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XYZ Law Offices

MEMORANDUM

To: MR. X
Vice President, General Counsel, and Corporate Secretary
ABC (Philippines), Incorporated.

From: Atty. Z

Re: COMPANY LOANS & CAR PLANS

Date: 31 JULY 2013

We refer to your e-mail of 16 July 2013 where you seek our opinion on whether certain company
loans granted to the employees are considered benefits, the withdrawal of which will violate the non-
diminution of benefits principle.

You represented to us that the employment contracts of some employees of ABC (Philippines),
Incorporated (the Company) have a stipulation entitling them to avail of a car loan and a housing loan
(collectively, the Loans), with the following interest rates and payment terms:

Car loan 12.5% interest rate

Maximum repayment
period 10 years

Housing loan 9.8% interest rate

Maximum repayment period 25 years

We understand from you that, for some other employees, their employment contracts have
stipulations entitling them to avail of a Car Plan, where 60% of the amount is for the account of the
Company and 40% for the employee. However, the sample employment contract that you provided to us
does not mention anything about the Car Plan.

You also furnished us with copies of the following: (1) sample Employment Contract, (2) the
Employee Benefits Package, (3) the Car Plan Program, and (4) the Car Plan Agreement. For purposes of
this Memorandum, we assume that both the Car Plan Agreement and Employment Contract are the
standard documents you use for employees to whom the Loans and the Car Plan are given; and, the
Employee Benefits Package is the same as the Annex B referred in the Employment Contract.

According to you, there is an directive to eliminate company loans.

You now seek our opinion on the following:

1. Whether the Loans are considered benefits;

2. Whether the Car Plan is a benefit;


We reply as follows.

On the non-elimination and non-diminution of


supplements or benefits principle under Article 100
of the Labor Code.

In this jurisdiction, there is no clear demarcation line between a supplement and a benefit.

The benefit or privilege given to the employee that constitutes an extra remuneration over and
above his basic or ordinary earning or wage is properly denominated as a supplement.1

Meanwhile, a benefit is in essence, a pecuniary entitlement or any material thing "gratuitously"


granted and paid on account of an employer-employee relationship, but certainly not on account of the
sufferance of an employee or of his being required or permitted to work, because in the latter case, the
pecuniary entitlement or material grant will be better or correctly denominated to be within the statutory
purview of compensation or remuneration.2

From their respective definitions, a supplement and a benefit share a common characteristic in that
both are paid over and above and separate from the salary, wage, or compensation. As shown below, this
similarity has led the Supreme Court to use the terms interchangeably.

Whatever distinction one may put between a supplement and a benefit is irrelevant for purposes of
the application of the principle of non-elimination or non-diminution of supplements or benefits, as the
principle of non-elimination or non-diminution of supplements or benefits prohibits the withdrawal or
reduction by employers of any such benefits, supplements or payments as provided under existing laws,
individual agreements, or collective bargaining agreements between workers and employers or voluntary
employer practice or policy.3 The Supreme Court has traditionally anchored this principle on Article 100 of
the Labor Code, which reads:

Article 100. Prohibition against elimination or diminution of benefits. -


Nothing in this Book shall be construed to eliminate or in any way
diminish supplements, or other employee benefits being enjoyed at the
time of promulgation of this Code. [Underscoring supplied]

Thus, because the protection against elimination or diminution of the foregoing provision covers
both supplements and benefits, one is not distinguishable from the other.

The Supreme Court has interpreted Article 100 beyond its literal meaning and has repeatedly
extended its protection beyond its express provision.

A close reading of the article would seem to suggest that its twin principles of non-elimination and
non-diminution of supplements or benefits apply only to those being enjoyed at the time of the

1
SLL International v. National Labor Relations Commission, G.R. No. 172161, March 2, 2011; States
Marine and Royal Line Inc. v. Cebu Seamens Association Inc., G.R. No. L-12444, February 28, 1963;
Atok Big Wedge Mining Co. v. Atok Big Wedge Mutual Benefit Association, G.R. No. L-5276, March 3,
1953.
2
United Lumber and General Workers of the Philippines v. Davao Fruits Corporation, National
Conciliation and Mediation Board Case No. VA-0001-91, July 5, 1991.
3
Republic Planters Bank v. National Labor Relations Commission, G.R. No. 117460, January 6, 1997;
Davao Fruit Corporation v. Associated Labor Union, G.R No. 85073, August 24, 1993.

