Tan vs. Lagrama 3.

Lagrama is not an independent contractor because he did not

enjoy independence and freedom from the control and
G.R. No. 151228, August 15, 2002 supervision of Tan and he was subjected to Tan's control over
the means and methods by which his work is to be performed
and accomplished
Facts
B. Payment of Wages
 Lagrama works for Tan as painter of billboards and murals for the motion pictures
1. Lagrama worked for Tan on a fixed piece work basis is of no moment. Payment by
shown at the theaters managed by Tan for more than 10years
result is a method of compensation and does not define the essence of the
 Lagrama was dismissed for having urinated in his working area relation.

2. Tat Lagrama was not reported as an employee to the SSS is not conclusive, on the
 Lagrama filed a complaint for illegal dismissal and non payment of benefits
question whether he was an employee, otherwise Tan would be rewarded for his
 Tan asserted that Lagrama was an independent contractor as he was paid in piece- failure or even neglect to perform his obligation.
work basis
C. Power of Dismissal – by Tan stating that he had the right to fire Lagrama, Tan in effect
acknowledged Lagrama to be his employee

Issue D. Power of Selection and Engagement of Employees – Tan engaged the services of
Lagrama without the intervention of third party
W/N Lagrama is an independent contractor or an employee of Tan?
Philippine Spring Water v CA

Petitioner Philippine Spring Water Resources, Inc. (PSWRI), engaged in the business of
Ruling manufacturing, selling and distributing bottled mineral water, hired Mahilum as Vice-
President for Sales and Marketing for the Bulacan-South Luzon Area.
Lagrama is an employee not an independent contractor

Applying Four Fold Test

In an inaugural speech supposedly headed by Mahilum. Mahilum was required to explain
A. Power of Control - Evidence shows that the Lagrama performed his work as painter and
why
under the supervision and control of Tan.
Lua, President and Chief Executive Officer (CEO), to Bulacan plant, was not recognized and
1. Lagrama worked in a designated work area inside the theater
made to deliver his speech. At the same time, he was placed under preventive suspension
of Tan for the use of which petitioner prescribed rules, which
for thirty (30) days.
rules included the observance of cleanliness and hygeine and
prohibition against urinating in the work area and any other
place other than rest rooms and

2. Tan's control over Lagrama's work extended not only the use
of work area but also the result of Lagrama;s work and the When his 30-day suspension ended, Mahilum reported for work but was prevented from
manner and means by which the work was to be accomplished entering the workplace. Sometime in the first week of March 2005, he received a copy of
the Memorandum, dated January 31, 2005, terminating his services effective the next day or
on February 1, 2005. On February 9, 2005, a clearance certificate was issued to Mahilum.
Mahilum filed a complaint for illegal dismissal with prayer for reinstatement, payment of
back wages and damages. He argued that he was illegally suspended and, thereafter,
dismissed constructively from the service. He also claimed that he was forced to sign the
waiver.
ISSUE: Mahilum is a contractual employee and the period of probation depended on the
stipulation of the Memorandum of Agreement entered into by the parties.
Mahilum was a regular employee
Having been hired in June 2004, he must be considered to have already served the company
for eight (8) months at the time of his dismissal on February 1, 2005. This fact calls for the
application of Article 281 of the Labor Code:
Probationary employment shall not exceed six (6) months from the date the employee
started working, unless it is covered by an apprenticeship agreement stipulating a longer
period. The services of an employee who has been engaged on a probationary basis may be
terminated for a just cause or when he fails to qualify as a regular employee in accordance
with reasonable standards made known by the employer to the employee at the time of his
engagement. An employee who is allowed to work after a probationary period shall be
considered a regular employee.
A probationary employee, like a regular employee, enjoys security of tenure. In cases of
probationary employment, however, aside from just or authorized causes of termination, an
additional ground is provided under Article 281 of the Labor Code, that is, the probationary
employee may also be terminated for failure to qualify as a regular employee in accordance
with reasonable standards made known by the employer to the employee at the time of the
engagement. Thus, the services of an employee who has been engaged on probationary
basis may be terminated for any of the following: (1) a just or (2) an authorized cause and
(3) when he fails to qualify as a regular employee in accordance with reasonable standards
prescribed by the employer
As applied to the petitioner’s arguments, it would seem that PSWRI and Lua now invoke the
first and third ground for Mahilum’s termination. The Court, however, cannot subscribe to
the premise that Mahilum failed to qualify as a regular employee when he failed to perform
at par with the standards made known by the company to him. In this case, it is clear that
the primary cause of Mahilum’s dismissal from his employment was borne out of his alleged
lapses as chairman for the inauguration of the Bulacan plant company’s Christmas party. In
fact, the termination letter to him cited "loss of trust and confidence" as a ground for his
dismissal. Under the circumstances, the petitioners may not be permitted to belatedly harp
on its choice not to extend his alleged probationary status to regular employment as a
ground for his dismissal. Besides, having been allowed to work after the lapse of the
probationary period, Mahilum became a regular employee. He was hired in June 2004 and
was dismissed on February
5,2005. Thus, he served the company for eight (8) months.
Mabeza vs. NLRC [G.R. No. 118506 April 18, 1997]
Facts: Petitioner Norma Mabeza and her co-employees at the Hotel Supreme in Baguio City
were asked by the hotel’s management to sign an instrument attesting to the latter’s
compliance with minimum wage and other labor standard provision. The instrument
provides that they have no complaints against the management of the Hotel Supreme as
they are paid accordingly and that they are treated well. The petitioner signed the affidavit
but refused to go to the City’s Prosecutor’s Office to confirm the veracity and contents of the
affidavit as instructed by management. That same day, as she refused to go to the City
Prosecutor’s Office, she was ordered by the hotel management to turn over the keys to her
living quarters and to remove her belongings to the hotel’s premises. She then filed a leave
of absence which was denied by her employer. She attempted to return to work but the
hotel’s cashier told her that she should not report to work and instead continue with her
unofficial leave of absence. Three days after her attempt to return to work, she filed a
complaint against the management for illegal dismissal before theArbitration Branch of
the NLRC in Baguio City. In addition to that, she alleged underpayment of wages, non-
payment of holiday pay, service incentive leave pay, 13th month pay, night differential
and other benefits. Peter Ng, in their Answer, argued that her unauthorized leave of
absence from work is the ground for her dismissal. He even maintained that her
alleged of underpayment and non- payment of benefits had no legal basis. He raises a
new ground of loss of confidence, which was supported by his filing of criminal case for the
alleged qualified theft of the petitioner. The Labor Arbiterruled in favor of the hotel
management on the ground of loss of confidence. She appealed to the NLRC which affirmed
the LaborArbiter’s decision. hence, this petition.
Issue: Whether or not the dismissal by the private respondent of petitioner constitutes an
unfair labor practice.
Held: The NLRC’s decision is reversed. The pivotal question in any case where unfair labor
practice on the part of the employer is alleged is whether or not the employer has
exerted pressure, in the form of restraint, interference or coercion, against his
employee’s right to institute concerted action for better terms and conditions of
employment. Without doubt, the act of compelling employees to sign an instrument
indicating that the employer observed labor standard provisions of the law when he
might not have, together with the act of terminating or coercing those who refuse to
cooperate with the employees’ scheme constitutes unfair labor practice. The labor arbiter’s
contention that the reason for the monetary benefits received by the petitioner between
1981 to 1987 were less than the minimum wage was because petitioner did not factor in
the meals, lodging, electric consumption and water she received during the period of
computations. Granting that meals and lodging were provided and indeed constituted
facilities, such facilities could not be deducted without the employer complying first with
certain legalrequirements. Without satisfying these requirements, the employer simply
cannot deduct the value from the employee’s ages. First, proof must be shown that such
facilities are customarily furnished by the trade. Second, the provision of deductible
facilities must be voluntary accepted in writing by the employee. Finally, facilities must
be charged at fair and reasonable value. These requirements were not met in the
instant case. Private respondent failed to present anycompany policy to show
that the meal and lodging are part of thesalary. He also failed to provide proof of the
employee’s written authorization and he failed to show how he arrived at the
valuations. More significantly, the food and lodging, or electricity and water consumed
by the petitioner were not facilities but supplements. A benefit or privilege granted to an
employee for the convenience of the employer is not a facility. The criterion in making a
distinction between the two not so much lies in the kind but the purpose. Considering,
therefore, that hotel workers are required to work on different shifts and are expected
to be available at various odd hours, their ready availability is a necessary matter in the
operations of a small hotel, such as the private respondent’s hotel.
ARIEL L. DAVID vs. JOHN G. MACASIO G.R. No. 195466 JULY 2, 2014
For: overtime pay, holiday pay, 13th month pay and payment for service incentive
leave.
Facts:
In January 2009, Macasio filed before the LA a complaint against petitioner Ariel L. David,
doing business under the name and style “Yiels Hog Dealer,” for non-payment of overtime
pay, holiday pay and 13th month pay. He also claimed payment for moral and exemplary
damages and attorney’s fees. Macasio also claimed payment for service incentive leave
(SIL) David claimed that he started his hog dealer business in 2005 and that he only
has ten employees. The LA concluded that as Macasio was engaged on “pakyaw” or task
basis, he is not entitled to overtime, holiday, SIL and 13th month pay. The NLRC affirmed the
LA decision, thus this case reach the CA which says that Macasio is entitled to his
monetary claims following the doctrine laid down in Serrano v. Severino Santos
Transit.The CA explained that as a task basis employee, Macasio is excluded from the
coverage of holiday, SIL and
13th month pay only if he is likewise a “field personnel.”Thus this case reached the
SC.
Issue: Whether or not Macasio is entitled of overtime pay, holiday pay, 13th
month pay and payment for service incentive leave.
Ruling: Yes, in so far as the Holiday and SIL pay is concern. To determine whether
workers engaged on “pakyaw” ortask basis” is entitled to holiday and SIL pay, the
presence (or absence) of employer supervision as regards the worker’s time and
performance is the key: if the worker is simply engaged on pakyaw or task basis, then
the general rule is that he is entitled to a holiday pay and SIL pay unless exempted
from the exceptions specifically provided under Article 94 (holiday pay) and Article 95 (SIL
pay) of the Labor Code. However, if the worker engaged on pakyaw or task basis also
falls within the meaning of “field personnel” under the law, then he is not entitled to these
monetary benefits. CA that Macasio does not fall under the definition of “field
personnel.” The CA’s finding in this regard is supported by the established facts of
this case: first, Macasio regularly performed his duties at David’s principal place of
business; second, his actual hours of work could be determined with reasonable
certainty; and, third, David supervised his time and performance of duties. Since
Macasio cannot be considered a “field personnel,” then he is not exempted from the grant
of holiday, SIL pay even as he was engaged on “pakyaw” or task basis.

However, the governing law on 13th month pay is PD No. 851. As with holiday and
SIL pay, 13th month pay benefits generally cover all employees; an employee must be one of
those expressly enumerated to be exempted. Section 3 of the Rules and Regulations
Implementing P.D. No. 851 enumerates the exemptions from the coverage of 13th month
pay benefits. Under Section 3(e), “employers of those who are paid on task basis, and
those who are paid a fixed amount for performing a specific work, irrespective
of the time consumed in the performance thereof are exempted. Note that unlike the IRR of
the Labor Code on holiday and SIL pay, Section
3(e) of the Rules and Regulations Implementing PD No. 851exempts employees
"paid on task basis" without any reference to "field personnel." This could only mean
that insofar as payment of the 13th month pay is concerned, the law did not intend to
qualify the exemption from its coverage with the requirement that the task worker be a
"field personnel" at the same time. Thus Macasio is not entitled to 13th month pay.
Wherefore, the petition was partially granted the petition insofar as the payment of
13th month pay to respondent is concerned. But all other aspect of the CA’s decision was
affirmed.
Nasipit Lumber Company, Inc. and PhiIippine Wallboard Corp. vs. National Wages and
Productivity Commission, G.R.. No. 113097, April 27, 1998
FACTS: The Region X Tripartite Wages and Productivity Board issued Wage Order No. RX-01
and RX-01-A increasing the minimum wage rates in Northern Mindanao. Thereafter,
petitioner applied for exemption from the said wage orders as distressed establishments.
The RTWPB, on the basis of Guidelines No. 3 granted the’application for exemption. Private
respondents-unions lodged an appeal with the NWPC [National Wages and Productivity
Commission] which reversed the decision of grant for
exemption. In this petition, the petitioners contended that the NWPC gravely abused its
discretion in overturning the RTWPB’s approval of their application for exemption from
Wage Orders RX-01 and RX-01-A.
They argued that under Art. 122[c] of the Labor Code, RTWPB has power “to receive,
process and act” on application for exemption from prescribed wage rates as may be
provided by law or any wage order. They also maintained that no law expressly requires the
approval of the NWPC for the effectivity of RTWPB’s Guideline No. 3.
ISSUE: Whether the NWPC gravely abused its discretion when it overturned the exemption
granted to the petitioners by RTWPB.
HELD: It is clear under Art. 121 of the Labor Code, powers of NWPC and Art. 122, powers of
RTWPB, that the NWPC, not the RTWPB, has the power to prescribe rules and guidelines for
the determination of minimum wage and productivity measures. While the RTWPB has the
power to issue wage orders under Art. 122 [b] of the Labor Code, such orders are subject to
the guidelines prescribed by the NWPC.
It is important to note that Guideline No. 3, the basis upbn which the grant for exemption
was issued was never assented to by NWPC. The guideline therefore is inoperative and
cannot be used by the RTWPB in deciding a petitioner’s application for exemption. Under
the NWPC’s Rules of Procedure on Minimum Wage Fixing issued on June 4,1990—which was
prior to the effectivity of RTWPB Guideline No. 3, an application for exemption from wage
orders should be processed by the RTWPB, subject specifically to the guidelines issued by
the NWPC.
Art. 122 [c] of the Labor Code cannot be construed to enable the RTWPB to decide
applications for exemption on the basis of its own guidelines which were not reviewed and
approved by the NWPC, for the simple reason that a statutory grant of ‘power” should not
be extended by implication beyond what may be necessary for their just and reasonable
execution. Official powers cannot be merely assumed by administrative officers, nor can
they be created by the court in the exercise of their judicial functions.
