Manila Electric v.

Quisumbing
G.R. No. 127598 February 22, 2000
Facts:
Members of the Private respondent union were
dissatisfied with the terms of a CBA with petitioner. The
parties in this case were ordered by the Sec. of Labor to
execute a collective bargaining agreement (CBA)
wherein.The CBA allowed for the increase in the wages of
the employees concerned. The petitioner argues that if
such increase were allowed, it would pass off such to the
consumers.
Issue: W/N matters of
management prerogative

salary

are

part

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.1

The
modifications
of
respondent's resolutions
following:

January 27, 1999 Secretary's

decision
resolution

of

RULING: Yes. There is no need to consult the Secretary of

Labor in cases involving contracting out for 6 months or
more as it is part of management prerogative. However, a
line must be drawn with respect to management
prerogatives on business operations per se and those
which affect the rights of the workers. Employers must
see to it that that employees are properly informed of its
decisions to attain harmonious labor relations and
enlighten the worker as to their rights.
The contracting out business or services is an exercise of
business judgment if it is for the promotion of efficiency
and attainment of economy. Management must be
motivated by good faith and contracting out should not
be done to circumvent the law. Provided there was no
malice or that it was not done arbitrarily, the courts will
not interfere with the exercise of this judgment.

___________________________________________

Republic of the Philippines

SUPREME COURT
Manila

Wages

P1,900.00
1995-96

X'mas bonus

modified to one
2 months
month

Retirees

remanded
to
granted
the Secretary

denied

Loan
coops

to

GHSIP, HMP
and
Housing
loans
-

RESOLUTION

LABOR STANDARDS
MIDTERM

granted up
P60,000.00

to
granted

Union leave

40 days
error)

High
voltage/pole

not apply to members

those who are
a team
not exposed to
the risk

Collectors

no
need
for
cash bond, no
need to reduce
quota and MAPL

CBU

exclude
confidential
employees

Union
security

maintenance of
closed shop
membership

Contracting
out

no
need
to
consult first
consult union

All benefits

existing
terms
all terms
and conditions

Retroactivity

Dec. 28, 1996- from Dec. 1,

Dec. 27, 199(9) 1995

In the Decision promulgated on January 27, 1999, the

Court disposed of the case as follows:

granted

denied

YNARES-SANTIAGO, J.:

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 Labor's orders of

P2,200.00

February 22, 2000

MANILA
ELECTRIC
COMPANY,
petitioner,
vs.
Hon.
SECRETARY
OF
LABOR
LEONARDO
QUISUMBING and MERALCO EMPLOYEES and
WORKERS ASSOCIATION (MEWA), respondent.

for

Signing
bonus

SPECIAL FIRST DIVISION

G.R. No. 127598

the
public
include the

granted
(typo

30 days
of

include

Dissatisfied with the Decision, some alleged members of

private respondent union (Union for brevity) filed a
motion for intervention and a motion for reconsideration
of the said Decision. A separate intervention was likewise
made by the supervisor's union (FLAMES 2) of petitioner
corporation alleging that it has bona fide legal interest in
the outcome of the case.3 The Court required the "proper
parties" to file a comment to the three motions for
reconsideration but the Solicitor-General asked that he be
excused from filing the comment because the "petition

CASES

filed in the instant case was granted" by the Court. 4

Consequently, petitioner filed its own consolidated
comment.
An
"Appeal
Seeking
Immediate
Reconsideration" was also filed by the alleged newly
elected president of the Union.5 Other subsequent
pleadings were filed by the parties and intervenors.
The issues raised in the motions for reconsideration had
already been passed upon by the Court in the January 27,
1999 decision. No new arguments were presented for
consideration of the Court. Nonetheless, certain matters
will be considered herein, particularly those involving the
amount of wages and the retroactivity of the Collective
Bargaining Agreement (CBA) arbitral awards.
Petitioner warns that if the wage increase of P2,200.00
per month as ordered by the Secretary is allowed, it
would simply pass the cost covering such increase to the
consumers through an increase in the rate of electricity.
This is a non sequitur. The Court cannot be threatened
with such a misleading argument. An increase in the
prices of electric current needs the approval of the
appropriate regulatory government agency and does not
automatically result from a mere increase in the wages of
petitioner's
employees.
Besides,
this
argument
presupposes that petitioner is capable of meeting a wage
increase. The All Asia Capital report upon which the Union
relies to support its position regarding the wage issue
cannot be an accurate basis and conclusive determinant
of the rate of wage increase. Section 45 of Rule 130 Rules
of Evidence provides:
Commercial lists and the like. Evidence of
statements of matters of interest to persons
engaged in an occupation contained in a list,
register,
periodical,
or
other
published
compilation is admissible as tending to prove the
truth of any relevant matter so stated if that
compilation is published for use by persons
engaged in that occupation and is generally
used and relied upon by them therein.
Under the afore-quoted rule, statement of matters
contained in a periodical, may be admitted only "if that
compilation is published for use by persons engaged in
that occupation and is generally used and relied upon by
them therein." As correctly held in our Decision dated
January 27, 1999, the cited report is a mere newspaper
account and not even a commercial list. At most, it is but
an analysis or opinion which carries no persuasive weight
for purposes of this case as no sufficient figures to
support it were presented. Neither did anybody testify to
its accuracy. It cannot be said that businessmen generally
rely on news items such as this in their occupation.
Besides, no evidence was presented that the publication
was regularly prepared by a person in touch with the
market and that it is generally regarded as trustworthy
and reliable. Absent extrinsic proof of their accuracy,
these reports are not admissible. 6 In the same manner,
newspapers containing stock quotations are not
admissible in evidence when the source of the reports is
available.7 With more reason, mere analyses or
projections of such reports cannot be admitted. In
particular, the source of the report in this case can be
easily made available considering that the same is
necessary for compliance with certain governmental
requirements.
Nonetheless, by petitioner's own allegations, its actual
total net income for 1996 was P5.1 billion. 8 An estimate
by the All Asia financial analyst stated that petitioner's

LABOR STANDARDS
MIDTERM

net operating income for the same year was about P5.7
billion, a figure which the Union relies on to support its
claim. Assuming without admitting the truth thereof, the
figure is higher than the P4.171 billion allegedly
suggested by petitioner as its projected net operating
income. The P5.7 billion which was the Secretary's basis
for granting the P2,200.00 is higher than the actual net
income of P5.1 billion admitted by petitioner. It would be
proper then to increase this Court's award of P1,900.00 to
P2,000.00 for the two years of the CBA award. For 1992,
the agreed CBA wage increase for rank-and-file was
P1,400.00 and was reduced to P1,350.00; for 1993;
further reduced to P1,150.00 for 1994. For supervisory
employees, the agreed wage increase for the years 19921994 are P1,742.50, P1,682.50 and P1,442.50,
respectively. Based on the foregoing figures, the
P2,000.00 increase for the two-year period awarded to
the rank-and-file is much higher than the highest increase
granted to supervisory employees. 9 As mentioned in the
January 27, 1999 Decision, the Court does "not seek to
enumerate in this decision the factors that should affect
wage determination" because collective bargaining
disputes particularly those affecting the national interest
and public service "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." 10 The
Court takes judicial notice that the new amounts granted
herein are significantly higher than the weighted average
salary currently enjoyed by other rank-and-file employees
within the community. It should be noted that the
relations between labor and capital is impressed with
public interest which must yield to the common good.11
Neither party should act oppressively against the other or
impair the interest or convenience of the public. 12
Besides, matters of salary increases are part of
management prerogative. 13
On the retroactivity of the CBA arbitral award, it is well to
recall that this petition had its origin in the renegotiation
of the parties' 1992-1997 CBA insofar as the last two-year
period thereof is concerned. When the Secretary of Labor
assumed jurisdiction and granted the arbitral awards,
there was no question that these arbitral awards were to
be given retroactive effect. However, the parties dispute
the reckoning period when retroaction shall commence.
Petitioner claims that the award should retroact only from
such time that the Secretary of Labor rendered the
award, invoking the 1995 decision in Pier 8 case 14 where
the Court, citing Union of Filipino Employees v. NLRC,15
said:
The assailed resolution which incorporated the
CBA to be signed by the parties was
promulgated on June 5, 1989, the expiry date of
the past CBA. Based on the provision of Section
253-A, its retroactivity should be agreed upon by
the parties. But since no agreement to that
effect was made, public respondent did not
abuse its discretion in giving the said CBA a
prospective effect. The action of the public
respondent is within the ambit of its authority
vested by existing law.
On the other hand, the Union argues that the award
should retroact to such time granted by the Secretary,
citing the 1993 decision of St. Luke's.16
Finally, the effectivity of the Order of January 28,
1991, must retroact to the date of the expiration
of the previous CBA, contrary to the position of
petitioner. Under the circumstances of the case,

CASES

Article 253-A cannot be properly applied to

herein case. As correctly stated by public
respondent in his assailed Order of April 12,
1991
dismissing
petitioner's
Motion
for
Reconsideration
Anent the alleged lack of basis for the
retroactivity provisions awarded; we
would stress that the provision of law
invoked by the Hospital, Article 253-A of
the Labor Code, speaks of agreements
by and between the parties, and not
arbitral awards . . .
Therefore, in the absence of a specific provision
of law prohibiting retroactivity of the effectivity
of arbitral awards issued by the Secretary of
Labor pursuant to Article 263(g) of the Labor
Code, such as herein involved, public respondent
is deemed vested with plenary and discretionary
powers to determine the effectivity thereof.
In the 1997 case of Mindanao Terminal, 17 the Court
applied the St. Luke's doctrine and ruled that:
In St. Luke's Medical Center v. Torres, a deadlock
also developed during the CBA negotiations
between management and the union. The
Secretary of Labor assumed jurisdiction and
ordered the retroaction of the CBA to the date of
expiration of the previous CBA. As in this case, it
was alleged that the Secretary of Labor gravely
abused its discretion in making his award
retroactive. In dismissing this contention this
Court held:
Therefore, in the absence of a specific
provision of law prohibiting retroactive
of the effectivity of arbitral awards
issued by the Secretary of Labor
pursuant to Article 263(g) of the Labor
Code, such as herein involved, public
respondent is deemed vested with
plenary and discretionary powers to
determine the effectivity thereof.
The Court in the January 27, 1999 Decision, stated that
the CBA shall be "effective for a period of 2 years counted
from December 28, 1996 up to December 27, 1999."
Parenthetically, this actually covers a three-year period.
Labor laws are silent as to when an arbitral award in a
labor dispute where the Secretary had assumed
jurisdiction by virtue of Article 263 (g) of the Labor Code
shall retroact. In general, a CBA negotiated within six
months after the expiration of the existing CBA retroacts
to the day immediately following such date and if agreed
thereafter, the effectivity depends on the agreement of
the parties.18 On the other hand, the law is silent as to the
retroactivity of a CBA arbitral award or that granted not
by virtue of the mutual agreement of the parties but by
intervention of the government. Despite the silence of the
law, the Court rules herein that CBA arbitral awards
granted after six months from the expiration of the last
CBA shall retroact to such time agreed upon by both
employer and the employees or their union. Absent such
an agreement as to retroactivity, the award shall retroact
to the first day after the six-month period following the
expiration of the last day of the CBA should there be one.
In the absence of a CBA, the Secretary's determination of

LABOR STANDARDS
MIDTERM

the date of retroactivity as part of his discretionary

powers over arbitral awards shall control.
It is true that an arbitral award cannot per se be
categorized as an agreement voluntarily entered into by
the parties because it requires the interference and
imposing power of the State thru the Secretary of Labor
when he assumes jurisdiction. However, the arbitral
award can be considered as an approximation of a
collective bargaining agreement which would otherwise
have been entered into by the parties.19 The terms or
periods set forth in Article 253-A pertains explicitly to a
CBA. But there is nothing that would prevent its
application by analogy to an arbitral award by the
Secretary considering the absence of an applicable law.
Under Article 253-A: "(I)f any such agreement is entered
into beyond six months, the parties shall agree on the
duration of retroactivity thereof." In other words, the law
contemplates retroactivity whether the agreement be
entered into before or after the said six-month period.
The agreement of the parties need not be categorically
stated for their acts may be considered in determining
the duration of retroactivity. In this connection, the Court
considers the letter of petitioner's Chairman of the Board
and its President addressed to their stockholders, which
states that the CBA "for the rank-and-file employees
covering the period December 1, 1995 to November 30,
1997 is still with the Supreme Court," 20 as indicative of
petitioner's recognition that the CBA award covers the
said period. Earlier, petitioner's negotiating panel
transmitted to the Union a copy of its proposed CBA
covering the same period inclusive. 21 In addition,
petitioner does not dispute the allegation that in the past
CBA arbitral awards, the Secretary granted retroactivity
commencing from the period immediately following the
last day of the expired CBA. Thus, by petitioner's own
actions, the Court sees no reason to retroact the subject
CBA awards to a different date. The period is herein set at
two (2) years from December 1, 1995 to November 30,
1997.
On the allegation concerning the grant of loan to a
cooperative, there is no merit in the union's claim that it
is no different from housing loans granted by the
employer. The award of loans for housing is justified
because it pertains to a basic necessity of life. It is part of
a privilege recognized by the employer and allowed by
law. In contrast, providing seed money for the
establishment of the employee's cooperative is a matter
in which the employer has no business interest or legal
obligation. Courts should not be utilized as a tool to
compel any person to grant loans to another nor to force
parties to undertake an obligation without justification.
On the contrary, it is the government that has the
obligation to render financial assistance to cooperatives
and the Cooperative Code does not make it an obligation
of the employer or any private individual.22
Anent the 40-day union leave, the Court finds that the
same is a typographical error. In order to avoid any
confusion, it is herein declared that the union leave is
only thirty (30) days as granted by the Secretary of Labor
and affirmed in the Decision of this Court.
The added requirement of consultation imposed by the
Secretary in cases of contracting out for six (6) months or
more has been rejected by the Court. Suffice it to say that
the employer is allowed to contract out services for six
months or more. However, a line must be drawn between
management prerogatives regarding business operations
per se and those which affect the rights of employees,

CASES

and in treating the latter, the employer should see to it

that its employees are at least properly informed of its
decision or modes of action in order to attain a
harmonious labor-management relationship and enlighten
the workers concerning their rights. 23 Hiring of workers is
within the employer's inherent freedom to regulate and is
a valid exercise of its management prerogative subject
only to special laws and agreements on the matter and
the fair standards of justice. 24 The management cannot
be denied the faculty of promoting efficiency and
attaining economy by a study of what units are essential
for its operation. It has the ultimate determination of
whether services should be performed by its personnel or
contracted to outside agencies. While there should be
mutual consultation, eventually deference is to be paid to
what management decides.25 Contracting out of services
is an exercise of business judgment or management
prerogative.26 Absent proof that management acted in a
malicious or arbitrary manner, the Court will not interfere
with the exercise of judgment by an employer. 27 As
mentioned in the January 27, 1999 Decision, the law
already sufficiently regulates this matter. 28 Jurisprudence
also provides adequate limitations, such that the
employer must be motivated by good faith and the
contracting out should not be resorted to circumvent the
law or must not have been the result of malicious or
arbitrary actions.29 These are matters that may be
categorically determined only when an actual suit on the
matter arises.
WHEREFORE, the motion for reconsideration is PARTIALLY
GRANTED and the assailed Decision is MODIFIED as
follows: (1) the arbitral award shall retroact from
December 1, 1995 to November 30, 1997; and (2) the
award of wage is increased from the original amount of
One Thousand Nine Hundred Pesos (P1,900.00) to Two
Thousand Pesos (P2,000.00) for the years 1995 and 1996.
This Resolution is subject to the monetary advances
granted by petitioner to its rank-and-file employees
during the pendency of this case assuming such
advances had actually been distributed to them. The
assailed
Decision
is
AFFIRMED
in
all
other
respects.1wphi1.nt
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

LABOR STANDARDS
MIDTERM

CASES

G.R. No. 156367

May 16, 2005

AUTO BUS TRANSPORT SYSTEMS, INC., petitioner,

vs.
ANTONIO BAUTISTA, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing
the Decision1 and Resolution2 of the Court of Appeals
affirming the Decision3 of the National Labor Relations
Commission (NLRC). The NLRC ruling modified the
Decision of the Labor Arbiter (finding respondent entitled
to the award of 13th month pay and service incentive
leave pay) by deleting the award of 13 th month pay to
respondent.

