the condition that it will be periodically renewed and re-
deposited with the NLRC Cashier upon its maturity, and that the securities deposited should be
free from any other claims or liens.

On September 9, 1992, the NLRC issued a resolution on the merits of the case and, as above-
stated, affirmed with slight modifications, the decision of the labor arbiter. The decretal portion
of the same reads:

WHEREFORE, except for the modification we provided on the manner medical, dental and
optical benefits should be claimed/paid, and our awarding annual interest of 12% to whatever
has been awarded below, the appealed decision is hereby affirmed and respondents appeal is
hereby dismissed.

SO ORDERED.[9]

Petitioners filed a motion for reconsideration from the aforequoted resolution.

On October 14, 1992, private respondents filed an ex parte motion for the issuance of a writ of
execution. Petitioners opposed the same, reasoning that the assets of Manilabank are exempt
from execution and that the NLRC resolution had not become final and executory.

On October 22, 1992, the NLRC issued an order directing petitioners, under pain of contempt, to
renew the certificate of time deposit and to have the same issued in the name of , and deposited
with, the cashier of the NLRC.

In response, petitioners Manilabank and Arnulfo Aurellano filed petition for certiorari before this
Court, docketed as G.R. No. 107487, to set aside said order alleging that the same was issued
with grave abuse of discretion because it (as re-phrased):

a. violated an existing statute.[10]

b. arbitrary compelled the Receiver to violate his statutory duty to preserve Manilabanks assets
for the benefit of all creditors.[11]

c. whimsically deprived petitioners of their right to file a motion for reconsideration of the Order.
[12]

d. was not anchored upon any cogent reason other than to preempt petitioners from invoking
the corrective powers of this Honorable Court of last resort.[13]

On November 26, 1992, petitioners earlier motion for reconsideration of the NLRC Decision
dated September 9, 1992 was denied for lack of merit in an order which dispositively reads as
follows:

Wherefore, premises considered, order is hereby issued:

1. denying respondents motion for reconsideration;

2. directing the NLRC Cashier to hold in her custody re-submitted Certificate of Time Deposit No.
890530-D dated October 27, 1992 with maturity date on December 28, 1992;

3. directing the respondents to post an additional bond, either in cash, surety, or certificate of
time deposit drawn in the name of the Cashier, NLRC, in the amount of P76,572,000.00 to cover,
the additional award detailed in our September 9, 1992 resolution;

4. directing, accordingly, the Executive Clerk to cause the personal service of this Order upon the
parties, particularly the respondents and their counsel; and

5. holding in abeyance the execution of our September 9, 1992 resolution (despite its finality
now) for a period of ten (10) calendar days from respondents receipt of this Order, with the
warning, however, that should this Commission not receive a restraining order from the
Supreme Court within said period of ten (10) calendar days, then a writ of execution will be
issued to enforce our now final judgment.

SO ORDERED.[14]
Consequently, petitioners filed another petition for certiorari before this Court, this time
docketed as G.R. No. 107902, contending that:

a. Public respondents, in grave abuse of discretion, effectively violated petitioners right due
process because-

(1) The monstrous award totaling about P212 million was decided based purely on private
respondents worthless papers which were never identified nor supported by any single affidavit.

(2) The Labor Arbiter proceeded to decide the case solely on the bases of the pleadings filed,
despite the enormity of the claims and the reapeted demands for a full-dress trial (which,
ironically, were initially granted by the Office of the Labor Arbiter), made necessary by the
conflicting factual allegations of the parties and the worthless papers passed off by private
respondents as their evidence.[15]

b. Public respondents unlawfully arrogated unto themselves the jurisdiction to pass upon the
question of Manilabanks insolvency, despite the pleaded pendency of that prejudicial question
before the RTC of Manila which had aquired exclusive jurisdiction to rule on the issue to the
exclusion of all others.[16]

c. The money award adjudged against the insolvent Manilabank violates all notions of justice and
equity, considering that the beneficiaries thereof are former officers and top managers of
Manilabank who, being part of management, were partly to blame for the banks financial
decline.[17]

d. A statutory receiver has the power to adopt and implement prudent policies aimed at
preserving the assets of an insolvent bank including regulating, according to his own discretion
and judgment, all aspects of employment.[18]

e. Public respondents arbitrary findings that salary increases, Christmas and mid-year bonuses
and other benefits have been regularly and unconditionally paid by Manilabank to private
respondents, and that Manilabank earned profits in 1984, 1985 and 1986, are contrary to the
evidence on record and are based on pure unsubstantiated guesswork. [19]
f. The award of attorneys fees is unconscionable, especially in light of its dissipative effect of the
remaining assets of the insolvent Manilabank and its prejudicial consequences on Manilabanks
stockholders and creditors.[20]

g. The NLRCs award of legal interest on the amount awarded by the labor arbiter and its order to
deposit an additional bond to cover such interest have no legal basis and give an undue
advantage to other creditors of the insolvent Manilabank.[21]

h. The NLRCs threat to execute the judgment would be unlawful if carried out, because
Manilabanks assets are legally exempt from execution.[22]

On December 9, 1992, this Court ordered that G.R. No. 107902 be consolidated with G.R. No.
107487.[23]

On December 16, 1992, this Court issued a Resolution temporarily enjoining public respondent
NLRC from enforcing and/or carrying out the decision of the labor arbiter dated November 14,
1989 and its resolution dated September 9, 1992 and order dated November 26, 1992, all issued
in NLRC NCR Case No. 00-11-04624-88.[24]

G.R. No. 107902 is impressed with merit.

Both the Labor Arbiter and the NLRC opted to award all the additional benefits claimed by the
343 private respondents who had already been duly paid separation pay and/or retirement
benefits upon termination of their employment. The NLRC erroneously adopted the findings of
the labor arbiter, misapplying the time-honored rule that factual findings of quasi-judicial
agencies are accorded not only respect but even finality if supported by substantial evidence. It
declared that the additional benefits sought are in the nature of bonuses which when made part
of the wage or salary or compensation of an employee become demandable and enforceable.
[25]

Both the Labor Arbiters and the NLRCs findings and conclusions are flawed.

By definition, 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.[26] 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 employees basic salaries or
wages,[27] especially so if it is incapable of doing so.