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promulgation of the Labor Code, which was in 1974, and, does not purport to apply to those given after
1974.4 As such, it would seem that supplements and benefits given after 1974 do not come under the
articles mantle of protection.

This notwithstanding, the Supreme Court, in a long succession of cases, has pushed the articles
efficacy beyond its clear frontiers and has consistently upheld its applicability to supplements or benefits
granted after 1974. In all its ruling on the article, the Supreme Court did not distinguish a supplement from
a benefit, and used them rather interchangeably.

As mentioned earlier, the article has been utilized as the legal anchor for the declaration of the
invalidity of employers acts deemed to have eliminated or diminished the employees supplements or
benefits, to wit:

Article 100 of the Labor Code mandates that benefits given to


employees cannot be taken back or reduced unilaterally by the
employer because the benefit has become part of the employment
contract, written or unwritten. 5 [Underscoring supplied]

According to the Supreme Courts pronouncements, the rule against diminution of supplements or
benefits applies if it is shown that (1) the grant of the benefit is based on an express policy or has ripened
into a practice over a long period of time; (2) that the practice is consistent and deliberate; and (3) the
practice is not due to error in the construction or application of a doubtful or difficult question of law.6

Company practice is a custom or habit shown by an employers repeated, habitual, customary or


succession of acts of similar kind by reason of which such gains the status of a company policy that can no
longer be disturbed or withhold.7 Neither the Labor Code nor the rulings of the Supreme Court provide a
hard and fast rule which may be used and applied in determining whether a certain act of the employer may
be considered as having ripened into a practice which, having elevated to such status, may this be accorded
the protection of Article 100.

As regards the length of time a certain act should have been done in order for it to constitute
voluntary employer practice which cannot be unilaterally withdrawn by the employer, jurisprudence has
likewise not laid down a definitive rule on a specific minimum number of years. A quick survey of the
pertinent decisions of the Supreme Court would more or less give us an idea on the criteria used to
ascertain the existence of a binding and enforceable company practice:

In the case of Philippine Appliance Corporation v. Court of


Appeals,8 the Supreme Court ruled that to constitute company practice,
the act referred to as such must have been done by the employer for a
considerable period of time. Where the CBA signing bonus was

4
See Apex Mining Company v. National Labor Relations Commission, G.R. No. 86200, February 25,
1992.
5
Central Azucarera de Tarlac v. Cetnral Azucarera de Tarlac Labor Union, G.R. No. 188949, July 26,
2010; Davao Fruit Corporation v. Associated Labor Union, G.R No. 85073, August 24, 1993; Liberty Flour
Mills Employees v. Liberty Flour Mills, G.R. Nos. 58768-70, December 29, 1989; Tiangco v. Leogardo,
G.R. No. L-57636, May 16, 1983.
6
Id.
7
Joselito G. Chan, The Labor Code of the Philippines Annotated 507 (2009 Revised Edition).
8
G.R. No. 149434, June 3, 2004.

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granted only once during the 1997 CBA negotiation, the same cannot
be considered as having ripened into a company practice.

In the case of Sevilla Trading Company v. AVA Semana,9 the


Supreme Court considered the petitioners practice of including non-
basic benefits such as paid leaves for unused sick leave and vacation
leave in the computation of the employees 13 th-month pay for at least 2
years as a voluntary act which had ripened into a company practice that
cannot be peremptorily withdrawn.

In the case of Davao Fruits Corporation v. Associated Labor


Union,10 the company practice of freely and continuously including in
the computation of the 13th-month pay those items that were expressly
excluded by the law lasted for 6 years. The Supreme Court ruled that
such act was favorable to the employees and has ripened into a practice
that could not be reduced, diminished, discontinued or eliminated.

In the case of Davao Integrated Port Stevedoring Services v.


Abarquez,11 the employer has for 3 years and 9 months approved the
commutation to cash of the un-enjoyed portion of the sick leave with
pay benefits of its intermittent workers. The Supreme Court ruled that
such act has already ripened into a company practice which can no
longer be withdrawn.

In the case of Tiangco v. Leogardo,12 the employer carried on


the practice of giving a fixed monthly emergency allowance from
November 1976 to February 1980, or a period of 3 years and 4 months.
The Supreme Court ruled that the same has already ripened into a
company practice which cannot be peremptorily and unilaterally
withdrawn by the employer without violating Article 100 of the Labor
Code.

The foregoing jurisprudence seems to suggest that the shortest period of time, within which an
employee benefit was continuously given, is two (2) years.