On 29 September 2000, based on the pleadings and

supporting evidence presented by the parties, Labor
Arbiter Monroe C. Tabingan promulgated a Decision, 4 the
dispositive portion of which reads:
WHEREFORE, all premises considered, it is
hereby found that the complaint for Illegal
Dismissal has no leg to stand on. It is hereby
ordered DISMISSED, as it is hereby DISMISSED.
However, still based on the above-discussed
premises, the respondent must pay to the
complainant the following:
a. his 13th month pay from the date of
his hiring to the date of his dismissal,
presently computed at P78,117.87;
b. his service incentive leave pay for all
the years he had been in service with
the respondent, presently computed at
P13,788.05.

THE FACTS
Since 24 May 1995, respondent Antonio Bautista has
been employed by petitioner Auto Bus Transport Systems,
Inc. (Autobus), as driver-conductor with travel routes
Manila-Tuguegarao via Baguio, Baguio- Tuguegarao via
Manila and Manila-Tabuk via Baguio. Respondent was paid
on commission basis, seven percent (7%) of the total
gross income per travel, on a twice a month basis.
On 03 January 2000, while respondent was driving
Autobus No. 114 along Sta. Fe, Nueva Vizcaya, the bus he
was driving accidentally bumped the rear portion of
Autobus No. 124, as the latter vehicle suddenly stopped
at a sharp curve without giving any warning.

All other claims of both complainant and

respondent are hereby dismissed for lack of
merit.5
Not satisfied with the decision of the Labor Arbiter,
petitioner appealed the decision to the NLRC which
rendered its decision on 28 September 2001, the decretal
portion of which reads:
[T]he Rules and Regulations Implementing
Presidential Decree No. 851, particularly Sec. 3
provides:

Respondent averred that the accident happened because

he was compelled by the management to go back to
Roxas, Isabela, although he had not slept for almost
twenty-four (24) hours, as he had just arrived in Manila
from Roxas, Isabela. Respondent further alleged that he
was not allowed to work until he fully paid the amount of
P75,551.50, representing thirty percent (30%) of the cost
of repair of the damaged buses and that despite
respondents pleas for reconsideration, the same was
ignored by management. After a month, management
sent him a letter of termination.
Thus, on 02 February 2000, respondent instituted a
Complaint for Illegal Dismissal with Money Claims for
nonpayment of 13th month pay and service incentive
leave pay against Autobus.
Petitioner, on the other hand, maintained that
respondents employment was replete with offenses
involving reckless imprudence, gross negligence, and
dishonesty. To support its claim, petitioner presented
copies of letters, memos, irregularity reports, and
warrants of arrest pertaining to several incidents wherein
respondent was involved.
Furthermore, petitioner avers that in the exercise of its
management prerogative, respondents employment was
terminated only after the latter was provided with an
opportunity to explain his side regarding the accident on
03 January 2000.

LABOR STANDARDS
MIDTERM

"Section 3. Employers covered. The

Decree shall apply to all employers
except to:
xxx

xxx

xxx

e) employers of those who are paid on

purely commission, boundary, or task
basis, performing a specific work,
irrespective of the time consumed in
the performance thereof. xxx."
Records show that complainant, in his position
paper, admitted that he was paid on a
commission basis.
In view of the foregoing, we deem it just and
equitable to modify the assailed Decision by
deleting the award of 13th month pay to the
complainant.

WHEREFORE, the Decision dated 29 September

2000 is MODIFIED by deleting the award of 13 th
month pay. The other findings are AFFIRMED.6
In other words, the award of service incentive leave pay
was maintained. Petitioner thus sought a reconsideration

CASES

of this aspect, which was subsequently denied in a

Resolution by the NLRC dated 31 October 2001.
Displeased with only the partial grant of its appeal to the
NLRC, petitioner sought the review of said decision with
the Court of Appeals which was subsequently denied by
the appellate court in a Decision dated 06 May 2002, the
dispositive portion of which reads:
WHEREFORE, premises considered, the Petition
is DISMISSED for lack of merit; and the assailed
Decision of respondent Commission in NLRC NCR
CA No. 026584-2000 is hereby AFFIRMED in toto.
No costs.7
Hence, the instant petition.

performance is unsupervised by the employer" must not

be understood as a separate classification of employees
to which service incentive leave shall not be granted.
Rather, it serves as an amplification of the interpretation
of the definition of field personnel under the Labor Code
as those "whose actual hours of work in the field cannot
be determined with reasonable certainty." 8
The same is true with respect to the phrase "those who
are engaged on task or contract basis, purely commission
basis." Said phrase should 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. 9 Hence, employees
engaged on task or contract basis or paid on purely
commission basis are not automatically exempted from
the grant of service incentive leave, unless, they fall
under the classification of field personnel.

ISSUES
1. Whether or not respondent is entitled to service
incentive leave;
2. Whether or not the three (3)-year prescriptive period
provided under Article 291 of the Labor Code, as
amended, is applicable to respondents claim of service
incentive leave pay.
RULING OF THE COURT
The disposition of the first issue revolves around the
proper interpretation of Article 95 of the Labor Code vis-vis Section 1(D), Rule V, Book III of the Implementing
Rules and Regulations of the Labor Code which provides:
Art. 95. RIGHT TO SERVICE INCENTIVE LEAVE
(a) Every employee who has rendered
at least one year of service shall be
entitled to a yearly service incentive
leave of five days with pay.
Book III, Rule V: SERVICE INCENTIVE LEAVE
SECTION 1. Coverage. This rule shall apply to
all employees except:

Therefore, petitioners contention that respondent is not

entitled to the grant of service incentive leave just
because he was paid on purely commission basis is
misplaced. What must be ascertained in order to resolve
the issue of propriety of the grant of service incentive
leave to respondent is whether or not he is a field
personnel.
According to Article 82 of the Labor Code, "field
personnel" shall refer 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. This definition is
further elaborated in the Bureau of Working Conditions
(BWC), Advisory Opinion to Philippine Technical-Clerical
Commercial Employees Association 10 which states that:
As a general rule, [field personnel] are those
whose performance of their job/service is not
supervised
by
the
employer
or
his
representative, the workplace being away from
the principal office and whose hours and days of
work cannot be determined with reasonable
certainty; hence, they are paid specific amount
for rendering specific service or performing
specific work. If required to be at specific places
at specific times, employees including drivers
cannot be said to be field personnel despite the
fact that they are performing work away from
the principal office of the employee. [Emphasis
ours]

(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; . . .

To this discussion by the BWC, the petitioner differs and

postulates that under said advisory opinion, no employee
would ever be considered a field personnel because every
employer, in one way or another, exercises control over
his employees. Petitioner further argues that the only
criterion that should be considered is the nature of work
of the employee in that, if the employees job requires
that he works away from the principal office like that of a
messenger or a bus driver, then he is inevitably a field
personnel.

A careful perusal of said provisions of law will result in the

conclusion that the grant of service incentive leave has
been delimited by the Implementing Rules and
Regulations of the Labor Code to apply only to those
employees not explicitly excluded by Section 1 of Rule V.
According to the Implementing Rules, Service Incentive
Leave shall not apply to employees classified as "field
personnel." The phrase "other employees whose

We are not persuaded. At this point, it is necessary to

stress that the definition of a "field personnel" is not
merely concerned with the location where the employee
regularly performs his duties but also with the fact that
the employees performance is unsupervised by the
employer. As discussed above, field personnel are those
who regularly perform their duties away from the

LABOR STANDARDS
MIDTERM

CASES

principal place of business of the employer and whose

actual hours of work in the field cannot be determined
with reasonable certainty. Thus, in order to conclude
whether an employee is a field employee, it is also
necessary to ascertain if actual hours of work in the field
can be determined with reasonable certainty by the
employer. In so doing, an inquiry must be made as to
whether or not the employees time and performance are
constantly supervised by the employer.
As observed by the Labor Arbiter and concurred in by the
Court of Appeals:
It is of judicial notice that along the routes that
are plied by these bus companies, there are its
inspectors assigned at strategic places who
board the bus and inspect the passengers, the
punched tickets, and the conductors reports.
There is also the mandatory once-a-week car
barn or shop day, where the bus is regularly
checked as to its mechanical, electrical, and
hydraulic aspects, whether or not there are
problems thereon as reported by the driver
and/or conductor. They too, must be at specific
place as [sic] specified time, as they generally
observe prompt departure and arrival from their
point of origin to their point of destination. In
each and every depot, there is always the
Dispatcher whose function is precisely to see to
it that the bus and its crew leave the premises at
specific times and arrive at the estimated proper
time. These, are present in the case at bar. The
driver, the complainant herein, was therefore
under constant supervision while in the
performance of this work. He cannot be
considered a field personnel.11
We agree in the above disquisition. Therefore, as correctly
concluded by the appellate court, respondent is not a
field personnel but a regular employee who performs
tasks usually necessary and desirable to the usual trade
of petitioners business. Accordingly, respondent is
entitled to the grant of service incentive leave.
The question now that must be addressed is up to what
amount of service incentive leave pay respondent is
entitled to.
The response to this query inevitably leads us to the
correlative issue of whether or not the three (3)-year
prescriptive period under Article 291 of the Labor Code is
applicable to respondents claim of service incentive
leave pay.
Article 291 of the Labor Code states that all money claims
arising from employer-employee relationship shall be filed
within three (3) years from the time the cause of action
accrued; otherwise, they shall be forever barred.
In the application of this section of the Labor Code, the
pivotal question to be answered is when does the cause
of action for money claims accrue in order to determine
the reckoning date of the three-year prescriptive period.
It is settled jurisprudence that a cause of action has three
elements, to wit, (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3)

LABOR STANDARDS
MIDTERM

an act or omission on the part of such defendant violative

of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff. 12
To properly construe Article 291 of the Labor Code, it is
essential to ascertain the time when the third element of
a cause of action transpired. Stated differently, in the
computation of the three-year prescriptive period, a
determination must be made as to the period when the
act constituting a violation of the workers right to the
benefits being claimed was committed. For if the cause of
action accrued more than three (3) years before the filing
of the money claim, said cause of action has already
prescribed in accordance with Article 291. 13
Consequently, in cases of nonpayment of allowances and
other monetary benefits, if it is established that the
benefits being claimed have been withheld from the
employee for a period longer than three (3) years, the
amount pertaining to the period beyond the three-year
prescriptive period is therefore barred by prescription.
The amount that can only be demanded by the aggrieved
employee shall be limited to the amount of the benefits
withheld within three (3) years before the filing of the
complaint.14
It is essential at this point, however, to recognize that the
service incentive leave is a curious animal in relation to
other benefits granted by the law to every employee. In
the case of service incentive leave, the employee may
choose to either use his leave credits or commute it to its
monetary equivalent if not exhausted at the end of the
year.15 Furthermore, if the employee entitled to service
incentive leave does not use or commute the same, he is
entitled upon his resignation or separation from work to
the commutation of his accrued service incentive leave.
As enunciated by the Court in Fernandez v. NLRC:16
The clear policy of the Labor Code is to grant
service incentive leave pay to workers in all
establishments, subject to a few exceptions.
Section 2, Rule V, Book III of the Implementing
Rules and Regulations provides that "[e]very
employee who has rendered at least one year of
service shall be entitled to a yearly service
incentive leave of five days with pay." Service
incentive leave is a right which accrues to every
employee who has served "within 12 months,
whether continuous or broken reckoned from the
date the employee started working, including
authorized absences and paid regular holidays
unless the working days in the establishment as
a matter of practice or policy, or that provided in
the employment contracts, is less than 12
months, in which case said period shall be
considered as one year." It is also "commutable
to its money equivalent if not used or exhausted
at the end of the year." In other words, an
employee who has served for one year is
entitled to it. He may use it as leave days or he
may collect its monetary value. To limit the
award to three years, as the solicitor general
recommends, is to unduly restrict such right. 17
[Italics supplied]
Correspondingly, it can be conscientiously deduced that
the cause of action of an entitled employee to claim his
service incentive leave pay accrues from the moment the
employer refuses to remunerate its monetary equivalent
if the employee did not make use of said leave credits but
instead chose to avail of its commutation. Accordingly, if

CASES

the employee wishes to accumulate his leave credits and

opts for its commutation upon his resignation or
separation from employment, his cause of action to claim
the whole amount of his accumulated service incentive
leave shall arise when the employer fails to pay such
amount at the time of his resignation or separation from
employment.
Applying Article 291 of the Labor Code in light of this
peculiarity of the service incentive leave, we can
conclude that the three (3)-year prescriptive period
commences, not at the end of the year when the
employee becomes entitled to the commutation of his
service incentive leave, but from the time when the
employer refuses to pay its monetary equivalent after
demand of commutation or upon termination of the
employees services, as the case may be.
The above construal of Art. 291, vis--vis the rules on
service incentive leave, is in keeping with the
rudimentary principle that in the implementation and
interpretation of the provisions of the Labor Code and its
implementing regulations, the workingmans welfare
should be the primordial and paramount consideration. 18
The policy is to extend the applicability of the decree to a
greater number of employees who can avail of the
benefits under the law, which is in consonance with the
avowed policy of the State to give maximum aid and
protection to labor.19
In the case at bar, respondent had not made use of his
service incentive leave nor demanded for its
commutation until his employment was terminated by
petitioner. Neither did petitioner compensate his
accumulated service incentive leave pay at the time of
his dismissal. It was only upon his filing of a complaint for
illegal dismissal, one month from the time of his
dismissal, that respondent demanded from his former
employer commutation of his accumulated leave credits.
His cause of action to claim the payment of his
accumulated service incentive leave thus accrued from
the time when his employer dismissed him and failed to
pay his accumulated leave credits.
Therefore, the prescriptive period with respect to his
claim for service incentive leave pay only commenced
from the time the employer failed to compensate his
accumulated service incentive leave pay at the time of
his dismissal. Since respondent had filed his money claim
after only one month from the time of his dismissal,
necessarily, his money claim was filed within the
prescriptive period provided for by Article 291 of the
Labor Code.
WHEREFORE, premises considered, the instant petition
is hereby DENIED. The assailed Decision of the Court of
Appeals in CA-G.R. SP. No. 68395 is hereby AFFIRMED. No
Costs.
SO ORDERED.