In Philippine Education Co., Inc. v. Court of Industrial Relations,[28] cited in Philippine


duplicators, Inc. v. NLRC,[29] the Court expounded on the nature of a bonus, thus:

As a rule, a bonus is an amount granted and paid to an employee for his industry and loyalty
which contributed to the success of the employers business and made possible the realization of
profits. It is an act of generosity of the employer for which the employee ought to be thankful
and grateful. It is also granted by an enlightened employer to spur the employee to greater
efforts for the success of the business and realization of bigger profits. xxx From the legal point
of view, a bonus is not a demandable and enforceable obligation. It is so when it is made part of
the wage or salary or compensation. In such a case the latter would be fixed amount and the
former would be a contingent one dependent upon the realization of profits. xxx . (Italics
supplied).[30]

Clearly then, a bonus is an amount given ex gratia to an employee by an employer on account of


success in business or realization of profits. How then can an employer be made liable to pay
additional benefits in the nature of bonuses to its employees when it has been operating on
considerable net losses for a given period of time?

Records bear out that petitioner Manilabank was already in dire financial straits in the mid-80s.
As early as 1984, the Central Bank found that Manilabank had been suffering financial losses.
Presumably, the problems commenced even before their discovery in 1984. As earlier
chronicled, the Central Bank placed petitioner bank under comptrollership in 1984 because of
liquidity problems and excessive interbank borrowings. In 1987, it was placed under receivership
and was ordered to close operation. In 1988, it was ordered liquidated.

It is evident, therefore, that petitioner bank was operating on net losses from the years 1984,
1985 and 1986, thus, resulting to its eventual closure in 1987 and liquidation in 1988. Clearly,
there was no success in business or realization of profits to speak of that would warrant the
conferment of additional benefits sought by private respondents. No company should be
compelled to act liberally and confer upon its employees additional benefits over and above
those mandated by law when it is plagued by economic difficulties and financial losses. No act of
enlightened generosity and self-interest can be exacted from near empty, if not empty, coffers.

Consequently, on the ten (10) items awarded to herein private respondents (enumerated at page
3) which represent additional benefits, they having already been paid separation and retirement
benefits, we rule as follows:
First. The award of 5% profit sharing of petitioner banks net profits for the years 1985 and 1986
is deleted as there were clearly no profits to share during that period given the banks financial
status in 1985 and 1986 when it was operating on net losses.

Second. The award of wage increases and Christmas and mid-year bonuses from 1985 to 1988,
being in the nature of gratuities and dependent as they on the petitioners liberality and
capability to give, is likewise deleted for same reasons above stated.

Third. The award of differentials on accrued leaves, retirement benefits and Christmas and mid-
year bonuses is also deleted as a necessary and logical consequence of the denial of the wage
increases and Christmas and mid-year bonuses.

Fourth. The award of medical, dental and optical benefits is well-taken and, therefore, affirmed.

Fifth. The claim for travel plans for 23 senior officers, and car plans and gasoline allowances for
23 senior officers, 15 senior managers and 54 assistant managers may only be granted to those
officers who have not yet availed of the said benefit subject to the proper determination by the
labor arbiter.

Sixth and last. Claims for longevity pay, loyalty bonuses and uniform allowance of P600.00 for
1985 may be granted given the apparent loyalty and allegiance shown by herein private
respondents to petitioner bank despite rough sailing during the said period of time.

That disposes of G.R. No. 107902.

With respect to G.R. No. 107487, the same is dismissed, the issues raised therein having been
rendered moot and academic by the foregoing disquisitions and disposition. Besides, it is beyond
dispute that employees indeed enjoy first preference in the event of bankruptcy or liquidation of
an employers business.[31]

WHEREFORE, premises considered, G.R. No. 107902 is GRANTED and is hereby REMANDED to
the Labor Arbiter for the proper computation of the monetary awards in accordance with the
foregoing disquisition and with reasonable dispatch. G.R. No. 107487 is hereby DISMISSED.
SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Mendoza, Panganiban and
Torres, Jr., JJ., concur.

Vitug, J., see concurring opinion.

Hermosisima, Jr., J., see dissenting opinion.

Francisco, J., joins Justice Hermosisima, Jr.'s dissenting opinion.

In G.R. No. 107487, petitioners Manila Banking Corporation (Manilabank) and Arnulfo B.
Aurellano, in his capacity as Statutory Receiver of Manilabank, question the Order dated October
22, 1992 of public respondent National Labor Relations Commission (NLRC) in NLRC-NCR Case
No. 00-11-04624-88 which required petitioner Manilabank to renew its Certificate of Time
Deposit in place of the appeal bond and to deposit the same with the NLRC cashier.

In G.R. No. 107902, petitioners challenge: (1) the Order dated November 26, 1997 of public
respondent NLRC in the same NLRC-NCR Case No. 00-11-04624-88 which denied petitioners
motion for reconsideration of the Resolution dated September 9, 1992 and which ordered
petitioners to post an additional bond to cover the public respondents award of interest; and (2)
the Resolution dated September 9, 1992 of respondent NLRC, which affirmed with slight
modifications the Labor Arbiters decision of November 14, 1989, granting private respondents
money claims amounting to P 193 million plus 10% attorneys fees.[1]

[2] Rollo (G.R. No. 107902, Vol. 1), p. 630.

[3] Id., at 617-619.

[4] Id., at 331-337.

[5] Id., at 272-273.

[6] Id., at 274.


[7] Id., at 193; Please see p. 3.

[8] Id., at 67-68.

[9] Rollo (G.R. No. 107487), pp. 134-135.

[10] Id., at 12.

[11] Id., at 14.

[12] Id., at 16.

[13] Id., at 17.

[14] Id., at 248-249.

[15] Rollo (G.R. No. 107902), p. 29.

[16] Id., at 50.

[17] Id., at 59.

[18] Id., at 60.

[19] Id., at 61.

[20] Id., at 81.


[21] Id., at 82.

[22] Id., at 86.

[23] Id., at 633.

[24] Id., at 634-635.

[25] Id., at 150-157.

[26] Traders Royal Bank v. NLRC, 189 SCRA 274 [1990] citing Aragon v. Cebu Portland Cement Co.,
61 O.G. 4567.

[27] Kamaya Point Hotel v. NLRC, 177 SCRA 160 (1989).

[28] 92 Phil. 381 (1952).

[29] 241 SCRA 380 (1995).