EMPLOYERS CONFEDERATION OF THE PHILIPPINES vs. NATIONAL WAGES AND
PRODUCTIVITY COMMISSION AND REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY
BOARD-NCR, TRADE UNION CONGRESS OF THE PHILIPPINES
G.R. No. 96169 September 24, 1991
FACTS: ECOP questioned the validity of the wage order issued by the RTWPB,
increasing the minimum wage by P17.00/day in NCR. The Board issued Wage Order No.
NCR-01-A amending Wage Order No. NCR-01, as follows:
Section 1. Upon the effectivity of this Wage Order, all workers and employees in the
private sector in the National Capital Region already receiving wages above the statutory
minimum wage rates up to one hundred and twenty-five pesos (P125.00) per day shall also
receive an increase of seventeen pesos (P17.00) per day.
The wage order was made applicable to all workers and employees in the private sector,
including those who are paid above the statutory wage rate. The NWPC dismissed ECOP’s
petition. Hence the matter was elevated to the Supreme Court. ECOP assails the
board's grant of an "across-the-board" wage increase to workers already being paid more
than existing minimum wage rates (up to P125. 00 a day) as an alleged excess of authority,
and alleges that under the Republic Act No. 6727, the boards may only prescribe "minimum
wages," not determine "salary ceilings." ECOP likewise claims that Republic Act No.
6727 is meant to promote collective bargaining as the primary mode of settling wages, and
in its opinion, the boards can not preempt collective bargaining agreements by establishing
ceilings. ECOP prays for the nullification of Wage Order No. NCR 01-A and for the
"reinstatement" of Wage Order No. NCR-01.
The Solicitor General commented that the RTWPB may fix minimum wages according
to the salary method, while ECOP insisted that the RTWPB may do so only by adjusting floor
wages. ECOP insists, in its reply, that wage is a legislative function, and Republic Act No.
6727 delegated to the regional boards no more "than the power to grant minimum wage
adjustments" 7 and "in the absence of clear statutory authority," 8 the boards may no
more than adjust "floor wages."
ISSUE: Whether or not the wage order is valid.
RULING: The Court is inclined to agree with the Government. In the National Wages and
Productivity Commission's Order of November 6, 1990, the Commission noted that the
determination of wages has generally involved two methods, the "floor-wage" method and
the "salary-ceiling" method. As quoted by the Supreme Court, “Historically, legislation
involving the adjustment of the minimum wage made use of two methods. The first
method involves the fixing of determinate amount that would be added to the
prevailing statutory minimum wage. The other involves "the salary-ceiling method"
whereby the wage adjustment is applied to employees receiving a certain denominated
salary ceiling.”
The Court is not convinced that the Regional Board of the National Capital Region, in
decreeing an across-the-board hike, performed an unlawful act of legislation. It is true
that wage-fixing, like rate constitutes an act Congress; 13 it is also true, however, that
Congress may delegate the power to fix rates 14 provided that, as in all delegations
cases, Congress leaves sufficient standards. As this Court has indicated, it is impressed that
the above-quoted standards are sufficient, and in the light of the floor-wage method's
failure, the Court believes that the Commission correctly upheld the Regional Board
of the National Capital Region.
It is the Court's thinking, reached after the Court's own study of the Act, that the Act is
meant to rationalize wages, that is, by having permanent boards to decide wages rather
than leaving wage determination to Congress year after year and law after law. The Court is
not of course saying that the Act is an effort of Congress to pass the buck, or worse, to
abdicate its duty, but simply, to leave the question of wages to the expertise of experts. As
Justice Cruz observed, "[w]ith the proliferation of specialized activities and
their attendant peculiar problems, the national legislature has found it more
necessary to entrust to administrative agencies the power of subordinate legislation' as it
is caned." 23
The concept of "minimum wage" is, however, a different thing, and certainly, it means more
than setting a floor wage to upgrade existing wages, as ECOP takes it to mean. "Minimum
wages" underlies the effort of the State, as Republic Act No. 6727 expresses it, "to promote
productivity-improvement and gain-sharing measures to ensure a decent standard of living
for the workers and their families; to guarantee the rights of labor to its just share in the
fruits of production; to enhance employment generation in the countryside through
industry dispersal; and to allow business and industry reasonable returns on
investment, expansion and growth," 25 and as the Constitution expresses it, to affirm
"labor as a primary social economic force." 26 As the Court indicated, the statute
would have no need for a board if the question were simply "how much". The State is
concerned, in addition, that wages are not distributed unevenly, and more important, that
social justice is subserved.
Wherefore petition is denied.
Metropolitan Bank and Trust Company vs. NWPC and RTWPB
G.R. No.144322
February 6, 2007
Facts: On October 17, 1995, the Regional Tripartite Wages and Productivity Board, Region II,
Tuguegarao, Cagayan (RTWPB), by virtue of Republic Act No. 6727 (R.A. No. 6727),
otherwise known as the Wage Rationalization Act, issued Wage Order No. R02-03 (Wage
Order), as follows: Section 1. Upon effectivity of this Wage Order, all employees/workers in
the private sector throughout Region II, regardless of the status of employment are granted
an across-the-board increase of P15.00 daily.
The Wage Order was published in a newspaper of general circulation on December 2, 1995
and took effect on January 1, 1996. Its Implementing Rules were approved on February 14,
1996. Per Section 13 of the Wage Order, any party aggrieved by the Wage Order may file an
appeal with the National Wages and Productivity Commission (NWPC) through the RTWPB
within 10 calendar days from the publication of the Wage Order.
Banker’s Council in a letter inquiry to NWPC requested for ruling to seek exemption from
coverage of the wage order since the members bank are paying more than the regular wage.
NWPC replied that the member banks are covered by the wage order and does not fall with
the exemptible categories.
In another letter inquiry, Metrobank asked for the interpretation of the applicability of the
wage order. NWPC referred it to RTWPB. RTWPB in return clarified that establishments in
Region 2 are covered by the wage order. Petitioner filed a petition with the CA and denied
the petition.
Issue: Whether or not the wage order is void thus it has no legal effect and the RTWPB acted
in excess of its jurisdiction.
Ruling: The Court finds that Section 1, Wage Order No. R02-03 is void insofar as it grants a
wage increase to employees earning more than the minimum wage rate; and pursuant to
the separability clause of the Wage Order, Section 1 is declared valid with respect to
employees earning the prevailing minimum wage rate.
The powers of NWPC are enumerated in ART. 121. Powers and Functions of the Commission.
- The Commission shall have the following powers and functions: (d) To review regional
wage levels set by the Regional Tripartite Wages and Productivity Boards to determine if
these are in accordance with prescribed guidelines and national development plans; (f) To
review plans and programs of the Regional Tripartite Wages and Productivity Boards to
determine whether these are consistent with national development plans; (g) To exercise
technical and administrative supervision over the Regional Tripartite Wages and Productivity
Boards.
R.A. No. 6727 declared it a policy of the State to rationalize the fixing of minimum wages
and to promote productivity-improvement and gain-sharing measures to ensure a decent
standard of living for the workers and their families; to guarantee the rights of labor to its
just share in the fruits of production; to enhance employment generation in the countryside
through industrial dispersal; and to allow business and industry reasonable returns on
investment, expansion and growth.
In line with its declared policy, R.A. No. 6727 created the NWPC, vested with the power to
prescribe rules and guidelines for the determination of appropriate minimum wage and
productivity measures at the regional, provincial or industry levels; and authorized the
RTWPB to determine and fix the minimum wage rates applicable in their respective regions,
provinces, or industries therein and issue the corresponding wage orders, subject to the
guidelines issued by the NWPC. Pursuant to its wage fixing authority, the RTWPB may issue
wage orders which set the daily minimum wage rates, based on the standards or criteria set
by Article 124 of the Labor Code.
The Court declared that there are two ways of fixing the minimum wage: the "floor-wage"
method and the "salary-ceiling" method. The "floor-wage" method involves the fixing of a
determinate amount to be added to the prevailing statutory minimum wage rates. On the
other hand, in the "salary-ceiling" method, the wage adjustment was to be applied to
employees receiving a certain denominated salary ceiling. In other words, workers already
being paid more than the existing minimum wage (up to a certain amount stated in the
Wage Order) are also to be given a wage increase.
In the present case, the RTWPB did not determine or fix the minimum wage rate by the
"floor-wage method" or the "salary-ceiling method" in issuing the Wage Order. The RTWPB
did not set a wage level nor a range to which a wage adjustment or increase shall be added.
Instead, it granted an across-the-board wage increase of P15.00 to all employees and
workers of Region 2. In doing so, the RTWPB exceeded its authority by extending the
coverage of the Wage Order to wage earners receiving more than the prevailing minimum
wage rate, without a denominated salary ceiling. As correctly pointed out by the OSG, the
Wage Order granted additional benefits not contemplated by R.A. No. 6727.
March 12, 2014
G.R. No. 150326
THE NATIONAL WAGES AND PRODUCTIVITY COMMISSION (NWPC) and THE REGIONAL
TRIPARTITE WAGES AND PRODUCTIVITY BOARD (RTWPB)- NCR, Petitioners,
vs.
THE ALLIANCE OF PROGRESSIVE LABOR (APL) and THE TUNAY NA NAGKAKAISANG
MANGGAGAwA SA ROYAL (TNMR-APL), Respondents.
Facts: On June 9, 1989, Republic Act No. 6727 was enacted into law. In order to rationalize
wages throughout the Philippines, Republic Act No. 6727 created the NWPC and the
RTWPBs of the different regions. Section 3 of Republic Act No. 6727, empowered the NWPC
to formulate policies and guidelines on wages, incomes and productivity improvement at
the enterprise, industry and national levels; to prescribe rules and guidelines for the
determination of appropriate minimum wage and productivity measures at the regional,
provincial or industry levels; and to review regional wage levels set by the RTWPBs to
determine whether the levels were in accordance with the prescribed guidelines and
national development plans, among others. Further, Section 3 of Republic Act No. 6727,
tasked the RTWPBs to determine and fix minimum wage rates applicable in their region,
provinces or industries therein; and to issue the corresponding wage orders, subject to the
guidelines issued by the NWPC. The RTWPBs were also mandated to receive, process and
act on applications for exemption from the prescribed wage rates as may be provided by law
or any wage order.
On October 14 1999, RTWPB – NCR issued Wage Order No. NCR – 07 imposing an increase
of P25.50/day on the wages of all private sector workers and employees in the NCR and
pegging the minimum wage rate in the NCR at P223.50/day. However, Section 2 and Section
9 of Wage Order No. NCR-07 exempted certain sectors and industries from its coverage
( Agricultural Workers, Workers in Small Establishments employing less than 10 workers,
Distressed Establishments, Exporters including indirect exporters with at least 50% export
sales and with forward contracts with their foreign buyers/principals).
Feeling aggrieved by their non-coverage by the wage adjustment, the Alliance of
Progressive Labor (APL) and the Tunay na Nagkakaisang Manggagawa sa Royal (TNMR) filed
an appeal with the NWPC assailing Section 2(A) and Section 9(2) of Wage Order No. NCR-
07. They contended that neither the NWPC nor the RTWPB-NCR had the authority to
expand the noncoverage and exemptible categories under the wage order; hence, the
assailed sections of the wage order should be voided. The appeal was docketed as NWPC
Case No. W.O.- 99-001. (NWPC upheld the validity of Sec 2 and Sec 9 of the Wage Order. CA
Reversed the decision of NWPC)
Issue: WON NWPC AND RTWPB has authority to expand the non-coverage and exemptible
categories under the wage order
Held: The petition for review on certiorari is meritorious. Indisputably, the NWPC had the
authority to prescribe the rules and guidelines for the determination of the minimum wage
and productivity measures, and the RTWPB-NCR had the power to issue wage orders.
G.R. No. 102636 September 10, 1993
METROPOLITAN BANK & TRUST COMPANY EMPLOYEES UNION-ALU-TUCP and ANTONIO V.
BALINANG, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (2nd Division) and METROPOLITAN BANK and TRUST
COMPANY, respondents.
Facts:
On 25 May 1989, the Metropolitan Bank & Trust Company entered into a collective bargaining
agreement with the Metropolitan Bank & Trust Company Employees Union MBTCEU, granting a
monthly P900 wage increase effective 01 January 1989. With the exclusion of the probationary
employees.
Republic Act 6727 was enacted "an act to rationalize wage policy determination be establishing the
mechanism and proper standards thereof, . . . fixing new wage rates, providing wage incentives for
industrial dispersal to the countryside, and for other purposes," took effect which provides for the
agricultural or non-agricultural employees salary, be increased by twenty-five pesos (P25) per
day, . . .: Provided, That those already receiving above the minimum wage rates up to one hundred
pesos(P100.00) shall shall also receive an increase of twenty-five pesos (P25.00) per day, . . .
Pursuant to the above provisions, the bank gave the P25 increase per day, or P750 a month, to its
probationary employees and to those who had been promoted to regular or permanent status before
01 July 1989 but whose daily rate was P100 and below. The bank refused to give the same increase to
its regular employees who were receiving more than P100 per day and recipients of the P900 CBA
increase.
Contending that the bank's implementation of Republic Act 6727 resulted in the categorization of the
employees into (a) the probationary employees as of 30 June 1989 and regular employees receiving
P100 or less a day who had been promoted to permanent or regular status before 01 July 1989, and (b)
the regular employees as of 01 July 1989, whose pay was over P100 a day, and that, between the two
groups, there emerged a substantially reduced salary gap.
The Union sought from the bank the correction of the alleged distortion in pay by granting 750 increase
in regular employees with above 100 pay and reciepient of 900 CBA increase. To avoid strike the bank
petitioned the secretary of Labor to assume jurisdiction, then assigned to Labor Arbiter for arbitration.
The Labor arbiter sided with the Union, that such salary increase resulted in the severe contraction of
an intentional quantitative difference in wage between employee groups. The bank appealed to the
NLRC, and the NLRC reversed the decision of the Labor Arbiter in favour of Metrobank and Trust
Company.
Issue:
Whether there has been a wage distortion, and a need to grant the increase 750 to regular employees
receiving above 100 peso per day.
