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Wages; Unpaid Wages; Preference of Credit in favor of Employees (2003) Premiere Bank, an existing business entity and neither

ty and neither bankrupt or in liquidation, although its business

a banking corporation, being the creditor-mortgagee of XYZ & Co., a garment firm, foreclosed operations after the foreclosure ceased.

the hypothecated assets of the latter. Despite the foreclosure, XYZ & Co. continued its business
3. The decision of the Labor Arbiter for XYZ & Co. to pay a sum of money to Caspar was based
operations. A year later, the bank took possession of the foreclosed property. The garment firm's
on an action in personam, not in rem. enforceable against any party. (Sundowner Corporation
business operations ceased without a declaration of bankruptcy. Jose Caspar, an employee of vs. drilon. 180 SCRA 14 (1989)
XYZ & Co., was dismissed from employment due to the cessation of business of the firm. He
4. The reference in the Decision to "labor benefits due to an employee is superior to the right of
filed a complaint against XYZ & Co. and the bank. The Labor Arbiter, after hearing, so found the
a mortgagee of property" is misplaced. The preferential claim rule has no basis and runs
company liable, as claimed by Jose Caspar, for separation pay. Premiere Bank was additionally
contrary to law and jurisprudence.
found subsidiarily liable upon the thesis that the satisfaction of labor benefits due to the

employee is superior to the right of a mortgagee of property. Was the Labor Arbiter correct in his Wages; Unpaid Wages; Preference of Credit in favor of Employees (1995) Distinguish the
decision? mortgage created under the Civil Code from the right of first preference created by the Labor

Code as regards the unpaid wages of workers. Explain.


No. The preference of credits established in Art. 110 of the Labor Code cannot be invoked in the
absence of any insolvency proceedings, declaration of bankruptcy, or judicial liquidation. (DBP v.
A MORTGAGE directly subjects the property upon which it is imposed, whoever the possessor
Santos. 171 SCRA 138 (1989). ANOTHER SUGGESTED ANSWER:
may be, to the fulfillment of the obligation for which it was constituted. It creates a real right
which is enforceable against the whole world. It is therefore a lien on an identified real property.
No. What Art. 110 of the Labor Code establishes is not a lien but a preference of credit in favor
of employees. Unlike a lien, a preference of credit does not create a charge upon any particular
MORTGAGE CREDIT is a special preferred credit under the Civil Code in the classification of
property of the debtor. (Development Bank of the Philippines v. Secretary of Labor. 179 SCRA
credits. The preference given by the Labor Code when not attached to any specific property, is
630 (1989).
an ordinary preferred credit.



The Decision of the Labor Arbiter holding Premiere Bank (as foreclosing mortgagee-creditor)
If the asset of an employer which has become bankrupt or has been liquidated has been
subsidiarily liable for a money obligation of XYZ & Co, (as mortgagor) to Caspar, its employee,
mortgaged, the proceeds of the sale of said mortgaged asset is first subject to the lien of the
has no legal basis.
person to whom the property is mortgaged. Said lien is superior to the first preference enjoyed
by the workers pursuant to the Labor Code.
1. There is no privity of relationship between the Bank and Caspar. The relationship, upon which
the obligation to pay a sum of money is based, is between XYZ (the mortgagor) and Caspar as
Wages; Unpaid Wages; Preference of Credit in favor of Employees (1999) FACTS:
its employee arising from the Labor Code provision requiring an employer to pay separation pay,
Lowland Cement & Factory Company (LCFC) borrowed P500M from the Development Bank of
re: other causes of employment.
the Philippines and mortgaged the entire company, inclusive of its land, buildings and
2. At both times - Labor Arbiter Decision to pay separation pay and foreclosure - XYZ & Co. was equipment, to guarantee the payment of the loan. However, because of the economic
conditions, LCFC incurred heavy losses and eventually failed to pay DBP the required monthly to effectively obliterate the distinctions embodied in such wage rates based on skills, length of

amortizations over a period of more than one (1) year. In due time, DBP foreclosed the service and other logical bases of differentiation.