[30] Id., at 388.

[31] Article 110 of the Labor Code, as amended by R.A. No. 6715.

G.R. No. 111744 September 8, 1995

LOURDES G. MARCOS, ALEJANDRO T. ANDRADA, BALTAZARA J. LOPEZ AND VILMA L. CRUZ,


petitioners,
vs.

NATIONAL LABOR RELATIONS COMMISSION and INSULAR LIFE ASSURANCE CO., LTD.,
respondents.

REGALADO, J.:

This petition for certiorari seeks the nullification of the decision 1 of the National Labor Relations
Commission (NLRC) promulgated on May 31, 1992 in NLRC NCR CA No. 004120-92, and its
resolution dated August 27, 1993 denying petitioner's motion for reconsideration thereof. The
said decision set aside on appeal, the decision of Labor Arbiter Alex Arcadio Lopez ordering
private respondent to pay petitioners their service awards, anniversary bonus and prorated
performance bonus in the amount of P144,579.00 and 10% attorney's fees in the amount of
P14,457.90. 2

First, the undisputed facts.

Petitioners were regular employees of private respondent Insular Life Assurance Co:, Ltd., but
they were dismissed on November 1, 1990 when their positions were declared redundant. A
special redundancy benefit was paid to them, which included payment of accrued vacation leave
and fifty percent (50%) of unused current sick leave, special redundancy benefit, equivalent to
three (3) months salary for every year of service; and additional cash benefits, in lieu of other
benefits provided by the company or required by law. 3

Before the termination of their services, petitioner Marcos had been in the employ of private
respondent for more than twenty (20) years, from August 26, ]970; petitioner Andrada, more
than twenty-five (25) years, from July 26, 1965; petitioner Lopez, exactly thirty (30) years, from
October 31, 1960; and petitioner Cruz, more than twenty (20) years, from March 1, 1970. 4

Petitioners, particularly Baltazara J. Lopez, sent a letter dated October 23, 1990 to respondent
company questioning the redundancy package, She claimed that they should receive their
respective service awards and other prorated bonuses which they had earned at the time they
were dismissed. In addition, Lopez argued that "the cash service awards have already been
budgeted in a fund distinct and apart from redundancy fund. 5
Thereafter, private respondent required petitioners to execute a "Release and Quitclaim," 6 and
petitioners complied but with a written protest reiterating their previous demand that they were
nonetheless entitled to receive their service awards.

On March 21, 1991, petitioners inquired from the Legal Service of the Department of Labor and
Employment 7 whether respondent corporation could legally refuse the payment of their service
awards as mandated in their Employee's Manual.

About three months later the labor department issued its opinion, with pertinent authorities,
responding to petitioners' query as follows:

xxx xxx xxx

This Department believes that your query presents several issues. These shall be addressed
point by point, thus:

First, the Department deems the service award to be part of the benefits of the employees of
Insular Life. Company policies and practices are fertile sources of employee's rights. These must
be applied uniformly as interpretation cannot vary from one employee to another. . . .

xxx xxx xxx

While it may be argued that the above-cited case applies only to retirement benefits, we find
solace in the cases of Liberation Steamship Co., Inc. vs. CIR and National Development Company
vs. Unlicensed Crew members of Three Dons vessels (23 SCRA 1105) where the Supreme Court
held that a gratuity or bonus, by reason of its long and regular concession indicating company
practice, may become regarded as part of regular compensation and thus demandable.

xxx xxx xxx

Second, the award is earned at the pertinent anniversary date. At this time, entitlement to the
award becomes vested. The anniversary date is the only crucial determining factor. Since the
award accrues on that date, it is of no moment that the entitled employee is separated from
service (for whatever cause) before the awards are physically handed out.
xxx xxx xxx

Third, even if the award has not accrued as when an employee is separated from service
because of redundancy before the applicable 5th year anniversary, the material benefits of the
award must be given, prorated, by Insular Life. This is especially true (in) redundancy, wherein
he/she had no control.

xxx xxx xxx

Fourth, the fact that you were required to sign "Release and Quitclaim" does not affect your
right to the material benefits of the service award. . . . 8

Meanwhile, in the same year, private respondent celebrated its 80th anniversary wherein the
management approved the grant of an anniversary bonus equivalent to one (1) month salary
only to permanent and probationary employees as of November 15, 1990. 9

On March 26, 1991, respondent company announced the grant of performance bonus to both
rank and file employees and supervisory specialist grade and managerial staff equivalent to two
(2) months salary and 2.75 basic salary, respectively, as of December 30, 1990. The performance
bonus, however, would be given only to permanent employees as of March 30, 1991. 10

Despite the aforequoted opinion of the Department of Labor and Employment, private
respondent refused to pay petitioners service awards. This prompted the latter to file a
consolidated complaint, which was assigned to NLRC Labor Arbiter Lopez, for payment of their
service awards, including performance and anniversary bonuses.

In their complaint, petitioners contended that they are likewise entitled to the performance and
anniversary bonuses because, at the time the performance bonus was announced to be given,
they were only short of two (2) months service to be entitled to the full amount thereof as they
had already served the company for ten (10) months prior to the declaration of the grant of said
benefit. Also, they lacked only fifteen (15) days to be entitled to the full amount of the
anniversary bonus when it was announced to be given to employees as of November 15, 1990.

In a decision dated October 8, 1992, the labor arbiter ordered respondent company to pay
petitioners their service awards, anniversary bonuses and prorated performance bonuses,
including ten percent (10%) thereof as attorney's fees.

Respondent company appealed to public respondent NLRC claiming grave abuse of discretion
committed by the labor arbiter in holding it liable to pay said service award, performance and
anniversary bonuses, and in not finding that petitioners were estopped from claiming the same
as said benefits had already been given to them.