Ruling:
There has been a wage distortion. However it is not conductive to grant the increase of P750 to regular
employees receiving above 100 peso per day.
The term "wage distortion", under the Rules Implementing Republic Act 6727, is defined, thus:
(p) Wage Distortion means a situation where an increase in prescribed wage rates results in the
elimination or severe contradiction of intentional quantitative differences in wage or salary rates
between and among employee groups in an establishment as to effectively obliterate the distinctions
embodied in such wage structure based on skills, length of service, or other logical bases of
differentiation.
The definition of "wage distortion," 10 aforequoted, shows that such distortion can so exist when, as a
result of an increase in the prescribed wage rate, an "elimination or severe contraction of intentional
quantitative differences in wage or salary rates" would occur "between and among employee groups in
an establishment as to effectively obliterate the distinctions embodied in such wage structure based on
skills, length of service, or other logical bases of differentiation." In mandating an adjustment, the law
did not require that there be an elimination or total abrogation of quantitative wage or salary
differences; a severe contraction thereof is enough.
We find the formula suggested then by Commissioner Bonto-Perez, which has also been the standard
considered by the regional Tripartite Wages and Productivity Commission for the correction of pay scale
structures in cases of wage distortion, 15 to well be the appropriate measure to balance the respective
contentions of the parties in this instance. We also view it as being just and equitable.
Minimum Wage = % x Prescribed = Distortion
—————— Increased Adjustment
Actual Salary
PRUBANKE`RS ASSOCIATION, petitioner, vs.PRUDENTIAL BANK & TRUST COMPANY, respondent
G.R. No. 131247
January 25, 1999
FACTS:
The Regional Tripartite Wages and Productivity Board (RTWPB) Region V issued Wage Order No. RB 05-
03 which provided for a Cost of Living Allowance (COLA) to workers in the private sector who had
rendered service for at least three (3) months before its effectivity, and for the same period thereafter. February 17, 2004
RTWPB Region VII however followed suit but the COLA amounts in other cities nationwide were
different from that issued by RTWPN region V. This caused Prubankers Association to write the
petitioner requesting that the Labor Management Committee be immediately convened to discuss and
Facts: Bankard, Inc. classifies its employees by levels: Level I, Level II, Level III, Level IV, and Level V. On
resolve the alleged wage distortion created in the salary structure upon the implementation of the said
May 1993, its Board of Directors approved a New Salary Scale, made retroactive to April 1, 1993, for the
wage orders. As the grievance could not be settled in the meetings, the parties agreed to submit the
purpose of making its hiring rate competitive in the industry’s labor market. The New Salary Scale
matter to voluntary arbitration.
increased the hiring rates of new employees, to wit: Levels I and V by one thousand pesos (P1,000.00),
Respondent brought the case to appeal and was favored by CA, petitioner then sought the review by SC.
and Levels II, III and IV by nine hundred pesos (P900.00). Accordingly, the salaries of employees who fell
It argued that a wage distortion exists, because the implementation of the two Wage Orders has
below the new minimum rates were also adjusted to reach such rates under their levels.
resulted in the discrepancy in the compensation of employees of similar pay classification in different
regions.

ISSUE: This made Bankard Employees Union-WATU (petitioner), the duly certified exclusive bargaining agent of
WON two wage orders resulting in the discrepancy of employees’ compensation in different regions the regular rank and file employees of Bankard, to request for the increase in the salary of its old,
also results to a wage distortion. regular employees. Bankard insisted that there was no obligation on the part of the management to
grant to all its employees the same increase in an across-the-board manner.
HELD:
No.

There is no wage distortion since the wage order implementation covers all the branches of the bank.
The hierarchy of positions was still preserved.
Also, petitioner’s claim of wage distortion must also be denied for one other reason. The difference in
wages between employees in the same pay scale in different regions is not the mischief sought to be
banished by the law. Republic Act No. 6727 (the Wage Rationalization Act), recognizes “existing regional
disparities in the cost of living” as provided in Section 2 of said law.
***Notes: The levels of different pay classes was not eliminated. The statutory definition of wage
distortion is found in Article 124 of the Labor Code, as amended by Republic Act No. 6727, which reads:
Standards/Criteria for Minimum Wage Fixing. ―As used herein, a wage distortion shall mean a situation
where an increase in prescribed wage 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 to effectively obliterate the distinctions embodied in such wage structure based on
skills, length of service, or other logical bases of differentiation. Wage distortion involves four elements:
(1) An existing hierarchy of positions with corresponding salary rates; (2) A significant change in the
salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one; (3)The
elimination of the distinction between the two levels and (4) The existence of the distortion in the same
region of the country.
A disparity in wages between employees holding similar positions but in different regions
does not constitute wage distortion as contemplated by law. As stated, it is the hierarchy of
positions and the disparity of their corresponding wages and other emoluments that are sought to
be preserved by the concept of wage distortion.
Petioner filed a notice of strike. The strike was averted when the dispute was certified by the Secretary
of Labor and Employment for compulsory arbitration. NLRC finding no wage distortion dismissed the
case for lack of merit. Petitioner’s motion for reconsideration of the dismissal of the case was denied.
Issue: Whether the unilateral adoption by an employer of an upgraded salary scale that increased the
hiring rates of new employees without increasing the salary rates of old employees resulted in wage
distortion within the contemplation of Article 124 of the Labor Code.
Ruling:The Court will not interfere in the management prerogative of the petitioner. The employees are
not precluded to negotiate through the provisions of the CBA.
Upon the enactment of R.A. No. 6727 (WAGE RATIONALIZATION ACT, amending, among others, Article
124 of the Labor Code), the term "wage distortion" was explicitly defined as... a situation where an
increase in 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 to effectively obliterate the distinctions embodied in such wage structure based on
skills, length of service, or other logical bases of differentiation.

Bankard Employees Union vs. NLRC

In the case of Prubankers Association v. Prudential Bank and Trust Company, it laid down the four
G.R. No.140689 elements of wage distortion, to wit: (1.) An existing hierarchy of positions with corresponding salary
rates; (2) A significant change in the salary rate of a lower pay class without a concomitant increase in
the salary rate of a higher one; (3) The elimination of the distinction between the two levels; and (4)
The existence of the distortion in the same region of the country.
Normally, a company has a wage structure or method of determining the wages of its employees. In a
problem dealing with "wage distortion," the basic assumption is that there exists a grouping or
classification of employees that establishes distinctions among them on some relevant or legitimate
bases. Involved in the classification of employees are various factors such as the degrees of
responsibility, the skills and knowledge required, the complexity of the job, or other logical basis of
differentiation. The differing wage rate for each of the existing classes of employees reflects this
classification.
Put differently, the entry of new employees to the company ipso facto places them under any of the
levels mentioned in the new salary scale which private respondent adopted retroactive to April 1, 1993.
While seniority may be a factor in determining the wages of employees, it cannot be made the sole
basis in cases where the nature of their work differs.
Moreover, for purposes of determining the existence of wage distortion, employees cannot create their
own independent classification and use it as a basis to demand an across-the-board increase in salary.
The wordings of Article 124 are clear. If it was the intention of the legislators to cover all kinds of wage
adjustments, then the language of the law should have been broad, not restrictive as it is currently
phrased:
Article 124. Standards/Criteria for Minimum Wage Fixing. Where the application of any prescribed wage
increase by virtue of a law or Wage Order issued by any Regional Board results in distortions of the
wage structure within an establishment, the employer and the union shall negotiate to correct the
distortions. Any dispute arising from the wage distortions shall be resolved through the grievance
procedure under their collective bargaining agreement and, if it remains unresolved, through voluntary
arbitration.
Article 124 is entitled "Standards/Criteria for Minimum Wage Fixing." It is found in CHAPTER V on
"WAGE STUDIES, WAGE AGREEMENTS AND WAGE DETERMINATION" which principally deals with the
fixing of minimum wage. Article 124 should thus be construed and correlated in relation to minimum
wage fixing, the intention of the law being that in the event of an increase in minimum wage, the
distinctions embodied in the wage structure based on skills, length of service, or other logical bases of
differentiation will be preserved.
If the compulsory mandate under Article 124 to correct "wage distortion" is applied to voluntary and
unilateral increases by the employer in fixing hiring rates which is inherently a business judgment
prerogative, then the hands of the employer would be completely tied even in cases where an increase
in wages of a particular group is justified due to a re-evaluation of the high productivity of a particular
group, or as in the present case, the need to increase the competitiveness of Bankard’s hiring rate. An
employer would be discouraged from adjusting the salary rates of a particular group of employees for
fear that it would result to a demand by all employees for a similar increase, especially if the financial
conditions of the business cannot address an across-the-board increase.
Wage distortion is a factual and economic condition that may be brought about by different causes. The
mere factual existence of wage distortion does not, however, ipso facto result to an obligation to rectify
it, absent a law or other source of obligation which requires its rectification.
SHS Perforated Materials, Inc. vs. Diaz
G.R. No. 185814 October 13, 2010
Mendoza, J.
FACTS:
SHS is a start-up corporation organized and existing under the Philippines and registered with the
PEZA. Petitioner Hartmannshenn, a German national, is its president, in which capacity he
determines the administration and direction of the day-to-day business affairs of SHS. Petitioner
Schumacher, also a German national, is the treasurer and one of the board directors. As such, he is
authorized to pay all bills, payrolls, and other just debts of SHS of whatever nature upon maturity.
Schumacher is also the EVP of the European Chamber of Commerce of the Philippines (ECCP)
which is a separate entity from SHS. Both entities have an arrangement where ECCP handles the
payroll requirements of SHS to simplify business operations and minimize operational expenses.
Thus, the wages of SHS employees are paid out by ECCP, through its Accounting Services
Department headed by Taguiang.
Respondent Diaz was hired by petitioner SHS as Manager for Business Development on probationary
status from July 18, 2005 to January 18, 2006, with a monthly salary of P100,000.00. He was tasked
to perform sales/marketing functions, represent the company in its events, perform all functions,
duties and responsibilities to be assigned by the employer in due course, among others. In addition to
the above-mentioned responsibilities, respondent was also instructed by Hartmannshenn to report to
the SHS office and plant at least two (2) days every work week to observe technical processes
involved in the manufacturing of perforated materials, and to learn about the products of the
company, which respondent was hired to market and sell.
During respondentʼs employment, Hartmannshenn was often abroad and, because of business
exigencies, his instructions to respondent were either sent by electronic mail or relayed through
telephone or mobile phone. When he would be in the Philippines, he and the respondent held
meetings. As to respondentʼs work, there was no close supervision by him. However, during meetings
with the respondent, Hartmannshenn expressed his dissatisfaction over respondentʼs poor
performance. Respondent allegedly failed to make any concrete business proposal or implement any
specific measure to improve the productivity of the SHS office. In addition, respondent was said not to
have returned Hartmannshenn's calls and e-mails, to which Diaz denied.
Hartmannshenn instructed Taguiang not to release respondentʼs salary. Later that afternoon,
respondent called and inquired about his salary. Taguiang informed him that it was being withheld
and that he had to immediately communicate with Hartmannshenn. The next day, respondent served
on SHS a demand letter and a resignation letter, citing illegal and unfair labor practices.
ISSUES:
• WON the temporary withholding of respondentʼs salary/wages by petitioners was a valid
exercise of management prerogative
• WON respondent voluntarily resigned
HELD:
FIRST ISSUE- NO. Management prerogative refers “to the right of an employer to regulate all aspects
of employment, such as the freedom to prescribe work assignments, working methods, processes to
be followed, regulation regarding transfer of employees, supervision of their work, lay-off and
discipline, and dismissal and recall of work.” Although management prerogative refers to “the right to
regulate all aspects of employment,” it cannot be understood to include the right to temporarily
withhold salary/wages without the consent of the employee. To sanction such an interpretation would
be contrary to Article 116 of the Labor Code.
Any withholding of an employeeʼs wages by an employer may only be allowed in the form of wage
deductions under the circumstances provided in Article 113 of the Labor Code, as set forth below:
ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make
any deduction from the wages of his employees, except:
(a) In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
(b) For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and
(c) In cases where the employer is authorized by law or regulations issued by the Secretary of
Labor.
As correctly pointed out by the LA, “absent a showing that the withholding of complainantʼs wages
falls under the exceptions provided in Article 113, the withholding thereof is thus unlawful.”
The Court finds petitionersʼ evidence insufficient to prove that respondent did not work from
November 16 to November 30, 2005. As can be gleaned from respondentʼs Contract of Probationary
Employment and the exchanges of electronic mail messages between Hartmannshenn and
respondent, the latterʼs duties as manager for business development entailed cultivating business
ties, connections, and clients in order to make sales. Such duties called for meetings with prospective
clients outside the office rather than reporting for work on a regular schedule. In other words, the
nature of respondentʼs job did not allow close supervision and monitoring by petitioners. Neither was
there any prescribed daily monitoring procedure established by petitioners to ensure that respondent
was doing his job. Therefore, granting that respondent failed to answer Hartmannshennʼs mobile calls
and to reply to two electronic mail messages and given the fact that he admittedly failed to report to
work at the SHS plant twice each week during the subject period, such cannot be taken to signify that
he did not work from November 16 to November 30, 2005.
SECOND ISSUE
The Court, however, agrees with the LA and the CA that respondent was forced to resign and was,
thus, constructively dismissed. In Duldulao v. Court of Appeals, it was written: "There is constructive
dismissal if an act of clear discrimination, insensibility, or disdain by an employer becomes so
unbearable on the part of the employee that it would foreclose any choice by him except to forego his
continued employment. It exists where there is cessation of work because continued employment is
rendered impossible, unreasonable or unlikely, as an offer involving a demotion in rank and a
diminution in pay."
What made it impossible, unreasonable or unlikely for respondent to continue working for SHS was
the unlawful withholding of his salary. For said reason, he was forced to resign.
