Case on Agricultural Employee

[G.R. No. L-12950. December 9, 1959.]

BENJAMIN CELESTIAL, ET AL., Petitioners, v. THE SOUTHERN MINDANAO EXPERIMENTAL STATION, ET
AL., Respondents.
S. Tomas de la Cruz, for Petitioners.
Assistant Solicitor General Jose P. Alejandro and Solicitor Dominador L. Quiroz forRespondents.
SYLLABUS
1. EMPLOYER AND EMPLOYEE; MINIMUM WAGE LAW; EMPLOYEES ENGAGED IN AGRICULTURE;
REQUISITES TO BE ENTITLED TO BE ENTITLED TO P2.50 DAILY. Under Section 3 (a), (b) and (c), of the
Minimum Wage Law, in order that an employee or laborer may be paid the minimum wage of P2.50 a day, he must
be employed by an enterprise engaged in agriculture; said enterprise should operate a farm comprising more than
12 hectares; and said employee or laborer should be engaged in agriculture.
2. D.; ID.; ID.; FUNCTIONS DEMAND AGRICULTURAL IN NATURE. Where an experimental station operates a
farm comprising 960 hectares, and, through its employees and laborers actually tills soils, introduces and plants
seeds of the best crop varieties found by it after study and experiment, raises said crops in the best approved
methods of cultivation, including the spacing of each plant or seedling and the amount of water needed through
irrigation, weeding, etc., and the proper harvesting of the crops, including the timing and method, discovers plant
pests and their eradication by means of treatment with the proper insecticides, and thereafter extracts the seeds
from the harvest for sale and distribution to farmers, there can be no question that all these acts and functions fall
within the definition of agriculture provided in the Minimum Wage Law, and consequently, are agricultural functions.
It follows that the laborers and farm workers who actually carry out and perform these functions are also engaged in
agriculture and are entitled to a minimum wage of P2.50 under section 3 of the Minimum Wage Law. That said
experimental station is not for profit does not render it non-agricultural, because of the Minimum Wage Law, in
defining agriculture, does not prescribe the condition that the person or entity is engaged in it for purposes of profit.
DECISION
MONTEMAYOR, J.:
This is a petition by Benjamin Celestial and 175 others for review of the decision of the Auditor General, dated
September 9, 1957, denying their claim for differential pay under the Minimum Wage Law.
The record discloses that petitioners are employees and/or workers of the Southern Mindanao Experimental Station,
later referred to as Experimental Station, Bureau of Plant Industry in Davao City, and that since 1952, they had been
paid each a daily wage of P2.50; that some time in March 1957, petitioners filed with the Auditor Generals Office
their claims for differential pay, alleging among other things that they were entitled to the minimum wage of P4.00 a
day, instead of P2.50, which was actually paid them by the Experimental Station; and that as already stated, on
September 9, 1957, the Auditor General rendered a decision, holding that petitioners were not entitled to the
minimum daily wage of P4.00, but only to P2.50.
The resolution of this case depends upon the interpretation and application of Section 3(a), (b) and (c) of the
Minimum Wage Law, which we reproduce below for purposes of ready reference:jgc:chanrobles.com.ph
"SEC. 3. Minimum wage. (a) Every employer shall pay to each of his employees who is employed by an
enterprise other than in agriculture wages at the rate of not less than
(1) . . .
(2) Three pesos a day on the effective date of this Act and for one year after the effective date, and thereafter P4.00
a day, for employees of establishments located outside of Manila or its environs: . . . .
(b) Every employer who operates a farm enterprise comprising more than 12 hectares shall pay each of his
employees who is engaged in agriculture, wages at the rate of not less than
(1) . . .,
(2) . . .;
(3) One year thereafter, P2.50 a day and no allowances for board and lodging shall reduce this wage below P2.25 in
cash.
(c) Effective on the first of July, nineteen hundred and fifty- two, the minimum wage rates for employees in the
Government service shall be those provided in subsections (a) and (b) of this section. . . ."cralaw virtua1aw library

From the legal provisions above-reproduced, it will readily be seen that in order that an employee or laborer may be
paid the minimum wage of P2.50 a day, he must be employed by an enterprise (in this case, the Southern Mindanao
Experimental Station) engaged in agriculture; that said employer operates a farm comprising more than 12
hectares; and that the employee or laborer is engaged in agriculture. The second condition is satisfied because the
Experimental Station is operating a farm comprising 960 hectares. The next question to be decided is whether or not
said Experimental Station is engaged in agriculture. To determine this, we have to go back to the functions of the
Bureau of Plant Industry (Section 1753, Revised Administrative Code) of which the Experimental Station is an
agency or adjunct, said Experimental Station being provided for in Section 1754 of the same Revised Administrative
Code. Said two sections are reproduced below for ready reference:jgc:chanrobles.com.ph
"SEC. 1753. Functions of Bureau of Plant Industry. It shall be the function of said Bureau to collect and
disseminate useful information pertaining to agriculture in the Philippines, to encourage the use of improved
agricultural methods; and, in general, to promote the development of the agricultural resources of the Philippines, as
follows:chanrob1es virtual 1aw library
(a) By the introduction of new domesticated animals, and the improvement of the breeds of domesticated animals
now found in the Philippines;
(b) By the control and eradication of diseases of live stock;
(c) By the investigation of soil and climate conditions, and the methods of producing and handling agricultural
products;
(d) By the introduction, production, and distribution of improved seeds and plants;
(e) By the control and eradication of diseases, insects, and other pests injurious to cultivated plants;
(f) By the operation of a system of demonstration and agricultural extension work;
(g) By the collection of agricultural statistics; and
(h) By the publication and distribution of bulletins, circulars, and other printed matter."cralaw virtua1aw library
"SEC. 1754. Experiment stations, farms, and stations for agricultural instruction. In such places in the Philippines
as may be considered suitable for the purpose, the Director of Plant Industry, with the approval of the Head of the
Department, shall, as funds shall be available therefore, establish, equip, maintain, and operate experiment stations,
farms, stock farms, and stations for practical agricultural instruction.
"(In the Bureau of Agriculture is also vested the supervision and control of American agricultural colonies)."cralaw
virtua1aw library
On the basis of the legal provisions above-reproduced, we are of the opinion that both the Bureau of Plant Industry
and Experimental Station, particularly the latter, are engaged in agriculture or are dedicated to agricultural functions,
specially when we take into consideration the definition of agriculture in Section 2 of the Minimum Wage Law itself,
Republic Act No. 602, which is as follows:jgc:chanrobles.com.ph
"Agriculture includes farming in all its branches and among other things include the cultivation and tillage of the soil,
dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities, the
raising of livestock or poultry, and any practices performed by a farmer or on a farm as an incident to or in
conjunction with such farming operations, but does not include the manufacturing or processing of sugar, coconuts,
abaca, tobacco, pineapples or other farm products."cralaw virtua1aw library
And it is a matter of public knowledge that experimental stations maintained by the Bureau of Plant Industry,
specially when done on a big scale like the Southern Mindanao Experimental Station that operates a farm
comprising 960 hectares, through its employees and laborers, actually till the soil, introduce and plant seeds of the
best crop varieties found by it after study and experiment, raise said crops in the best approved methods of
cultivation, including the spacing of each plant or seedling and the amount of water needed through irrigation,
weeding, etc., and the proper harvesting of the crop, including the timing and method, all for the instruction and
benefit of Philippine farmers, and to foster agriculture in the country. Included in this cultivation is the discovery of
plant pests and their eradication by means of treatment with the proper insecticides. Thereafter, from the harvest are
extracted the seeds which are called certified seeds, for sale and distribution to farmers. There can be no question
that all these acts and functions fall within the definition of agriculture provided in the Minimum Wage Law and,
consequently, are agricultural as distinguished from non- agricultural functions. It follows that the laborers and farm
workers who actually carry out and perform these functions are also engaged in agriculture. It is possible that not all
the laborers and employees in the Experimental Station are actually engaged in preparing the land for planting,
such as plowing, tilling, and planting the seeds or seedlings, in weeding the farm, in treating plant diseases and