In setting aside the decision of the labor arbiter, respondent NLRC upheld the validity of the
quitclaim document executed by petitioners. For this conclusion, it rationalized that "(c)ertainly,
before complainants signed the quitclaim and release, they are aware of the nature of such
document. In fact, they never assailed the genuineness and due execution of the same. Hence,
we can safely say that they were not placed under duress or were compelled by means of force
to sign the document." 11

Furthermore, the NLRC held that "(n)either was there any unwritten agreement between
complainants and respondent upon separation, which entitled the former to other
renumerations or benefits. On the contrary, they voluntarily accepted the redundancy benefit
package, otherwise, they would not have been separated from employment." 12

Hence, this petition wherein it is postulated that the basic issue is whether or not respondent
NLRC committed reversible error or grave abuse of discretion in affirming the validity of the
"Release and Quitclaim" and, consequently, that petitioners are not entitled to payment of
service awards and other bonuses. 13 The Solicitor General public respondent NLRC and private
respondent company duly filed their respective comments. 14

In their petition, petitioners stress that they have actually devoted much, if not all, of their
employable life with private respondent; that given their length of service, their loyalty to the
latter is easily demonstrable; and that the same length of service had rendered slim, if not
eliminated, their chances of getting employed somewhere else." 15

On the other hand, respondent company reiterates its basic contention that the consideration
for the settlement of petitioners' claim is credible and reasonable, more than satisfies the legal
requirement therefor, and that petitioners, in executing the release and quitclaim, did so
voluntarily and with full knowledge of the consequences thereof. 16

The petition being meritorious, we find for petitioners.


Under prevailing jurisprudence, the fact that an employee has signed a satisfaction receipt for
his claims does not necessarily result in the waiver thereof. The law does not consider as valid
any agreement whereby a worker agrees to receive less compensation than what he is entitled
to recover. A deed of release or quitclaim cannot bar an employee from demanding benefits to
which he is legally entitled. 17

We have heretofore explained that the reason why quitclaims commonly frowned upon as
contrary to public policy, and why they are held to be ineffective to bar claims for the full
measure of the workers' legal rights, is the fact that the employer and the employee obviously
do not stand on the same footing. The employer drove the employee to the wall. The latter must
have harsh necessities of life. He thus found himself in no position to resist money proffered. His,
then, is a case of adherence, not of choice. One thing sure, however, is that petitioners did not
relent on their claim. They pressed it. They are deemed not have waived any of their rights.
Renuntiatio non praesumitur. 18

Along this line, we have more trenchantly declared that quitclaims and/or complete releases
executed by the employees do not estop them from pursuing their claims arising from unfair
labor practices of the employer. The basic reason for this is that such quitclaims and/or complete
releases are against public policy and, therefore, null and void. The acceptance of termination
does not divest a laborer of the right to prosecute his employer for unfair labor practice acts. 19
While there maybe possible exceptions to this holding, we do not perceive any in the case at bar.

Furthermore, in the instant case, it is an undisputed fact that when petitioners signed the
instrument of release and quitclaim, they made a written manifestation reserving their right to
demand the payment of their service awards. 20 The element of total voluntariness in executing
that instrument is negated by the fact that they expressly stated therein their claim for the
service awards, a manifestation equivalent to a protest and a disavowal of any waiver thereof.

As earlier stated, petitioners even sought the opinion of the Department of Labor and
Employment to determine where and how they stood in the controversy. This act only shows
their adamant desire to obtain their service awards and to underscore their disagreement with
the "Release and Quitclaim" they were virtually forced to sign in order to receive their
separation pay.

We have pointed out in Veloso, et al., vs. Department of Labor and Employment, et al., 21 that:

While rights may be waived, the same must not be contrary to law, public order, public policy,
morals or good customs or prejudicial to a third person with a right recognized by law.

Article 6 of the Civil Code renders a quitclaim agreement void ab initio where the quitclaim
obligates the workers concerned to forego their benefits while at the same time exempting the
employer from any liability that it may choose to reject. This runs counter to Art. 22 of the Civil
Code which provides that no one shall be unjustly enriched at the expense of another.

We agree with the further observations of the Solicitor General who, in recommending the
setting aside of the decision of respondent NLRC, called attention to the fact that "contrary to
private respondent's contention, the "additional" redundancy package does not and could not
have covered the payment of the service awards, performance and anniversary bonuses since
the private respondent company has initially maintained the position that petitioners are not
legally entitled to the same. . . . Surprisingly, in a sudden turnabout, private respondent now
claims . . . that the subject awards and bonuses are integrated in the redundancy package. It is
evident, therefore, that private respondent has not truly consolidated the payment of the
subject awards and bonuses in the redundancy package paid to the petitioners. 22

We are likewise in accord with the findings of the labor arbiter that petitioners are indeed
entitled to receive service awards and other benefits, thus:

Since each of the complainants have rendered services to respondent in multiple(s) of five years
prior to their separation from employment, respondent should be paid their service awards for
1990.

We are not impressed with the contention of the respondent that service award is a bonus and
therefore is an act of gratuity which the complainants have no right to demand. Service awards
are governed by respondent's employee's manual and (are) therefore contractual in nature.

On the matter of anniversary and performance bonuses, it is not disputed that it is respondent's
practice to give an anniversary bonus every five years from its incorporation; that pursuant to
this practice, respondent declared an anniversary bonus for its 80th Anniversary in 1990; that
per terms of this declaration, only the employees of respondent as of 15 November 1990 will be
given the bonus; and that complainants were separated from respondent only 25 days before
:the respondent's anniversary. On the other hand, it is also (not) disputed that respondent
regularly gives performance bonuses; that for its commendable performance in 1990,
respondent declared a performance bonus; that per terms of this declaration, only permanent
employees of respondent as of March 30, 1991 will be given this bonus; and that complainants
were employees of respondents for the first 10 months of 1990.
We cannot see any cogent reason why an anniversary bonus which respondent gives only once
in every five years were given to all employees of respondent as of 15 November 1990 (pro rata
even to probationary employees; Annex 9) and not to complainants who have rendered service
to respondent for most of the five year cycle. This is also true in the case of performance bonus
which were given to permanent employees of respondent as of 30 March 1991 and not to
employees who have been connected with respondent for most of 1990 but were separated
prior to 30 March 1991.

We believe that the prerogative of the employer to determine who among its employee shall be
entitled to receive bonuses which are, as a matter of practice, given periodically cannot be
exercised arbitrarily. 23 (Emphasis and corrections in parentheses supplied.)

The grant of service awards in favor of petitioners is more importantly underscored in the
precedent case of Insular Life Assurance Co., Ltd., et al. vs. NLRC, et al., 24 where this Court ruled
that "as to the service award differentials claimed by some respondent union members, the
company policy shall likewise prevail, the same being based on the employment contracts or
collective bargaining agreements between the parties. As the petitioners had explained,
pursuant to their policies on the matter, the service award differential is given at the end of the
year to an employee who has completed years of service divisible by 5.