145. MILAN v. NLRC
G.R. No. 202961
February 04, 2015
---------------------------------------------
Petitioners: EMER MILAN, RANDY MASANGKAY, WILFREDO JAVIER, RONALDO DAVID, BONIFACIO
MATUNDAN, NORA MENDOZA, ET AL., (Milan et.al)
Respondents: NATIONAL LABOR RELATIONS COMMISSION, SOLID MILLS, INC., AND/OR PHILIP ANG
Petition: Petition for Review of CA Decision
Ponente: LEONEN
FACTS:
1. Milan et.al are Solid Mills, Inc.’s (Solid Mills) employees. They are represented by the
National Federation of Labor Unions (NAFLU), their collective bargaining agent.
2. As Solid Mills’ employees, Milan et.al. and their families were allowed to occupy SMI Village,
a property owned by Solid Mills. According to Solid Mills, this was “[o]ut of liberality and for
the convenience of its employees . . . [and] on the condition that the employees would
vacate the premises anytime the Company deems fit.”
3. In September 2003, Milan et.al were informed that effective October 10, 2003, Solid Mills
would cease its operations due to serious business losses. NAFLU recognized Solid Mills’
closure due to serious business losses in the memorandum of agreement dated September
1, 2003. The memorandum of agreement provided for Solid Mills’ grant of separation pay
less accountabilities, accrued sick leave benefits, vacation leave benefits, and 13th month
pay to the employees. The agreement was entered into with full knowledge by the parties of
their rights under the law and they bound themselves not to conduct any concerted action
 of whatsoever kind, otherwise the grant of financial assistance as discussed above will be
withheld.
4. Solid Mills filed its Department of Labor and Employment termination report on September
2, 2003.
5. Later, Solid Mills, through Alfredo Jingco, sent to Milan et.al individual notices to vacate SMI
Village.
6. Milan et.al. were no longer allowed to report for work by October 10, 2003. They were
required to sign a memorandum of agreement with release and quitclaim before their
vacation and sick leave benefits, 13th month pay, and separation pay would be released.
Employees who signed the memorandum of agreement were considered to have agreed to
vacate SMI Village, and to the demolition of the constructed houses inside as condition for
the release of their termination benefits and separation pay. Milan et.al. refused to sign the
documents and demanded to be paid their benefits and separation pay.
7. Hence, they filed complaints before the Labor Arbiter for alleged non-payment of separation
pay, accrued sick and vacation leaves, and 13th month pay. They argued that their accrued
benefits and separation pay should not be withheld because their payment is based on
company policy and practice. Moreover, the 13th month pay is based on law, specifically,
Presidential Decree No. 851. Their possession of Solid Mills property is not an accountability
that is subject to clearance procedures. They had already turned over to Solid Mills their
uniforms and equipment when Solid Mills ceased operations.
8. On the other hand, Solid Mills argued that Milan et.al.’s complaint was premature because
they had not vacated its property.
9. The Labor Arbiter ruled in favor of Milan et.al. According to the Labor Arbiter, Solid Mills
illegally withheld petitioners’ benefits and separation pay. The memorandum of agreement
dated September 1, 2003 stated no condition to the effect that petitioners must vacate Solid
Mills’ property before their benefits could be given to them. Milan et.al.’s possession should
not be construed as their“accountabilities” that must be cleared first before the release of
benefits. er.
10. Silodd Mills appealed to the National Labor Relations Commission. The National Labor
Relations Commission affirmed part of the decision but reversed and set aside another part
and decided that Milan et.al.’s monetary claims in the form of separation pay, accrued 13th
month pay for 2003, accrued vacation and sick leave pays are held in abeyance pending
compliance of their accountabilities to respondent company by turning over the subject lots
they respectively occupy at SMI Village Sucat Muntinlupa City, Metro Manila to Solid Mills.
Linga and four other were already paid their respective separation pays and benefits.
Meanwhile, Teodora Mahilom already retired long before Solid Mills’ closure. She was
already given her retirement benefits.
11. The National Labor Relations Commission ruled that because of petitioners’ failure to vacate
Solid Mills’ property, Solid Mills was justified in withholding their benefits and separation
pay.35 Solid Mills granted the petitioners the privilege to occupy its property on account of
petitioners’ employment.36 It had the prerogative to terminate such privilege.37 The
termination of Solid Mills and petitioners’ employer-employee relationship made it
incumbent upon petitioners to turn over the property to Solid Mills.
12. The Court of Appeals ruled that Solid Mills’ act of allowing its employees to make temporary
dwellings in its property was a liberality on its part. It may be revoked any time at its
discretion.
ISSUE: Whether or not an employer is allowed to withhold terminal pay and benefits pending the
employee’s return of its properties
RULING/RATIO: Yes. The fact that majority of NAFLU’s members were not occupants of respondent
Solid Mills’ property is evidence that possession of the property was not contemplated in the
agreement. “Accountabilities” should be interpreted to refer only to accountabilities that were incurred
by petitioners while they were performing their duties as employees at the worksite. Moreover,
applicable laws, company practice, or policies do not provide that 13th month pay, and sick and
vacation leave pay benefits, may be withheld pending satisfaction of liabilities by the employee.
Requiring clearance before the release of last payments to the employee is a standard procedure among
employers, whether public or private. Clearance procedures are instituted to ensure that the
properties, real or personal, belonging to the employer but are in the possession of the separated
employee, are returned to the employer before the employee’s departure.
As a general rule, employers are prohibited from withholding wages from employees (Art. 116, Labor
Code). The Labor Code also prohibits the elimination or diminution of benefits (Art. 100, Labor Code).
However, our law supports the employers’ institution of clearance procedures before the release of
wages. As an exception to the general rule that wages may not be withheld and benefits may not be
diminished, the Labor Code provides: Art. 113. Wage deduction. No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of his employees, except:
1. In cases where the worker is insured with his consent by the employer, and the deduction is
to recompense the employer for the amount paid by him as premium on the insurance;
2. For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and
3. In cases where the employer is authorized by law or regulations issued by the Secretary of
Labor and Employment.
The Civil Code provides that the employer is authorized to withhold wages for debts due: Article 1706.
Withholding of the wages, except for a debt due, shall not be made by the employer. “Debt” in this case
refers to any obligation due from the employee to the employer. It includes any accountability that the
employee may have to the employer. There is no reason to limit its scope to uniforms and equipment,
as petitioners would argue.
More importantly, respondent Solid Mills and NAFLU, the union representing petitioners, agreed that
the release of petitioners’ benefits shall be “less accountabilities.” Accountabilities of employees are
personal. They need not be uniform among all employees in order to be included in accountabilities
incurred by virtue of an employer-employee relationship. Milan et.al. do not categorically deny Solid
Mills’ ownership of the property, and they do not claim superior right to it. What can be gathered from
the findings of the Labor Arbiter, National Labor Relations Commission, and the Court of Appeals is that
Solid Mills allowed the use of its property for the benefit of Milan et.al. as its employees. Milan et.al
were merely allowed to possess and use it out of Solid Mills’ liberality. The employer may, therefore,
demand the property at will.
DISPOSITIVE: Solid Mills won.
DOCTRINE: An employer is allowed to withhold terminal pay and benefits pending the employee’s
return of its properties. As a general rule, No employer, in his own behalf or in behalf of any person,
shall make any deduction from the wages of his employees. The following cases are considered
exceptions:
1. In cases where the worker is insured with his consent by the employer, and the deduction is
to recompense the employer for the amount paid by him as premium on the insurance;
2. For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and
3. In cases where the employer is authorized by law or regulations issued by the Secretary of
Labor and Employment.
COMMANDO SECURITY AGENCY v. NATIONAL LABOR RELATIONS COMMISSION and NEMESIO
DECIERDO
G.R. No. 95844
July 20, 1992
GRIÑO-AQUINO, J.:
Facts:
Private respondent Nemesio Decierdo was a security guard of the petitioner. Petitioner entered into a
contract to provide guarding services to the Alsons Development and Investment Corporation (ALSONS)
for a period of one year, unless renewed under such terms and conditions as may be mutually
acceptable. The number of guards to be assigned by the petitioner would depend on ALSON's demand,
sometimes two (2) guards on a daily shift, and sometimes four (4) guards. Decierdo was one of the
guards assigned to the Aldevinco Building by the petitioner.
On February 9, 1988, Maria Mila D. Samonte, Properties Administration Head of ALSONS, requested the
petitioner for a "periodic reshuffling" of guards. Pursuant to that reasonable request of its client,
petitioner on February 10, 1988 served recall order on Decierdo.
Detail Order 02-016 was issued to Decierdo assigning him to the Pacific Oil Company in Bunawan, Davao
City, with instruction to report to the manager, but Decierdo refused to accept the assignment as he is
going to rest for a while.
On February 11, 1988, which was the effective date of the detail order, Decierdo filed a complaint for
illegal dismissal, unfair labor practice, underpayment of wages, overtime pay, night premium, 13th
month pay, holiday pay, rest day pay and incentive leave pay.
On June 28, 1988, the Executive Labor Arbiter rendered a decision ordering respondent Commando
Security Agency to pay complainant Nemesio Decierdo salary, holiday and rest day pay differentials,
13th month pay differentials and service incentive leave pay; and dismissing the complaint for illegal
dismissal, unfair labor practice, overtime pay and night premium for lack of merit.
Petitioner appealed to the NLRC which on May 26, 1989, affirmed with modification the decision of the
Labor Arbiter. Hence, this petition for certiorari alleging that the NLRC gravely abused its discretion. The
petition for certiorari is without merit.
Issue:
Whether or not NLRC gravely abused its discretion in not holding that petitioner is entitled to a 25%
share of his monthly salary as agreed between them.
Decision:
Petitioner's contention that Decierdo is estopped from complaining about the 25% deduction from his
salary representing petitioner's share in procuring job placement for him, is not well taken. That
provision of the employment contract was illegal and inequitous, hence, null and void.
The constitutional provisions on social justice (Sections 9 and 10, Article II) and protection to labor (Sec.
18, Article II) in the declaration of Principles and State Policies, impose upon the courts the duty to be
ever vigilant in protecting the rights of workers who are placed in a contractually disadvantaged position
and who sign waivers or provisions contrary to law and public policy. We affirm the NLRC's ruling that: It
goes without saying that respondent may not deduct its so-called "share" from the salaries of its guards
without the latter's express consent and if such deductions are not allowed by law. This is
notwithstanding any previous agreement or understanding between them. Any such agreement or
contract is void ab initio being contrary to law and public policy.
Mabeza vs. NLRC [G.R. No. 118506 April 18, 1997]
Facts: Petitioner Norma Mabeza and her co-employees at the Hotel Supreme in Baguio City were asked
by the hotel’s management to sign an instrument attesting to the latter’s compliance with minimum
wage and other labor standard provision. The instrument provides that they have no complaints against
the management of the Hotel Supreme as they are paid accordingly and that they are treated well. The
petitioner signed the affidavit but refused to go to the City’s Prosecutor’s Office to confirm the veracity
and contents of the affidavit as instructed by management. That same day, as she refused to go to the
City Prosecutor’s Office, she was ordered by the hotel management to turn over the keys to her living
quarters and to remove her belongings to the hotel’s premises. She then filed a leave of absence which
was denied by her employer. She attempted to return to work but the hotel’s cashier told her that she
should not report to work and instead continue with her unofficial leave of absence. Three days after
her attempt to return to work, she filed a complaint against the management for illegal dismissal
before theArbitration Branch of the NLRC in Baguio City. In addition to that, she alleged
underpayment of wages, non-payment of holiday pay, service incentive leave pay, 13th month
pay, night differential and other benefits. Peter Ng, in their Answer, argued that her
unauthorized leave of absence from work is the ground for her dismissal. He even maintained
that her alleged of underpayment and non- payment of benefits had no legal basis. He raises a new
ground of loss of confidence, which was supported by his filing of criminal case for the alleged qualified
theft of the petitioner. The Labor Arbiterruled in favor of the hotel management on the ground of loss
of confidence. She appealed to the NLRC which affirmed the LaborArbiter’s decision. hence, this
petition.
Issue: Whether or not the dismissal by the private respondent of petitioner constitutes an unfair labor
practice.
Held: The NLRC’s decision is reversed. The pivotal question in any case where unfair labor practice on
the part of the employer is alleged is whether or not the employer has exerted pressure, in the
form of restraint, interference or coercion, against his employee’s right to institute concerted
action for better terms and conditions of employment. Without doubt, the act of compelling
employees to sign an instrument indicating that the employer observed labor standard provisions
of the law when he might not have, together with the act of terminating or coercing those who
refuse to cooperate with the employees’ scheme constitutes unfair labor practice. The labor arbiter’s
contention that the reason for the monetary benefits received by the petitioner between 1981 to
1987 were less than the minimum wage was because petitioner did not factor in the meals, lodging,
electric consumption and water she received during the period of computations. Granting that meals
and lodging were provided and indeed constituted facilities, such facilities could not be deducted
without the employer complying first with certain legalrequirements. Without satisfying these
requirements, the employer simply cannot deduct the value from the employee’s ages. First, proof must
be shown that such facilities are customarily furnished by the trade. Second, the provision of
deductible facilities must be voluntary accepted in writing by the employee. Finally, facilities must
be charged at fair and reasonable value. These requirements were not met in the instant
case. Private respondent failed to present anycompany policy to show that the meal and
lodging are part of thesalary. He also failed to provide proof of the employee’s written authorization
and he failed to show how he arrived at the valuations. More significantly, the food and lodging,
or electricity and water consumed by the petitioner were not facilities but supplements. A benefit or
privilege granted to an employee for the convenience of the employer is not a facility. The criterion in
making a distinction between the two not so much lies in the kind but the purpose. Considering,
therefore, that hotel workers are required to work on different shifts and are expected to be
available at various odd hours, their ready availability is a necessary matter in the operations of a small
hotel, such as the private respondent’s hotel.
NATIONAL FEDERATION OF SUGAR WORKERS (NFSW), petitioner,
vs.
ETHELWOLDO R. OVEJERA et. al., respondents
G.R. No. L-59743
May 31, 1982
FACTS:
NFSW struck against private respondent Central Azucarera de la Carlota (CAC) to compel the latter for
the payment of the 13th month pay under PD 851 (13th Month Pay Law) in addition to the Christmas,
milling and amelioration bonuses being enjoyed by CAC workers which amount to 1-½ months’ salary.