harvesting crops. Some employees may be engaged in office work, such as, clerks, supervisors, maintenance
workers, etc. But inasmuch as they are all employed by the Experimental Station, which is a farm enterprise, and
their work is incidental to agriculture, they may also be considered as agricultural workers and employees.
Interpretative Bulletin No. 14, issued by the United States Wage Administration Service, implementing the provisions
of the Fair Labor Standards Act of the United States of 1938, from which our Minimum Wage Law was copied
(Morave: Minimum Wage Law, p. 279), under the title "Office Workers, Etc.," says:jgc:chanrobles.com.ph
"Office Workers, Etc.
"12. We have received inquiries concerning office help secretaries, clerks, bookkeepers, etc., night watchmen,
maintenance workers, engineers, etc., who are employed by a farmer or a farm in connection with the activities
described in the definition of agriculture contained in section 3 (f). In our opinion such employees are exempt."
(Teller: Labor Disputes and Collective Bargaining, Vol. II, p. 1209)
The above-reproduced portion of the bulletin, applied in this jurisdiction, means that the employees mentioned
therein are not governed by our Minimum Wage Law, as regards the minimum wage of P4.00 a day for nonagricultural workers; consequently, they may receive only the minimum wage of P2.50 a day, prescribed for workers
engaged in agriculture.
But petitioners contend that the Bureau of Plant Industry and the Experimental Station could not be engaged in
agriculture for the reason that their farm enterprise is not for profit. In answer to this contention, it is enough to say
that Minimum Wage Law in defining agriculture, does not prescribe the condition that the person or entity is
engaged in it for purposes of profit. We can well imagine a person interested in research and scientific agriculture
who proceeds to cultivate a little farm of, say, one or two hectares, to put into practice the results of his research,
introducing in the cultivation the most modern methods, the most suitable fertilizers, etc., so that a hectare so
cultivated can produce, say, from 250 to 300 cavans of palay and incidentally to compete for a prize or a medal
offered by the Government or any of its agencies. The fact that he does not cultivate the farm for purposes of profit,
but rather in the interest of science and to prove his scientific and agricultural theories, and incidentally enter the
contest for a prize, does not make him less agriculturist and his activities as agriculture.
Incidentally, it may be stated that the Secretary of Justice in an opinion rendered in connection with the different
activities of the Davao Regional Fiber Station, holds that the laborers and employees of said fiber experimental
station are not entitled to the minimum wage of P4.00.
In view of the foregoing, the decision appealed from is hereby affirmed. No costs.

Celestial, et al. vs Southern Mindanao Experimental Station, et al., 106 Phil 696; G.R. No. L-12950, December
9, 1959
(Labor Standards Agricultural Employees)
Facts: The Minimum Wage Law provides that in order than an employee or laborer may be paid the minimum
wage of P2.50 a day, he must be employed by an enterprise engaged in agriculture; said enterprise should
operate a farm comprising more than 12 hectares; and said employee or laborer should be engaged in
agriculture.
Section 2 of the Minimum Wage Law (RA 602) provides a definition of agriculture: Agriculture includes farming
in all its branches and among other things include cultivation and tillage of the soil, dairying, the production,
cultivation, growing, and harvesting of any agricultural or horticultural commodities, the raising of livestock or
poultry, and any practices performed by a farmer or on a farm as an incident to or in conjunction with such
farming operations, but does not include the manufacturing or processing of sugar, coconuts, abaca, tobacco,
pineapples or other farm products.
Respondent experimental station, which operates a farm comprising of 960 hectares, is an agency of the
Bureau of Plant Industry which are both engaged in agriculture or are dedicated in agricultural functions as
provided by sections 1753 and 1754 of the Revised Administrative Code.
Petitioners, employees of the experimental station alleged that they are entitled to the minimum wage of P4.00
a day, instead of P2.50, which was actually paid them by the respondent experimental station. The Auditor
General rendered a decision that they are entitled to the latter amount.
Issue: WON employees of an experimental station engaged in agriculture are agricultural employees.
Held: Yes. Where an experimental station operates a farm comprising 960 hectares, and, through its
employees and laborers actually tills the soil, introduces and plants seeds of the best crop varieties found by it
after study and experiment, raises said crops in the best approved methods of cultivation, including the spacing
of each plant or seedling and the amount of water needed through irrigation, weeding, etc., and the other
proper harvesting of the crops, including the timing and method, discovers plant pests and their eradication by
means of treatment with the proper insecticides, and thereafter extracts the seeds from the harvest for sale
and distribution to farmers, there can be no question that all these acts and functions fall within the definition of
agriculture provided in the Minimum Wage Law, and consequently, are agricultural.
It follows that the laborers and farm workers who actually carry out and perform these functions are also
engaged in agriculture.
Some employees in the experimental station may be engaged in office work. In as much as they are all
employed by the same, which is a farm enterprise, and their work is incidental to agriculture, they may also be
considered as agricultural workers and employees.

Labor Standards wages, customary facilities

[G.R. No. 122827. March 29, 1999]
LIDUVINO M. MILLARES, J. CAPISTRANO CORDITA, SHIRLEY P. UY, DIONISIO J. REQUINA, GABRIEL A. DEJERO, NELSON T.
GOMONIT, IMELDA IMPEYNADO SULPICIO B. SUMILE, MA. CONSUELO AVIEL, SILVINO S. GUEVARRA, FIDEL
DUMANHOG, NELFA T. POLOTAN, LEMUEL C. RISMA, JUANITO M. GONZALES, ROGELIO B. CABATUAN, EPIFANCIO
E. GANANCIAL, DOMINADOR D. ATOK, CONRADO U. SERRANO, ISIDRO J. BARNAJA, ROMEO VIRTUDAZO,
AVELINO NABLE, EDGAR TAMPOS, ERNESTO ORIAS, DALMACIO LEGARAY, ROMEO R . BULA, ROBERTO G.
GARCIA, RUDOLFO SUZON, JERRY S. DANO, AUGUST G. ESCUDERO, OSCAR B. CATBAGAN, TEOFILO C. SISON,
NARCISO BULASA, ALBERTO CORTEZ, LILIA C. CABRERA, NESTOR A. ACASO, BIENVENIDO MOZO, ISIDORO A.
ALMENDAREZ, VICENTE M. PILONGO, ROBERTO N. LUMPOT, PATRICIO BANDOLA, MANUEL S. ESPINA, ISIDRO K.
BALCITA, JR., EMMANUEL O. ABRAHAM, OLEGARIO A. EPIS, NESTOR D. PEREGRINO, RAMON A. USANAGA,
PRESTO BARTOLOME, BRADY EMPEYNADO, PORFERIO N. CONDADO, AQUILLO V. CORDOVA, LEONARDO
ESTOSI, PACIFICO B. DACORINA, PABLITO B. LLUBIT, ANTONIO DOZA, LEONITO LABADIA, EDGARDO BELLIZA,
FEDENCIO P. GEBERTAS, VIRGILIO D. GULBE, MANUEL A. LERIO, JR., ROGELIO B. OCAMIA, RODOLFO A.
CASTILLO, EDMUNDO L PLAZA, ROBERTO D. YAGONIA, JR., PETRONIO ESTELA, JR, CRISOLOGO A. LOGRONIO,
ERNESTO T. MORIO, ROGELIO M. DAVID, BENJAMIN U. ARLIGUE, APOLONIO MUNDO, JR., NENE M. E NOSA, NILO
B. BALAORO, GERONIMO S. CONVI, VICENTE R. TARAGOZA, YOLANDO A. SALAZAR, MANUEL A. NERI, ROGELIO
C. TICAR, ROBERTO A. MACALAM, MIGUEL MACARIOLA, WALTERIO DAPADAP, SILVERIO CUAMAG, EUPARQUIO
PLANOS, GILBERTO M. MIRA, REYNALDO BACSARSA, DIOSDADO B. ABING, ARISTARCO V. SALON, TOMAS N.
CATACTE, RODOLFO MEMORIA, PAPENIANO CURIAS, JOSE S. CANDIA, DESIDERIO C. NAVARRO, EMMANUEL O.
ABRAHAM, JOSELITO D. ARLAN, FRANCISCO S. SANCHEZ, MANSUETO B. LINGGO, ISIDRO BARNAJA, ROMEO S.
CABRERA, LEODEGARIO CAINTIC, NESTOR G. BLANDO, FLORENCIO B. DELIZO, MILAN M. ETES, GONZALO C.
PADILLO, LEONARDO CAGAKIT, JOSEFINO E. DULGUIME, PEPITO G. ARREZA, AMADOR G. CAGALAWAN,
GAUDENCIO C. SARMIENTO, FLORENTINO J. BRACAMONTE, DOMINADOR H. TY, LEOPOLDO T. SUPIL, JOSE A.
DOHINOG, ANIANO T. REYES, CARLITO G. UY, PLACIDO D. PADILLO, TERESITA C. ADRIANO, CANDIDO S. ADRIANO,
and AVELINO G. VENERACION, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, (FIFTH DIVISION), and
PAPER INDUSTRIES CORPORATION OF THE PHILIPPINES (PICOP), respondents.

