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Digest by Aaron
In December 2003, Arco Metal paid the 13th month pay, bonus, and leave
encashment to three employees, in amounts proportional to the service they
actually rendered in a year, which is less than a full 12 months. Respondent union
protested the prorated scheme claiming petitioner gave full benefits seven times in
seven different years despite the employees having served for periods less than a
year. Paying pro-rated benefits, according to respondent, is a violation of LC 100
which proscribes diminution of benefits.
The voluntary arbitrator ruled in favor of petitioner on the ground that the payment
of benefits in full despite failure to serve for a year has not turned into a practice
and that the CBA was clear that it required one year of service before employees
can claim benefits. The CA decided otherwise because there was no evidence the
payment of benefits has not turned into practice and that it took 11 years before
petitioner find out it had paid full benefits by mistake.
ISSUE: Whether or not payment of benefits pro-rated in this case constituted
diminution of benefits (YES)
1. Though the CBA intended to grant full benefits only after the employee has
rendered service after one year, petitioner, in several instances, granted full
benefits even if the employee has served only a portion of a year.
2. The following are petitioners arguments:
a. It was mere oversight or error;
b. The ratio of the employees concerned (who were paid full benefits
despite serving less than a year) was 1 is to 170;
c. The CBA had not been modified to reflect any changes regarding prorated benefits
3. The Court held that the employer cannot unilaterally withdraw the existing
privilege of commutation or conversion to cash given to the workers, given it
had provided full benefits to intermittent workers. The Court cited various
legal bases:
a. The principle of non-diminution of benefits is founded on the
Constitutional mandate to protect the rights of workers and promote
their welfare and to afford labor full protection
b. LC Art. 4 states All doubts in the implementation and interpretation of
this Code, including its implementing rules and regulations shall be
rendered in favor of labor
c. Jurisprudence
i. Davao Fruits v. ALU: Where an employer had freely and
continuously included in the computation the 13 th month pay
those items expressly excluded by law, any act favourable to the
employees though not conforming to law had thus ripened into
practice and could not be withdrawn, reduced, diminished,
discontinued, or eliminated
ii. Sevilla Trading v. Semana: Employers act of including non-basic
benefits in the computation of 13th month pay was a voluntary

act and had ripened into company practice which cannot be

iii. Davao Integrated Port Stevedoring Services v. Abarquez: Court
ordered payment of sick leave benefits after these benefits were
given to intermittent workers
4. Arco has continuously given full benefits for seven years. Jurisprudence has
not laid down any rule specifying a minimum number of years within which a
company practice must be exercised in order to constitute voluntary
company practice.