Labor Arbiter Ovejera declared the strike as illegal and no pronouncement was made as to the demand
on the 13th month pay. This caused petitioner to file an instant petition with SC.
ISSUE:
WON under PD 851, an employer is obliged to give its workers a 13th month salary in addition to
Christmas, milling and amelioration bonuses, the aggregate of which exceeds the 13th month pay.
HELD:
No.
The intention was to grant some relief — not to all workers — but only to the unfortunate ones not
actually paid a 13th month salary or what amounts to it, by whatever name called; but it was not
envisioned that a double burden would be imposed on the employer already paying his employees a
13th month pay or its equivalent — whether out of pure generosity or on the basis of a binding
agreement and, in the latter ease, regardless of the conditional character of the grant, so long as there
is actual payment. Otherwise, what was conceived to be a 13th month salary would in effect become a
14th or possibly 15th month pay.
Dole Philippines, Inc. vs Leogardo, Jr., G. R. No. 60018, October 23, 1982; 117 SCRA 938
(Labor Standards – Employer paying a year-end bonus less than 1/12 th of the basic pay required under
the law, can pay its difference)
Facts: STANFILCO, a company merged with petitioner Dole Philippines, inc entered into a collective
bargaining agreement with the Associated Labor Union. The CBA provided among others, the grant of a
year-end productivity bonus to all workers within the collective bargaining unit. The company agrees to
grant each worker within the bargaining unit a year-end productivity bonus equivalent to ten days of his
basic daily wage if eighty percent or more of the average total production for the two preceding
calendar years together with the current year’s estimate is attained.
Thereafter, PD 851 took effect. Section 1 thereof required all employers to pay their employees
receiving a basic salary of not more than P1,000 a month, regardless of the nature of their employment,
a 13th month pay not later than December 24 of every year. Section 2, however exempted from its
coverage those employers already paying their employees a 13th month pay or its equivalent.
Sec. 3 of The Rules and regulations Implementing PD 851 provides that the term “its equivalent” shall
include Christmas bonus, mid-year bonus, profit sharing payments and other cash bonuses amounting
to not less than 1/12th of the basic salary but shall not include cash and stock dividends, cost of living
allowances and other allowances regularly enjoyed by the employees as well as non-monetary benefits.
The rules further added that where an employer pays less than 1/12th of the employee’s basic salary,
the employer shall pay the difference.
Complying with the provision of PD 851 and relying on the interpretation of section 2 by the MOLE’s
implementing rules, STANFILCO paid its workers the difference between 1/12 th of their yearly basic
salary and their year-end productivity bonus. Respondent ALU, joined by petitioner’s employees filed a
complaint for the non-implementation of the CBA provision on the year-end productivity bonus.
Issue: WON productivity bonus agreed in the CBA is demandable aside from the 13th month pay
provided for in the PD 851.
Held: No. Year-end productivity bonus granted by petitioner to private respondents pursuant to their
CBA is, in legal contemplation, an integral part of their 13th month pay, notwithstanding its conditional
nature. In complying with PD 851, petitioner credited the year-end productivity bonus as part of the
13thmonth pay and adopted the procedure of paying only the difference between said bonus and
1/12th of the worker’s yearly basic salary, it acted well within the letter and spirit of the law and its
implementing rules. For in the event that an employer pays less than 1/12 th of the employees’ basic
salary, all that the said employer is required to do under the law is to pay the difference.
Universal Corn Products vs NLRC
SARMIENTO, J.:
The petitioner invokes National Federation of Sugar Workers (NFSW) v. Ovejera, 1 in which we held that
Presidential Decree No. 851, 2 the 13th-month pay law, does not cover employers already paying their
employees an "equivalent" to the 13th month pay.
There is no dispute as to the facts.
Sometime in May, 1972, the petitioner and the Universal Corn Products Workers Union entered into a
collective bargaining agreement in which it was provided, among other things, that:
xxx xxx xxx
The COMPANY agrees to grant all regular workers within the bargaining unit with at least one (1) year of
continuous service, a Christmas bonus equivalent to the regular wages for seven (7) working days,
effective December, 1972. The bonus shall be given to the workers on the second week of December.
In the event that the service of a worker is not continuous due to factory shutdown, machine
breakdown or prolonged absences or leaves, the Christmas bonus shall be prorated in accordance with
the length of services that worker concerned has served during the year . 3
xxx xxx xxx
The agreement had a duration of three years, effective June 1, 1971, or until June 1, 1974.
On account however of differences between the parties with respect to certain economic issues, the
collective bargaining agreement in question expired without being renewed. On June 1, 1979, the
parties entered into an "addendum" stipulating certain wage increases covering the years from 1974 to
1977. Simultaneously, they entered into a collective bargaining agreement for the years from 1979 to
1981. Like the "addendum," the new collective bargaining agreement did not refer to the "Christmas
bonus" theretofore paid but dealt only with salary adjustments. According to the petitioner, the new
agreements deliberately excluded the grant of Christmas bonus with the enactment of Presidential
Decree No. 851 4 on December 16, 1975. It further claims that since 1975, it had been paying its
employees 13th-month pay pursuant to the Decree. 5
For failure of the petitioner to pay the seven-day Christmas bonus for 1975 to 1978 inclusive, in
accordance with the 1972 CBA, the union went to the labor arbiter for relief. In his decision, 6 the labor
arbiter ruled that the payment of the 13th month pay precluded the payment of further Christmas
bonus. The union appealed to the National Labor Relations Commission (NLRC). The NLRC set aside the
decision of the labor arbiter appealed from and entered another one, "directing respondent company
[now the petitioner] to pay the members concerned of complainants [sic] union their 7-day wage bonus
in accordance with the 1972 CBA from 1975 to 1978." Justifying its reversal of the arbiter's decision, the
NLRC held:
xxx xxx xxx
It is clear that the company implemented the aforequoted provision of the CBA in 1972, 1973 and 1974.
In view thereof it is our considered opinion that the crediting of said benefit to the 13th month pay
cannot be sanctioned on the ground that it is contrary to Section 10 of the Rules and Regulations
Implementing Presidential Decree No. 85 1, which provides, to wit;
Section 10. Prohibition against reduction or elimination of benefits. — Nothing herein shall be construed
to authorize any employer to eliminate, or diminish in any way, supplements, or other employee
benefits or favorable practice being enjoyed by the employee at the time of promulgation of this
issuance.
More so because the benefit involved was not magnanimously extended by the company to its
employees but was obtained by the latter thru bargaining negotiations. The aforementioned CBA was
the law between the parties and the provisions thereof must be faithfully observed by them during its
effectivity. In this connection, it should be noted that the same parties entered into another 3-year CBA
on June 11, 1979, which no longer provides for a 7-day wage Christmas bonus. In effect, therefore, the
parties agreed to discontinue the privilege, which agreement should also be respected. 7
xxx xxx xxx
We hold that in the case at bar, Ovejera (La Carlota) case does not apply.
We apply instead, United CMC Textile Workers Union v. Valenzuela 8 a recent decision. In that case this
Court, speaking through Mr. Justice Edgardo Paras, held:
xxx xxx xxx
... If the Christmas bonus was included in the 13th month pay, then there would be no need for having a
specific provision on Christmas bonus in the CBA. But it did not provide for a bonus in graduated
amounts depending on the length of service of the employee. The intention is clear therefore that the
bonus provided in the CBA was meant to be in addition to the legal requirement. Moreover, why
exclude the payment of the 1978 Christmas bonus and pay only the 1979-1980 bonus. The classification
of the company's workers in the CBA according to their years of service supports the allegation that the
reason for the payment of bonus was to give bigger award to the senior employees-a purpose which is
not found by P.D. 851. A bonus under the CBA is an obligation created by the contract between the
management and workers while the 13th month pay is mandated by the law (P. D. 851). 9
xxx xxx xxx
In the same vein, we consider the seven-day bonus here demanded "to be in addition to the legal
requirement." Although unlike the Valenzuela CBA, which took effect after the promulgation of
Presidential Decree No. 851 in 1975, the subject agreement was entered into as early as 1972, that is no
bar to our application of Valenzuela. What is significant for us is the fact that, like
the Valenzuela, agreement, the Christmas bonus provided in the collective bargaining agreement
accords a reward, in this case, for loyalty, to certain employees. This is evident from the stipulation
granting the bonus in question to workers "with at least one (1) year of continuous service." As we said
in Valenzuela" this is "a purpose not found in P.D. 851." 10
It is claimed, however, that as a consequence of the impasse between the parties beginning 1974
through 1979, no collective bargaining agreement was in force during those intervening years. Hence,
there is allegedly no basis for the money award granted by the respondent labor body. But it is not
disputed that under the 1972 collective bargaining agreement, [i]f no agreement and negotiations are
continued, all the provisions of this Agreement shall remain in full force up to the time a new
agreement is executed." 11 The fact, therefore, that the new agreements are silent on the seven-day
bonus demanded should not preclude the private respondents' claims thereon. The 1972 agreement is
basis enough for such claims for the whole writing is " "instinct with an obligation," imperfectly
express." 12
WHEREFORE, premises considered, the petition is hereby DISMISSED. The Decision of the public
respondent NLRC promulgated on February 11, 1982, and its Resolution dated March 23, 1982, are
hereby AFFIRMED. The temporary restraining order issued on May 19, 1982 is LIFTED.
This Decision is IMMEDIATELY EXECUTORY.
No pronouncement as to costs.
SO ORDERED.
Yap (Chairman), Paras and Padilla, JJ., concur.
G.R. No. L-49774 February 24, 1981
SAN MIGUEL CORPORATION (CAGAYAN COCA-COLA PLANT), petitioner,
vs.
Hon. AMADO G. INCIONG, Deputy Minister of Labor and CAGAYAN COCA-COLA FREE WORKERS
UNION, respondents.
DE CASTRO, J.:
FACTS:
This is a complaint on January 3, 1977 by Cagayan Coca-Cola Free Workers Union against San Miguel
Corporation (Cagayan Coca-cola Plant) for the alleged failure or refusal of the latter to include in the
computation of 13-month pay such items as sick, vacation, or maternity leaves, premium for work done
on rest days and special holidays, including pay for regular holidays and night differentials.
ISSUE:
- WoN PD 851 includes payments for sick, vacation, or maternity leaves, premium of work
done on rest days and special holidays, including pay for regular holidays, and night
differentials should be considered in the computation for the 13-month pay?
a.) NO. Additional compensation shall not be considered in the computation of the 13-month pay.
Citing certain provisions of the Labor Code of the Philippines specifically Art. 87 on overtime work
performed beyond 8 hours a days is paid as additional compensation equivalent to a regular wage plus
25% hereof and Art 93 on work performed on any special holidays as an additional compensation of
atleast 30% of the regular wage of the employee, clearly, additional compensation is categorically
excluded from the definition of basic salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.
The Orders of the Deputy Labor Minister dated June 7, 1978 and December 19, 1978 are hereby set
aside and a new one entered as above indicated. The Temporary Restraining Order issued by this Court
on February 14, 1979 is hereby made permanent. No pronouncement as to cost.
Philippine Duplicators vs. NLRC
GR 110068 February 15, 1995
Facts:
Private respondent union, for and on behalf of its member-salesmen, asked petitioner corporation for
payment of 13th month pay computed on the basis of the salesmen’s fixed or guaranteed
wages plus commissions.
Petitioner corporation refused the union’s request, but stated it would respect an opinion from the
MOLE. On 17 November 1987, acting upon a request for opinion submitted by respondent union,
Director Augusto G. Sanchez of the Bureau of Working Conditions, MOLE, rendered an opinion to
respondent union declaring applicable the provisions of Explanatory Bulletin No. 86-12, Item No. 5 (a):
. . . . Since the salesmen of Philippine Duplicators are receiving a fixed basic wage plus commission on
sales and not purely on commission basis, they are entitled to receive 13th month pay provided they
worked at least one (1) month during the calendar year. May we add at this point that in computing
such 13th month pay, the total commissions of said salesmen for the calendar year shall be divided by
twelve (12). (Emphasis supplied)
Notwithstanding Director Sanchez’ opinion or ruling, petitioner refused to pay the claims of its
salesmen for 13th month pay computed on the basis of both fixed wage plus sales commissions.
Issue: WON sales commission is included in the coverage of basic salary for purposes of computing 13th
month pay.
Held:
1. Decision (1993)
In the first place, Article 97 (f) of the Labor Code defines the term “wage” (which is equivalent to
“salary,” as used in P.D. No. 851 and Memorandum Order No. 28) in the following terms:
(f) “Wage“ paid to any employee shall mean 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. “Fair and reasonable value” shall not include any profit to the employer or to any person
affiliated with the employer. (Emphasis supplied)
In the instant case, there is no question that the sales commissions earned by salesmen who make or
close a sale of duplicating machines distributed by petitioner corporation constitute part of the
compensation or remuneration paid to salesmen for serving as salesmen, and hence as part of the
“wage” or “salary” of petitioner’s salesmen. Indeed, it appears that petitioner pays its salesmen a small
fixed or guaranteed wage; the greater part of the salesmen’s wages or salaries being composed of the
sales or incentive commissions earned on actual sales closed by them. No doubt this particular salary
structure was intended for the benefit of petitioner corporation, on the apparent assumption that
thereby its salesmen would be moved to greater enterprise and diligence and close more sales in the
expectation of increasing their sales commissions. This, however, does not detract from the character of
such commissions as part of the salary or wage paid to each of its salesmen for rendering services to
petitioner corporation.
Petition and MR dismissed
2. Resolution (1995)
In Boie-Takeda the so-called commissions “paid to or received by medical representatives of Boie-
Takeda Chemicals or by the rank and file employees of Philippine Fuji Xerox Co.,” were excluded from
the term “basic salary” because these were paid to the medical representatives and rank-and-file
employees as “productivity bonuses.” The Second Division characterized these payments as additional
monetary benefits not properly included in the term “basic salary” in computing their 13th month
pay. As a rule a bonus is an amount granted and paid to an employee for his industry loyalty which
contributed to the success of the employer’s business and made possible the realization of profits. It is
an act of generosityof the employer for which the employee ought to be thankful and grateful. It is also
granted by an enlightened employer to spur the employee to greater efforts for the success of the
business and realization of bigger profits. From the legal point of view a bonus is not and mandable and
enforceable obligation. It is so when It is made part of the wage or salary or compensation.