DECISION
BELLOSILLO, J.:
Petitioners numbering one hundred sixteen (116) [1] occupied the positions of Technical Staff, Unit Manager,
Section Manager, Department Manager, Division Manager and Vice President in the mill site of respondent Paper
Industries Corporation of the Philippines (PICOP) in Bislig, Surigao del Sur. In 1992 PICOP suffered a major
financial setback allegedly brought about by the joint impact of restrictive government regulations on logging and the
economic crisis. To avert further losses, it undertook a retrenchment program and terminated the services of
petitioners. Accordingly, petitioners received separation pay computed at the rate of one (1) month basic pay for
every year of service. Believing however that the allowances they allegedly regularly received on a monthly basis
during their employment should have been included in the computation thereof they lodged a complaint for
separation pay differentials.
The allowances in question pertained to the following 1. Staff/Manager's Allowance Respondent PICOP provides free housing facilities to supervisory and managerial employees assigned in
Bislig. The privilege includes free water and electric consumption. Owing however to shortage of such facilities, it
was constrained to grant Staff allowance instead to those who live in rented houses outside but near the vicinity of
the mill site. But the allowance ceases whenever a vacancy occurs in the company's housing facilities. The former
grantee is then directed to fill the vacancy. For Unit, Section and Department Managers, respondent PICOP gives
an additional amount to meet the same kind of expenses called Manager's allowance.
2. Transportation Allowance -

To relieve respondent PICOP's motor pool in Bislig from a barrage of requests for company vehicles and to stabilize
company vehicle requirements it grants transportation allowance to key officers and Managers assigned in the mill
site who use their own vehicles in the performance of their duties. It is a conditional grant such that when the
conditions no longer obtain, the privilege is discontinued. The recipients of this kind of allowance are required to
liquidate it by submitting a report with a detailed enumeration of expenses incurred.
3. Bislig Allowance The Bislig Allowance is given to Division Managers and corporate officers assigned in Bislig on account of the
hostile environment prevailing therein. But once the recipient is transferred elsewhere outside Bislig, the allowance
ceases.
Applying Art.,97, par. (f), of the Labor Code which defines if wage," the Executive Labor Arbiter opined that the
subject allowances, being customarily furnished by respondent PICOP and regularly received by petitioners, formed
part of the latter's wages. Resolving the controversy from another angle, on the strength of the ruling in Santos v.
NLRC[2] and Soriano v. NLRC[3] that in the computation of separation pay account should be taken not just of the
basic salary but also of the regular allowances that the employee had been receiving, he concluded that the
allowances should be included in petitioners' base pay.Thus respondent PICOP was ordered on 28 April 1994 to pay
petitioners Four Million Four Hundred Eighty-One Thousand Pesos (P4,481,000.00) representing separation pay
differentials plus ten per cent (10%) thereof as attorney's fees.[4]
The National Labor Relations Commission (NLRC) did not share the view of the Executive Labor Arbiter. On 7
October 1994 it set aside the assailed decision by decreeing that the allowances did not form part of the salary base
used in computing separation pay.[5]
Its ruling was based on the finding that the cases relied upon by the Executive Labor Arbiter were inapplicable
since they involved illegal dismissal where separation pay was granted in lieu of reinstatement which was no longer
feasible. Instead, what it considered in point was Estate of the late Eugene J. Kneebone v. NLRC [6] where the Court
held that representation and transportation allowances were deemed not part of salary and should therefore be
excluded in the computation of separation benefits. Relating the present case with Art. 97, par. (f), of the Labor
Code, the NLRC likewise found that petitioners' allowances were contingency-based and thus not included in their
salaries. On 26 September 1995 reconsideration was denied.[7]
In this petition for certiorari, petitioners submit that their allowances are included in the definition of "facilities" in
Art. 97, par. (f), of the Labor Code, being necessary and indispensable for their existence and
subsistence. Furthermore they claim that their availment of the monetary equivalent of those "facilities" on a monthly
basis was characterized by permanency, regularity and customariness. And to fortify their arguments they insist on
the applicability of Santos,[8] Soriano,[9] The Insular Life Assurance Company,[10] Planters Products, Inc.[11] and
Songco[12] which are all against the NLRC holding that the salary base in computing separation pay includes not just
the basic salary but also the regular allowances.
There is no showing of grave abuse of discretion on the part of the NLRC. In case of retrenchment to prevent
losses, Art. 283 of the the Labor Code imposes on the employer an obligation to grant to the affected employees
separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. Since the law speaks of "pay," the question arises, "What exactly does the term connote?" We
correlate Art. 283 with Art. 97 of the same Code on definition of terms. "Pay" is not defined therein
but "wage." In Songco the Court explained that both words (as well as salary) generally refer to one and the same
meaning, i.e., a reward or recompense for services performed. Specifically, "wage" is defined in letter (f) as the
remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable
by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or
for services rendered or to be rendered and includes the fair and reasonable value, as determined by theSecretary
of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee.

We invite attention to the above-underlined clause. Stated differently, when an employer customarily furnishes
his employee board, lodging or other facilities, the fair and reasonable value thereof, as determined by the Secretary
of Labor and Employment, is included in "wage." In order to ascertain whether the subject allowances form part of
petitioner's "wages," we divide the discussion on the following - "customarily furnished;" "board, lodging or other
facilities;" and, "fair and reasonable value as determined by the Secretary of Labor."
"Customary" is founded on long-established and constant practice [13] connoting regularity.[14] The receipt of an
allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary[15] because the
nature of the grant is a factor worth considering. We agree with the observation of the Office of the Solicitor Generalthat the subject allowances were temporarily, not regularly, received by petitioners because In the case of the housing allowance, once a vacancy occurs in the company-provided housing accommodations,
the employee concerned transfers to the company premises and his housing allowance is discontinued x x x x
On the other hand, the transportation allowance is in the form of advances for actual transportation expenses
subject to liquidation x x x given only to employees who have personal cars.
The Bislig allowance is given to Division Managers and corporate officers assigned in Bislig, Surigao del
Norte. Once the officer is transferred outside Bislig, the allowance stops. [16]
We add that in the availment of the transportation allowance, respondent PICOP set another requirement that
the personal cars be used by the employees in the performance of their duties. When the conditions for availment
ceased to exist, the allowance reached the cutoff point. The finding of the NLRC along the same line likewise merits
concurrence, i.e., petitioners' continuous enjoyment of the disputed allowances was based on contingencies the
occurrence of which wrote finis to such enjoyment.
Although it is quite easy to comprehend "board" and "lodging," it is not so with "facilities." Thus Sec. 5, Rule VII,
Book III, of the Rules Implementing the Labor Code gives meaning to the term as including articles or services for
the benefit of the employee or his family but excluding tools of the trade or articles or service primarily for the benefit
of the employer or necessary to the conduct of the employer's business. The Staff /Manager's allowance may fall
under "lodging" but the transportation and Bislig allowances are not embraced in "facilities" on the main
consideration that they are granted as well as the Staff/Manager's allowance for respondent PICOP's benefit and
convenience, i.e., to insure that petitioners render quality performance. In determining whether a privilege is a
facility, the criterion is not so much its kind but its purpose. [17] That the assailed allowances were for the benefit and
convenience of respondent company was supported by the circumstance that they were not subjected to
withholding tax. Revenue Audit Memo Order No. 1-87 pertinently provides 3.2 x x x x transportation, representation or entertainment expenses shall not constitute taxable compensation if:
(a) It is for necessary travelling and representation or entertainment expenses paid or incurred by the employee in
the pursuit of the trade or business of the employer, and
(b) The employee is required to, and does, make an accounting/liquidation for such expense in accordance with the
specific requirements of substantiation for such category or expense.
Board and lodging allowances furnished to an employee not in excess of the latter's needs and given free of charge,
constitute income to the latter except if such allowances or benefits are furnished to the employee for the
convenience of the employer and as necessary incident to proper performance of his duties in which case such
benefits or allowances do not constitute taxable income. [18]
The Secretary of Labor and Employment under Sec. 6, Rule VII, Book III, of the Rules Implementing the Labor
Code may from time to time fix in appropriate issuances the "fair and reasonable value of board, lodging and other
facilities customarily furnished by an employer to his employees." Petitioners' allowances do not represent such fair
and reasonable value as determined by the proper authority simply because the Staff/Manager's allowance and

transportation allowance were amounts given by respondent company in lieu of actual provisions for housing and
transportation needs whereas the Bislig allowance was given in consideration of being assigned to the hostile
environment then prevailing in Bislig.
The inevitable conclusion is that, as reached by the NLRC, subject allowances did not form part of petitioners'
wages.
In Santos[19] the Court decreed that in the computation of separation pay awarded in lieu of reinstatement,
account must be taken not only of the basic salary but also of transportation and emergency living
allowances. Later, the Court in Soriano, citing Santos, was general in its holding that the salary base properly used
in computing separation pay where reinstatement was no longer feasible should include not just the basic salary but
also the regular allowances that the employee had been receiving. Insular merely reiterated the aforementioned
rulings. The rationale is not difficult to discern. It is the obligation of the employer to pay an illegally dismissed
employee the whole amount of his salaries plus all other benefits, bonuses and general increases to which he would
have been normally entitled had he not been dismissed and had not stopped working. [20] The same holds true in
case of retrenched employees. And thus we applied Insular and Soriano in Planters in the computation of
separation pay of retrenched employees. Songco likewise involved retrenchment and was relied upon
in Planters, Soriano and Santos in determining the proper amount of separation pay. As culled from the foregoing
jurisprudence, separation pay when awarded to an illegally dismissed employee in lieu of reinstatement or to a
retrenched employee should be computed based not only on the basic salary but also on the regular allowances that
the employee had been receiving. But in view of the previous discussion that the disputed allowances
were not regularly received by petitioners herein, there was no reason at all for petitioners to resort to the above
cases.
Neither is Kneebone applicable, contrary to the finding of the NLRC, because of the difference in factual
circumstances. In Kneebone, the Court was tasked to resolve the issue whether the representation and
transportation allowances formed part of salary as to be considered in the computation of retirement benefits. The
ruling was in the negative on the main ground that the retirement plan of the company expressly excluded such
allowances from salary.
WHEREFORE, the petition is DISMISSED. The resolution of public respondent National Labor Relations
Commission dated 7 October 1994 holding that the Staff /Manager's, transportation and Bislig allowances did not
form part of the salary base used in computing the separation pay of petitioners, as well as its resolution dated 26
September 1995 denying reconsideration, is AFFIRMED. No costs.
SO ORDERED.