Jose Rizal College vs. NLRC

December 1, 1987
156 SCRA 27 Labor Law Labor Standards Working
Conditions and Rest Periods Holiday Pay

LABOR STANDARDS
MIDTERM

CASES

The National Alliance of Teachers sued Jose Rizal College

for alleged nonpayment of unworked holidays from 1975
to 1977. The members of the Alliance concerned are
faculty members who are paid on the basis of student
contract hour.
ISSUE: Whether or not the school faculty are entitled to
unworked holiday pay.
HELD: As far as unworked regular holidays are
concerned, the teachers are not entitled to holiday pay.
Regular holidays specified as such by law are known to
both school and faculty members as no class days;
certainly the latter do not expect payment for said
unworked days, and this was clearly in their minds when
they entered into the teaching contracts.
On the other hand, the teachers are entitled to be paid
for unworked special holidays. Otherwise stated, the
faculty member, although forced to take a rest, does not
earn what he should earn on that day. Be it noted that
when a special public holiday is declared, the faculty
member paid by the hour is deprived of expected income,
and it does not matter that the school calendar is
extended in view of the days or hours lost, for their
income that could be earned from other sources is lost
during the extended days. Similarly, when classes are
called off or shortened on account of typhoons, floods,
rallies, and the like, these faculty members must likewise
be paid, whether or not extensions are ordered.
__________________________________________________________
_______

SO ORDERED.
The factual background of this case which is undisputed
is as follows:
Petitioner is a non-stock, non-profit educational institution
duly organized and existing under the laws of the
Philippines. It has three groups of employees categorized
as follows: (a) personnel on monthly basis, who receive
their monthly salary uniformly throughout the year,
irrespective of the actual number of working days in a
month without deduction for holidays; (b) personnel on
daily basis who are paid on actual days worked and they
receive unworked holiday pay and (c) collegiate faculty
who are paid on the basis of student contract hour. Before
the start of the semester they sign contracts with the
college undertaking to meet their classes as per
schedule.
Unable to receive their corresponding holiday pay, as
claimed, from 1975 to 1977, private respondent National
Alliance of Teachers and Office Workers (NATOW) in behalf
of the faculty and personnel of Jose Rizal College filed
with the Ministry of Labor a complaint against the college
for said alleged non-payment of holiday pay, docketed as
Case No. R04-10-81-72. Due to the failure of the parties
to settle their differences on conciliation, the case was
certified for compulsory arbitration where it was docketed
as RB-IV-23037-78 (Rollo, pp. 155-156).
After the parties had submitted their respective position
papers, the Labor Arbiter ** rendered a decision on
February 5, 1979, the dispositive portion of which reads:

Republic of the Philippines

SUPREME COURT
Manila

WHEREFORE, judgment
rendered as follows:

G.R. No. L-65482 December 1, 1987

JOSE
RIZAL
COLLEGE,
petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND
NATIONAL
ALLIANCE
OF
TEACHERS/OFFICE
WORKERS, respondents.

2. The personnel of the respondent Jose

Rizal College who are paid their wages
daily are entitled to be paid the 10
unworked regular holidays according to
the pertinent provisions of the Rules
and Regulations Implementing the
Labor Code;

PARAS, J.:
This is a petition for certiorari with prayer for the issuance
of a writ of preliminary injunction, seeking the annulment
of the decision of the National Labor Relations
Commission * in NLRC Case No. RB-IV 23037-78 (Case No.
R4-1-1081-71) entitled "National Alliance of Teachers and
Office Workers and Juan E. Estacio, Jaime Medina, et al.
vs. Jose Rizal College" modifying the decision of the Labor
Arbiter as follows:

LABOR STANDARDS
MIDTERM

hereby

1. The faculty and personnel of the

respondent Jose Rizal College who are
paid their salary by the month
uniformly in a school year, irrespective
of the number of working days in a
month, without deduction for holidays,
are presumed to be already paid the 10
paid legal holidays and are no longer
entitled to separate payment for the
said regular holidays;

FIRST DIVISION

WHEREFORE, in view of the foregoing

considerations, the decision appealed
from is MODIFIED, in the sense that
teaching personnel paid by the hour are
hereby declared to be entitled to
holiday pay.

is

3. Collegiate faculty of the respondent

Jose Rizal College who by contract are
paid compensation per student contract
hour are not entitled to unworked
regular holiday pay considering that
these regular holidays have been
excluded in the programming of the
student contact hours. (Rollo. pp. 2627)
On appeal, respondent National Labor Relations
Commission in a decision promulgated on June 2, 1982,
modified the decision appealed from, in the sense that

CASES

teaching personnel paid by the hour are declared to be

entitled to holiday pay (Rollo. p. 33).

Subject holiday pay is provided for in the Labor Code

(Presidential Decree No. 442, as amended), which reads:

Hence, this petition.

Art. 94. Right to holiday pay (a)

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

The sole issue in this case is whether or not the school

faculty who according to their contracts are paid per
lecture hour are entitled to unworked holiday pay.
Labor Arbiter Julio Andres, Jr. found that faculty and
personnel employed by petitioner who are paid their
salaries monthly, are uniformly paid throughout the
school year regardless of working days, hence their
holiday pay are included therein while the daily paid
employees are renumerated for work performed during
holidays per affidavit of petitioner's treasurer (Rollo, pp.
72-73).

(b) The employer may require an

employee to work on any holiday but
such employee shall be paid a
compensation equivalent to twice his
regular rate; ... "
and in the Implementing Rules and Regulations,
Rule IV, Book III, which reads:

There appears to be no problem therefore as to the first

two classes or categories of petitioner's workers.
The problem, however, lies with its faculty members, who
are paid on an hourly basis, for while the Labor Arbiter
sustains the view that said instructors and professors are
not entitled to holiday pay, his decision was modified by
the National Labor Relations Commission holding the
contrary. Otherwise stated, on appeal the NLRC ruled that
teaching personnel paid by the hour are declared to be
entitled to holiday pay.
Petitioner maintains the position among others, that it is
not covered by Book V of the Labor Code on Labor
Relations considering that it is a non- profit institution and
that its hourly paid faculty members are paid on a
"contract" basis because they are required to hold classes
for a particular number of hours. In the programming of
these student contract hours, legal holidays are excluded
and labelled in the schedule as "no class day. " On the
other hand, if a regular week day is declared a holiday,
the school calendar is extended to compensate for that
day. Thus petitioner argues that the advent of any of the
legal holidays within the semester will not affect the
faculty's salary because this day is not included in their
schedule while the calendar is extended to compensate
for special holidays. Thus the programmed number of
lecture hours is not diminished (Rollo, pp. 157- 158).
The Solicitor General on the other hand, argues that
under Article 94 of the Labor Code (P.D. No. 442 as
amended), holiday pay applies to all employees except
those in retail and service establishments. To deprive
therefore employees paid at an hourly rate of unworked
holiday pay is contrary to the policy considerations
underlying such presidential enactment, and its
precursor, the Blue Sunday Law (Republic Act No. 946)
apart from the constitutional mandate to grant greater
rights to labor (Constitution, Article II, Section 9). (Reno,
pp. 76-77).
In addition, respondent National Labor Relations
Commission in its decision promulgated on June 2, 1982,
ruled that the purpose of a holiday pay is obvious; that is
to prevent diminution of the monthly income of the
workers on account of work interruptions. In other words,
although the worker is forced to take a rest, he earns
what he should earn. That is his holiday pay. It is no
excuse therefore that the school calendar is extended
whenever holidays occur, because such happens only in
cases of special holidays (Rollo, p. 32).

10

LABOR STANDARDS
MIDTERM

SEC. 8. Holiday pay of certain

employees. (a) Private school
teachers, including faculty members of
colleges and universities, may not be
paid for the regular holidays during
semestral
vacations.
They
shall,
however, be paid for the regular
holidays during Christmas vacations. ...
Under the foregoing provisions, apparently, the petitioner,
although a non-profit institution is under obligation to
give pay even on unworked regular holidays to hourly
paid faculty members subject to the terms and conditions
provided for therein.
We believe that the aforementioned implementing rule is
not justified by the provisions of the law which after all is
silent with respect to faculty members paid by the hour
who because of their teaching contracts are obliged to
work and consent to be paid only for work actually done
(except when an emergency or a fortuitous event or a
national need calls for the declaration of special
holidays). Regular holidays specified as such by law are
known to both school and faculty members as no class
days;" certainly the latter do not expect payment for said
unworked days, and this was clearly in their minds when
they entered into the teaching contracts.
On the other hand, both the law and the Implementing
Rules governing holiday pay are silent as to payment on
Special Public Holidays.
It is readily apparent that the declared purpose of the
holiday pay which is the prevention of diminution of the
monthly income of the employees on account of work
interruptions is defeated when a regular class day is
cancelled on account of a special public holiday and class
hours are held on another working day to make up for
time lost in the school calendar. Otherwise stated, the
faculty member, although forced to take a rest, does not
earn what he should earn on that day. Be it noted that
when a special public holiday is declared, the faculty
member paid by the hour is deprived of expected income,
and it does not matter that the school calendar is
extended in view of the days or hours lost, for their
income that could be earned from other sources is lost
during the extended days. Similarly, when classes are
called off or shortened on account of typhoons, floods,
rallies, and the like, these faculty members must likewise
be paid, whether or not extensions are ordered.

CASES

Petitioner alleges that it was deprived of due process as it

was not notified of the appeal made to the NLRC against
the decision of the labor arbiter.
The Court has already set forth what is now known as the
"cardinal primary" requirements of due process in
administrative proceedings, to wit: "(1) the right to a
hearing which includes the right to present one's case
and submit evidence in support thereof; (2) the tribunal
must consider the evidence presented; (3) the decision
must have something to support itself; (4) the evidence
must be substantial, and substantial evidence means
such evidence as a reasonable mind might accept as
adequate to support a conclusion; (5) the decision must
be based on the evidence presented at the hearing, or at
least contained in the record and disclosed to the parties
affected; (6) the tribunal or body of any of its judges must
act on its or his own independent consideration of the law
and facts of the controversy, and not simply accept the
views of a subordinate; (7) the board or body should in all
controversial questions, render its decisions in such
manner that the parties to the proceeding can know the
various issues involved, and the reason for the decision
rendered. " (Doruelo vs. Commission on Elections, 133
SCRA 382 [1984]).
The records show petitioner JRC was amply heard and
represented in the instant proceedings. It submitted its
position paper before the Labor Arbiter and the NLRC and
even filed a motion for reconsideration of the decision of
the latter, as well as an "Urgent Motion for Hearing En
Banc" (Rollo, p. 175). Thus, petitioner's claim of lack of
due process is unfounded.
PREMISES CONSIDERED, the decision of respondent
National Labor Relations Commission is hereby set aside,
and a new one is hereby RENDERED:
(a) exempting petitioner from paying hourly paid faculty
members their pay for regular holidays, whether the
same be during the regular semesters of the school year
or during semestral, Christmas, or Holy Week vacations;
(b) but ordering petitioner to pay said faculty members
their regular hourly rate on days declared as special
holidays or for some reason classes are called off or
shortened for the hours they are supposed to have
taught, whether extensions of class days be ordered or
not; in case of extensions said faculty members shall
likewise be paid their hourly rates should they teach
during said extensions.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 79255

January 20, 1992

UNION OF FILIPRO EMPLOYEES (UFE), petitioner,

vs.
BENIGNO VIVAR, JR., NATIONAL LABOR RELATIONS

11

LABOR STANDARDS
MIDTERM

CASES

COMMISSION and NESTL PHILIPPINES,

(formerly FILIPRO, INC.), respondents.

INC.

Jose C. Espinas for petitioner.

Siguion Reyna,
respondent.