2nd MR dismissed.
Boie-Takeda Chemicals, Inc. vs. de la Serna
228 SCRA 329, Dec. 10, 1993
Facts: P.D. No. 851 provides for the Thirteen-Month Pay Law. Under Sec. 1 of said law, “all employers are
required to pay all their employees receiving basic salary of not more than P 1,000.00 a month,
regardless of the nature of the employment, and such should be paid on December 24 of every year.”
The Rules and Regulations Implementing P.D. 851 contained provisions defining “13-month pay” and
“basic salary” and the employers exempted from giving it and to whom it is made applicable.
Supplementary Rules and Regulations Implementing P.D. 851 were subsequently issued by Minister
Ople which inter alia set items of compensation not included in the computation of 13-month pay.
(overtime pay, earnings and other remunerations which are not part of basic salary shall not be
included in the computation of 13-month pay). Pres. Corazon Aquino promulgated on August 13, 1985
M.O. No. 28, containing a single provision that modifies P.D. 851 by removing the salary ceiling of P
1,000.00 a month. More than a year later, Revised Guidelines on the Implementation of the 13-month
pay law was promulgated by the then Labor Secretary Franklin Drilon, among other things, defined
particularly what remunerative items were and were not included in the concept of 13-month pay, and
specifically dealt with employees who are paid a fixed or guaranteed wage plus commission or
commissions were included in the computation of 13th month pay)
A routine inspection was conducted in the premises of petitioner. Finding that petitioner had not been
including the commissions earned by its medical representatives in the computation of their 1-month
pay, a Notice of Inspection Result was served on petitioner to effect restitution or correction of “the
underpayment of 13-month pay for the years, 1986 to 1988 of Medical representatives. Petitioner
wrote the Labor Department contesting the Notice of Inspection Results, and expressing the view that
the commission paid to its medical representatives are not to be included in the computation of the 13-
moth pay since the law and its implementing rules speak of REGULAR or BASIC salary and therefore
exclude all remunerations which are not part of the REGULAR salary. Regional Dir. Luna Piezas issued an
order for the payment of underpaid 13-month pay for the years 1986, 1987 and 1988. A motion for
reconsideration was filed and the then Acting labor Secretary Dionisio de la Serna affirmed the order
with modification that the sales commission earned of medical representatives before August 13, 1989
(effectivity date of MO 28 and its implementing guidelines) shall be excluded in the computation of the
13-month pay.
Similar routine inspection was conducted in the premises of Phil. Fuji Xerox where it was found there
was underpayment of 13th month pay since commissions were not included. In their almost identically-
worded petitioner, petitioners, through common counsel, attribute grave abuse of discretion to
respondent labor officials
Hon. Dionisio dela Serna and Undersecretary Cresenciano B. Trajano.
ISSUE: Whether or not commissions are included in the computation of 13-month pay
HELD: NO. Contrary to respondent’s contention, M.O No. 28 did not repeal, supersede or abrogate P.D.
851. As may be gleaned from the language of MO No. 28, it merely “modified” Section 1 of the decree
by removing the P 1,000.00 salary ceiling. The concept of 13th Month pay as envisioned, defined and
implemented under P.D. 851 remained unaltered, and while entitlement to said benefit was no longer
limited to employees receiving a monthly basic salary of not more than P 1,000.00 said benefit was, and
still is, to be computed on the basic salary of the employee-recipient as provided under P.D. 851. Thus,
the interpretation given to the term “basic salary” was defined in PD 851 applies equally to “basic
salary” under M.O. No. 28. The term “basic salary” is to be understood in its common, generally
accepted meaning, i.e., as a rate of pay for a standard work period exclusive of such additional
payments as bonuses and overtime. In remunerative schemes consists of a fixed or guaranteed wage
plus commission, the fixed or guaranteed wage is patently the “basic salary” for this is what the
employee receives for a standard work period. Commissions are given for extra efforts exerted in
consummating sales of other related transactions. They are, as such, additional pay, which the SC has
made clear do not from part of the “basic salary.”
Moreover, the Supreme Court said that, including commissions in the computation of the 13th month
pay, the second paragraph of Section 5(a) of the Revised Guidelines on the Implementation of the 13th
Month Pay Law unduly expanded the concept of "basic salary" as defined in P.D. 851. It is a fundamental
rule that implementing rules cannot add to or detract from the provisions of the law it is designed to
implement. Administrative regulations adopted under legislative authority by a particular department
must be in harmony with the provisions of the law they are intended to carry into effect. They cannot
widen its scope. An administrative agency cannot amend an act of Congress.
Philippine Agricultural Commercial and Industrial Workers Union v. NLRC, August 14,
1995
PACIWU vs NLRC, 247 SCRA 256
(Labor Standards – Bus drivers and conductors on a purely commission basis are entitled to 13 thmonth
pay)
Facts: Petitioner union complaint for payment of 13th month pay to the drivers and conductors of
respondent company, on the ground that although said drivers and conductors are compensated on a
purely commission basis as described in their CBA, they are automatically entitled to the basic minimum
pay mandated by law should said commission be less than their basic minimum for eight (8) hours work.
Respondent Vallacar Transit, Inc. contended that since said drivers are compensated on a purely
commission basis, they are not entitled to 13th month pay pursuant to the exempting provisions
enumerated in paragraph 2 of the Revised Guidelines on the Implementation of the 13th Month Pay Law.
Section of Article XIV of the CBA expressly provides that drivers and conductors paid on a purely
commission are not legally entitled to 13th month pay. Said CBA, being the law between the parties,
must be respected.
Issue: WON the bus drivers and conductors of respondent Vallacar Transit, Inc. are entitled to 13 thmonth
pay.
Held: Yes. For purposes of entitling rank and file employees a 13th month pay, it is immaterial whether
the employees concerned are paid a guaranteed wage plus commission or a commission with
guaranteed wage inasmuch as the bottom line is that they receive a guaranteed wage. Thus is correctly
construed in the MOLE Explanatory Bulletin No. 86-12.
The 13th month pay of bus drivers and conductors must be one-twelfth (1/12) of their total earnings
during the calendar year.
SEVILLA TRADING COMPANY, Petitioner, vs. A.V.A. TOMAS E. SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, Respondents.
G.R. No. 152456 : April 28, 2004
FACTS:
On appeal is the Decision of the Court of Appeals (CA) sustaining the sustaining the Decision of
Accredited Voluntary Arbitrator Tomas E. Semana.
For two to three years prior to 1999, petitioner Sevilla Trading Company (Petitioner), a domestic
corporation engaged in trading business, organized and existing under Philippine laws, added to the
base figure, in its computation of the 13th-month pay of its employees, the amount of other benefits
received by the employees which are beyond the basic pay.
Petitioner claimed that it entrusted the preparation of the payroll to its office staff, including the
computation and payment of the 13th-month pay and other benefits.When it changed its person in
charge of the payroll in the process of computerizing its payroll, and after audit was conducted, it
allegedly discovered the error of including non-basic pay or other benefits in the base figure used in the
computation of the 13th-month pay of its employees.It cited the Rules and Regulations Implementing
P.D. No. 851 which stated:
“Basic salary shall include all remunerations or earnings paid by an employer to an employee for
services rendered but may not include cost-of-living allowances granted pursuant to P.D. No. 525 or
Letter of Instruction 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.”
Petitioner then effected a change in the computation of the thirteenth month pay, as follows:
13th-month pay = net basic pay
Hence, the new computation reduced the employees thirteenth month pay.The daily piece-rate workers
represented by private respondent Sevilla Trading Workers Union SUPER (Union, for short), a duly
organized and registered union, through the Grievance Machinery in their Collective Bargaining
Agreement, contested the new computation and reduction of their thirteenth month pay.The parties
failed to resolve the issue.
The Union alleged that petitioner violated the rule prohibiting the elimination or diminution of
employees benefits as provided for in Art. 100 of the Labor Code, as amended.They claimed that paid
leaves, like sick leave, vacation leave, paternity leave, union leave, bereavement leave, holiday pay and
other leaves with pay in the CBA should be included in the base figure in the computation of their 13th-
month pay.
ISSUE:
WONa voluntary act of the employerwhich was favorable to the employees though not conforming to
law, has ripened into a practice and therefore can be withdrawn, reduced, diminished, discontinued or
eliminated?
HELD:
NO. As such the SC affirms the decision of the Accredited Voluntary Arbitrator Tomas E. Semana
granting to pay corresponding back wages to all covered and entitled employees arising from the
exclusion of said benefits in the computation of 13th-month pay.
RATIO DECIDENDI:
With regard to the length of time the company practice should have been exercised to constitute
voluntary employer practice which cannot be unilaterally withdrawn by the employer, we hold that
jurisprudence has not laid down any rule requiring a specific minimum number of years. In the above
quoted case of Davao Fruits Corporation vs. Associated Labor Unions, the company practice lasted for
six (6) years. In another case, Davao Integrated Port Stevedoring Services vs. Abarquez, the employer,
for three (3) years and nine (9) months, approved the commutation to cash of the unenjoyed portion of
the sick leave with pay benefits of its intermittent workers. While in Tiangco vs. Leogardo, Jr. the
employer carried on the practice of giving a fixed monthly emergency allowance from November 1976
to February 1980, or three (3) years and four (4) months. In all these cases, this Court held that the
grant of these benefits has ripened into company practice or policy which cannot be peremptorily
withdrawn. In the case at bar, petitioner Sevilla Trading kept the practice of including non-basic
benefits such as paid leaves for unused sick leave and vacation leave in the computation of their 13th-
month pay for at least two (2) years. This, we rule likewise constitutes voluntary employer practice
which cannot be unilaterally withdrawn by the employer without violating Art. 100 of the Labor
Code.
Arco Metal Products Co., Inc., et al., vs. Samahan ng Mga Manggagawa sa Arco-Metal-NAFLU
G.R. No. 170734
May 14, 2008
Facts: Petitioner is a company engaged in the manufacture of metal products, whereas respondent is
the labor union of petitioner’s rank and file employees. Sometime in December 2003, petitioner paid
the 13th month pay, bonus, and leave encashment of three union members in amounts proportional to
the service they actually rendered in a year, which is less than a full twelve (12) months. Respondent
protested the prorated scheme, claiming that on several occasions petitioner did not prorate the
payment of the same benefits to seven (7) employees who had not served for the full 12 months.
According to respondent, the prorated payment violates the rule against diminution of benefits under
Article 100 of the Labor Code.
Thus, they filed a complaint before the National Conciliation and Mediation Board (NCMB).
Issue: Whether or not the grant of 13th month pay, bonus, and leave encashment in full regardless of
actual service rendered constitutes voluntary employer practice and, consequently, whether or not the
prorated payment of the said benefits constitute diminution of benefits under Article 100 of the Labor
Code.
Ruling: Any benefit and supplement being enjoyed by employees cannot be reduced, diminished,
discontinued or eliminated by the employer. 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. Said mandate in turn is the basis of Article 4 of the Labor Code which states that all
doubts in the implementation and interpretation of this Code, including its implementing rules and
regulations shall be rendered in favor of labor.
Jurisprudence is replete with cases which recognize the right of employees to benefits which were
voluntarily given by the employer and which ripened into company practice. Thus in DavaoFruits
Corporation v. Associated Labor Unions, et al. where an employer had freely and continuously included
in the computation of the 13th month pay those items that were expressly excluded by the law, we held
that the act which was favorable to the employees though not conforming to law had thus ripened into
a practice and could not be withdrawn, reduced, diminished, discontinued or eliminated. In Sevilla
Trading Company v. Semana, we ruled that the employer’s act of including non-basic benefits in the
computation of the 13th month pay was a voluntary act and had ripened into a company practice which
cannot be peremptorily withdrawn.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy of freely,
voluntarily and consistently granting full benefits to its employees regardless of the length of service
rendered. True, there were only a total of seven employees who benefited from such a practice, but it
was an established practice nonetheless. 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. Thus, it can be six (6) years, three (3) years, or even as short as two (2)
years. Petitioner cannot shirk away from its responsibility by merely claiming that it was a mistake or an
error, supported only by an affidavit of its manufacturing group head. Hence, petition was denied.
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 Corporation’s 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.
INSULAR HOTEL EMPLOYEES UNION-NF vs. WATERFRONT INSULAR HOTEL DAVAO
G.R. No. 174040-41 September 22, 2010
PERALTA, J p:
FACTS: Respondent Waterfront Insular Hotel Davao (respondent) sent the Department of Labor and
Employment (DOLE), Region XI, Davao City, a Notice of Suspension of Operations notifying the same
that it will suspend its operations for a period of six months due to severe and serious business losses.
In said notice, respondent assured the DOLE that if the company could not resume its operations within
the six-month period, the company would pay the affected employees all the benefits legally due to
them.
During the period of the suspension, Domy R. Rojas (Rojas), the President of Davao Insular Hotel Free
Employees Union (DIHFEU-NFL), the recognized labor organization in Waterfront Davao, sent
respondent a number of letters asking management to reconsider its decision.
In a letter dated November 8, 2000, Rojas intimated that the members of the Union were determined to
keep their jobs and that they believed they too had to help respondent.
In another letter dated November 20, 2000, Rojas sent respondent more proposals as a form of the
Union's gesture of their intention to help the company.
It is understood that with the suspension of the CBA renegotiations, the same existing CBA shall be
adopted and that all provisions therein shall remain enforced except for those mentioned in this
proposal.
These proposals shall automatically supersede the affected provisions of the CBA.
In a handwritten letter dated November 25, 2000, Rojas once again appealed to respondent for it to
consider their proposals and to re-open the hotel. In said letter, Rojas stated that manpower for fixed
manning shall be one hundred (100) rank-and-file Union members instead of the one hundred forty-five
(145) originally proposed.
Finally, sometime in January 2001, DIHFEU-NFL, through Rojas, submitted to respondent a
Manifesto concretizing their earlier proposals.