Millares vs. National Labor Relations Commission, 305 SCRA 500 (1999)
(Labor Standards wages, customary facilities)

Facts: Article 97, par. (f), of the Labor Code defined wage as the remuneration or earnings, however
designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece,
or commission basis, or other method of calculating the same, which is payable by an employer to an
employee under a written or unwritten contract of employment for work done or to be done, or for services
rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of
Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee.
116 employees of Paper Industries Corporation of the Philippines (PICOP) in Bislig, Surigao del Sur were
terminated under a retrenchment program as a solution to a major financial setback. Aside from their one
month basic pay, petitioners believe that the allowances they allegedly regularly received on a monthly basis
should have also been included in the computation of their separation.
PICOP grants the following allowances:
1.

Staff allowance/managers allowance to those who live in rented houses near the mill site which
ceases whenever a vacancy occurs in the companys free housing facilities.
2.
Transportation allowance in the form of advances for actual transportation expenses subject to
liquidation is given to key officers and managers who use their own vehicles in the performance of their
duties. This privilege is discontinued when the conditions no longer obtain.
3.
Bislig allowance is given to managers and officers on account of the hostile environment prevailing
therein. Once the recipient is transferred elsewhere, the allowance ceases.
Applying Art. 97, par (f) of the Labor Code which defines wage, the Executive Labor Arbiter opined that the
subject allowances, being customarily furnished by respondent PICOP and regularly received by petitioners,
formed part of the latters wage.
However, the NLRC decreed that the allowances did not form part of the salary base used in computing
separation pay since the same were contingency-based.
Issue: Whether or not the allowances in question are considered facilities customarily furnished.
Held: No. Customary is founded on long established and constant practice connoting regularity. The receipt
of allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary
because the nature of the grant is a factor worth considering.
The subject allowances were temporarily, not regularly received by petitioners because once the conditions for
the availment ceased to exist, the allowance reached the cutoff point. The petitioners continuous enjoyment of
the disputed allowances was based on contingencies the occurrence of which wrote finis to such enjoyment.

(Labor Standards Tips)

[G.R. No. 140364. August 15, 2000]

ACE NAVIGATION CO., INC. and/or CONNING SHIPPING LTD., petitioners, vs. COURT OF
APPEALS (THIRTEENTH DIVISION), NATIONAL LABOR RELATIONS COMMISSION (FIRST
DIVISION) and ORLANDO ALONSAGAY, respondents.
DECISION
PUNO, J.:
This is a petition for review of the resolutions [1] of the Court of Appeals[2] that dismissed the petition
for certiorari filed by petitioners and which denied their motion for reconsideration, respectively.
First, the facts.
In June 1994, Ace Navigation Co., Inc. (Ace Nav) recruited private respondent Orlando Alonsagay to
work as a bartender on board the vessel M/V "Orient Express" owned by its principal, Conning Shipping
Ltd. (Conning). Under their POEA approved contract of employment, Orlando shall receive a monthly basic
salary of four hundred fifty U.S. dollars (U.S. $450.00), flat rate, including overtime pay for 12 hours of work
daily plus tips of two U.S. dollars (U.S. $2.00) per passenger per day. He, was also entitled to 2.5 days of
vacation leave with pay each month. The contract was to last for one (1) year.
Petitioners alleged that on June 13, 1994, Orlando was deployed and boarded M/V "Orient Express"
at the seaport of Hong Kong. After the expiration of the contract on June 13, 1995, Orlando returned to the
Philippines and demanded from Ace Nav his vacation leave pay. Ace Nav did not pay him immediately. It
told him that he should have been paid prior to his disembarkation and repatriation to the Philippines.
Moreover, Conning did not remit any amount for his vacation leave pay. Ace Nav, however, promised to
verify the matter and asked Orlando to return after a few days. Orlando never returned.
On November 25, 1995, Orlando filed a complaint [3] before the labor arbiter for vacation leave pay of
four hundred fifty U.S. dollars (U.S. $450.00) and unpaid tips amounting to thirty six, thousand U.S. dollars
(U.S. $36,000.00).[4] On November 15, 1996, Labor Arbiter Felipe P. Pati ordered Ace Nav and Conning to
pay jointly and severally Orlando his vacation leave pay of US$450.00. The claim for tips of Orlando was
dismissed for lack of merit.[5]
Orlando appealed[6] to the National Labor Relations Commission (NLRC) on February 3, 1997. In a
decision[7] promulgated on November 26, 1997, the NLRC ordered Ace Nav and Conning to pay the unpaid
tips of Orlando which amounted to US$36,000.00 in addition to his vacation leave pay. Ace Nav and
Conning filed a motion for reconsideration on February 2, 1998 which was denied on May 20, 1999. [8]
On July 2, 1999, Ace Nav and Conning filed a petition for certiorari before the Court of Appeals to
annul the decision of the NLRC. On July 28, 1999, the Court of Appeals promulgated a three-page
resolution[9] dismissing the petition. Their motion for reconsideration filed on September 8, 1999 was
denied on October 8, 1999. Hence this appeal.
In assailing the dismissal of their petition on technical grounds, petitioners argued that the Court of
Appeals erred in rigidly and technically applying Section 13, Rule 13 [10] and Section 1, Rule 65[11] of the
1997 Rules of Civil Procedure.[12] They also contend that the respondent court erred in ruling that they are
the ones liable to pay tips to Orlando. They point out that if tips will be considered as part of the salary of
Orlando, it will make him the highest paid employee on M/V "Orient Express." The ship captain, the highest
ranking officer, receives U.S.$3,000.00 per month without tips. Orlando, who is a bartender, will receive
U.S.$3,450.00 per month. Allegedly, this will compel foreign ship owners to desist from hiring Filipino
bartenders. It will create an unfavorable precedent detrimental to the future recruitment, hiring and
deployment of Filipino overseas workers specially in service oriented businesses. It will also be a case of

double compensation that will unjustly enrich Orlando at the expense of petitioners. They also stress that
Orlando never complained that they should pay him the said tips.
Respondent filed a two-page comment to the petition adopting the resolution of the Court of Appeals
dated July 28, 1999.
We find merit in the petition.
Rules of procedure are used to help secure and not override substantial justice. [13] Even the Rules of
Court mandates a liberal construction in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding. [14] Since rules of procedure are mere tools
designed to facilitate the attainment of justice, their strict and rigid application which would result in
technicalities that tend to frustrate rather than promote substantial justice must always be avoided. [15] Thus,
the dismissal of an appeal on purely technical ground is frowned upon especially if it will result to
unfairness.
We apply these sound rules in the case at bar. Petitioners' petition for certiorari before the Court of
Appeals contained the certified true copy of the NLRC's decision dated November 26, 1997, [16] its order
dated May 2, 1999[17] and the sworn certification of non-forum shopping. [18] Petitioners also explained that
their counsel executed an affidavit of proof of service and explanation in the afternoon of July 1, 1999.
However, he forgot to attach it when he filed their petition the following day because of the volume and
pressure of work and lack of office personnel. However, the Registry Receipt, [19] which is the proof
of mailing to Orlando's counsel, issued by the Central Post Office was attached on the original petition they
filed with the respondent court. It was also stamped [20] by the NLRC which is proof of receipt of the petition
by the latter. The affidavit of service, which was originally omitted, was attached on their motion for
reconsideration.[21] Significantly, it was dated July 1, 1999. In view of the surrounding circumstances, the
subsequent filing of the affidavit of service may be considered as substantial compliance with the rules.
We now come to the merits of the case. The issue is whether petitioners are liable to pay the tips to
Orlando.
The word [tip] has several meanings, with origins more or less obscure, connected with "tap" and with
"top." In the sense of a sum of money given for good service, other languages are more specific, e.g., Fr.
pourboire, for drink. It is suggested that [the word] is formed from the practice, in early 18th c. London
coffeehouses, of having a box in which persons in a hurry would drop a small coin, to gain immediate
attention. The box was labelled To Insure Promptness; then just with the initials T.I.P.[22]
It is more frequently used to indicate additional compensation, and in this sense "tip" is defined as
meaning a gratuity; a gift; a present; a fee; money given, as to a servant to secure better or more prompt
service. A tip may range from pure gift out of benevolence or friendship, to a compensation for a service
measured by its supposed value but not fixed by an agreement, although usually the word is applied to
what is paid to a servant in addition to the regular compensation for his service in order to secure better
service or in recognition of it. It has been said that a tip denotes a voluntary act, but it also has been said
that from the very beginning of the practice of tipping it was evident that, whether considered from the
standpoint of the giver or the recipient, a tip lacked the essential element of a gift, namely, the free
bestowing of a gratuity without a consideration, and that, despite its apparent voluntariness, there is an
element of compulsion in tipping.[23]
Tipping is done to get the attention and secure the immediate services of a waiter, porter or others for
their services. Since a tip is considered a pure gift out of benevolence or friendship, it can not be
demanded from the customer. Whether or not tips will be given is dependent on the will and generosity of
the giver. Although a customer may give a tip as a consideration for services rendered, its value still
depends on the giver. They are given in addition to the compensation by the employer. A gratuity given by