Montecillo

&

Ongsiako

for

private

GUTIERREZ, JR., J.:

This labor dispute stems from the exclusion of sales
personnel from the holiday pay award and the change of
the divisor in the computation of benefits from 251 to 261
days.
On November 8, 1985, respondent Filipro, Inc. (now
Nestle Philippines, Inc.) filed with the National Labor
Relations Commission (NLRC) a petition for declaratory
relief seeking a ruling on its rights and obligations
respecting claims of its monthly paid employees for
holiday pay in the light of the Court's decision in
Chartered Bank Employees Association v. Ople (138 SCRA
273 [1985]).
Both Filipro and the Union of Filipino Employees (UFE)
agreed to submit the case for voluntary arbitration and
appointed respondent Benigno Vivar, Jr. as voluntary
arbitrator.
On January 2, 1980, Arbitrator Vivar rendered a decision
directing Filipro to:
pay its monthly paid employees holiday
pay pursuant to Article 94 of the Code,
subject only to the exclusions and
limitations specified in Article 82 and
such other legal restrictions as are
provided for in the Code. (Rollo,
p. 31)
Filipro filed a motion for clarification seeking (1) the
limitation of the award to three years, (2) the exclusion of
salesmen,
sales
representatives,
truck
drivers,
merchandisers and medical representatives (hereinafter
referred to as sales personnel) from the award of the
holiday pay, and (3) deduction from the holiday pay
award of overpayment for overtime, night differential,
vacation and sick leave benefits due to the use of 251
divisor. (Rollo, pp. 138-145)
Petitioner UFE answered that the award should be made
effective from the date of effectivity of the Labor Code,
that their sales personnel are not field personnel and are
therefore entitled to holiday pay, and that the use of 251
as divisor is an established employee benefit which
cannot be diminished.
On January 14, 1986, the respondent arbitrator issued an
order declaring that the effectivity of the holiday pay
award shall retroact to November 1, 1974, the date of
effectivity of the Labor Code. He adjudged, however, that
the company's sales personnel are field personnel and, as
such, are not entitled to holiday pay. He likewise ruled
that with the grant of 10 days' holiday pay, the divisor
should be changed from 251 to 261 and ordered the

12

LABOR STANDARDS
MIDTERM

reimbursement of overpayment for overtime, night

differential, vacation and sick leave pay due to the use of
251 days as divisor.
Both Nestle and UFE filed their respective motions for
partial reconsideration. Respondent Arbitrator treated the
two motions as appeals and forwarded the case to the
NLRC which issued a resolution dated May 25, 1987
remanding the case to the respondent arbitrator on the
ground that it has no jurisdiction to review decisions in
voluntary arbitration cases pursuant to Article 263 of the
Labor Code as amended by Section 10, Batas Pambansa
Blg. 130 and as implemented by Section 5 of the rules
implementing B.P. Blg. 130.
However, in a letter dated July 6, 1987, the respondent
arbitrator refused to take cognizance of the case
reasoning that he had no more jurisdiction to continue as
arbitrator because he had resigned from service effective
May 1, 1986.
Hence, this petition.
The petitioner union raises the following issues:
1) Whether or not Nestle's sales personnel are entitled to
holiday pay; and
2) Whether or not, concomitant with the award of holiday
pay, the divisor should be changed from 251 to 261 days
and whether or not the previous use of 251 as divisor
resulted in overpayment for overtime, night differential,
vacation and sick leave pay.
The petitioner insists that respondent's sales personnel
are not field personnel under Article 82 of the Labor
Code. The respondent company controverts this
assertion.
Under Article 82, field personnel are not entitled to
holiday pay. Said article defines field personnel as "nonagritultural 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."
The controversy centers on the interpretation of the
clause "whose actual hours of work in the field cannot be
determined with reasonable certainty."
It is undisputed that these sales personnel start their field
work at 8:00 a.m. after having reported to the office and
come back to the office at 4:00 p.m. or 4:30 p.m. if they
are Makati-based.
The petitioner maintains that the period between 8:00
a.m. to 4:00 or 4:30 p.m. comprises the sales personnel's
working hours which can be determined with reasonable
certainty.
The Court does not agree. The law requires that the
actual hours of work in the field be reasonably
ascertained. The company has no way of determining
whether or not these sales personnel, even if they report
to the office before 8:00 a.m. prior to field work and come
back at 4:30 p.m, really spend the hours in between in
actual field work.

CASES

We concur with the

respondent arbitrator:

following

disquisition

by

the

The requirement for the salesmen and

other similarly situated employees to
report for work at the office at 8:00 a.m.
and return at 4:00 or 4:30 p.m. is not
within the realm of work in the field as
defined in the Code but an exercise of
purely management prerogative of
providing administrative control over
such personnel. This does not in any
manner provide a reasonable level of
determination on the actual field work
of the employees which can be
reasonably ascertained. The theoretical
analysis that salesmen and other
similarly-situated
workers
regularly
report for work at 8:00 a.m. and return
to their home station at 4:00 or 4:30
p.m., creating the assumption that their
field work is supervised, is surface
projection. Actual field work begins
after 8:00 a.m., when the sales
personnel follow their field itinerary,
and ends immediately before 4:00 or
4:30 p.m. when they report back to
their office. The period between 8:00
a.m. and 4:00 or 4:30 p.m. comprises
their hours of work in the field, the
extent or scope and result of which are
subject to their individual capacity and
industry
and
which
"cannot
be
determined with reasonable certainty."
This is the reason why effective
supervision over field work of salesmen
and medical representatives, truck
drivers and merchandisers is practically
a physical impossibility. Consequently,
they are excluded from the ten holidays
with pay award. (Rollo, pp. 36-37)
Moreover, the requirement that "actual hours of work in
the field cannot be determined with reasonable certainty"
must be read in conjunction with Rule IV, Book III of the
Implementing Rules which provides:
Rule IV Holidays with Pay
Sec. 1. Coverage This rule shall apply
to all employees except:
xxx xxx xxx
(e) Field personnel and other employees
whose time and performance is
unsupervised by the employer . . .
(Emphasis supplied)

Contrary to the contention of the petitioner, the Court

finds that the aforementioned rule did not add another
element to the Labor Code definition of field personnel.
The clause "whose time and performance is unsupervised
by the employer" did not amplify but merely interpreted
and expounded the clause "whose actual hours of work in
the field cannot be determined with reasonable certainty."
The former clause is still within the scope and purview of
Article 82 which defines field personnel. Hence, in
deciding whether or not an employee's actual working
hours in the field can be determined with reasonable
certainty, query must be made as to whether or not such
employee's time and performance is constantly
supervised by the employer.
The SOD schedule adverted to by the petitioner does not
in the least signify that these sales personnel's time and
performance are supervised. The purpose of this schedule
is merely to ensure that the sales personnel are out of the
office not later than 8:00 a.m. and are back in the office
not earlier than 4:00 p.m.
Likewise, the Court fails to see how the company can
monitor the number of actual hours spent in field work by
an employee through the imposition of sanctions on
absenteeism contained in the company circular of March
15, 1984.
The petitioner claims that the fact that these sales
personnel are given incentive bonus every quarter based
on their performance is proof that their actual hours of
work in the field can be determined with reasonable
certainty.
The Court thinks otherwise.
The criteria for granting incentive bonus are: (1) attaining
or exceeding sales volume based on sales target; (2)
good collection performance; (3) proper compliance with
good market hygiene; (4) good merchandising work; (5)
minimal market returns; and (6) proper truck
maintenance. (Rollo, p. 190).
The above criteria indicate that these sales personnel are
given incentive bonuses precisely because of the
difficulty in measuring their actual hours of field work.
These employees are evaluated by the result of their
work and not by the actual hours of field work which are
hardly susceptible to determination.
In San Miguel Brewery, Inc. v. Democratic Labor
Organization (8 SCRA 613 [1963]), the Court had occasion
to discuss the nature of the job of a salesman. Citing the
case of Jewel Tea Co. v. Williams, C.C.A. Okla., 118 F. 2d
202, the Court stated:
The reasons for excluding an outside
salesman are fairly apparent. Such a
salesman, to a greater extent, works
individually. There are no restrictions
respecting the time he shall work and
he can earn as much or as little, within
the range of his ability, as his ambition
dictates. In lieu of overtime he
ordinarily receives commissions as
extra compensation. He works away
from his employer's place of business,
is not subject to the personal
supervision of his employer, and his

While contending that such rule added another element

not found in the law (Rollo, p. 13), the petitioner
nevertheless attempted to show that its affected
members are not covered by the abovementioned rule.
The petitioner asserts that the company's sales personnel
are strictly supervised as shown by the SOD (Supervisor
of the Day) schedule and the company circular dated
March 15, 1984 (Annexes 2 and 3, Rollo, pp. 53-55).

13

LABOR STANDARDS
MIDTERM

CASES

employer has no way of knowing the

number of hours he works per day.

251 working days divisor is the result of

subtracting all Saturdays, Sundays and
the ten (10) legal holidays from the
total number of calendar days in a year.
If the employees are already paid for all
non-working days, the divisor should be
365 and not 251.

While in that case the issue was whether or not salesmen

were entitled to overtime pay, the same rationale for
their exclusion as field personnel from holiday pay
benefits also applies.
The petitioner union also assails the respondent
arbitrator's ruling that, concomitant with the award of
holiday pay, the divisor should be changed from 251 to
261 days to include the additional 10 holidays and the
employees should reimburse the amounts overpaid by
Filipro due to the use of 251 days' divisor.

In the petitioner's case, its computation of daily ratio

since September 1, 1980, is as follows:
monthly rate x 12 months

Arbitrator Vivar's rationale for his decision is as follows:

. . . The new doctrinal policy established
which ordered payment of ten holidays
certainly adds to or accelerates the
basis of conversion and computation by
ten days. With the inclusion of ten
holidays as paid days, the divisor is no
longer 251 but 261 or 262 if election
day is counted. This is indeed an
extremely difficult legal question of
interpretation which accounts for what
is claimed as falling within the concept
of "solutio indebti."
When the claim of the Union for
payment of ten holidays was granted,
there was a consequent need to
abandon that 251 divisor. To maintain it
would create an impossible situation
where the employees would benefit
with additional ten days with pay but
would simultaneously enjoy higher
benefits by discarding the same ten
days for purposes of computing
overtime and night time services and
considering sick and vacation leave
credits. Therefore, reimbursement of
such overpayment with the use of 251
as divisor arises concomitant with the
award of ten holidays with pay. (Rollo,
p. 34)
The divisor assumes an important role in determining
whether or not holiday pay is already included in the
monthly paid employee's salary and in the computation
of his daily rate. This is the thrust of our pronouncement
in Chartered Bank Employees Association v. Ople (supra).
In that case, We held:
It is argued that even without the
presumption found in the rules and in
the policy instruction, the company
practice indicates that the monthly
salaries of the employees are so
computed as to include the holiday pay
provided
by law.
The petitioner
contends otherwise.
One strong argument in favor of the
petitioner's stand is the fact that the
Chartered Bank, in computing overtime
compensation
for
its
employees,
employs a "divisor" of 251 days. The

14

LABOR STANDARDS
MIDTERM

251 days
Following the criterion laid down in the Chartered Bank
case, the use of 251 days' divisor by respondent Filipro
indicates that holiday pay is not yet included in the
employee's salary, otherwise the divisor should have
been 261.
It must be stressed that the daily rate, assuming there
are no intervening salary increases, is a constant figure
for the purpose of computing overtime and night
differential pay and commutation of sick and vacation
leave credits. Necessarily, the daily rate should also be
the same basis for computing the 10 unpaid holidays.
The respondent arbitrator's order to change the divisor
from 251 to 261 days would result in a lower daily rate
which is violative of the prohibition on non-diminution of
benefits found in Article 100 of the Labor Code. To
maintain the same daily rate if the divisor is adjusted to
261 days, then the dividend, which represents the
employee's annual salary, should correspondingly be
increased to incorporate the holiday pay. To illustrate, if
prior to the grant of holiday pay, the employee's annual
salary is P25,100, then dividing such figure by 251 days,
his daily rate is P100.00 After the payment of 10 days'
holiday pay, his annual salary already includes holiday
pay and totals P26,100 (P25,100 + 1,000). Dividing this
by 261 days, the daily rate is still P100.00. There is thus
no merit in respondent Nestle's claim of overpayment of
overtime and night differential pay and sick and vacation
leave benefits, the computation of which are all based on
the daily rate, since the daily rate is still the same before
and after the grant of holiday pay.
Respondent Nestle's invocation of solutio indebiti, or
payment by mistake, due to its use of 251 days as divisor
must fail in light of the Labor Code mandate that "all
doubts in the implementation and interpretation of this
Code, including its implementing rules and regulations,
shall be resolved in favor of labor." (Article 4). Moreover,
prior to September 1, 1980, when the company was on a
6-day working schedule, the divisor used by the company
was 303, indicating that the 10 holidays were likewise not
paid. When Filipro shifted to a 5-day working schebule on
September 1, 1980, it had the chance to rectify its error,
if ever there was one but did not do so. It is now too late
to allege payment by mistake.
Nestle also questions the voluntary arbitrator's ruling that
holiday pay should be computed from November 1, 1974.
This ruling was not questioned by the petitioner union as
obviously said decision was favorable to it. Technically,
therefore, respondent Nestle should have filed a separate

CASES

petition raising the issue of effectivity of the holiday pay

award. This Court has ruled that an appellee who is not
an appellant may assign errors in his brief where his
purpose is to maintain the judgment on other grounds,
but he cannot seek modification or reversal of the
judgment or affirmative relief unless he has also
appealed. (Franco v. Intermediate Appellate Court, 178
SCRA 331 [1989], citing La Campana Food Products, Inc.
v. Philippine Commercial and Industrial Bank, 142 SCRA
394 [1986]). Nevertheless, in order to fully settle the
issues so that the execution of the Court's decision in this
case may not be needlessly delayed by another petition,
the Court resolved to take up the matter of effectivity of
the holiday pay award raised by Nestle.

precisely because the judiciary is the

government organ which has the final
say on whether or not a legislative or
executive measure is valid, a period of
time may have elapsed before it can
exercise the power of judicial review
that may lead to a declaration of nullity.
It would be to deprive the law of its
quality of fairness and justice then, if
there be no recognition of what had
transpired prior to such adjudication.
In the language of an American
Supreme Court decision: "The actual
existence of a statute, prior to such a
determination of [unconstitutionality], is
an operative fact and may have
consequences which cannot justly be
ignored. The past cannot always be
erased by a new judicial declaration.
The effect of the subsequent ruling as
to invalidity may have to be considered
in various aspects, with respect to
particular relations, individual and
corporate, and particular conduct,
private and official." (Chicot County
Drainage Dist. v. Baxter States Bank,
308 US 371, 374 [1940]). This language
has been quoted with approval in a
resolution in Araneta v. Hill (93 Phil.
1002 [1952]) and the decision in Manila
Motor Co., Inc. v. Flores (99 Phil. 738
[1956]). An even more recent instance
is the opinion of Justice Zaldivar
speaking for the Court in Fernandez v.
Cuerva and Co. (21 SCRA 1095 [1967].
(At pp. 434-435)