A bonus is not a gift or gratuity, but is paid for some services or consideration and is in addition
to what would ordinarily be given. 25 The term "bonus" as used in employment contracts, also
conveys an idea of something which is gratuitous, or which may be claimed to be gratuitous,
over and above the prescribed wage which the employer agrees to pay.

While there is a conflict of opinion as to the validity of an agreement to pay additional sums for
the performance of that which the promisee is already under obligation to perform, so as to give
the latter the right to enforce such promise after performance, the authorities hold that if one
enters into a contract of employment under an agreement that he shall be paid a certain salary
by the week or some other stated period and, in addition, a bonus, in case he serves for a
specified length of time, there is no reason for refusing to enforce the promise to pay the bonus,
if the employee has served during the stipulated time, on the ground that it was a promise of a
mere gratuity.

This is true if the contract contemplates a continuance of the employment for a definite term,
and the promise of the bonus is made at the time the contract is entered into. If no time is fixed
for the duration of the contract of employment, but the employee enters upon or continues in
service under an offer of a bonus if he remains therein for a certain time, his service, in case he
remains for the required time, constitutes an acceptance of the offer of the employer to pay the
bonus and, after that acceptance, the offer cannot be withdrawn, but can be enforced by the
employee. 26

The weight of authority in American jurisprudence, with which we are persuaded to agree, is
that after the acceptance of a promise by an employer to pay the bonus, the same cannot be
withdrawn, but may be enforced by the employee. 27 However, in the case at bar, equity
demands that the performance and anniversary bonuses should be prorated to the number of
months that petitioners actually served respondent company in the year 1990. This observation
should be taken into account in the computation of the amounts to be awarded to petitioners.

WHEREFORE, the assailed decision and resolution of respondent National Labor Relations
Commission are hereby SET ASIDE and the decision of Labor Arbiter Alex Arcadio Lopez is
REINSTATED.

SO ORDERED.

SECOND DIVISION

[G.R. No. 116960. April 2, 1996]

BERNARDO JIMENEZ and JOSE JIMENEZ, as Operators of JJs TRUCKING, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, PEDRO JUANATAS and FREDELITO JUANATAS,
respondents.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF THE NLRC, GENERALLY RESPECTED; EXCEPT
WHEN AT ODDS WITH THE LABOR ARBITER. - The review of labor cases elevated to us on
certiorari is confined to questions of jurisdiction or grave abuse of discretion. As a rule, this
Court does not review supposed errors in the decision of the NLRC which raise factual issues,
because factual findings of agencies exercising quasi-judicial functions are accorded not only
respect but even finality, aside from the consideration that the Court is essentially not a trier of
facts. However, in the case at bar, a review of the records thereof with an assessment of the
facts is necessary since the factual findings of the NLRC and the labor arbiter are at odds with
each other.

2. ID.; ID.; BURDEN OF PROOF; THE DEBTOR WHO PLEADS AFFIRMATIVE ALLEGATION OF
PAYMENT OF OBLIGATION MUST PROVE THE SAME; WHEN THE BURDEN SHIFTS TO THE
CREDITOR. - As a general rule, one who pleads payment has the burden of proving it. Even where
the plaintiff must allege non-payment, the general rule is that the burden rests on the defendant
to prove payment, rather than on the plaintiff to prove non-payment. The debtor has the burden
of showing with legal certainty that the obligation has been discharged by payment. When the
existence of a debt is fully established by the evidence contained in the record, the burden of
proving that it has been extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the creditor. Where the debtor introduces some evidence of payment,
the burden of going forward with the evidence - as distinct from the general burden of proof-
shifts to the creditor, who is then under a duty of producing some evidence to show non-
payment. In the instant case, the right of respondent to be paid a commission is not disputed by
petitioners. Although private respondents admit receipt of partial payment, petitioners still have
to present proof of full payment. Where the defendant sued for a debt admits that the debt was
originally owed, and pleads payment in whole or in part, it is incumbent upon him to prove such
payment. That a plaintiff admits that some payments have been made does not change the
burden of proof. The defendant still has the burden of establishing payments beyond those
admitted by plaintiff. The positive testimony of a creditor may be sufficient of itself to show non-
payment, even when met by indefinite testimony of the debtor. Similarly, the testimony of the
debtor may also be sufficient to show payment, but, where his testimony is contradicted by the
other party or by a disinterested witness, the issue may be determined against the debtor since
he has the burden of proof. The testimony of the debtor creating merely an inference of
payment will not be regarded as conclusive on that issue. Hence, for failure to present evidence
to prove payment, petitioners defaulted in their defense and in effect admitted the allegations of
private respondents.

3. ID.; ID.; RULES OF ADMISSIBILITY; DOCUMENTS NOT PROPERLY ACCOMPLISHED HAS NO


PROBATIVE VALUE. - The testimony of petitioners which merely denied the claim of private
respondents, unsupported by documentary evidence, is not sufficient to establish payment.
Although petitioners submitted a notebook showing the alleged vales of private respondents for
the year 1990, the same is inadmissible and cannot be given probative value considering that it
is not properly accomplished, is undated and unsigned, and is thus uncertain as to its origin and
authenticity.

4. LABOR LAW AND SOCIAL LEGISLATION; EMPLOYER-EMPLOYEE RELATIONSHIP; ELEMENTS; NOT


PRESENT IN CASE AT BAR. - In determining the existence of an employer-employee relationship,
the elements that are generally considered are the following: (1) the selection and engagement
of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employees conduct, with the control test assuming primacy in the overall
consideration. In the case at bar, the aforementioned elements are not present.

APPEARANCES OF COUNSEL

Fernandez law Office for petitioners.

Alejandro M. Villamil for private respondents.


DECISION

REGALADO, J.:

This petition for certiorari seeks the annulment of the decision of respondent National Labor
Relations Commission (NLRC), dated May 27, 1994, as well as its resolution, dated August 8,
1994, denying petitioners motion for reconsideration,1 which assailed decision affirmed with
modifications the adverse decision of the labor arbiter against herein petitioners.