an employer in order to inspire the employee to exert more effort in his work is more appropriately called a
bonus.
The NLRC and the Court of Appeals held that petitioners were liable to pay tips to Orlando because of
the contract of employment. Thus:
"The contract of employment entered into by and between the complainant and Ace Navigation Co., Inc. (p. 82,
Record) clearly provides xxx:
'That the employee shall be employed on board under the following terms and conditions:
1.1 Duration of Contract: (12 months) 10 months remaining duration of contract
1.2 Position: Bartender
1.3 Basic Monthly Salary: U.S.$450.00 Flat rate including overtime pay for
1.4 Hours of Work: 12 hrs. work daily.
1.5 Overtime: Plus tips of U.S.$2.00 per passenger per day.
1.6 Vacation Leave with Pay: 2.5 days/mo.' (record, p. 82)
"The record of this case shows that the respondent, in the Contract of Employment xxx undertook to pay to
complainant 'tips of U.S.$2.00 per passenger per day.' Yet, there is no showing that the said undertaking was
complied with by the respondents.
"It was thus a serious error on the part of the Labor Arbiter to rule that the tips were already paid, much less to rule
that said tips were directly paid to the crew of M/V "ORIENT PRINCESS." With Article 4 of the Labor Code
reminding us that doubts should be resolved in favor of labor, we all the more find it compelling to rule that the
complainant is still entitled to the contractually covenanted sum of US$36,000.00. xxx."
We disagree. The contract of employment between petitioners and Orlando is categorical that the
monthly salary of Orlando is US$450.00 flat rate. This already included his overtime pay which is
integrated in his 12 hours of work. The words "plus tips of US$2.00 per passenger per day" were written at
the line for overtime. Since payment for overtime was included in the monthly salary of Orlando, the
supposed tips mentioned in the contract should be deemed included thereat.
The actuations of Orlando during his employment also show that he was aware his monthly salary is
only US$450.00, no more no less. He did not raise any complaint about the non-payment of his tips during
the entire duration of his employment. After the expiration of his contract, he demanded payment only of
his vacation leave pay. He did not immediately seek the payment of tips. He only asked for the payment of
tips when he filed this case before the labor arbiter. This shows that the alleged non-payment of tips was a
mere afterthought to bloat up his claim. The records of the case do not show that Orlando was deprived of
any monthly salary. It will now be unjust to impose a burden on the employer who performed the contract in
good faith.
Furthermore, it is presumed that the parties were aware of the plain, ordinary and common meaning
of the word "tip." As a bartender, Orlando can not feign ignorance on the practice of tipping and that tips
are normally paid by customers and not by the employer.
It is also absurd that petitioners intended to give Orlando a salary higher than that of the ship captain.
As petitioners point out, the captain of M/V "Orient Princess" receives US$3,000.00 per month while
Orlando will receive US$3,450.00 per month if the tip of US$2.00 per passenger per day will be given in

addition to his US$450.00 monthly salary. It will be against common sense for an employer to give a lower
ranked employee a higher compensation than an employee who holds the highest position in an
enterprise.
However, Orlando should be paid his vacation leave pay. Petitioners denied this liability by raising the
defense that the usual practice is that vacation leave pay is given before repatriation. But as the labor
arbiter correctly observed, petitioners did not present any evidence to prove that they already paid the
amount. The burden of proving payment was not discharged by the petitioners.
IN VIEW WHEREOF, the resolutions of the Court of Appeals in CA G.R. SP No. 53508 are reversed
and set aside. The decision of the labor arbiter ordering petitioners to pay jointly and severally the unpaid
vacation leave pay of private respondent, Orlando Alonsagay, in the amount of US$450.00 and dismissing
his other claim for lack of merit is reinstated.
SO ORDERED.

Ace Navigation Co., Inc. vs CA, 338 SCRA 70

(Labor Standards Tips)
Facts: Under the POEA approved contract of employment, private respondent, who works as a bartender on
board the vessel MV Orient Express, shall receive a monthly basic salary of US S450.00, flat rate, including
overtime pay for 12 hours of work daily plus tips of US S2.00 per passenger per day. He was also entitled to
2.5 days of vacation leave with pay each month.
Private respondent filed a complaint before the labor arbiter for vacation leave pay and unpaid tips amounting
to US S36,000.00. The Labor Arbiter ordered the recruitment agency and the principal to pay jointly and
severally private respondent his vacation leave pay. The claim for tips was dismissed for lack of merit.
On appeal, NLRC ordered the payment of unpaid tips.
Issue: WON employers are liable to pay tips.
Held: No. Payment for overtime was included in the monthly salary, the supposed tips mentioned in the
contract should be deemed included thereat. It is presumed that the parties were aware of the plain, ordinary
and common meaning of the word tip. A bartender cannot feign ignorance on the practice of tipping and that
tips are normally paid by customers and not by the employer.
It has been said that a tip denotes a voluntary act, but whether considered from the standpoint of the giver or
the recipient, a tip lacked the essential element of a gift, namely, the free bestowing of a gratuity without a
consideration, and that despite its apparent voluntariness, there is an element of compulsion in tipping.

(Labor Standards COLA, payment of wage in unworked days)

G.R. No. 74156 June 29, 1988
GLOBE MACKAY CABLE AND RADIO CORPORATION, FREDERICK WHITE and JESUS
SANTIAGO,petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION, FFW-GLOBE MACKAY EMPLOYEES UNION and EDA
CONCEPCION, respondents.
Castillo, Laman, Tan & Pantaleon for petitioners.
Edwin D. Dellaban for private respondents.

MELENCIO-HERRERA, J.:
A special civil action for certiorari with a prayer for a Temporary Restraining Order to enjoin respondents from
enforcing the Decision of 10 March 1986 of the National Labor Relations Commission (NLRC), in NCR Case No. 1168-85 entitled "FFW-Globe Mackay Employees Union, et al., vs. Globe Mackay Cable & Radio Corporation, et al.,"
the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision is as it is hereby SET ASIDE and
another one issued:
1. Declaring respondents-appellees (petitioners herein) guilty of illegal deductions of cost-of-living
allowance;
2. Ordering respondents-appellees to pay complainants-appellants their back allowances reckoned
from the time of illegal deduction; and
3. Ordering respondents-appellees from further illegally deducting the allowances of complainantsappellants.
SO ORDERED.
Presiding Commissioner of the NLRC, Diego P. Atienza, concurred in the result, while Commissioner Cleto T.
Villaltuya dissented and voted to affirm in toto the Labor Arbiter's Decision.