Nestle insists that the reckoning period for the application

of the holiday pay award is 1985 when the Chartered
Bank decision, promulgated on August 28, 1985, became
final and executory, and not from the date of effectivity of
the Labor Code. Although the Court does not entirely
agree with Nestle, we find its claim meritorious.
In Insular Bank of Asia and America Employees' Union
(IBAAEU) v. Inciong, 132 SCRA 663 [1984], hereinafter
referred to as the IBAA case, the Court declared that
Section 2, Rule IV, Book III of the implementing rules and
Policy Instruction No. 9, issued by the then Secretary of
Labor on February 16, 1976 and April 23, 1976,
respectively, and which excluded monthly paid
employees from holiday pay benefits, are null and void.
The Court therein reasoned that, in the guise of clarifying
the Labor Code's provisions on holiday pay, the
aforementioned implementing rule and policy instruction
amended them by enlarging the scope of their exclusion.
The Chartered Bank case reiterated the above ruling and
added the "divisor" test.
However, prior to their being declared null and void, the
implementing rule and policy instruction enjoyed the
presumption of validity and hence, Nestle's non-payment
of the holiday benefit up to the promulgation of the IBAA
case on October 23, 1984 was in compliance with these
presumably valid rule and policy instruction.
In the case of De Agbayani v. Philippine National Bank, 38
SCRA 429 [1971], the Court discussed the effect to be
given to a legislative or executive act subsequently
declared invalid:
xxx xxx xxx
. . . It does not admit of doubt that prior
to the declaration of nullity such
challenged legislative or executive act
must have been in force and had to be
complied with. This is so as until after
the judiciary, in an appropriate case,
declares its invalidity, it is entitled to
obedience and respect. Parties may
have acted under it and may have
changed their positions. What could be
more fitting than that in a subsequent
litigation regard be had to what has
been done while such legislative or
executive act was in operation and
presumed to be valid in all respects. It
is now accepted as a doctrine that prior
to its being nullified, its existence as a
fact must be reckoned with. This is
merely to reflect awareness that

15

LABOR STANDARDS
MIDTERM

The "operative fact" doctrine realizes that in declaring a

law or rule null and void, undue harshness and resulting
unfairness must be avoided. It is now almost the end of
1991. To require various companies to reach back to 1975
now and nullify acts done in good faith is unduly harsh.
1984 is a fairer reckoning period under the facts of this
case.
Applying the aforementioned doctrine to the case at bar,
it is not far-fetched that Nestle, relying on the implicit
validity of the implementing rule and policy instruction
before this Court nullified them, and thinking that it was
not obliged to give holiday pay benefits to its monthly
paid employees, may have been moved to grant other
concessions to its employees, especially in the collective
bargaining agreement. This possibility is bolstered by the
fact that respondent Nestle's employees are among the
highest paid in the industry. With this consideration, it
would be unfair to impose additional burdens on Nestle
when the non-payment of the holiday benefits up to 1984
was not in any way attributed to Nestle's fault.
The Court thereby resolves that the grant of holiday pay
be effective, not from the date of promulgation of the
Chartered Bank case nor from the date of effectivity of
the Labor Code, but from October 23, 1984, the date of
promulgation of the IBAA case.
WHEREFORE, the order of the voluntary arbitrator in
hereby MODIFIED. The divisor to be used in computing
holiday pay shall be 251 days. The holiday pay as above
directed shall be computed from October 23, 1984. In all

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other respects, the order of the respondent arbitrator is

hereby AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44169

December 3, 1985

ROSARIO
A.
GAA,
petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EUROPHIL
INDUSTRIES CORPORATION, and CESAR R. ROXAS,
Deputy Sheriff of Manila, respondents.
Federico C. Alikpala and Federico Y. Alikpala, Jr. for
petitioner.
Borbe and Palma for private respondent.

16

LABOR STANDARDS
MIDTERM

CASES

except for debts incurred for food,

shelter,
clothing
and
medical
attendance.

PATAJO, J.:
This is a petition for review on certiorari of the decision of
the Court of Appeals promulgated on March 30, 1976,
affirming the decision of the Court of First Instance of
Manila.
It
appears
that
respondent
Europhil
Industries
Corporation was formerly one of the tenants in Trinity
Building at T.M. Kalaw Street, Manila, while petitioner
Rosario A. Gaa was then the building administrator. On
December 12, 1973, Europhil Industries commenced an
action (Civil Case No. 92744) in the Court of First Instance
of Manila for damages against petitioner "for having
perpetrated certain acts that Europhil Industries
considered a trespass upon its rights, namely, cutting of
its electricity, and removing its name from the building
directory and gate passes of its officials and employees"
(p. 87 Rollo). On June 28, 1974, said court rendered
judgment in favor of respondent Europhil Industries,
ordering petitioner to pay the former the sum of
P10,000.00 as actual damages, P5,000.00 as moral
damages, P5,000.00 as exemplary damages and to pay
the costs.
The said decision having become final and executory, a
writ of garnishment was issued pursuant to which Deputy
Sheriff Cesar A. Roxas on August 1, 1975 served a Notice
of Garnishment upon El Grande Hotel, where petitioner
was then employed, garnishing her "salary, commission
and/or remuneration." Petitioner then filed with the Court
of First Instance of Manila a motion to lift said
garnishment on the ground that her "salaries, commission
and, or remuneration are exempted from execution under
Article 1708 of the New Civil Code. Said motion was
denied by the lower Court in an order dated November 7,
1975. A motion for reconsideration of said order was
likewise denied, and on January 26, 1976 petitioner filed
with the Court of Appeals a petition for certiorari against
filed with the Court of Appeals a petition for certiorari
against said order of November 7, 1975.
On March 30, 1976, the Court of Appeals dismissed the
petition for certiorari. In dismissing the petition, the Court
of Appeals held that petitioner is not a mere laborer as
contemplated under Article 1708 as the term laborer
does not apply to one who holds a managerial or
supervisory position like that of petitioner, but only to
those "laborers occupying the lower strata." It also held
that the term "wages" means the pay given" as hire or
reward to artisans, mechanics, domestics or menial
servants, and laborers employed in manufactories,
agriculture, mines, and other manual occupation and
usually employed to distinguish the sums paid to persons
hired to perform manual labor, skilled or unskilled, paid at
stated times, and measured by the day, week, month, or
season," citing 67 C.J. 285, which is the ordinary
acceptation of the said term, and that "wages" in Spanish
is "jornal" and one who receives a wage is a "jornalero."
In the present petition for review on certiorari of the
aforesaid decision of the Court of Appeals, petitioner
questions the correctness of the interpretation of the then
Court of Appeals of Article 1708 of the New Civil Code
which reads as follows:
ART. 1708. The laborer's wage shall not
be subject to execution or attachment,

17

LABOR STANDARDS
MIDTERM

It is beyond dispute that petitioner is not an ordinary or

rank and file laborer but "a responsibly place employee,"
of El Grande Hotel, "responsible for planning, directing,
controlling, and coordinating the activities of all
housekeeping personnel" (p. 95, Rollo) so as to ensure
the cleanliness, maintenance and orderliness of all guest
rooms, function rooms, public areas, and the
surroundings of the hotel. Considering the importance of
petitioner's function in El Grande Hotel, it is undeniable
that petitioner is occupying a position equivalent to that
of a managerial or supervisory position.
In its broadest sense, the word "laborer" includes
everyone who performs any kind of mental or physical
labor, but as commonly and customarily used and
understood, it only applies to one engaged in some form
of manual or physical labor. That is the sense in which the
courts generally apply the term as applied in exemption
acts, since persons of that class usually look to the
reward of a day's labor for immediate or present support
and so are more in need of the exemption than are other.
(22 Am. Jur. 22 citing Briscoe vs. Montgomery, 93 Ga 602,
20 SE 40; Miller vs. Dugas, 77 Ga 4 Am St Rep 192; State
ex rel I.X.L. Grocery vs. Land, 108 La 512, 32 So 433;
Wildner vs. Ferguson, 42 Minn 112, 43 NW 793; 6 LRA
338; Anno 102 Am St Rep. 84.
In Oliver vs. Macon Hardware Co., 98 Ga 249 SE 403, it
was held that in determining whether a particular laborer
or employee is really a "laborer," the character of the
word he does must be taken into consideration. He must
be classified not according to the arbitrary designation
given to his calling, but with reference to the character of
the service required of him by his employer.
In Wildner vs. Ferguson, 42 Minn 112, 43 NW 793, the
Court also held that all men who earn compensation by
labor or work of any kind, whether of the head or hands,
including judges, laywers, bankers, merchants, officers of
corporations, and the like, are in some sense "laboring
men." But they are not "laboring men" in the popular
sense of the term, when used to refer to a must presume,
the legislature used the term. The Court further held in
said case:
There are many cases holding that
contractors, consulting or assistant
engineers, agents, superintendents,
secretaries of corporations and livery
stable keepers, do not come within the
meaning of the term. (Powell v. Eldred,
39 Mich, 554, Atkin v. Wasson, 25 N.Y.
482; Short v. Medberry, 29 Hun. 39;
Dean v. De Wolf, 16 Hun. 186; Krausen
v. Buckel, 17 Hun. 463; Ericson v.
Brown, 39 Barb. 390; Coffin v.
Reynolds, 37 N.Y. 640; Brusie v. Griffith,
34 Cal. 306; Dave v. Nunan, 62 Cal.
400).
Thus, in Jones vs. Avery, 50 Mich, 326, 15 N.W. Rep. 494,
it was held that a traveling salesman, selling by sample,
did not come within the meaning of a constitutional
provision making stockholders of a corporation liable for
"labor debts" of the corporation.

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In Kline vs. Russell 113 Ga. 1085, 39 SE 477, citing Oliver

vs. Macon Hardware Co., supra, it was held that a laborer,
within the statute exempting from garnishment the
wages of a "laborer," is one whose work depends on mere
physical power to perform ordinary manual labor, and not
one engaged in services consisting mainly of work
requiring mental skill or business capacity, and involving
the exercise of intellectual faculties.

IN VIEW OF THE FOREGOING, We find the present petition

to be without merit and hereby AFFIRM the decision of
the Court of Appeals, with costs against petitioner.
SO ORDERED.

So, also in Wakefield vs. Fargo, 90 N.Y. 213, the Court, in

construing an act making stockholders in a corporation
liable for debts due "laborers, servants and apprentices"
for services performed for the corporation, held that a
"laborer" is one who performs menial or manual services
and usually looks to the reward of a day's labor or
services for immediate or present support. And in
Weymouth vs. Sanborn, 43 N.H. 173, 80 Am. Dec. 144, it
was held that "laborer" is a term ordinarily employed to
denote one who subsists by physical toil in
contradistinction to those who subsists by professional
skill. And in Consolidated Tank Line Co. vs. Hunt, 83 Iowa,
6, 32 Am. St. Rep. 285, 43 N.W. 1057, 12 L.R.A. 476, it
was stated that "laborers" are those persons who earn a
livelihood by their own manual labor.
Article 1708 used the word "wages" and not "salary" in
relation to "laborer" when it declared what are to be
exempted from attachment and execution. The term
"wages" as distinguished from "salary", applies to the
compensation for manual labor, skilled or unskilled, paid
at stated times, and measured by the day, week, month,
or season, while "salary" denotes a higher degree of
employment, or a superior grade of services, and implies
a position of office: by contrast, the term wages "
indicates considerable pay for a lower and less
responsible character of employment, while "salary" is
suggestive of a larger and more important service (35
Am. Jur. 496).
The distinction between wages and salary was adverted
to in Bell vs. Indian Livestock Co. (Tex. Sup.), 11 S.W. 344,
wherein it was said: "'Wages' are the compensation given
to a hired person for service, and the same is true of
'salary'. The words seem to be synonymous, convertible
terms, though we believe that use and general
acceptation have given to the word 'salary' a significance
somewhat different from the word 'wages' in this: that the
former is understood to relate to position of office, to be
the compensation given for official or other service, as
distinguished from 'wages', the compensation for labor."
Annotation 102 Am. St. Rep. 81, 95.
We do not think that the legislature intended the
exemption in Article 1708 of the New Civil Code to
operate in favor of any but those who are laboring men or
women in the sense that their work is manual. Persons
belonging to this class usually look to the reward of a
day's labor for immediate or present support, and such
persons are more in need of the exemption than any
others. Petitioner Rosario A. Gaa is definitely not within
that class.
We find, therefore, and so hold that the Trial Court did not
err in denying in its order of November 7, 1975 the
motion of petitioner to lift the notice of garnishment
against her salaries, commission and other remuneration
from El Grande Hotel since said salaries, Commission and
other remuneration due her from the El Grande Hotel do
not constitute wages due a laborer which, under Article
1708 of the Civil Code, are not subject to execution or
attachment.

18

LABOR STANDARDS
MIDTERM

Honda Philippines vs.

Samahan ng Malayang Manggagawa sa
Honda
Facts: Honda Phils, Inc (company) and Samahan ng
Malayang Manggagawa sa Honda (union) started
renegotiations of their CBA. When there was a bargaining
deadlock, the union filed a notice of strike. The company
likewise filed a notice of lockout. SOLE assumed
jurisdiction and ordered both parties to desist from their
strike and lockout.
However, the union subsequently filed a second notice of
strike on the ground of unfair labor practice, alleging that
the company illegally contracted out work to the
detriment of the workers. The union went on strike. SOLE
assumed jurisdiction and certified the case to NLRC for
compulsory arbitration. The striking employees were
ordered to return to work and management accepted
them back.
Honda then issued a memorandum announcing its new
computation of the 13th and 14th month pay whereby
the 31-day strike shall be considered unworked days for
the purpose of computing said benefits. The amount

CASES

equivalent to 1/12 of the employees basic salary shall be

deducted from the bonuses (because they did not work
for 1 month). Furthermore, Honda wanted a pro-rata
payment of the 13th month pay.

interpreted basic salary to mean, NOT the amount

actually received by an employee, but 1/12 of their
standard monthly wage multiplied by their length of
service within a given calendar year.