On June 29, 1990, herein private respondents Pedro and Fredelito Juanatas, father and son, filed
a claim for unpaid wages/commissions, separation pay and damages against JJ s Trucking and/or
Dr. Bernardo Jimenez. Said respondents, as complainants therein, alleged that in December,
1987, they were hired by herein petitioner Bernardo Jimenez as driver! mechanic and helper,
respectively, in his trucking firm, JJ Trucking. They were assigned to a ten-wheeler truck to haul
soft drinks of Coca-Cola Bottling Company and paid on commission basis, initially fixed at 17%
but later increased to 20% in 1988.

Private respondents further alleged that for the years 1988 and 1989 they received only a partial
commission of P84,000.00 from petitioners total gross income of almost P1,000,000.00 for the
said two years. Consequently, with their commission for that period being computed at 20% of
said income, there was an unpaid balance to them of P106,211.86; that until March, 1990 when
their services were illegally terminated, they were further entitled to P15,050.309 which,
excluding the partial payment of P7,000.00, added up to a grand total of P114,261.86 due and
payable to them; and that petitioners refusal to pay their aforestated commission was a ploy to
unjustly terminate them.

Disputing the complaint, petitioners contend that respondent Fredelito Juanatas was not an
employee of the firm but was merely a helper of his father Pedro; that all commissions for 1988
and 1989, as well as those up to March, 1990, were duly paid; and that the truck driven by
respondent Pedro Juanatas was sold to one Winston Flores in 1991 and, therefore, private
respondents were not illegally dismissed.2

After hearings duly conducted, and with the submission of the parties position/supporting
papers, Labor Arbiter Roque B. de Guzman rendered a decision dated March 9, 1993, with this
decretal portion:

WHEREFORE, decision is hereby issued ordering respondents JJs Trucking and/or Dr. Bernardo
Jimenez to pay jointly and severally complainant Pedro Juanatas a separation pay of FIFTEEN
THOUSAND FIFTY (P15,050.00) PESOS, plus attorneys fee equivalent to ten percent (10%) of the
award.

The complaint of Fredelito Juanatas is hereby dismissed for lack of merit.3

On appeal filed by private respondents, the NLRC modified the decision of the labor arbiter and
disposed as follows:

PREMISES CONSIDERED, the Decision of March 9, 1993 is hereby MODIFIED, to wit:

1. Complainant Fredelito Juanatas is hereby declared respondents employee and shares in (the)
commission and separation pay awarded to complainant Pedro Juanatas, his father.

2. Respondent JJs Trucking and Dr. Bernardo Jimenez are jointly and severally liable to pay
complainants their unpaid commissions in the total amount of Eighty Four Thousand Three
Hundred Eighty Seven Pesos and 05/100 (P84,387.05).

3. The award of attorneys fees is reduced accordingly to eight thousand four hundred thirty eight
pesos and 70/100 (P8,438.70).

4. The other findings stand affirmed.4

Petitioners motion for reconsideration having been denied thereafter in public respondents
resolution dated August 8, 1994,5 petitioners have come to us in this recourse, raising for
resolution the issues as to whether or not respondent NLRC committed grave abuse of discretion
in ruling (a) that private respondents were not paid their commissions in full, and (b) that
respondent Fredelito Juanatas was an employee of JJs Trucking.

The review of labor cases elevated to us on certiorari is confined to questions ofjurisdiction or


grave abuse of discretion.6 As a rule, this Court does not review supposed errors in the decision
of the NLRC which raise factual issues, because factual findings of agencies exercising quasi-
judicial functions are accorded not only respect but even finality,7 aside from the consideration
that the Court is essentially not a trier of facts. However, in the case at bar, a review of the
records thereof with an assessment of the facts is necessary since the factual findings of the
NLRC and the labor arbiter are at odds with each other.8
On the first issue, we find no reason to disturb the findings of respondent NLRC that the entire
amount of commissions was not paid, this by reason of the evident failure of herein petitioners
to present evidence thatfull payment thereof has been made. It is a basic rule in evidence that
each party must prove his affirmative allegations. Since the burden of evidence lies with the
party who asserts an affirmative allegation, the plaintiff or complainant has to prove his
affirmative allegation, in the complaint and the defendant or respondent has to prove the
affirmative allegations in his affirmative defenses and counterclaim. Considering that petitioners
herein assert that the disputed commissions have been paid, they have the bounden duty to
prove that fact.

As a general rule, one who pleads payment has the burden of proving it.9 Even where the
plaintiff must allege non-payment, the general rule is that the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove non-payment.10 The debtor has the burden
of showing with legal certainty that the obligation has been discharged by payment.11

When the existence of a debt is fully established by the evidence contained in the record, the
burden of proving that it has been extinguished by payment devolves upon the debtor who
offers such a defense to the claim of the creditor.12 Where the debtor introduces some evidence
of payment, the burden of going forward with the evidence - as distinct from the general burden
of proof - shifts to the creditor, who is then under a duty of producing some evidence to show
non-payment.13

In the instant case, the right of respondent Pedro Juanatas to be paid a commission equivalent
to 17%, later increased to 20%, of the gross income is not disputed by petitioners. Although
private respondents admit receipt of partial payment, petitioners still have to present proof of
full payment. Where the defendant sued for a debt admits that the debt was originally owed,
and pleads payment in whole or in part, it is incumbent upon him to prove such payment. That a
plaintiff admits that some payments have been made does not change the burden of proof. The
defendant still has the burden of establishing payments beyond those admitted by plaintiff.14

The testimony of petitioners which merely denied the claim of private respondents, unsupported
by documentary evidence, is not sufficient to establish payment. Although petitioners submitted
a notebook showing the alleged vales of private respondents for the year 1990,15 the same is
inadmissible and cannot be given probative value considering that it is not properly
accomplished, is undated and unsigned, and is thus uncertain as to its origin and authenticity.16

The positive testimony of a creditor may be sufficient of itself to show non-payment, even when
met by indefinite testimony of the debtor. Similarly, the testimony of the debtor may also be
sufficient to show payment, but, where his testimony is contradicted by the other party or by a
disinterested witness, the issue may be determined against the debtor since he has the burden
of proof. The testimony of the debtor creating merely an inference of payment will not be
regarded as conclusive on that issue.17

Hence, for failure to present evidence to prove payment, petitioners defaulted in their defense
and in effect admitted the allegations of private respondents.

With respect to the second issue, however, we agree with petitioners that the NLRC erred in
holding that the son, Fredelito, was an employee of petitioners.