On 19 May 1986, we issued the Temporary Restraining Order enjoining respondents from enforcing the assailed
Decision. On 2 September 1987, we gave due course to the petition and required the submittal of memoranda, by
the parties, which has been complied with.
The facts follow:
Wage Order No. 6, which took effect on 30 October 1984, increased the cost-of-living allowance of non-agricultural
workers in the private sector. Petitioner corporation complied with the said Wage Order by paying its monthly-paid
employees the mandated P3.00 per day COLA. However, in computing said COLA, Petitioner Corporation multiplied
the P 3.00 daily COLA by 22 days, which is the number of working days in the company.
Respondent Union disagreed with the computation of the monthly COLA claiming that the daily COLA rate of P3.00
should be multiplied by 30 days to arrive at the monthly COLA rate. The union alleged furthermore that prior to the
effectivity of Wage Order No. 6, Petitioner Corporation had been computing and paying the monthly COLA on the
basis of thirty (30) days per month and that this constituted an employer practice, which should not be unilaterally
withdrawn.
After several grievance proceedings proved futile, the Union filed a complaint against Petitioner Corporation, its
President, F. White, and Vice-President, J. Santiago, for illegal deduction, underpayment, unpaid allowances, and
violation of Wage Order No. 6. Petitioners White and Santiago were sought to be held personally liable for the
money claims thus demanded.
Labor Arbiter Adelaido F. Martinez sustained the position of Petitioner Corporation by holding that since the
individual petitioners acted in their corporate capacity they should not have been impleaded; and that the monthly
COLA should be computed on the basis of twenty two (22) days, since the evidence showed that there are only 22
paid days in a month for monthly-paid employees in the company. His reasoning, inter alia, was as follows:
To compel the respondent company to use 30 days in a month to compute the allowance and retain
22 days for vacation and sick leave, overtime pay and other benefits is inconsistent and palpably
unjust. If 30 days is used as divisor, then it must be used for the computation of all benefits, not just
the allowance. But this is not fair to complainants, not to mention that it will contravene the provision
of the parties' CBA.
On appeal, the NLRC reversed the Labor Arbiter, as heretofore stated, and held that Petitioner Corporation was
guilty of illegal deductions, upon the following considerations: (1) that the P3.00 daily COLA under Wage Order No.
6 should be paid and computed on the basis of thirty (30) days instead of twenty-two (22) days since workers paid
on a monthly basis are entitled to COLA on Saturdays, Sundays and legal holidays "even if unworked;" (2) that the
full allowance enjoyed by Petitioner Corporation's monthly-paid employees before the CBA executed between the
parties in 1982 constituted voluntary employer practice, which cannot be unilaterally withdrawn; and (3) that
petitioners White and Santiago were properly impleaded as respondents in the case below.
Hence, this Petition, anchored on the charge of grave abuse of discretion by the NLRC.
We are constrained to reverse the reversal.
Section 5 of the Rules Implementing Wage Orders Nos. 2, 3, 5 and 6 uniformly read as follows:
Section 5. Allowance for Unworked Days.
All covered employees shall be entitled to their daily living allowance during the days that they are
paid their basic wage, even if unworked. (Emphasis supplied)
The primordial consideration, therefore, for entitlement to COLA is that basic wage is being paid. In other words, the
payment of COLA is mandated only for the days that the employees are paid their basic wage, even if said days are

unworked. So that, on the days that employees are not paid their basic wage, the payment of COLA is not
mandated. As held in University of Pangasinan Faculty Union vs. University of Pangasinan, L-63122, February 20,
1984, 127 SCRA 691):
... it is evident that the intention of the law is to grant ECOLA upon the payment of basic wages.
Hence, we have the principle of 'No Pay, No ECOLA.
Applied to monthly-paid employees if their monthly salary covers all the days in a month, they are deemed paid their
basic wages for all those days and they should be entitled to their COLA on those days "even if unworked," as the
NLRC had opined. Peculiar to this case, however, is the circumstance that pursuant to the Collective Bargaining
Agreement (CBA) between Petitioner Corporation and Respondent Union, the monthly basic pay is computed on
the basis of five (5) days a week, or twenty two (22) days a month. Thus, the pertinent provisions of that Agreement
read:
Art. XV(a)Eight net working hours shall constitute the regular work day for five days.
Art. XV(b)Forty net hours of work, 5 working days, shall constitute the regular work week.
Art. XVI, Sec. 1(b)All overtime worked in excess of eight net hours daily or in excess of 5 days
weekly shall be computed on hourly basis at the rate of time and one half.
The Labor Arbiter also found that in determining the hourly rate of monthly paid employees for purposes of
computing overtime pay, the monthly wage is divided by the number of actual work days in a month and then, by
eight (8) working hours. If a monthly-paid employee renders overtime work, he is paid his basic salary rate plus onehalf thereof. For example, after examining the specimen payroll of employee Jesus L. Santos, the Labor Arbiter
found:
the employee Jesus L. Santos, who worked on Saturday and Sunday was paid base pay plus 50%
premium. This is over and above his monthly basic pay as supported by the fact that base pay was
paid. If the 6th and 7th days of the week are deemed paid even if unworked and included in the
monthly salary, Santos should not have been paid his base pay for Saturday and Sunday but should
have received only the 50% overtime premium.
Similarly, the specimen payrolls of employees, Dennis Dungon and Rene Sanvictores, showed that in computing the
vacation and sick leaves of the employees, Petitioner Corporation consistently used twenty-two (22) days.
Under the peculiar circumstances obtaining, therefore, where the company observes a 5-day work week, it will have
to be held that the COLA should be computed on the basis of twenty two (22) days, which is the period during which
the monthly-paid employees of Petitioner Corporation receive their basic wage. The CBA is the law between the
parties and, if not acceptable, can be the subject of future re-negotiation.
2) Payment in full by Petitioner Corporation of the COLA before the execution of the CBA in 1982 and in compliance
with Wage Orders Nos. 1 (26 March 1981) to 5 (11 June 1984), should not be construed as constitutive of voluntary
employer practice, which cannot now be unilaterally withdrawn by petitioner. To be considered as such, it should
have been practiced over a long period of time, and must be shown to have been consistent and deliberate.
Adequate proof is wanting in this respect. The test of long practice has been enunciated thus:
... Respondent Company agreed to continue giving holiday pay knowing fully well that said
employees are not covered by the law requiring payment of holiday pay.' (Oceanic Pharmacal
Employees Union [FFW] vs. Inciong, L-50568, November 7, 1979, 94 SCRA 270). (Emphasis ours)
Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the implementation of the Wage
Orders. It was only when the Rules Implementing Wage Order No. 4 were issued on 21 May 1984 that a formula for
the conversion of the daily allowance to its monthly equivalent was laid down, thus:

Section 3. Application of Section 2-xxx xxx xxx

(a) Monthly rates for non-agricultural workers covered Under PDs 1614, 1634, 1678 and 1713:
xxx xxx xxx
(3) For workers who do not work and are not considered paid on Saturdays and Sundays:
P60 + P90 + P60 + (P2.00 x 262) divided by 12 = P 253.70 (Emphasis ours)
As the Labor Arbiter had analyzed said formula:
Under the aforecited formula/guideline, issued for the first time, when applied to a company like
respondent which observes a 5-day work week (or where 2 days in a week, not necessarily Saturday
and Sunday, are not considered paid), the monthly equivalent of a daily allowance is arrived at by
multiplying the daily allowance by 262 divided by 12. This formula results in the equivalent of 21.8
days in a month.
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous application of the law.
Payment may be said to have been made by reason of a mistake in the construction or application of a "doubtful or
difficult question of law." (Article 2155, 1 in relation to Article 2154 2 of the Civil Code). Since it is a past error that is
being corrected, no vested right may be said to have arisen nor any diminution of benefit under Article 100 of the
Labor Code 3 may be said to have resulted by virtue of the correction.
With the conclusions thus reached, there is no further need to discuss the liability of the officers of Petitioner
Corporation.
WHEREFORE, certiorari is granted, the Decision of the National Labor Relations Commission, dated 10 March
1986, is SET ASIDE, and the Decision of the Labor Arbiter, dated 9 May 1985, is hereby REINSTATED. The
Temporary Restraining Order heretofore issued is hereby made permanent.
SO ORDERED.

Globe Mackay Cable and Radio Corp. vs NLRC, 163 SCRA 71; G.R. No. L-74156
(Labor Standards COLA, payment of wage in unworked days)
Facts: Wage Order No. 6 increased the cost-of-living allowance (COLA) of non-agricultural workers in the
private sector.
Petitioner Corporation complied with said Order by paying its monthly-paid employees the mandated P3.00 per
day COLA. In its computation, Petitioner Corporation multiplied the P3.00 daily COLA by 22 days, which is the
number of working days in the company.
Respondent Union disagreed with the computation alleging that prior to the effectivity of the Wage Order,
Petitioner Corporation had been computing and paying the COLA on the basis of 30 days per month and that
this constituted an employer practice, which should not be unilaterally withdrawn.
The Labor Arbiter sustained the position of Petitioner Corporation by holding that the monthly COLA should be
computed on the basis of 22 days, since the evidence showed that there are only 22 days in a month for
monthly-paid employees in the company.

The NLRC reversed the Labor Arbiter on appeal, holding that Petitioner Corporation was guilty of illegal
deductions considering that COLA should be paid and computed on the basis of 30 days since workers paid on
a monthly basis are entitled to COLA on days unworked; and the full allowance enjoyed by Petitioner
Corporations monthly-paid employees before the CBA executed between the parties constituted voluntary
employer practice, which cannot be unilaterally withdrawn.
Issue: WON the computation and payment of COLA on the basis of 30 days per month constitute an employer
practice which should not be unilaterally withdrawn.
Held: No. Section 5 of the Rules Implementing Wage Orders Nos. 2, 3, 5 and 6 provides that all covered
employees shall be entitled to their daily living allowance during the days that they are paid their basic wage,
even if unworked. The primordial consideration for entitlement of COLA is that basic wage is being paid. The
payment of COLA is mandated only for the days that the employees are paid their basic wage, even if said
days are unworked. On the days that employees are not paid their basic wage, the payment of COLA is not
mandated.
Moreover, Petitioner Corporation cannot be faulted for erroneous application of a doubtful or difficult question
of law. Since it is a past error that is being corrected, no vested right may be said to have arisen nor any
diminution of benefit under Article 100 of the Labor Code may be said to have resulted by virtue of the
correction.