The union opposed said computation because it was

contrary to the Sections 3 and 6 in their current CBA
which mandates that the company shall maintain the
present practice in the implementation of the 13th month
pay and that the 14th month pay shall be computed in
the same way as the former.

The IRR also provide for a pro-ration of this benefit ONLY

in cases of resignation or separation from work. In the
present case, there being no resignation/separation, the
computation of the 13th month pay should not be prorated but should be given in full.

The Bureau of Working Conditions (BWC) sided with the

company. But the issue was unresolved by the grievance
machinery, so it was submitted for voluntary arbitration.
The Voluntary Arbiter invalidated Hondas computation
and ordered the computation of the benefits based on the
full month basic pay.
CA affirmed, hence this petition.
Issues:
(1) Whether or not there is ambiguity in the CBA
provisions concerning the 13th and 14th month pay

Moreover, it has not been proven that Honda has been

implementing pro-rating of the 13th month pay before
the present case. It is not a company practice. In fact,
there was an implicit acceptance that prior to the strike, a
full month basic pay computation was the present
practice intended in the CBA. It was the second strike
that prompted the company to adopt the pro-rata
computation.
__________________________________________________________
______

Republic of the Philippines

SUPREME COURT
Manila

(2) Whether or not the proposed computation of Honda

deducting 1/12 of the employees basic salary from the
13th and 14th month pay and its pro-rata payment are
valid
Held:
(1) YES. A collective bargaining agreement refers to the
negotiated contract between a legitimate labor
organization and the employer concerning wages, hours
of work and all other terms and conditions of employment
in a bargaining unit. The parties in a CBA may establish
such stipulations, clauses, terms and conditions as they
may deem convenient as long as they are not contrary to
law, morals, good customs, public order or public policy.
Where the CBA is clear and unambiguous, it becomes the
law between the parties.
However, there are times when the CBA provisions may
become contentious. In this case, Honda wanted to
implement a pro-rated computation based on the no
work, no pay rule. Honda argues that the phrase
present practice in the CBA refers to the manner of
payment of the bonuses (50% in May and 50% in
December). The union, on the other hand, insists that the
CBA provisions necessarily relate to the computation of
the benefits.
As the voluntary arbitrator has correctly observed, there
is ambiguity in the assailed CBA provisions because they
did not categorically state whether the computation of
the 13th and 14th month pay would be based on a one
full months basic salary of the employees, or pro-rated
based on the compensation actually received.
(2) NO. The ambiguity in the CBA provisions was correctly
resolved by the arbitrator by relying on Article 1702 of
the Civil Code, which provides that in case of doubt, all
labor legislation and all labor contracts shall be construed
in favor of the safety and decent living of the laborer. CA
is also correct in ruling that the computation of the 13th
month pay should be based on the length of service and
not on the actual wage earned by the worker.
PD 851 or the 13th Month Pay Law was issued to protect
the level of wages of workers from worldwide inflation.
Under the IRR of said law, the minimum 13th month pay
shall not be less than 1/12 of the total basic salary earned
by an employee within a calendar year. The Court has

19

LABOR STANDARDS
MIDTERM

FIRST DIVISION
G.R. No. 145561

June 15, 2005

HONDA PHILS., INC., petitioner,

vs.
SAMAHAN NG MALAYANG MANGGAGAWA SA
HONDA, respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 seeks the reversal
of the Court of Appeals decision1 dated September 14,
20002 and its resolution3 dated October 18, 2000, in CAG.R. SP No. 59052. The appellate court affirmed the
decision dated May 2, 2000 rendered by the Voluntary
Arbitrator who ruled that petitioner Honda Philippines,
Inc.s (Honda) pro-rated payment of the 13th and 14th
month pay and financial assistance to its employees was
invalid.
As found by the Court of Appeals, the case stems from
the Collective Bargaining Agreement (CBA) forged
between petitioner Honda and respondent union
Samahan ng Malayang Manggagawa sa Honda
(respondent union) which contained the following
provisions:
Section 3. 13th Month Pay
The COMPANY shall maintain the present practice in the
implementation [of] the 13th month pay.
Section 6. 14th Month Pay
The COMPANY shall grant a 14th Month Pay, computed on
the same basis as computation of 13th Month Pay.

CASES

Section 7. The COMPANY agrees to continue the practice

of granting, in its discretion, financial assistance to
covered employees in December of each year, of not less
than 100% of basic pay.

Hondas Motion for Partial Reconsideration was denied in

a resolution dated May 22, 2000. Thus, a petition was
filed with the Court of Appeals, however, the petition was
dismissed for lack of merit.

This CBA is effective until year 2000. In the latter part of

1998, the parties started re-negotiations for the fourth
and fifth years of their CBA. When the talks between the
parties bogged down, respondent union filed a Notice of
Strike on the ground of bargaining deadlock. Thereafter,
Honda filed a Notice of Lockout. On March 31, 1999, then
Department of Labor and Employment (DOLE) Secretary
Laguesma assumed jurisdiction over the labor dispute
and ordered the parties to cease and desist from
committing acts that would aggravate the situation. Both
parties complied accordingly.

Hence, the instant petition for review on the sole issue of

whether the pro-rated computation of the 13th month
pay and the other bonuses in question is valid and lawful.

On May 11, 1999, however, respondent union filed a

second Notice of Strike on the ground of unfair labor
practice alleging that Honda illegally contracted out work
to the detriment of the workers. Respondent union went
on strike and picketed the premises of Honda on May 19,
1999. On June 16, 1999, DOLE Acting Secretary Felicisimo
Joson, Jr. assumed jurisdiction over the case and certified
the same to the National Labor Relations Commission
(NLRC) for compulsory arbitration. The striking employees
were ordered to return to work and the management
accepted them back under the same terms prior to the
strike staged.
On November 22, 1999, the management of Honda
issued a memorandum4 announcing its new computation
of the 13th and 14th month pay to be granted to all its
employees whereby the thirty-one (31)-day long strike
shall be considered unworked days for purposes of
computing said benefits. As per the companys new
formula, the amount equivalent to 1/12 of the employees
basic salary shall be deducted from these bonuses, with a
commitment however that in the event that the strike is
declared legal, Honda shall pay the amount deducted.
Respondent union opposed the pro-rated computation of
the bonuses in a letter dated November 25, 1999. Honda
sought the opinion of the Bureau of Working Conditions
(BWC) on the issue. In a letter dated January 4, 2000, 5 the
BWC agreed with the pro-rata payment of the 13th month
pay as proposed by Honda.
The matter was brought before the Grievance Machinery
in accordance with the parties existing CBA but when the
issue remained unresolved, it was submitted for voluntary
arbitration. In his decision 6 dated May 2, 2000, Voluntary
Arbitrator Herminigildo C. Javen invalidated Hondas
computation, to wit:
WHEREFORE, in view of all foregoing premises being duly
considered and evaluated, it is hereby ruled that the
Companys implementation of pro-rated 13th Month pay,
14th Month pay and Financial Assistance [is] invalid. The
Company is thus ordered to compute each provision in
full month basic pay and pay the amounts in question
within ten (10) days after this Decision shall have become
final and executory.
The three (3) days Suspension of the twenty one (21)
employees is hereby affirmed.
SO ORDERED.7

20

LABOR STANDARDS
MIDTERM

The petition lacks merit.

A collective bargaining agreement refers to the
negotiated contract between a legitimate labor
organization and the employer concerning wages, hours
of work and all other terms and conditions of employment
in a bargaining unit.8 As in all contracts, the parties in a
CBA may establish such stipulations, clauses, terms and
conditions as they may deem convenient provided these
are not contrary to law, morals, good customs, public
order or public policy. 9 Thus, where the CBA is clear and
unambiguous, it becomes the law between the parties
and compliance therewith is mandated by the express
policy of the law.10
In some instances, however, the provisions of a CBA may
become contentious, as in this case. Honda wanted to
implement a pro-rated computation of the benefits based
on the "no work, no pay" rule. According to the company,
the phrase "present practice" as mentioned in the CBA
refers to the manner and requisites with respect to the
payment of the bonuses, i.e., 50% to be given in May and
the other 50% in December of each year. Respondent
union, however, insists that the CBA provisions relating to
the implementation of the 13th month pay necessarily
relate to the computation of the same.
We agree with the findings of the arbitrator that the
assailed CBA provisions are far from being unequivocal. A
cursory reading of the provisions will show that they did
not state categorically whether the computation of the
13th month pay, 14th month pay and the financial
assistance would be based on one full months basic
salary of the employees, or pro-rated based on the
compensation actually received. The arbitrator thus
properly resolved the ambiguity in favor of labor as
mandated by Article 1702 of the Civil Code. 11 The Court of
Appeals affirmed the arbitrators finding and added that
the computation of the 13th month pay should be based
on the length of service and not on the actual wage
earned by the worker.
We uphold the rulings of the arbitrator and the Court of
Appeals. Factual findings of labor officials, who are
deemed to have acquired expertise in matters within
their respective jurisdiction, are generally accorded not
only respect but even finality, and bind us when
supported by substantial evidence. It is not our function
to assess and evaluate the evidence all over again,
particularly where the findings of both the arbiter and the
Court of Appeals coincide.12
Presidential Decree No. 851, otherwise known as the 13th
Month Pay Law, which required all employers to pay their
employees a 13th month pay, was issued to protect the
level of real wages from the ravages of worldwide
inflation. It was enacted on December 16, 1975 after it
was noted that there had been no increase in the
minimum wage since 1970 and the Christmas season was
an opportune time for society to show its concern for the

CASES

plight of the working masses so that they may properly

celebrate Christmas and New Year.13

"present practice" intended to be maintained in the

CBA.21

Under the Revised Guidelines on the Implementation of

the 13th month pay issued on November 16, 1987, the
salary ceiling of P1,000.00 under P.D. No. 851 was
removed. It further provided that the minimum 13th month
pay required by law shall not be less than one-twelfth
(1/12) of the total basic salary earned by an employee
within a calendar year. The guidelines pertinently
provides:

The memorandum dated November 22, 1999 which

Honda issued shows that it was the first time a pro-rating
scheme was to be implemented in the company. It was a
convenient coincidence for the company that the work
stoppage held by the employees lasted for thirty-one (31)
days or exactly one month. This enabled them to devise a
formula using 11/12 of the total annual salary as base
amount for computation instead of the entire amount for
a 12-month period.

The "basic salary" of an employee for the purpose of

computing the 13th month pay shall include all
remunerations or earnings paid by his employer
for services rendered but does not include allowances
and monetary benefits which are not considered or
integrated as part of the regular or basic salary, such as
the cash equivalent of unused vacation and sick leave
credits, overtime premium, night differential and holiday
pay, and cost-of-living allowances.14 (Emphasis supplied)
For employees receiving regular wage, we have
interpreted "basic salary" to mean, not the amount
actually received by an employee, but 1/12 of their
standard monthly wage multiplied by their length of
service within a given calendar year. Thus, we exclude
from the computation of "basic salary" payments for sick,
vacation and maternity leaves, night differentials, regular
holiday pay and premiums for work done on rest days and
special holidays.15 In Hagonoy Rural Bank v. NLRC,16 St.
Michael Academy v. NLRC,17 Consolidated Food
Corporation v. NLRC,18 and similar cases, the 13 th month
pay due an employee was computed based on the
employees basic monthly wage multiplied by the number
of months worked in a calendar year prior to separation
from employment.

That a full month payment of the 13th month pay is the

established practice at Honda is further bolstered by the
affidavits executed by Feliteo Bautista and Edgardo
Cruzada. Both attested that when they were absent from
work due to motorcycle accidents, and after they have
exhausted all their leave credits and were no longer
receiving their monthly salary from Honda, they still
received the full amount of their 13 th month, 14th month
and financial assistance pay. 22
The case of Davao Fruits Corporation v. Associated Labor
Unions, et al.23 presented an example of a voluntary act
of the employer that has ripened into a company
practice. In that case, the employer, from 1975 to 1981,
freely and continuously included in the computation of
the 13th month pay those items that were expressly
excluded by the law. We have held that this act, which
was favorable to the employees though not conforming to
law, has ripened into a practice and therefore can no
longer be withdrawn, reduced, diminished, discontinued
or eliminated. Furthermore, in Sevilla Trading Company v.
Semana,24 we stated:

More importantly, it has not been refuted that Honda has

not implemented any pro-rating of the 13th month pay
before the instant case. Honda did not adduce evidence
to show that the 13th month, 14th month and financial
assistance benefits were previously subject to deductions
or pro-rating or that these were dependent upon the
companys financial standing. As held by the Voluntary
Arbitrator:

With regard to the length of time the company practice

should have been exercised to constitute voluntary
employer practice which cannot be unilaterally withdrawn
by the employer, we hold that jurisprudence has not laid
down any rule requiring a specific minimum number of
years. In the above quoted case of Davao Fruits
Corporation vs. Associated Labor Unions, the company
practice lasted for six (6) years. In another case, Davao
Integrated Port Stevedoring Services vs. Abarquez, the
employer, for three (3) years and nine (9) months,
approved the commutation to cash of the unenjoyed
portion of the sick leave with pay benefits of its
intermittent workers. While in Tiangco vs. Leogardo, Jr.
the employer carried on the practice of giving a fixed
monthly emergency allowance from November 1976 to
February 1980, or three (3) years and four (4) months. In
all these cases, this Court held that the grant of
these benefits has ripened into company practice
or policy which cannot be peremptorily withdrawn.
In the case at bar, petitioner Sevilla Trading kept the
practice of including non-basic benefits such as paid
leaves for unused sick leave and vacation leave in the
computation of their 13th-month pay for at least two (2)
years. This, we rule likewise constitutes voluntary
employer practice which cannot be unilaterally
withdrawn by the employer without violating Art.
100 of the Labor Code.25 (Emphasis supplied)

The Company (Honda) explicitly accepted that it was the

strike held that prompt[ed] them to adopt a pro-rata
computation, aside [from] being in [a] state of
rehabilitation due to 227M substantial losses in 1997,
114M in 1998 and 215M lost of sales in 1999 due to
strike. This is an implicit acceptance that prior to the
strike, a full month basic pay computation was the

Lastly, the foregoing interpretation of law and

jurisprudence is more in keeping with the underlying
principle for the grant of this benefit. It is primarily given
to alleviate the plight of workers and to help them cope
with the exorbitant increases in the cost of living. To allow
the pro-ration of the 13th month pay in this case is to
undermine the wisdom behind the law and the mandate

The revised guidelines also provided for a pro-ration of

this benefit only in cases of resignation or separation
from work. As the rules state, under these circumstances,
an employee is entitled to a pay in proportion to the
length of time he worked during the year, reckoned from
the time he started working during the calendar year. 19
The Court of Appeals thus held that:
Considering the foregoing, the computation of the 13th
month pay should be based on the length of service and
not on the actual wage earned by the worker. In the
present case, there being no gap in the service of the
workers during the calendar year in question, the
computation of the 13th month pay should not be prorated but should be given in full.20 (Emphasis supplied)

21

LABOR STANDARDS
MIDTERM

CASES

that the workingmans welfare should be the primordial

and paramount consideration.26 What is more, the factual
milieu of this case is such that to rule otherwise inevitably
results to dissuasion, if not a deterrent, for workers from
the free exercise of their constitutional rights to selforganization and to strike in accordance with law. 27
WHEREFORE, the instant petition is DENIED. The
decision and the resolution of the Court of Appeals dated
September 14, 2000 and October 18, 2000, respectively,
in CA-G.R. SP No. 59052, affirming the decision rendered
by the Voluntary Arbitrator on May 2, 2000, are hereby
AFFIRMED in toto.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
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

22

LABOR STANDARDS
MIDTERM

CASES

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 nonintermittent 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 employeeapplicant 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 nonintermittent 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

23

LABOR STANDARDS
MIDTERM

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-211BX1-10-003-91 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:

CASES

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

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

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:

901 925 8 8
926 1,050 9 9
1,051 1,125 10 10

Hours of Service Per Vacation Sick Leave

1,126 1,200 11 11
Calendar Year Leave
1,201 1,275 12 12
Less than 750 NII NII
1,276 1,350 13 13
751 825 6 days 6 days
1,351 1,425 14 14
826 900 7 7
1,426 1,500 15 15
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."