We have consistently ruled that in determining the existence of an employer-employee


relationship, the elements that are generally considered are the following: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
power to control the employees conduct,18 with the control test assuming primacy in the
overall consideration.

In the case at bar, the aforementioned elements are not present. The agreement was between
petitioner JJs Trucking and respondent Pedro Juanatas. The hiring of a helper was discretionary
on the part of Pedro. Under their contract, should he employ a helper, he would be responsible
for the latters compensation. With or without a helper, respondent Pedro Juanatas was entitled
to the same percentage of commission. Respondent Fredelito Juanatas was hired by his father,
Pedro, and the compensation he received was paid by his father out of the latters commission.
Further, Fredelito was not subject to the control and supervision of and dismissal by petitioners
but of and by his father.

Even the Solicitor General, in his comment, agreed with the finding of the labor arbiter that
Fredelito was not an employee of petitioners, to wit:

Public respondent committed grave abuse of discretion in holding that said private respondent is
an employee of JJs Trucking on the ground that, citing Article 281 of the Labor Code, Fredelitos
functions as helper was (sic) necessary and desirable to respondents trucking business.

In the first place, Article 281 of the Labor Code does not refer to the basic factors that must
underlie every existing employer-employee relationship, the absence of any of which will negate
such existence. It refers instead to the qualifications of (A)n employee who is allowed to work
after a probationary period and who, as a consequence, shall be considered a regular employee.
Secondly, the test in determining the existence of an employee-employer relationship is not the
necessity and/or desirability of ones functions in relation to an employers business, but (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees conduct. The latter is the most important
element (Singer Sewing Machine Company vs. Drilon, 193 SCRA 270, 275; Deferia vs. NLRC, 194
SCRA 531, 525; Ecal vs. NLRC, 224, 228; Hijos De F. Escano, Inc. vs. NLRC, 224 SCRA 781, 785).
The aforequoted pertinent findings of the Labor Arbiter indicate (that) the foregoing
requirements do not exist between petitioner and private respondent Fredelito Juanatas. Thus,
the labor arbiter stated that respondent Fredelito Juanatas was never hired by petitioners.
Instead the formers services were availed of by respondent Pedro Juanatas his father, who, at
the same time, supervised and controlled his work and paid his commissions. Respondent NLRCs
ruling did not traverse these findings of the labor arbiter.19

WHEREFORE, the judgment of respondent National Labor Relations Commission is hereby


AFFIRMED, with the MODIFICATION that paragraph 1 thereof, declaring Fredelito Juanatas an
employee of petitioners and entitled to share in the award for commission and separation pay, is
hereby DELETED.

SO ORDERED.

Romero, Puno and Mendoza, JJ., concur.

Torres, Jr. J., on leave.

1 Penned by Presiding Commissioner Lourdes C. Javier, with Commissioners Ireneo B. Bernardo


and Joaquin A. Tanodra concurring.

2 Rollo, 107; NLRC Decision, 2.

3 Ibid., 82.

4 Ibid., 112-113

5 Ibid., 122-123.

6 Loadstar Shipping Co., Inc. vs. Gallo, et al., G.R. No. 102845, February 4, 1994, 229 SCRA 654;
Philippine Overseas Drilling and Oil Development Corporation vs. Ministry of Labor, et al., G.R.
No. 55703, November 27, 1986, 146 SCRA 79.

7 Sta. Fe Construction Co., et al. vs. NLRC, et al., G.R. No. 101280, March 2, 1994, 230 SCRA 593;
San Miguel Corporation vs. Javate, Jr., et al., G.R. No. 54244, January 27, 1992, 205 SCRA 469.

8 See Prieto, et al. vs. NLRC, et al., G.R. No. 93699, September 10, 1993, 226 SCRA 232; Rapiz, et
al. vs. NLRC, et al., G.R. No. 911271, March 16, 1992, 207 SCRA 243; Llobera vs. NLRC, et al., G.R.
No. 76271, June 28, 1988, 162 SCRA 788.

9 Simoton vs. Winter, 30 U.S. 141, 8 L Ed 75; Levy vs. Chicago National Bank, 158 Illl 88,42 N.E.
129.

10 60 Am. Jur. 2d, Payment, Sec. 171, 997.

11 Motor Finance Co. vs. Universal Motors, La. App., 182 So. 143 Moreiras Succession, 16 La.
Ann. 386.

12 Biala vs. Court of Appeals, et al., G.R. No. 43503, October 31, 1990, 191 SCRA 50; Servicewide
Specialist, Inc. vs. Intermediate Appellate Court, et al., G.R. No. 74553, June 8, 1989, 174 SCRA
80

13 60 Am. Jur. 2d, Payment, Sec. 174, 998.

14 Ibid., id., Sec. 171, 996-997.

15 Original Record, 375-377.

16 See Callanta vs. NLRC, et al., G.R. No. 105083, August 20, 1993, 225 SCRA 526.

17 70 C.J.S., Payment, Sec. 121, 334.


18 Canlubang Security Agency vs. NLRC, et a!., G.R. No. 97492, December 8, 1992,216 SCRA 280;
Ruga, et al. vs. NLRC, et al., G.R. Nos. 72654-61, January 22, 1990, 181 SCRA 266; Makati
Haberdashery, Inc., et al. vs. NLRC, et al., G.R. Nos. 83380-81, November 15, 1989, 179 SCRA 448