mortgaged assets of LCTC resulting in the closure of the company and the displacement of all
(b) No, the existence of wage distortion is not a valid ground for a strike because Art. 124 of the
its employees for want of work.
Labor Code provides for a specific method of procedure for correcting wage distortion. Ilaw at
Buklod ng Manggagawa vs. NLRC, 198 SCRA 586, the Court said:-
The LCFC Labor Union [Union] filed in behalf of the displaced workers a labor case against DBP
as the new owner of the defunct cement factory for wage differentials, retirement pay and other It goes without saying that these joint or coordinated activities may be forbidden or restricted by
money claims. The Labor Arbiter decided in the favor of the Union. DBP appealed to the NLRC. law or contract. For the particular instance of "distortions of the wage structure within an
establishment" resulting from the application of any prescribed wage increase by virtue of a law
DBP contended in its appeal that its acquisition of the mortgage assets of LCFC through
or wage order. Section 3 of Republic Act No. 6727 prescribes a specific, detailed and
foreclosure sale did not make it the owner of the defunct Lowland Cement, and that the doctrine
comprehensive procedure for the correction thereof, thereby implicitly excluding strikes or
of successor-employer is not applicable in this case, since DBP did not continue the business
lockouts or other concerted activities as modes of settlement of the issue.
operation of LCFC.

The NLRC while finding merit in DBP's contention, nonetheless held DBP liable to the extent of
the proceeds of the foreclosure sale since the Union's claims in behalf of the workers constitute (b) A wage distortion, alleged by the employees but rejected by the employer can be a valid
a first preference with respect thereto pursuant to article 110 of the Labor Code. ground for staging a strike if it happens that in rejecting the allegation of wage distortion, the
employer refuses to consider the issue under the grievance procedure provided for in the
Is the NLRC correct in holding DBP liable to the extent of the proceeds of the foreclosure sale?
applicable CBA, and later on through Voluntary Arbitration. These acts of the employer could be
Explain briefly (5%) SUGGESTED ANSWER:
considered as a violation of its duty to bargain collectively which is unfair labor practice (ULP). A
ULP strike is legal.
No. DBP is not liable. DBP has a lien over the properties of LCFC which were mortgaged to DBP
and said lien is superior to the preference that the workers have under the Labor Code (in Article
Wages; Wages vs. Salary; Subject to Attachment (1994) 1) Distinguish "salary" from
"wages." 2) Are these subject to attachment and execution? SUGGESTED ANSWER:

with respect to their claims as workers against LCFC.

1) The term "WAGES" applies to compensation for manual labor, skilled or unskilled, while
Panel: All claims must be filed in insolvency proceedings, which are outside the jurisdiction of the NLRC salary
(Republic v. Peralta)
denotes a compensation for a higher degree of employment. (Gaa vs. Court of Appeals, 140
Wages; Wage Distortion (1997) SCRA 304),

(a) Define Wage Distortion. (b) May a wage distortion, alleged by the employees but rejected ALTERNATIVE ANSWER:
by the employer to be such, be a valid ground for staging a strike? SUGGESTED
ANSWER: (a) A WAGE DISTORTION is that brought about where an increase in the "WAGES" are those paid to any employee as his remuneration or earnings payable by an
employer for work done or to be done, or for services rendered or to be rendered.
prescribed wage rates results in the elimination or severe contraction of intentional quantitative
differences in wage or salary rates between and among employee groups in an establishment as
On the other hand, "SALARY" is used in the law that provides for a 13th-month pay. In this law,
basic salary includes all remuneration or earnings paid by an employer to his employees for
Facilities vs. supplements
services rendered, but does not include allowances or monetary benefits which are not
considered or integrated as part of the regular or basic salary. (Art. 97(f), Labor Code; Sec, 2(b), Q: Gamma Company pays its regular employees P350.00 a day, and houses them in a dormitory inside
its factory compound in Manila. Gamma Company also provides them with three full meals a day.
P.D. No. 851)
In the course of a routine inspection, a Department of Labor and Employment (DOLE) Inspector noted
that the workers' pay is below the prescribed minimum wage of P426.00 plus P30.00 allowance, and
2) Under Article 1708 of the Civil Code, only "wages" are exempt from attachment or execution.
thus required Gamma Company to pay wage differentials.
Salaries are not exempt from attachment or execution. (Gaa vs. Court of Appeals, 140 SCRA
Gamma Company denies any liability, explaining that after the market value of the company-provided
board and lodging are added to the employees' P350 cash daily wage, the employees' effective daily
rate would be way above the minimum pay required by law. The company counsel further points out
that the employees are aware that their food and lodging form part of their salary, and have long
Wages; Waiver of Compensation (1996)
accepted the arrangement.