24

LABOR STANDARDS
MIDTERM

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

CASES

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 nonintermittent 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.

25

LABOR STANDARDS
MIDTERM

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 nonintermittent 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 employeeapplicant 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

CASES

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 petitionercompany 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 workdays. 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

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.

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 noncumulative. 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?

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-44717

August 28, 1985

THE CHARTERED BANK EMPLOYEES ASSOCIATION,

petitioner,
vs.
HON. BLAS F. OPLE, in his capacity as the
Incumbent Secretary of Labor, and THE CHARTERED
BANK, respondents.

GUTIERREZ, JR., J.:

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

26

LABOR STANDARDS
MIDTERM

This is a petition for certiorari seeking to annul the

decision of the respondent Secretary, now Minister of
Labor which denied the petitioner's claim for holiday pay
and its claim for premium and overtime pay differentials.
The petitioner claims that the respondent Minister of
Labor acted contrary to law and jurisprudence and with
grave abuse of discretion in promulgating Sec. 2, Rule IV,
Book III of the Integrated Rules and in issuing Policy
Instruction No. 9, both referring to holidays with pay.

CASES

On May 20, 1975, the Chartered Bank Employees

Association, in representation of its monthly paid
employees/members, instituted a complaint with the
Regional Office No. IV, Department of Labor, now Ministry
of Labor and Employment (MOLE) against private
respondent Chartered Bank, for the payment of ten (10)
unworked legal holidays, as well as for premium and
overtime differentials for worked legal holidays from
November 1, 1974.
The memorandum for the respondents summarizes the
admitted and/or undisputed facts as follows:
l. The work force of respondent bank
consists of 149 regular employees, all
of whom are paid by the month;
2. Under their existing collective
bargaining agreement, (Art. VII thereof)
said monthly paid employees are paid
for overtime work as follows:

salaries way beyond the statutory or

minimum rates and are among the
highest paid employees in the banking
industry.
5. The salaries of respondent bank's
monthly paid employees suffer no
deduction for holidays occurring within
the month.
On the bases of the foregoing facts, both the arbitrator
and the National Labor Relations Commission (NLRC)
ruled in favor of the petitioners ordering the respondent
bank to pay its monthly paid employees, holiday pay for
the ten (10) legal holidays effective November 1, 1974
and to pay premium or overtime pay differentials to all
employees who rendered work during said legal holidays.
On appeal, the Minister of Labor set aside the decision of
the NLRC and dismissed the petitioner's claim for lack of
merit basing its decision on Section 2, Rule IV, Book Ill of
the Integrated Rules and Policy Instruction No. 9, which
respectively provide:

Section l. The basic work week for all

employees excepting security guards
who by virtue of the nature of their
work are required to be at their posts
for 365 days per year, shall be forty
(40) hours based on five (5) eight (8)
hours days, Monday to Friday.

Sec. 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.

Section 2. Time and a quarter hourly

rate shall be paid for authorized work
performed in excess of eight (8) hours
from Monday through Friday and for any
hour of work performed on Saturdays
subject to Section 5 hereof.

POLICY INSTRUCTION NO. 9

TO: All Regional Directors
SUBJECT: PAID LEGAL HOLIDAYS

Section 3. Time and a half hourly rate

shall be paid for authorized work
performed on Sundays, legal and
special holidays.

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
considered 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.

xxx xxx xxx

xxx xxx xxx
Section 5. The provisions of Section I
above notwithstanding the BANK may
revert to the six (6) days work week, to
include Saturday for a four (4) hour day,
in the event the Central Bank should
require commercial banks to open for
business on Saturday.

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.

3. In computing overtime pay and

premium pay for work done during
regular holidays, the divisor used in
arriving at the daily rate of pay is 251
days although formerly the divisor used
was 303 days and this was when the
respondent bank was still operating on
a 6-day work week basis. However, for
purposes of computing deductions
corresponding to absences without pay
the divisor used is 365 days.

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 P240, the maximum monthly
minimum wage, and his monthly pay is

4. All regular monthly paid employees

of respondent bank are receiving

27

LABOR STANDARDS
MIDTERM

CASES

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 still
entitled to the ten (10) paid legal
holidays.
These new interpretations must be
uniformly and consistently upheld.
This
issuance
immediately.

shall

take

effect

The issues are presented in the form of the following

assignments of errors:
First Error
Whether or not the
Secretary of Labor
erred
and
acted
contrary to law in
promulgating Sec. 2,
Rule IV, Book III of the
Integrated Rules and
Policy Instruction No.
9.
Second Error
Whether or not the
respondent Secretary
of Labor abused his
discretion and acted
contrary to law in
applying Sec. 2, Rule
IV of the Integrated
Rules
and
Policy
Instruction
No.
9
abovestated
to
private respondent's
monthly-paid
employees.
Third Error

The petitioner contends that the respondent Minister of

Labor gravely abused his discretion in promulgating
Section 2, Rule IV, Book III of the Integrated Rules and
Policy Instruction No. 9 as guidelines for the
implementation of Articles 82 and 94 of the Labor Code
and in applying said guidelines to this case. It maintains
that while it is true that the respondent Minister has the
authority in the performance of his duty to promulgate
rules and regulations to implement, construe and clarify
the Labor Code, such power is limited by provisions of the
statute sought to be implemented, construed or clarified.
According to the petitioner, the so-called "guidelines"
promulgated by the respondent Minister totally
contravened and violated the Code by excluding the
employees/members of the petitioner from the benefits of
the holiday pay, when the Code itself did not provide for
their expanding the Code's clear and concise conclusion
and notwithstanding the Code's clear and concise
phraseology defining those employees who are covered
and those who are excluded from the benefits of holiday
pay.
On the other hand, the private respondent contends that
the questioned guidelines did not deprive the petitioner's
members of the benefits of holiday pay but merely
classified those monthly paid employees whose monthly
salary already includes holiday pay and those whose do
not, and that the guidelines did not deprive the
employees of holiday pay. It states that the question to be
clarified is whether or not the monthly salaries of the
petitioner's members already includes holiday pay. Thus,
the guidelines were promulgated to avoid confusion or
misconstruction in the application of Articles 82 and 94 of
the Labor Code but not to violate them. Respondent
explains that the rationale behind the promulgation of the
questioned guidelines is to benefit the daily paid workers
who, unlike monthly-paid employees, suffer deductions in
their salaries for not working on holidays. Hence, the
Holiday Pay Law was enacted precisely to countervail the
disparity between daily paid workers and monthly-paid
employees.
The decision in Insular Bank of Asia and America
Employees' Union (IBAAEU) v. Inciong (132 SCRA 663)
resolved a similar issue. Significantly, the petitioner in
that case was also a union of bank employees. We ruled
that Section 2, Rule IV, Book III of the Integrated Rules
and Policy Instruction No. 9, are contrary to the provisions
of the Labor Code and, therefore, invalid This Court
stated:

Whether or not the

respondent Secretary
of Labor, in not giving
due credence to the
respondent
bank's
practice of paying its
employees base pay
of 100% and premium
pay of 50% for work
done
during
legal
holidays,
acted
contrary to law and
abused his discretion
in denying the claim
of
petitioners
for
unworked
holidays
and
premium
and
overtime
pay
differentials
for
worked holidays.

28

LABOR STANDARDS
MIDTERM

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
benefit. 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 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

CASES

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 v.
Hasken, 155 A. 112)
Obviously, the Secretary (Minister) of
Labor had exceeded his statutory
authority granted by Article 5 of the
Labor
Code
authorizing
him
to
promulgate
the
necessary
implementing rules and regulations.
We further ruled:
While
it
is
true
that
the
contemporaneous construction placed
upon a statute by executive officers
whose duty is to enforce it should be
given great weight by the courts, still if
such construction is so erroneous, as in
the instant case, the same must be
declared as null and void. It is the role
of the Judiciary to refine and, when
necessary correct constitutional (and/or
statutory) interpretation, in the context
of the interactions of the three
branches of the government, almost
always in situations where some agency
of the State has engaged in action that
stems ultimately from some legitimate
area of governmental power (The
Supreme Court in Modern Role, C.B.
Swisher 1958, p. 36).
xxx xxx xxx
In view of the foregoing, Section 2, Rule
IV, Book III of the Rules to implement
the Labor Code and Policy Instruction
No. 9 issued by the then Secretary of
Labor must be declared null and void.
Accordinglyl public respondent Deputy
Minister of Labor Amado G. Inciong had
no basis at all to deny the members of
petitioner union their regular holiday
pay as directed by the Labor Code.
Since the private respondent premises its action on the
invalidated rule and policy instruction, it is clear that the
employees belonging to the petitioner association are
entitled to the payment of ten (10) legal holidays under
Articles 82 and 94 of the Labor Code, aside from their
monthly salary. They are not among those excluded by
law from the benefits of such holiday pay.
Presidential Decree No. 850 states who are excluded from
the holiday provisions of that law. It states:
ART. 82. Coverage. The provision 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

29

LABOR STANDARDS
MIDTERM

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.
(Emphasis
supplied).
The questioned Section 2, Rule IV, Book III of the
Integrated Rules and the Secretary's Policy Instruction No.
9 add another excluded group, namely, "employees who
are uniformly paid by the month." While the additional
exclusion is only in the form of a presumption that all
monthly paid employees have already been paid holiday
pay, it constitutes a taking away or a deprivation which
must be in the law if it is to be valid. An administrative
interpretation which diminishes the benefits of labor more
than what the statute delimits or withholds is obviously
ultra vires.
It is argued that even without the presumption found in
the rules and in the policy instruction, the company
practice indicates that the monthly salaries of the
employees are so computed as to include the holiday pay
provided by law. The petitioner contends otherwise.
One strong argument in favor of the petitioner's stand is
the fact that the Chartered Bank, in computing overtime
compensation for its employees, employs a "divisor" of
251 days. The 251 working days divisor is the result of
subtracting all Saturdays, Sundays and the ten (10) legal
holidays from the total number of calendar days in a year.
If the employees are already paid for all non-working
days, the divisor should be 365 and not 251.
The situation is muddled somewhat by the fact that, in
computing the employees' absences from work, the
respondent bank uses 365 as divisor. Any slight doubts,
however, must be resolved in favor of the workers. This is
in keeping with the constitutional mandate of promoting
social justice and affording protection to labor (Sections 6
and 9, Article II, Constitution). The Labor Code, as
amended, itself provides:
ART. 4. Construction in favor of labor. 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.
Any remaining doubts which may arise from the
conflicting or different divisors used in the computation of
overtime pay and employees' absences are resolved by
the manner in which work actually rendered on holidays
is paid. Thus, whenever monthly paid employees work on
a holiday, they are given an additional 100% base pay on
top of a premium pay of 50%. If the employees' monthly
pay already includes their salaries for holidays, they
should be paid only premium pay but not both base pay
and premium pay.
The contention of the respondent that 100% base pay
and 50% premium pay for work actually rendered on
holidays is given in addition to monthly salaries only
because the collective bargaining agreement so provides
is itself an argument in favor of the petitioner stand. It
shows that the Collective Bargaining Agreement already
contemplated a divisor of 251 days for holiday pay
computations before the questioned presumption in the

CASES

Integrated Rules and the Policy Instruction was

formulated. There is furthermore a similarity between
overtime pay, which is computed on the basis of 251
working days a year, and holiday pay, which should be
similarly treated notwithstanding the public respondents'
issuances. In both cases overtime work and holiday workthe employee works when he is supposed to be resting. In
the absence of an express provision of the CBA or the law
to the contrary, the computation should be similarly
handled.
We are not unmindful of the fact that the respondent's
employees are among the highest paid in the industry. It
is not the intent of this Court to impose any undue
burdens on an employer which is already doing its best
for its personnel. we have to resolve the labor dispute in
the light of the parties' own collective bargaining
agreement and the benefits given by law to all workers.
When the law provides benefits for "employees in all
establishments and undertakings, whether for profit or
not" and lists specifically the employees not entitled to
those benefits, the administrative agency implementing
that law cannot exclude certain employees from its
coverage simply because they are paid by the month or
because they are already highly paid. The remedy lies in
a clear redrafting of the collective bargaining agreement
with a statement that monthly pay already includes
holiday pay or an amendment of the law to that effect but
not an administrative rule or a policy instruction.
WHEREFORE, the September 7, 1976 order of the public
respondent is hereby REVERSED and SET ASIDE. The
March 24, 1976 decision of the National Labor Relations
Commission which affirmed the October 30, 1975
resolution of the Labor Arbiter but deleted interest
payments is REINSTATED.
SO ORDERED.
National Sugar Refineries Corp v NLRC
(220 SCRA 452) 1993
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.
___________________________________________________________________
______

30

LABOR STANDARDS
MIDTERM

CASES

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
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.