After series of negotiations, respondent and DIHFEU-NFL, represented by its President, Rojas, and Vice-
Presidents, Exequiel J. Varela Jr. and Avelino C. Bation, Jr., signed a Memorandum of Agreement (MOA)
wherein respondent agreed to re-open the hotel subject to certain concessions offered by DIHFEU-NFL
in its Manifesto.
Accordingly, respondent downsized its manpower structure to 100 rank-and-file employees as set forth
in the terms of the MOA. Moreover, as agreed upon in the MOA, a new pay scale was also prepared by
respondent.
The retained employees individually signed a "Reconfirmation of Employment" which embodied the
new terms and conditions of their continued employment. Each employee was assisted by Rojas who
also signed the document.
On June 15, 2001, respondent resumed its business operations.
On August 22, 2002, Darius Joves (Joves) and Debbie Planas, claiming to be local officers of the National
Federation of Labor (NFL), filed a Notice of Mediation before the National Conciliation and Mediation
Board (NCMB), Region XI, Davao City. In said Notice, it was stated that the Union involved was "DARIUS
JOVES/DEBBIE PLANAS ET AL., National Federation of Labor." The issue raised in said Notice was the
"Diminution of wages and other benefits through unlawful Memorandum of Agreement."
On August 29, 2002, the NCMB called Joves and respondent to a conference to explore the possibility of
settling the conflict. In the said conference, respondent and petitioner Insular Hotel Employees Union-
NFL (IHEU-NFL), represented by Joves, signed a Submission Agreement wherein they chose AVA Alfredo
C. Olvida (AVA Olvida) to act as voluntary arbitrator. Submitted for the resolution of AVA Olvida was the
determination of whether or not there was a diminution of wages and other benefits through an
unlawful MOA. In support of his authority to file the complaint, Joves, assisted by Atty. Danilo Cullo
(Cullo), presented several Special Powers of Attorney (SPA) which were, however, undated and
unnotarized.
On September 16, 2002, a second preliminary conference was conducted in the NCMB, where Cullo
denied any existence of an intra-union dispute among the members of the union. Cullo, however,
confirmed that the case was filed not by the IHEU-NFL but by the NFL. When asked to present his
authority from NFL, Cullo admitted that the case was, in fact, filed by individual employees named in
the SPAs. The hearing officer directed both parties to elevate the aforementioned issues to AVA Olvida.
The case was docketed as Case No. AC-220-RB-11-09-022-02 and referred to AVA Olvida. Respondent
again raised its objections, specifically arguing that the persons who signed the complaint were not the
authorized representatives of the Union indicated in the Submission Agreement nor were they parties
to the MOA. AVA Olvida directed respondent to file a formal motion to withdraw its submission to
voluntary arbitration.
Issues and Ruling:
1. Who may file a notice or declare a strike or lockout or request preventive mediation?
Section 3, Rule IV of the NCMB Manual of Procedure provides who may file a notice of preventive
mediation, to wit:
Who may file a notice or declare a strike or lockout or request preventive mediation. —
Any certified or duly recognized bargaining representative may file a notice or declare a strike or request
for preventive mediation in cases of bargaining deadlocks and unfair labor practices. The employer may
file a notice or declare a lockout or request for preventive mediation in the same cases. In the absence
of a certified or duly recognized bargaining representative, any legitimate labor organization in the
establishment may file a notice, request preventive mediation or declare a strike, but only on grounds of
unfair labor practice.
From the foregoing, it is clear that only a certified or duly recognized bargaining agent may file a notice
or request for preventive mediation. It is curious that even Cullo himself admitted, in a number of
pleadings, that the case was filed not by the Union but by individual members thereof. Clearly,
therefore, the NCMB had no jurisdiction to entertain the notice filed before it.
2. WON the NCMB and Voluntary Arbitrators had no jurisdiction over the complaint.
Even though respondent signed a Submission Agreement, it had, however, immediately manifested its
desire to withdraw from the proceedings after it became apparent that the Union had no part in the
complaint. As a matter of fact, only four days had lapsed after the signing of the Submission Agreement
when respondent called the attention of AVA Olvida in a "Manifestation with Motion for a Second
Preliminary Conference" that the persons who filed the instant complaint in the name of Insular Hotel
Employees Union-NFL had no authority to represent the Union.
Respecting petitioners' thesis that unsettled grievances should be referred to voluntary arbitration as
called for in the CBA, the same does not lie. The pertinent portion of the CBA reads:
“In case of any dispute arising from the interpretation or implementation of this Agreement or any
matter affecting the relations of Labor and Management, the UNION and the COMPANY agree to
exhaust all possibilities of conciliation through the grievance machinery. The committee shall resolve all
problems submitted to it within fifteen (15) days after the problems ha[ve] been discussed by the
members. If the dispute or grievance cannot be settled by the Committee, or if the committee failed to
act on the matter within the period of fifteen (15) days herein stipulated, the UNIONand the COMPANY
agree to submit the issue to Voluntary Arbitration. Selection of the arbitrator shall be made within
seven (7) days from the date of notification by the aggrieved party. The Arbitrator shall be selected by
lottery from four (4) qualified individuals nominated by in equal numbers by both parties taken from the
list of Arbitrators prepared by the National Conciliation and Mediation Board (NCMB). If the Company
and the Union representatives within ten (10) days fail to agree on the Arbitrator, the NCMB shall name
the Arbitrator. The decision of the Arbitrator shall be final and binding upon the parties. However, the
Arbitrator shall not have the authority to change any provisions of the Agreement. The cost of
arbitration shall be borne equally by the parties.”
3. WON the individual members of the Union have the requisite standing to question the
MOA before the NCMB?
Petitioners have not, however, been duly authorized to represent the union.
“Pursuant to Article 260 of the Labor Code, the parties to a CBA shall name or designate their respective
representatives to the grievance machinery and if the grievance is unsettled in that level, it shall
automatically be referred to the voluntary arbitrators designated in advance by parties to a CBA.
Consequently, only disputes involving the union and the company shall be referred to the grievance
machinery or voluntary arbitrators.
4. If the individual members of the Union have no authority to file the case, does the
federation to which the local union is affiliated have the standing to do so?
A local union does not owe its existence to the federation with which it is affiliated. It is a separate and
distinct voluntary association owing its creation to the will of its members. Mere affiliation does not
divest the local union of its own personality, neither does it give the mother federation the license to
act independently of the local union. It only gives rise to a contract of agency, where the former acts in
representation of the latter. Hence, local unions are considered principals while the federation is
deemed to be merely their agent.”
Based on the foregoing, this Court agrees with approval with the disquisition of the CA when it ruled
that NFL had no authority to file the complaint in behalf of the individual employees
“the voluntary arbitrator had no jurisdiction over the case. Waterfront contents that the Notice of
Mediation does not mention the name of the Union but merely referred to the National Federation of
Labor (NFL) with which the Union is affiliated. In the subsequent pleadings, NFL's legal counsel even
confirmed that the case was not filed by the union but by NFL and the individual employees named in
the SPAs which were not even dated nor notarized.
Even granting that petitioner Union was affiliated with NFL, still the relationship between that of the
local union and the labor federation or national union with which the former was affiliated is generally
understood to be that of agency, where the local is the principal and the federation the agency. Being
merely an agent of the local union, NFL should have presented its authority to file the Notice of
Mediation. While We commend NFL's zealousness in protecting the rights of lowly workers, We cannot,
however, allow it to go beyond what it is empowered to do.”
As provided under the NCMB Manual of Procedures, only a certified or duly recognized bargaining
representative and an employer may file a notice of mediation, declare a strike or lockout or request
preventive mediation. The Collective Bargaining Agreement (CBA), on the other, recognizes that
DIHFEU-NFL is the exclusive bargaining representative of all permanent employees. The inclusion of the
word "NFL" after the name of the local union merely stresses that the local union is NFL's affiliate. It
does not, however, mean that the local union cannot stand on its own. The local union owes its creation
and continued existence to the will of its members and not to the federation to which it belongs. The
spring cannot rise higher than its source, so to speak.
5. WON respondent was not really suffering from serious losses as found by the CA.
No. In its petition before the CA, respondent submitted its audited financial statements which show that
for the years 1998, 1999, until September 30, 2000, its total operating losses amounted to
P48,409,385.00. Based on the foregoing, the CA was not without basis when it declared that
respondent was suffering from impending financial distress. While the Wage Board denied respondent's
petition for exemption, this Court notes that the denial was partly due to the fact that the June 2000
financial statements then submitted by respondent were not audited. Cullo did not question nor
discredit the accuracy and authenticity of respondent's audited financial statements. This Court,
therefore, has no reason to question the veracity of the contents thereof. Moreover, it bears to point
out that respondent's audited financial statements covering the years 2001 to 2005 show that it still
continues to suffer losses.
6. WON Article 100 of the Labor Code applies only to benefits already enjoyed at the time
of the promulgation of the Labor Code.
No. Article 100 of the Labor Code provides:
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 the promulgation of this Code.
Clearly, the prohibition against elimination or diminution of benefits set out in Article 100 of the Labor
Code is specifically concerned with benefits already enjoyed at the time of the promulgation of the
Labor Code. Article 100 does not, in other words, purport to apply to situations arising after the
promulgation date of the Labor Code
7. Does the non-ratification of the MOA in accordance with the Union's constitution prove
fatal to the validity thereof?
No. It must be remembered that after the MOA was signed, the members of the Union individually
signed contracts denominated as "Reconfirmation of Employment." Cullo did not dispute the fact that
of the 87 members of the Union, who signed and accepted the "Reconfirmation of Employment," 71 are
the respondent employees in the case at bar. Moreover, it bears to stress that all the employees were
assisted by Rojas, DIHFEU-NFL's president, who even co-signed each contract.
Stipulated in each Reconfirmation of Employment were the new salary and benefits scheme. In
addition, it bears to stress that specific provisions of the new contract also made reference to the MOA.
Thus, the individual members of the union cannot feign knowledge of the execution of the MOA. Each
contract was freely entered into and there is no indication that the same was attended by fraud,
misrepresentation or duress. To this Court's mind, the signing of the individual "Reconfirmation of
Employment" should, therefore, be deemed an implied ratification by the Union members of the MOA.
While the terms of the MOA undoubtedly reduced the salaries and certain benefits previously enjoyed
by the members of the Union, it cannot escape this Court's attention that it was the execution of the
MOA which paved the way for the re-opening of the hotel, notwithstanding its financial distress. More
importantly, the execution of the MOA allowed respondents to keep their jobs. It would certainly be
iniquitous for the members of the Union to sign new contracts prompting the re-opening of the hotel
only to later on renege on their agreement on the fact of the non-ratification of the MOA.
MAMERTO B. ASIS vs MINISTER OF LABOR AND EMPLOYMENT
G.R. No. 58094-95
March 15, 1989
Facts:
 The petitioner was the appointed Legal Counsel of the Central Azucarera de Pilar Later on,
concurrently with his position as Legal Counsel, he was named Head of its Manpower and Services
Department. In addition to his basic salaries and other fringe benefits, his employer granted him, and a
few other officials of the company, a monthly ration of 200 liters of gasoline and a small tank of
liquefied petroleum gas (LPG). This monthly ration was temporarily revoked some five (5) years later as
a form of cost reduction measure. He filed a case with the Ministry of Labor, who in turn rendered a
judgment in his favor, however when it was found that he was responsible for provoking other
employees to file actions against his employer, the Ministry of Labor reversed its decision. The private
respondent points out that they can no longer accept the petitioner for they have already lost their
trust and confidence in him.
Issues:
Whether or not the suspension of the monthly ration of fuel and LPG of the petitioner as a
cost-reduction measure would constitute a diminution of benefits.
Ruling:
No, the suspension of the monthly ration of fuel and LPG of the petitioner as a cost-
reduction measure would not constitute a diminution of benefits.
The temporary revocation had been occasioned
American Wire & Cable Daily Rated Employees Union vs. Amercan Wire & Cable Co., Inc., & the Court
of Appeals
G.R. No.155059. April 29, 2005
Facts: American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of wires and
cables. There are two unions in this company, the American Wire and Cable Monthly-Rated Employees
Union and the American Wire and Cable Daily-Rated Employees Union.
On 16 February 2001, an original action was filed before the NCMB of the Department of Labor and
Employment by the two unions for voluntary arbitration. They alleged that the private respondent,
without valid cause, suddenly and unilaterally withdrew and denied certain benefits and entitlements
which they have long enjoyed. These are Service Award, 35% premium pay of an employee’s basic pay
for the work rendered during Holy Monday, Holy Tuesday, Holy Wednesday, December 23, 26, 27, 28
and 29, Christmas Party and Promotional Increase.
Issue: Whether or not the respondent company violated Article 100 of the Labor Code.
Ruling: The Court ruled that company is not guilty of violating Art. 100 of the Labor Code.
Article 100 of the Labor Code provides:
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.
The certain benefits and entitlements are considered bonuses. A bonus can only be enforceable and
demandable if it has ripened into a company practice. It must also be expressly agreed by the employer
and employee or it must be on a fixed amount.
The assailed benefits were never subjects of any agreement between the union and the company. It
was never incorporated in the CBA. Since all these benefits are in the form of bonuses, it is neither
enforceable nor demandable.
G.R. No. 198783 April 15, 2013 ROYAL PLANT WORKERS UNION, Petitioner, vs. COCA-COLA BOTTLERS
PHILIPPINES, INC.-CEBU PLANT, Respondent.
FACTS: Under the employ of CCBPI-Cebu are 20 bottling operators who are male and they are members
of herein respondent Royal Plant Workers Union. Said bottling operators work for 8 hour shift with 15-
30 minutes breaks every after 2 ½ hours. It has been a practice of the CCBPI to provide the operators
with chairs in their bottling line for more than 30 years. However, when CCBPI implemented its “I
Operate, I Maintain, I Clean" program said chairs were removed but their rest period was fixed to 30
minutes every after 1 ½ hours to optimize their efficiency and CCBPI’s machineries and equipment. The
bottling operators took issue with the removal of the chairs. Through the representation of herein
respondent, they initiated the grievance machinery of the Collective Bargaining Agreement (CBA), but
failed to arrive at an amicable settlement. The Arbitration Committee rendered a decision in favor of the
RPWU, but later reversed and set aside by the CA.