Whether a company practice was intentional or deliberate on the part of the employer may be
logically inferred from the peculiar circumstance obtaining in each case. By way of example, in Republic
Planter Bank v. National Labor Relations Commission,13 the Supreme Court ruled that employers
continued policy of granting gratuity benefits to its retiring officers even after the expiration of the
collective bargaining agreement is indicative that the policy was consistent and deliberate . Thus, under
such circumstances, the granting of the gratuity pay may be deemed to have ripened into a company
practice or policy which can no longer be peremptorily withdrawn.

The non-elimination and non-diminution of benefits principle will, however, not apply if the
practice is due to error in the construction or application of a doubtful or difficult question of law, following

9
G.R. No. 152456, April 28, 2004.
10
G.R. No. 85073, August 24, 1993.
11
G.R. No. 102132, March 19, 1993.
12
G.R. No. L-57636, May 16, 1983.
13
Supra note 2, at 2.

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the general rule that if a past error is being corrected, no vested right may be said to have arisen therefrom
nor any diminution of supplements or benefits may have resulted by virtue of the correction thereof. 14

However, in Asis v. Minister of Labor 15 and in Lexal Laboratories v. Court of Industrial


Relations,16 the Supreme Court ruled that no company practice could ripen in situations where certain
benefits are granted only under certain specified circumstances. Consequently, even if the employee has
been enjoying certain benefits for quite a long period of time, if the circumstance have changed which no
longer justify the continuation of the grant of said benefits, the removal thereof does not certainly constitute
a violation of the non-elimination or non-diminution of supplements or benefits principle.

On whether the Loans and the Car Plan are


protected by Article 100 against elimination or
diminution.

The fine line between a supplement and a benefit and the close similarities in their characteristics
make it increasingly difficult for us to make a definitive categorization of the Loans and the Car Plan to
either of the two. One may safely take the position that the Loans and the Car Plan qualify as supplements
because they are given to the employee over and above his basic or ordinary earning or wage and constitute
extra remuneration. Meanwhile, one can take the equally sound position that they qualify as benefits
because they are material things "gratuitously" granted and paid on account of an employer-employee
relationship, but separate from the salary, wage, or remuneration.

Be that as it may, whether the Loans and the Car Plan are supplements or benefits does not make
much difference and is decidedly insignificant, because in either case they would still be protected by
Article 100 against elimination or diminution.

On the basis of the documents you furnished us, we are of the view that the Loans and the Car
Plan, whether they are supplements or benefits, are protected by Article 100 of the Labor Code.

First, the labeling of the Employment Contracts Annex B, which enumerates the loans available
to the employees, as Benefit Practice is an express admission on the Companys part that it considers the
grant of the Loans as a company practice and as an employee benefit.17

The date stated in Annex B As of January 2010 means that the Loans has been in place for at
least three (3) years, to this date. This period of time, within which they have been made available to the
employees, is sufficiently long for purposes of the protection of Article 100, since the shortest period for a
company practice to warrant the articles protective mantle, according to the rulings of the Supreme Court
above, is two (2) years.

As regards the Car Plan, the Car Plan Program indicates that the same took effect in 1 December
2010. Thus, to this date, the Car Plan has been available to the employees for at least three (3) years, a
period long enough to merit Article 100s prohibition on its elimination and diminution.

Second, from our reading of the Employment Contract and the Car Plan Program, we see that the
grant of these Loans and Car Plan is intentional and deliberate on the part of the Company. Otherwise
stated, there is nothing in the Employment Contract and the Car Plan Program that indicates that the grant
was unintentional or not deliberate.

14
Globe Mackay Cable and Radio Corporation v. National Labor Relations Commission, G.R. No. 74156,
June 29, 1988.
15
G.R Nos. 58094-95, March 15, 1989.
16
G.R. No. L-24632, October 26, 1968.
17
See CTOM IT Division Employee Benefits Package.

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Third, no doubtful or difficult question of law is involved in this case. Thus, there is no showing
that the Loans and the Car Plan were given because of an erroneous interpretation of a doubtful or difficult
question of law.

Finally, we found no indication that the Loans and the Car Plan were granted only under certain
specified circumstances, the cessation of which will no longer justify the continuation of their grant, in
accordance with the rulings in Axis18 and Lexal Laboratories.19

For these reasons, it is our considered opinion that the Loans and the Car Plan are protected by
Article 100 of the Labor Code, whether they are supplements or benefits.

18
Supra note 13, at 5.
19
Supra note 14, at 5.