31

LABOR STANDARDS
MIDTERM

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

CASES

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-andfile 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.

32

LABOR STANDARDS
MIDTERM

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;

CASES

or (iii) execute under general

assignments and tasks; and

supervision

special

(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:

33

LABOR STANDARDS
MIDTERM

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

CASES

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 rankand-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 redesignated to confirm their superior rank and duties.
Thus, after the JE program, complainants cannot be said
to occupy the same positions." 9

34

LABOR STANDARDS
MIDTERM

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 jurisprudentiallyrecognized 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.

CASES

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.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75510

October 27, 1987

RUFINA SORIANO, petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION and
KINGLY COMMODITIES TRADERS AND MULTIRESOURCES, INC., respondents.
RESOLUTION

FELICIANO, J.:
Petitioner started working with respondent commodities
trading Corporation in November 1977 as Investment
Counselor and eventually became Vice-President,
Marketing. On 18 September 1984, petitioner was
charged with allowing or failing to supervise and monitor
certain activities of investment counselors in her
department, which included the signing of a contract
opening an account for a client by an investment
counselor without authority from the client, transfers of
funds from one account to another without the knowledge
and authority of the clients involved, unauthorized
transactions in foreign currency with clients of the
respondent Corporation, unauthorized approval of leave
for members of her department, and resulting in loss of
confidence in petitioner. Petitioner was preventively
suspended and required to explain her acts or failure to

35

LABOR STANDARDS
MIDTERM

CASES

act. Two (2) days later, petitioner submitted her detailed

answer or explanation. On 27 September, 1984, the
Executive Vice-President and General Manager of
respondent Corporation found petitioner's written
explanation unsatisfactory and notified petitioner that the
Corporation had lost confidence on her ability to
discharge the functions of her office and accordingly
terminated her services.

2. the "true reason" for her "illegal

dismissal" was the "personal grudge
which Rivera harbored against her.
3. respondent Corporation's bad faith
was
also
demonstrated
in
discrimination against her in relation to
other employees of the Corporation
who had been in the past similarly
charged with alleged infractions of the
corporation's rules. More specifically,
petitioner asserts discrimination against
herself consisting of the failure of the
respondent Corporation to dismiss the
two (2) immediate supervisors of the
investment counselor who had carried
out the unauthorized manipulations of
clients'
accounts
in
petitioner's
department.

Petitioner filed a complaint for illegal suspension and

dismissal against respondent Corporation and Mr. Guil
Rivera, Senior Vice-President, and Mr. Richard Tan,
Executive Vice-President and General Manager. She asked
for reinstatement with backwages, as well as moral and
exemplary damages, medical expenses, attorney's fees
and other litigation expenses.
On 8 July 1985, Labor Arbiter A.L Sevilla rendered a
Decision requiring the respondent Corporation to pay
petitioner: (1) separation pay in the amount of
P10,500.00; (2) six (6) months backwages in the amount
of P120,000.00; (3) moral damages in the amount of
P500,000.00; (4) exemplary damages in the amount of
P100,000.00; and (5) attorney's fees equivalent to 10% of
the award.
On appeal by the private respondents, public respondent
NLRC, in a Decision dated 10 March 1986, modified the
Labor Arbiter's award by deleting the award of moral and
exemplary
damages
and
requiring
respondent
Corporation to pay: (1) separation pay amounting to
P21,000.00; (2) three (3) months backwages without
qualification and deduction amounting to P9,000.00; and
(3) 10% of the award as attorney's fees.
Both the Labor Arbiter and respondent NLRC found that
because of the strained relations between petitioner and
respondent Corporation, reinstatement of petitioner was
not feasible. Respondent Corporation had alleged that
petitioner had immediately found employment with
Onapal Philippines Commodities, which had not been
denied or refuted by petitioner. Because respondent
Corporation had failed to specify the definite date of her
employment, respondent NLRC granted petitioner three
(3) months backwages without qualification and
deduction.
In the present Petition for Certiorari, petitioner seeks the
annulment of the Decision of respondent NLRC dated 10
March 1986 and the revival or reinstatement of the
Decision of Iabor Arbiter Sevilla dated 8 July 1985.
Petitioner claims that respondent Corporation acted in
bad faith in suspending and terminating her services.
Petitioner asserts that:
1. respondent Corporation had violated
her right to due process by suspending
her immediately without the benefit of
hearing. She argues that the notice of
preventive suspension served her on 18
September 1986 was "living proof" that
the corporation had already concluded
she was guilty of the charges levelled
against her even before she could
submit her written explanation.

36

LABOR STANDARDS
MIDTERM

4. petitioner also charges respondent

Corporation with having misrepresented
the extent of her participation in or the
scope of her duties in respect of
unauthorized acts and transactions of
her subordinates in the marketing
department of respondent company.
The Court considers that petitioner has failed to show a
grave abuse of discretion, or an act performed without or
in excess of jurisdiction, on the part of the respondent
NLRC.
In respect of Item 1, preventive suspension does not in
itself prove that the company had prejudged that
petitioner was guilty of the charges she was asked to
answer and explain. Preventive suspension may be
necessary for the protection of the company, its
operations and assets, pending investigation of the
alleged malfeasance or misfeasance on the part of
officers or employees of the company and pending a
decision on the part of the company (See Sec. 3 of Rule
XIV, Book V, of the Omnibus Rules Implementing the
Labor Code). Considering the very senior and sensitive
character of petitioner's position as head of a
Department, a fine position as distinguished from a staff
or planning position, and considering the unauthorized
transactions then just discovered by the respondent
Corporation, we do not believe that the preventive
suspension was an arbitrary and capricious act
amounting to bad faith on the part of the respondent
Corporation.
In respect of Item 2, the alleged personal motive behind
petitioner's dismissal-personal envy or feelings of
personal insecurity on the part of Guil Rivera, Senior VicePresident, respondent NLRC found that petitioner had not
sufficiently established her assertion. Petitioner's
assertion on this point appears no more than a conjecture
or supposition and does not afford an adequate basis for
overturning respondent NLRC's finding on this point.
Further, if petitioner had clearly proven such personal illwill on the part of Mr. Rivera, a serious question would
arise as to whether the respondent Corporation (as
distinguished from Mr. Rivera) could be held liable at all
for Mr. Rivera's acts in the absence of clear authorization
for, or approval or adoption of, such act by the
respondent Corporation with knowledge of the personal
malice on the part of Mr. Rivera.

CASES

In respect of Item 3, respondent NLRC's decision was

silent. The Court believes, however, that respondent
Corporation must be accorded reasonable latitude in
determining who among erring officers or employees
should be punished by the company and to what extent.
In the instant case, respondent Corporation presumably
found it was not necessary to terminate the services also
of the two (2) section heads in petitioner's department,
who clearly are much lower in the corporate hierarchy
than petitioner.

that was approved by the complainant.

On August 6, 1964, the amount of
P4,052.59 was transferred by Nazareno
to the account of Panemanglor from the
account
of
Ramon
Lopez.
This
transaction was with the approval of the
complainant. On September 3, 1984,
Panemanglor demanded the payment
of the balance of P25,000.00 from the
respondent company to close his
account and the letter of Panemanglor
was referred to complainant by
respondent Guil Rivera for necessary
action. In her memorandum to senior
vice president Guil Rivera complainant
confirmed the irregularity in the
handling
of
the
account
of
Panemanglor, but she failed to take
appropriate action against the erring
employee which was within her power
to discipline employees under her
supervision ater on February 4, 1985, a
complaint
was
filed
before
the
Securities and Exchange Commission
by Panemanglor for the recovery of the
P25,000.00 plus damages against the
respondent corporation, contrary to her
claim that the client will not file a
recovery suit against the corporation
since the obligation was purely personal
to Nazareno.

With respect to the last and most important of the above

listed items, the scope of petitioner's responsibility for the
operations of her department and the extent of her
supervisory authority over her subordinates in the
marketing department, respondent NLRC set forth the
following discussion and evaluation:
Appellants stressed the point that
complainant,
as
vice
president,
marketing, is actually a department
head of one of the company's sales
department (sic). As such, her basic
function
is
the
supervision
and
monitoring the daily activities of her
department and the employees she
supervises (sic). By the nature of the
company's business, complainant as a
department head should see to it that
the clients' trust and confidence in the
company is upheld through aboveboard transactions, untainted relations,
satisfactory servicing and unquestioned
integrity of its officers and staff, aside
from the promotion of cordial employee
relations among her personnel through
unbiased and uniform implementation
of company policies affecting employee
benefits and welfare.

Respondents contend that complainant

could have immediately discovered the
unauthorized
signature
of
Sofia
Nazareno that led to the illegal
transfers of fund, had she followed the
company procedure and practice for her
to be personally acquainted with new
clients and her admission that she was
not aware of the complained acts has
brought to light that she was remiss in
her
supervisory
and
monitoring
function. On top of this, she failed to
institute disciplinary action

According to the appellants, the finding

of the Labor Arbiter that 'complainant is
not expected to keep an eye or be
aware of all day-to-day transactions of
her workers particularly Investment
Consultants in her department' does
not conform to the facts prevailing in
this case.

xxx xxx xxx

As head of one of the company's sales
department (sic) and a managerial
employee at that, complainant is
expected to monitor the daily activities
of the investment counselors and the
transactions
of
clients
in
her
department. As a matter of practice and
procedure,
complainant,
as
vicepresident marketing, is always informed
of new clients for her to be personally
acquainted with the client. We agree
with the appellants that had the
complainant adhered to this procedure,
she could have immediately noticed the
unauthorized
signature
by
Sofia
Nazareno that enabled her to transfer
funds from one account to another.
Likewise,
since
the
complainant
approved the payment instruction for
P25,000.00 on July 13, 1984, the
transfer of P4,052.59 on August 6, 1984
from the account of Ramon Lopez to
Panemanglor's
account,
and
the
withdrawal of the transferred amount

In the Panemanglor case, which is the

crucial point at issue, Panemanglor
opened an account with the respondent
corporation on June 28, 1984 by
depositing the amount of P50,000.00
through Sofia Nazareno, investment
counselor. Instead of the client signing
the Customers Agreement, it was
Nazareno who signed the agreement
and the signature card in the name of
the client, which is highly irregular. Had
she
exercised
prudence
in
the
supervision
of
her
investment
consultants, the irregularity could hate
been earlier detected. As a result, the
sum of P25,000.00 from Panemanglor's
account was transferred by Nazareno to
the account of Ramon Lopez, without
the knowledge of Panemanglor on July
9, 1984. On July 13, 1984 the said client
withdrew the sum of P25,000.00
through a Payment Instruction Form

37

LABOR STANDARDS
MIDTERM

CASES

on August 7, 1984, she could have

easily suspected that something was
irregular with the transaction Yet, it
took several months before she knew of
the anomaly and it took her superior,
respondent Guil Rivera, to bring the
matter to her attention. Under the
circumstances, it cannot be truthfully
said that complainant has not been
without any fault whatsoever. For this
reason, the basis for the award of the
moral and exemplary damages has not
been suffiiciently
or satisfactorily
against the erring employee. gently or
satisfactorily
established
by
the
complainant. And besides the dismissal
of the complainant by the respondent
was done in good faith. ... (Emphasis
supplied)
Petitioner's argument that, because she was head of the
entire marketing (sales) department, she could not be
expected to monitor the detailed or day-to-day acts and
behaviour of the staff members of her department, does
not address what appears to be the thrust of the
respondent NLRC's decision, And that is, that as head of
the department, it was her responsibility to adopt ways
and means of keeping herself sufficiently informed of the
activities of her staff members so as to prevent or at least
discover at an early stage, e.g., unauthorized or illegal
transactions and manipulation of clients' accounts. On the
one hand, the above position taken by the respondent
NLRC cannot be regarded as so obviously unreasonable
and despotic as to constitute a grave abuse of discretion,
given the character of the business of a commodities
trading company and the fact that very substantial sums
of money are handled daily by petitioner's department.
Upon the other hand, petitioner's logic would lead to the
conclusion that the more senior the management
position, the slighter the responsibility for malfeasance or
nonfeasance that can be laid upon the position holder;
the chief executive officer of a corporation would
effectively have, under this logic, little or no responsibility
at all.

A. Separationpay-P5,400.00/month 7 =
P37,800.00 (in view of petitioner's
seven (7) years of service)
B. Backwages-P5,400.00/month
mos. = P16,200.00

plus nominal attorney's fees 1,500.00

TOTAL P55,500.00
ACCORDINGLY, the Court Resolved to DISMISS the Petition
for certiorari for lack of merit. The Decision of the
respondent NLRC dated 10 March 1986 is modified so as
to award petitioner the following items: a) separation pay
in the amount of P37,800.00; b) backwages for three (3)
months in the amount of P16,200.00; and c) attorney's
fees of P1,500.00, making a total of P55,500.00.
SO ORDERED.

Thus, the appropriate computation would be:

LABOR STANDARDS
MIDTERM

Sub-Total P54,000.00

Turning to the specific award made by respondent NLRC,

the salary base properly used in computing the
separation pay and the backwages due to petitioner
should include not just the basic salary but also the
regular allowances that petitioner had been receiving
(See Santos v. National Labor Relations Commission G.R.
No. 76721, 21 September 1987). In petitioner's case, the
base figure properly includes her: (a) basic salary of
P3,000.00 a month; and (b) living allowance of P2,400 a
month (petitioner's Affidavit, dated 12 April 1985, Exhibit
"G", Rollo, p. 105). The commissions also claimed by
petitioner ("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 petitioner. Neither should
"travels equivalent" [an unusual and unexplained term;
P10,000.00 a month] and "commission in trading
personal clients" P3,000.00 a month] be included in such
base figure. Considering that the charge of bad faith on
the part of private respondents was not proven, the
respondent NLRC having, on the contrary, made a finding
that petitioner's dismissal was made in good faith there
appears no real basis for the award of attorney's fees
(Art. 2208 5 Civil Code). This award should not exceed a
nominal amount which we set at P1,500.00.

38

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