2) Jose applied with Mercure Drug Company for the position of Sales Clerk. Mercure Drug Is the company's position legally correct? (2013 Bar Questions)
Company maintains a chain of drug stores that are open everyday till late at night. Jose was
informed that he had to work on Sundays and holidays at night as part of the regular course of No. The following requisites were not complied with:

employment. He was presented with a contract of employment setting forth his compensation on (a) proof that such facilities are customarily furnished by the trade
(b) the provision of deductible facilities is voluntarily accepted by the employee
an annual basis with an express waiver of extra compensation for work on Sundays and
(c) the facilities are charged at the fair and reasonable value. Mere availment is not sufficient to
holidays, which Jose signed. Is such a waiver binding on Jose? Explain. SUGGESTED allow deduction from employees wages. (Mayon Hotel & Restaurant v. Adarna, 485 SCRA 609

Grant of bonus
As long as the annual compensation is an amount that is not less than what Jose should receive
for all the days that he works, plus the extra compensation that he should receive for work on his
Q: Lito was anticipating the bonus he would receive for 2013. Aside from the 13th month pay, the
weekly rest days and on special and regular holidays and for night differential pay for late night company has been awarding him and his other co-employees a two to three months bonus for the
last 10 years. However, because of poor over-all sales performance for the year, the company
work, considering the laws and wage orders providing for minimum wages, and the pertinent unilaterally decided to pay only a one month bonus in 2013. Is Litos employer legally allowed to
reduce the bonus? (2014 Bar Question)
provisions of the Labor Code, then the waiver that Jose signed is binding on him for he is not
really waiving any right under Labor Law. It is not contrary to law, morals, good customs, public SUGGESTED ANSWER:

order or public policy for an employer and employee to enter into a contract where the Yes. A bonus is an act of generosity granted by an enlightened employer to spur the employee to
employees' compensation that is agreed upon already includes all the amounts he is to receive greater efforts for the success of the business and realization of bigger profits. The granting of a
for overtime work and for work on weekly rest days and holidays and for night differential pay for bonus is a management prerogative, something given in addition to what is ordinarily received by or
late night work. ALTERNATIVE ANSWER: strictly due the recipient. Thus, a bonus is not a demandable and enforceable obligation, except when
it is made part of the wage, salary or compensation of the employee. It may, therefore, be
The waiver of benefits provided for by law is void. Art. 6 of the New Civil Code provides: withdrawn, unless they have been made a part of the wage or salary or compensation of the
employees, a matter which is not in the facts of the case (American Wire and Cable Daily Rated
"Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or
Employees Union v. American Wire and Cable Co., Inc. and the Court of Appeals, G.R. No. 155059,
good customs."
April 29, 2005).
SUGGESTED ALTERNATIVE ANSWER: Moreover, it is evident from the facts of the case that what was withdrawn by FEB was a
productivity bonus. Protected by RA 6791 which mandates that the monetary value of the
No. Having been enjoyed for the last 10 years, the granting of the bonus has ripened into a company productivity improvement be shared with the employees, the productivity-based incentive
practice or policy which can no longer be peremptorily withdrawn. Art. 100 of the Labor Code scheme of FEB cannot just be withdrawn without the consent of its affected employees.
prohibits the diminution or elimination by the employer of the employees' existing benefits.
Q: Far East Bank (FEB) is one of the leading banks in the country. Its compensation and bonus
packages are top of the industry. For the last 6 years, FEB had been providing the following
bonuses across-the-board to all its employees:

(a) 13th month pay;

(b) 14th to 18th month pay;
(c) Christmas basket worth P6,000;
(d) Gift check worth P4,000; and
(e) Productivity-based incentive ranging from a 20o/o to 40% increase in gross
monthly salary for all employees who would receive an evaluation of "Excellent" for 3
straight quarters in the same year.

Because of its poor performance over-all, FEB decided to cut back on the bonuses this year
and limited itself to the following:

(a) 13th month pay;

(b) 14th month pay;
(c) Christmas basket worth P4,000; and

(d) Gift check worth P2,000

Katrina, an employee of FEB, who had gotten a rating of "Excellent" for the last 3 quarters
was looking forward to the bonuses plus the productivity incentive bonus. After learning that
FEB had modified the bonus scheme, she objected. Is Katrina's objection justified? Explain.
(2015 Bar Question)


Katrinas objection is justified.

Having enjoyed the across-the-board bonuses, Katrina has earned a vested right. Hence,
none of them can be withheld or reduced. In the problem, the company has not proven its
alleged losses to be substantial. Permitting reduction of pay at the slightest indication of
losses is contrary to the policy of the State to afford full protection to labor and promote full
employment. (Linton Commercial Co. v. Hellera, 535 SCRA 434)
As to the withheld productivity-based bonuses, Katrina is deemed to have earned them
because of her excellent performance ratings for three quarters. On this basis, they cannot
be withheld without violating the Principle of Non-Diminution of Benefits.