19 Rollo, 166-167.

Facts: The 99 persons named as petitioners in this proceeding were rank-and-file employees of
respondent Empire Food Products, which hired them on various dates. Petitioners filed against
private respondents a complaint for payment of money claims and for violation of labor
standards laws They also filed a petition for direct certification of petitioner Labor Congress of
the Philippines as their bargaining representative. In an Order dated October 24, 1990, Mediator
Arbiter approved the memorandum of agreement and certified LCP "as the sole and exclusive
bargaining agent among the rank-and-file employees of Empire Food Products for purposes of
collective bargaining with respect to wages, hours of work and other terms and conditions of
employment". On November 1990, petitioners through LCP President Navarro submitted to
private respondents a proposal for collective bargaining. On January 1991, petitioners filed a
complaint against private respondents for Unfair Labor Practice by way of Illegal Lockout and/or
Dismissal; Union busting thru Harassments [sic], threats, and interfering with the rights of
employees to self-organization; Violation of the Memorandum of Agreement dated October 23,
1990; Underpayment of Wages in violation of R.A. No. 6640 and R.A. No. 6727, such as Wages
promulgated by the Regional Wage Board; Actual, Moral and Exemplary Damages." Issue: WON
the petitioners are entitled to labor standard benefits considering they are paid by piece rate
worker. Held: The petitioners are so entitled to these benefits namely, holiday pay, premium pay,
13th month pay and service incentive leave. Three (3) factors lead us to conclude that
petitioners, although piece-rate workers, were regular employees of private respondents. First,
as to the nature of petitioners' tasks were necessary or desirable in the usual business of private
respondents, who were engaged in the manufacture and selling of such food products; second,
petitioners worked for private respondents throughout the year, and third, the length of time
that petitioners worked for private respondents. Thus, while petitioners' mode of compensation
was on a "per piece basis," the status and nature of their employment was that of regular
employees. The Rules Implementing the Labor Code exclude certain employees from receiving
benefits such as nighttime pay, holiday pay, service incentive leave and 13th month pay, "field
personnel and other employees whose time and performance is unsupervised by the employer,
including those who are engaged on task or contract basis, purely commission basis, or those
who are paid a fixed amount for performing work irrespective of the time consumed in the
performance thereof." Plainly, petitioners as piece-rate workers do not fall within this group. As
mentioned earlier, not only did petitioners labor under the control of private respondents as
their employer, likewise did petitioners toil throughout the year with the fulfillment of their
quota as supposed basis for compensation. Further, in Section 8(b), Rule IV, Book III which we
quote hereunder, piece workers are specifically mentioned as being entitled to holiday pay. SEC.
8. Holiday pay of certain employees. (b) Where a covered employee is paid by results or
output, such as payment on piece work, his holiday pay shall not be less than his average daily
earnings for the last seven (7) actual working days preceding the regular holiday: Provided,
however, that in no case shall the holiday pay be less than the applicable statutory minimum
wage rate. In addition, the Revised Guidelines on the Implementation of the 13th Month Pay
Law, in view of the modifications to P.D. No. 851 19 by Memorandum Order No. 28, clearly
exclude the employer of piece rate workers from those exempted from paying 13th month pay,
to wit: 2. EXEMPTED EMPLOYERS The following employers are still not covered by P.D. No. 851:
b. Employers of those who are paid on purely commission, boundary or task basis, and those
who are paid a fixed amount for performing 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 grant the required 13th month pay to such workers. The Revised Guidelines
as well as the Rules and Regulations identify those workers who fall under the piece-rate
category as those who are paid a standard amount for every piece or unit of work produced that
is more or less regularly replicated, without regard to the time spent in producing the same. As
to overtime pay, the rules, however, are different. According to Sec 2(e), Rule I, Book III of the
Implementing Rules, workers who are paid by results including those who are paid on piece-
work, takay, pakiao, or task basis, if their output rates are in accordance with the standards
prescribed under Sec. 8, Rule VII, Book III, of these regulations, or where such rates have been
fixed by the Secretary of Labor in accordance with the aforesaid section, are not entitled to
receive overtime pay. As such, petitioners are beyond the ambit of exempted persons and are
therefore entitled to overtime pay. Lambo vs. NLRC (Oct. 26, 1999) Facts: Petitioners Avelino
Lambo and Vicente Belocura were employed as tailors by private respondents J.C. Tailor Shop
and/or Johnny Co on September 10, 1985 and March 3, 1985, respectively. They worked from
8:00 a.m. to 7:00 p.m. daily, including Sundays and holidays. As in the case of the other 100
employees of private respondents, petitioners were paid on a piece-work basis, according to the
style of suits they made. Regardless of the number of pieces they finished in a day, they were
each given a daily pay of at least P64.00. On January 17, 1989, petitioners filed a complaint
against private respondents for illegal dismissal and sought recovery of overtime pay, holiday
pay, premium pay on holiday and rest day, service incentive leave pay, separation pay, 13th
month pay, and attorneys fees. After hearing, Labor Arbiter found private respondents guilty of
illegal dismissal and accordingly ordered them to pay petitioners claims. On appeal, the NLRC
reversed the decision of the Labor Arbiter. The NLRC held petitioners guilty of abandonment of
work and accordingly dismissed their claims except that for 13th month pay. Issue: WON the
petitioners are entitled to the minimum benefits provided by law. Held: The petitioners are
entitled to the minimum benefits provided by law. There is no dispute that petitioners were
employees of private respondents although they were paid not on the basis of time spent on the
job but according to the quantity and the quality of work produced by them. There are two
categories of employees paid by results: (1) those whose time and performance are supervised
by the employer. (Here, there is an element of control and supervision over the manner as to
how the work is to be performed. A piece-rate worker belongs to this category especially if he
performs his work in the company premises.); and (2) those whose time and performance are
unsupervised. (Here, the employers control is over the result of the work. Workers on pakyao
and takay basis belong to this group.) Both classes of workers are paid per unit accomplished.
Piece-rate payment is generally practiced in garment factories where work is done in the
company premises, while payment on pakyao and takay basis is commonly observed in the
agricultural industry, such as in sugar plantations where the work is performed in bulk or in
volumes difficult to quantify. 4 Petitioners belong to the first category, i.e., supervised
employees. In this case, private respondents exercised control over the work of petitioners. As
tailors, petitioners worked in the companys premises from 8:00 a.m. to 7:00 p.m. daily, including
Sundays and holidays. The mere fact that they were paid on a piece-rate basis does not negate
their status as regular employees of private respondents. The term "wage" is broadly defined in
Art. 97 of the Labor Code as remuneration or earnings, capable of being expressed in terms of
money whether fixed or ascertained on a time, task, piece or commission basis. Payment by the
piece is just a method of compensation and does not define the essence of the relations. Nor
does the fact that petitioners are not covered by the SSS affect the employer-employee
relationship. As petitioners were illegally dismissed, they are entitled to reinstatement with back
wages. The Arbiter applied the rule in the Mercury Drug case, according to which the recovery of
back wages should be limited to three years without qualifications or deductions. Any award in
excess of three years is null and void as to the excess. The Labor Arbiter correctly ordered private
respondents to give separation pay.

You might also like