(Labor Standards bonus, diminution of benefits)

G.R. No. 88168 August 30, 1990
TRADERS ROYAL BANK, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION & TRADERS ROYAL BANK EMPLOYEES UNION, respondents.
San Juan, Gonzalez, San Agustin & Sinense for petitioner.
E.N.A. Cruz, Enfero & Associates for private respondent.

GRIO-AQUINO, J.:
This petition for certiorari seeks to nullify or set aside the decision dated September 2, 1988 of the National Labor
Relations Commission, which found the petitioner, Traders Royal Bank (or TRB), guilty of diminution of benefits due
the private respondents and ordered it to pay the said employees' claims for differentials in their holiday, mid-year,
and year-end bonuses.
On November 18, 1986, the Union, through its president, filed a letter-complaint against TRB with the Conciliation
Division of the Bureau of Labor Relations claiming that:
First, the management of TRB per memo dated October 10, 1986 paid the employees their
HOLIDAY PAY, but has withheld from the Union the basis of their computation.
Second, the computation in question, has allegedly decreased the daily salary rate of the
employees. This diminution of existing benefits has decreased our overtime rate and has affected
the employees' take home pay.

Third, the diminution of benefits being enjoyed by the employees since time immemorial, e.g. midyear bonus, from two (2) months gross pay to two (2) months basic and year-end bonus from three
(3) months gross to only two (2) months.
Fourth, the refusal by management to recall active union members from the branches which were
being transferred without prior notice, solely at the instance of the branch manager. (p. 26, Rollo.)
In its answer to the union's complaint, TRB pointed out that the NLRC, not the Bureau of Labor Relations, had
jurisdiction over the money claims of the employees.
On March 24, 1987, the Secretary of Labor certified the complaint to the NLRC for resolution of the following issues
raised by the complainants:
l) The Management of TRB per memo dated October 10, 1986 paid the employees their holiday pay
but has withheld from the union the basis of their computation.
2) The computation in question has allegedly decreased the daily salary rate of the employees. This
diminution of existing benefits has decreased our overtime rate and has affected the employees'
take home pay.
3) The diminution of benefits being enjoyed by the employees since the (sic) immemorial, e.g. midyear bonus, from two (2) months gross pay to two (2) months basic and year-end bonus from three
(3) months gross to only two (2) months.
4) The refusal by management to recall active union members from the branches which were being
transferred without prior notice, solely at the instance of the branch, manager. (p. 28, Rollo.)
In the meantime, the parties who had been negotiating for a collective bargaining agreement, agreed on the terms
of the CBA, to wit:
1. The whole of the bonuses given in previous years is not demandable, i.e., there is no diminution,
as to be liable for a differential, if the bonus given is less than that in previous years.
2. Since only two months bonus is guaranteed, only to that extent are bonuses deemed part of
regular compensation.
3. As regards the third and fourth bonuses, they are entirely dependent on the income of the bank,
and not demandable as part of compensation. (pp. 67-68, Rollo.)
Despite the terms of the CBA, however, the union insisted on pursuing the case, arguing that the CBA would apply
prospectively only to claims arising after its effectivity.
Petitioner, on the other hand, insisted that it had paid the employees holiday pay. The practice of giving them
bonuses at year's end, would depend on how profitable the operation of the bank had been. Generally, the bonus
given was two (2) months basic mid-year and two (2) months gross end-year.
On September 2, 1988, the NLRC rendered a decision in favor of the employees, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the petitioner and ordering respondent bank
to pay petitioner members-employees the following:

1. Holiday differential for the period covering l983-1986 as embodied in Resolution No. 4984-1986 of
respondent's Board of Directors but to start from November 11, 1983 and using the Divisor 251 days
in determining the daily rate of the employees;
2. Mid-year bonus differential representing the difference between two (2) months gross pay and two
(2) months basic pay and end-year bonus differential of one (1) month gross pay for 1986.
The claim for holiday differential for the period earlier than November 11, 1983 is hereby dismissed,
the same having prescribed.
Likewise, the charge of unfair labor practice against the respondent company is hereby dismissed
for lack of merit. (pp. 72-73, Rollo.)
A motion for reconsideration was filed by TRB but it was denied. Hence, this petition for certiorari.
There is merit in the petitioner's contention that the NLRC gravely abused its discretion in ordering it to pay midyear/year-end bonus differential for 1986 to its employees.
A bonus is "a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right"
(Aragon vs. Cebu Portland Cement Co., 61 O.G. 4597). "It is something given in addition to what is ordinarily
received by or strictly due the recipient." The granting of a bonus is basically a management prerogative which
cannot be forced upon the employer "who may not be obliged to assume the onerous burden of granting bonuses or
other benefits aside from the employee's basic salaries or wages" . . . (Kamaya Point Hotel vs. National Labor
Relations Commission, Federation of Free Workers and Nemia Quiambao, G.R. No. 75289, August 31, 1989).
It is clear from the above-cited rulings that the petitioner may not be obliged to pay bonuses to its employees. The
matter of giving them bonuses over and above their lawful salaries and allowances is entirely dependent on the
profits, if any, realized by the Bank from its operations during the past year.
From 1979-1985, the bonuses were less because the income of the Bank had decreased. In 1986, the income of
the Bank was only 20.2 million pesos, but the Bank still gave out the usual two (2) months basic mid-year and two
months gross year-end bonuses. The petitioner pointed out, however, that the Bank weakened considerably after
1986 on account of political developments in the country. Suspected to be a Marcos-owned or controlled bank, it
was placed under sequestration by the present administration and is now managed by the Presidential Commission
on Good Government (PCGG).
In the light of these submissions of the petitioner, the contention of the Union that the granting of bonuses to the
employees had ripened into a company practice that may not be adjusted to the prevailing financial condition of the
Bank has no legal and moral bases. Its fiscal condition having declined, the Bank may not be forced to distribute
bonuses which it can no longer afford to pay and, in effect, be penalized for its past generosity to its employees.
Private respondent's contention, that the decrease in the midyear and year-end bonuses constituted a diminution of
the employees' salaries, is not correct, for bonuses are not part of labor standards in the same class as salaries,
cost of living allowances, holiday pay, and leave benefits, which are provided by the Labor Code.
WHEREFORE, the petition for certiorari is granted. The decision of the National Labor Relations Commission is
modified by deleting the award of bonus differentials to the employees for 1986. In other respects, the decision is
affirmed. Costs against the respondent union.
SO ORDERED.

Traders Royal Bank vs NLRC, 189 SCRA 274; G. R. No. 88168, August 30, 1990

(Labor Standards bonus, diminution of benefits)

Facts: Respondent union filed a letter-complaint against petitioner TRB for the diminution of benefits being
enjoyed by the employees since time immemorial, e.g. mid-year bonus, from 2 months gross pay to 2 months
basic and year-end bonus from 3 months gross to only 2 months.
Petitioner insisted that it had paid the employees holiday pay. The practice of giving them bonuses at years
end, would depend on how profitable the operation of the bank had been.
NLRC found TRB guilty of diminution of benefits due to the private respondents and ordered it to pay the said
employees claims for differentials in their holiday, mid-year, and year-end bonuses.
Issue: Whether or not bonuses are part of labor standards.
Held: No. A bonus is a gratuity or act of liberality of the giver which the recipient has no right to demand as a
matter of right. It is something given in addition to what is ordinarily received by or strictly due the recipient.
The granting of a bonus is basically a management prerogative which cannot be forced upon the employer
who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the
employees basic salaries or wages.
(Labor Standards Fringe benefits not included in 13th month pay)
G.R. No. 85073 August 24, 1993
DAVAO FRUITS CORPORATION, petitioner, vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-file workers/employees of DAVAO
FRUITS CORPORATION and NATIONAL LABOR RELATIONS COMMISSION, respondents.
Dominguez & Paderna Law Offices for petitioners.
The Solicitor General for public respondents.

QUIASON, J.:
This is a petition for certiorari to set aside the resolution of the National Labor Relations Commission (NLRC),
dismissing for lack of merit petitioner's appeal from the decision of the Labor Arbiter in NLRC Case No. 1791-MCX1-82.
On December 28, 1982 respondent Associated Labor Unions (ALU), for and in behalf of all the rank-and-file workers
and employees of petitioner, filed a complaint (NLRC Case No. 1791-MC-XI-82) before the Ministry of Labor and
Employment, Regional Arbitration Branch XI, Davao City, against petitioner, for "Payment of the Thirteenth-Month
Pay Differentials." Respondent ALU sought to recover from petitioner the thirteenth month pay differential for 1982 of
its rank-and-file employees, equivalent to their sick, vacation and maternity leaves, premium for work done on rest
days and special holidays, and pay for regular holidays which petitioner, allegedly in disregard of company practice
since 1975, excluded from the computation of the thirteenth month pay for 1982.
In its answer, petitioner claimed that it erroneously included items subject of the complaint in the computation of the
thirteenth month pay for the years prior to 1982, upon a doubtful and difficult question of law. According to petitioner,
this mistake was discovered only in 1981 after the promulgation of the Supreme Court decision in the case of San
Miguel Corporation v. Inciong (103 SCRA 139).
A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos, in favor of respondent ALU. The
dispositive portion of the decision reads as follows:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered ordering
respondent to pay the 1982 13th month pay differential to all its rank-and-file workers/employees
herein represented by complainant Union (Rollo, p. 32).
Petitioner appealed the decision of the Labor Arbiter to the NLRC, which affirmed the said decision accordingly
dismissed the appeal for lack of merit.
Petitioner elevated the matter to this Court in a petition for review under Rule 45 of the Revised Rules of Court. This
error notwithstanding and in the interest of justice, this Court resolved to treat the instant petition as a special civil
action for certiorari under Rule 65 of the Revised Rules of Court (P.D. No. 1391, Sec. 5; Rules Implementing P.D.
No. 1391, Rule II, Sec. 7; Cando v. National Labor Relations Commission, 189 SCRA 666 [1990]: Pearl S. Buck
Foundation, Inc. v. National Labor Relations Commission, 182 SCRA 446 [1990]).
The crux of the present controversy is whether in the computation of the thirteenth month pay given by employers to
their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves, premiums for work done on rest days and special
holidays, and pay for regular holidays may be excluded in the computation and payment thereof, regardless of longstanding company practice.
Presidential Decree No. 851, promulgated on December 16, 1975, mandates all employers to pay their employees a
thirteenth month pay. How this pay shall be computed is set forth in Section 2 of the "Rules and Regulations
Implementing Presidential Decree No. 851," thus:
SECTION 2. . . .
(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a
calendar year.
(b) "Basic Salary" shall include all renumerations or earnings paid by an employer to an employee
for services rendered but may not include cost of living allowances granted pursuant to Presidential
Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all allowances and
monetary benefits which are not considered or integrated as part of the regular or basic salary of the
employee at the time of the promulgation of the Decree on December 16, 1975.
The Department of Labor and Employment issued on January 16, 1976 the "Supplementary Rules and Regulations
Implementing P.D. No. 851" which in paragraph 4 thereof further defines the term "basic salary," thus:
4. Overtime pay, earnings and other renumerations which are not part of the basic salary shall not be
included in the computation of the 13th month pay.
Clearly, the term "basic salary" includes renumerations or earnings paid by the employer to employee, but excludes
cost-of-living allowances, profit-sharing payments, and all allowances and monetary benefits which have not been
considered as part of the basic salary of the employee as of December 16, 1975. The exclusion of cost-of-living
allowances and profit sharing payments shows the intention to strip "basic salary" of payments which are otherwise
considered as "fringe" benefits. This intention is emphasized in the catch all phrase "all allowances and monetary
benefits which are not considered or integrated as part of the basic salary." Basic salary, therefore does not merely
exclude the benefits expressly mentioned but all payments which may be in the form of "fringe" benefits or
allowances (San Miguel Corporation v. Inciong, supra, at 143-144). In fact, the Supplementary Rules and
Regulations Implementing P.D. No. 851 are very emphatic in declaring that overtime pay, earnings and other
renumerations shall be excluded in computing the thirteenth month pay.
In other words, whatever compensation an employee receives for an eight-hour work daily or the daily wage rate in
the basic salary. Any compensation or remuneration other than the daily wage rate is excluded. It follows therefore,
that payments for sick, vacation and maternity leaves, premium for work done on rest days special holidays, as well

as pay for regular holidays, are likewise excluded in computing the basic salary for the purpose of determining the
thirteen month pay.
Petitioner claims that the mistake in the interpretation of "basic salary" was caused by the opinions, orders and
rulings rendered by then Acting Labor Secretary Amado C. Inciong, expressly including the subject items in
computing the thirteenth month pay. The inclusion of these items is clearly not sanctioned under P.D. No. 851, the
governing law and its implementing rules, which speak only of "basis salary" as the basis for determining the
thirteenth month pay.
Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was erased by the Supplementary Rules and
Regulations which clarified the definition of "basic salary."
As pointed out in San Miguel Corporation v. Inciong, (supra):
While doubt may have been created by the prior Rules and Regulations and Implementing
Presidential Decree 851 which defines basic salary to include all remunerations or earnings paid by
an employer to an employee, this cloud is dissipated in the later and more controlling Supplementary
Rules and Regulations which categorically, exclude from the definition of basic salary earnings and
other remunerations paid by employer to an employee. A cursory perusal of the two sets of Rules
indicates that what has hitherto been the subject of broad inclusion is now a subject of broad
exclusion. The Supplementary Rules and Regulations cure the seeming tendency of the former rules
to include all remunerations and earnings within the definition of basic salary.
The all-embracing phrase "earnings and other remunerations which are deemed not part of the basic
salary includes within its meaning payments for sick, vacation, or maternity leaves, premium for work
performed on rest days and special holidays, pay for regular holidays and night differentials. As such
they are deemed not part of the basic salary and shall not be considered in the computation of the
13th-month pay. If they were not so excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in computation of the 13th month-pay. Then the exclusionary
provision would prove to be idle and with purpose.
The "Supplementary Rules and Regulations Implementing P.D. No. 851," which put to rest all doubts in the
computation of the thirteenth month pay, was issued by the Secretary of Labor as early as January 16, 1976, barely
one month after the effectivity of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid
the thirteenth month pay, without excluding the subject items therein until 1981. Petitioner continued its practice in
December 1981, after promulgation of the afore-quoted San Miguel decision on February 24, 1981, when petitioner
purportedly "discovered" its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the computation of its employees'
thirteenth month pay, the payments for sick, vacation and maternity leaves, premiums for work done on rest days
and special holidays, and pay for regular holidays. The considerable length of time the questioned items had been
included by petitioner indicates a unilateral and voluntary act on its part, sufficient in itself to negate any claim of
mistake.
A company practice favorable to the employees had indeed been established and the payments made pursuant
thereto, ripened into benefits enjoyed by them. And any benefit and supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or eliminated by the employer, by virtue of Section 10 of the Rules and
Regulations Implementing P.D. No. 851, and Article 100 of the labor of the Philippines, which prohibit the diminution
or elimination by the employer of the employees' existing benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).
Petitioner cannot invoke the principle of solutio indebiti which as a civil law concept that is not applicable in Labor
Law. Besides, in solutio indebiti, the obligee is required to return to the obligor whatever he received from the latter
(Civil Code of the Philippines, Arts. 2154 and 2155). Petitioner in the instant case, does not demand the return of
what it paid respondent ALU from 1975 until 1981; it merely wants to "rectify" the error it made over these years by

excluding unilaterally from the thirteenth month pay in 1982 the items subject of litigation. Solutio indebiti, therefore,
is not applicable to the instant case.
WHEREFORE, finding no grave abuse of discretion on the part of the NLRC, the petition is hereby DISMISSED,
and the questioned decision of respondent NLRC is AFFIRMED accordingly.

Davao Fruits Corporation vs Associated Labor Unions, G.R. No. 85073, August 24, 1993; 225 SCRA 562
(Labor Standards Fringe benefits not included in 13th month pay)
Facts: Respondent ALU for and in behalf of all the rank-and-file workers and employees of petitioner sought to
recover from the latter the 13th month pay differential for 1982 of said employees, equivalent to their sick,
vacation and maternity leaves, premium for work done on rest days and special holidays, and pay for regular
holidays which petitioner, allegedly in disregard of company practice since 1975, excluded from the
computation of the 13th month pay for 1982.
Issue: WON in the computation of the 13th month pay under PD No. 851, payments for sick, vacation and
maternity leaves, premiums for work done on rest days and special holidays, and pay for regular holidays may
be excluded in the computation and payment thereof.
Held: Yes. Basic salary does not merely exclude the benefits expressly mentioned but all payments which may
be in the form of fringe benefits or allowances.
Sec. 4 of the Supplementary Rules and Regulations Implementing PD No. 851 provides that overtime pay,
earnings and other remunerations which are not part of the basic salary shall not be included in the
computation of the 13th month pay.
Whatever compensation an employee receives for an 8 hour work daily or the daily wage rate is the basic
salary. Any compensation or remuneration other than the daily wage rate is excluded. It follows therefore, that
payments for sick, vacation and maternity leaves, premiums for work done on rest days and special holidays,
as well as pay for regular holidays, are likewise excluded in computing the basic salary for the purpose of
determining the 13th month pay.