ISSUE: Whether or not the removal of the chairs in the bottling line under the “I Operate, I Maintain, I
Clean" program of the CCBPI is a valid exercise of management prerogative and does not run contrary to
Article 100 of the Labor Code.
HELD: Yes, it is a valid exercise of management prerogative. The Court has held that management is free
to regulate, according to its own discretion and judgment, all aspects of employment, including hiring,
work assignments, working methods, time, place, and manner of work, processes to be followed,
supervision of workers, working regulations, transfer of employees, work supervision, lay-off of workers,
and discipline, dismissal and recall of workers. The exercise of management prerogative, however, is not
absolute as it must be exercised in good faith and with due regard to the rights of labor. In the present
controversy, it cannot be denied that CCBPI removed the operators’ chairs pursuant to a national
directive and in line with its "I Operate, I Maintain, I Clean" program, launched to enable the Union to
perform their duties and responsibilities more efficiently. The chairs were not removed indiscriminately.
They were carefully studied with due regard to the welfare of the members of the Union. The removal
of the chairs was compensated by: a) a reduction of the operating hours of the bottling operators from a
two-and-one-half (2 ½)-hour rotation period to a one-and-a-half (1 ½) hour rotation period; and b) an
increase of the break period from 15 to 30 minutes between rotations. Apparently, the decision to
remove the chairs was done with good intentions as CCBPI wanted to avoid instances of operators
sleeping on the job while in the performance of their duties and responsibilities and because of the fact
that the chairs were not necessary considering that the operators constantly move about while working.
In short, the removal of the chairs was designed to increase work efficiency. Hence, CCBPI’s exercise of
its management prerogative was made in good faith without doing any harm to the workers’ rights.
G.R. No. 78261-62 March 8, 1989
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
HON. LABOR ARBITER ARIEL C. SANTOS, PHILIPPINE ASSOCIATION OF FREE LABOR UNIONS (PAFLU-
RMC CHAPTER) and its members, MICHAEL PENALOSA, ET AL., SAMAHANG DIWANG MANGGAGAWA
SA RMC-FFW CHAPTER, and its members, JAIME ARADA, ET AL., respondents.
The Chief Legal Counsel for petitioner DBP.
Pablo B. Castillon for private respondents.
Reynaldo B. Aralar & Associates for the Arada respondents.
Sisenando R. Villaluz, Jr. for individual respondents.
GUTIERREZ, JR., J.:
This petition calls for the interpretation of Article 110 of the Labor Code which gives the workers
preferences as regards wages in case of liquidation or bankruptcy of an employer's business. Petitioner
Development Bank of the Philippines (DBP) maintains the Article 110 does not apply where there has
been an extra-judicial foreclosure proceeding while the respondents claim otherwise. Labor Arbiter
Ariel C. Santos sustained the private respondent's position. Petitioner DBP has now elevated the case to
us by way of this petition for certiorari.
On November 29,1984, in NLRC-NCR Case No. 2517-84 entitled "Philippine Association of Free Labor
Unions (PAFLU-RMC Chapter) and its Members v. Riverside Mills Corporation, et al.", Labor Arbiter
Manuel Caday awarded separation pay, wage and/or living allowance increases and 13th month pay to
the individual complainants who comprise some of the respondents in this case.
On March 18, 1985, Labor Arbiter Teodorico Dogelio likewise awarded separation pay, vacation and sick
leave pay and unpaid increases in the basic wage and allowances to the other private respondents
herein in NLRC Case No. NCR-7-2577-84 entitled "Michael Penalosa, Jose Garcia and Apolinar Ray, et al.,
v. Riverside Mills Corporation, et al., and Samahang Diwang Manggagawa sa RMC-FFW Chapter, et al., v.
Riverside Mills Corporation (RMC)." On March 29, 1985, after the judgment had become final and
executory, Dogelio issued a writ of execution directing NLRC Deputy Sheriff Juanita Atienza to collect the
total sum of Eighty Five Million Nine Hundred Sixty One thousand Fifty-Eight & 70/100 Pesos
(P85,961,058.70). The Deputy Sheriff, however, failed to collect the amount so he levied upon personal
and real properties of RMC.
On April 25, 1985, a notice of levy on execution of certain real properties was annotated on the
certificate of title filed with the Register of Deeds of Pasig, Metro Manila, where all the said properties
are situated.
Meanwhile in the other development which led to this case, petitioner DBP obtained a writ of
possession on June 7, 1985 from the Regional Trial Court (RTC) of Pasig of all the properties of RMC
after having extra-judicially foreclosed the same at public auction earlier in 1983. DBP subsequently
leased the said properties to Egret Trading and Manufacturing Corporation, Rosario Textile Mills and
General Textile Mills.
The writ of possession prevented the scheduled auction sale of the RMC properties which were levied
upon by the private respondents. As a result, on June 19, 1985, the latter filed an incidental petition
with the NLRC to declare their preference over the levied properties. The petition entitled "PAFLU-RMC
Chapter and its members, Michael Penalosa, et al., and the Samahang Diwang Manggagawa sa RMC-
FFW Chapter and its members v. RMC and DBP, et al." was docketed as NLRC Case No. NCR-7-2577-84.
Petitioner DBP filed its position paper and memorandum in answer to the petition.
On October 31, 1985, Dogelio issued an order recognizing and declaring the respondents' first
preference as regards wages and other benefits due them over and above all earlier encumbrances on
the aforesaid properties/assets of said company, particulary those being asserted by respondent
Development Bank of the Philippines.' (p. 84, Rollo)
The petitioner appealed the order of Dogelio to the NLRC. The latter in turn, set aside the order and
remanded the case to public respondent Labor Arbiter Santos for further proceedings.
Meanwhile, another set of complainants (who are also named as respondents herein) filed, on April 7,
1986, a complaint for separation pay, underpayment, damages, etc., entitled 'Jaime Arada, et al. v. RMC,
DBP, Egret Trading and Manufacturing Corp., docketed as NLRC Case No. NCR-4-1278-86." This case was
subsequently consolidated with the case pending before respondent Santos. Accordingly, the latter
conducted several hearings where the parties, particulary DBP, General Textile Mills, Inc., and Rosario
Textile Mills, Inc., were given the opportunity to argue their respective theories of the case. Eventually,
all the parties agreed that the case shall be submitted for decision after their filing of positions papers
and/or memorandums.
On March 31, 1987, public respondent Santos rendered the questioned decision, the dispositive portion
of which reads:
WHEREFORE, it is hereby declared that all the complainants in the above- entitled cases, as former
employees of respondent Riverside Mills Corporation, enjoy first preference as regards separation pay,
unpaid wages and other benefits due them over and above all earlier encumbrances on all of the
assets/properties of RMC specifically those being asserted by respondent DBP.
As a consequence of the above declaration, the decision dated March 18, 1983 of the then Hon. Arbiter
Teodorico Dogelio should be immediately enforced against DBP who is hereby directed to pay all the
monetary claims of complainants who were former employees of respondent RMC.
Anent the Arada case, DBP is hereby directed to pay all the amounts as indicated opposite the names of
complainants listed from page I to page 5 of Annex "A" of complainants' complaint provided that their
names are not among those listed in the Penalosa case.
It is hereby also declared that former employees whose names are not listed in the complainants'
position papers but can prove that they were former employees of RMC prior to its bankruptcy, should
also be paid the same monetary benefits being granted to herein complainants.
Finally, DBP is hereby ordered to deposit with the National Labor Relations Commission the proceeds of
the sale of the assets of RMC between DBP on one hand and General Textile Mills, Inc. and/ or Rosario
Textile Mills, Inc., on the other hand and that future payment being made by the latter to the former
should be deposited with the National Labor Relations Commission for proper disposition. (pp. 174-175,
Rollo)
Hence, this petition.
Petitioner DBP maintains that the public respondent misinterpreted Article 110 of the Labor Code and
Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code in that
the said respondent upheld the existence of the worker's preference over and above earlier
encumbrances on the properties of RMC despite the absence of any bankruptcy or liquidation
proceeding instituted against the latter. The petitioner argues that there must be a judicial declaration,
or at the very least, a cognizance by an appropriate court or administrative agency of bankruptcy or
inability of the employer to meet its obligations.
On the other hand, the respondents contend that under both Article 110 and its implementing rule, the
claims of the laborers for unpaid wages and other monetary benefits due them for services rendered
prior to bankruptcy enjoy first preference in the satisfaction of credits against a bankrupt company; that
the word "bankruptcy" in the Labor Code is used in its generic sense, meaning that condition of inability
to pay one's debt; and that Article 110 of the Labor Code is not confined to the situation contemplated
in Articles 2236-2245 of the Civil Code where all the preferred creditors must necessarily be convened
and the import of their claims ascertained.
We apply the rule expressed in Republic v. Peralta (150 SCRA 37 [1988] ), where we stated:
Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation.
Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the
classification, concurrence and preference of credits, which provisions find particular application in
insolvency proceedings where the claims of all creditors, prefer red or non-preferred, may be
adjudicated in a binding manner. (Barreto v. Villanueva, 1 SCRA 288 [ 1961] ). (pp. 44-45)
In the above quoted case, there was a voluntary insolvency proceeding instituted by the employer. The
respondents, however, contend that since in the case at bar there is only an extra-judicial proceeding,
Article 110 is still the only law applicable without regard to the provisions of the Civil Code.
We do not agree with this contention.
Article 110 of the Labor Code and Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code provide:
Article 110. Worker preference in case of bankruptcy in the event of bankruptcy or liquidation of an
employer's business, his workers shall enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
Article 10. Payment of wages in case of bankruptcy. Unpaid wages earned by the employee before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first
preference and shall be paid in full before other creditors may establish any claim to the assets of the
employer.
It is quite clear from the provisions that a declaration of bankruptcy or a judicial liquidation must be
present before the worker's preference may be enforced. Thus, Article 110 of the Labor Code and its
implementing rule cannot be invoked by the respondents in this case absent a formal declaration of
bankruptcy or a liquidation order. Following the rule in Republic v. Peralta, supra, to hold that Article
110 is also applicable in extra-judicial proceedings would be putting the worker in a better position than
the State which could only assert its own prior preference in case of a judicial proceeding. Therefore, as
stated earlier, Article 110 must not be viewed in isolation and must always be reckoned with the
provisions of the Civil Code.
There was no issue of judicial vis-a-vis extra-judicial proceedings in the Republic v. Peralta interpretation
of Article 110 but the necessity of a judicial adjudication was pointed out when we explained the impact
of Article 110 on the concurrence and preference of credits provided in the Civil Code.
We stated:
We come to the question of what impact Article 110 of the Labor Code has had upon the complete
scheme of classification, concurrence and preference of credits in insolvency set out in the Civil Code.
We believe and so hold that Article 110 of the Labor Code did not sweep away the overriding
preference accorded under the scheme of the Civil Code to tax claims of the government or any
subdivision thereof which constitute a lien upon properties of the Insolvent. ... It cannot be assumed
simpliciter that the legislative authority, by using Article 110 of the words 'first preference' and any
provisions of law to the contrary notwithstanding intended to disrupt the elaborate and symmetrical
structure set up in the Civil Code. Neither can it be assumed casually that Article 110 intended to
subsume the sovereign itself within the term 'other creditors', in stating that 'unpaid wages shall be
paid in full before other creditors may establish any claim to a share in the assets of employer.' Insistent
considerations of public policy prevent us from giving to 'other creditors a linguistically unlimited scope
that would embrace the universe of creditors save only unpaid employees.
Moreover, the reason behind the necessity for a judicial proceeding or a proceeding in rem before the
concurrence and preference of credits may be applied was explained by this Court in the case of
Philippine Savings Bank v. Lantin (124 SCRA 476 [1983] ). We said:
The proceedings in the court below do not partake of the nature of the insolvency proceedings or
settlement of a decedent's estate. The action filed by Ramos was only to collect the unpaid cost of the
construction of the duplex apartment. It is far from being a general liquidation of the estate of the
Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both proceedings in rem which are
binding against the whole world. All persons having interest in the subject matter involved, whether
they were notified or not, are equally bound. Consequently, a liquidation of similar import or 'other
equivalent general liquidation must also necessarily be a proceeding in rem so that all interested
persons whether known to the parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there were no known creditors other than the
plaintiff and the defendant herein', this can not be conclusive. It will not bar other creditors in the event
they show up and present their claim against the petitioner bank, claiming that they also have preferred
liens against the property involved. Consequently, Transfer Certificate of Title No. 101864 issued in favor
of the bank which is supposed to be indefeasible would remain constantly unstable and questionable.
Such could not have been the intention of Article 2243 of the Civil Code although it considers claims and
credits under Article 2242 as statutory liens. Neither does the De Barreto case ... .
The claims of all creditors whether preferred or non-preferred, the identification of the preferred ones
and the totality of the employer's asset should be brought into the picture, There can then be an
authoritative, fair, and binding adjudication instead of the piece meal settlement which would result
from the questioned decision in this case.
We, therefore, hold that Labor Arbiter Ariel C. Santos committed grave abuse of discretion in ruling that
the private respondents may enforce their first preference in the satisfaction of their claims over those
of the petitioner in the absence of a declaration of bankruptcy or judicial liquidation of RMC. There is, of
course, nothing in this decision which prevents the respondents from instituting involuntary insolvency
or any other appropriate proceeding against their employer RMC where respondents' claims can be
asserted with respect to their employer's assets.
WHEREFORE, the petition is hereby GRANTED. The questioned decision of the public respondent is
ANNULLED and SET ASIDE. The Temporary Restraining Order we issued on May 20, 1987 enjoining the
enforcement of the questioned decision is made PERMANENT. No costs.
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.
G.R. No. 79351 November 28, 1989
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.THE HON. SECRETARY OF LABOR, CRESENCIA
DIFONTORUM, ET AL., respondents.
Facts of the case:
Private respondents won a case for illegal dismissal, unfair labor practice, illegal deductions from
salaries and violation of the minimum wage law against Riverside Mills Corporation. Consequently, a
writ of execution was issued, on October 22, 1985 , against the goods and chattel of RMC. Said assets
however had already been foreclosed by petitioner Development Bank of the Philippines (DBP) through
an extra-judicial proceedings as early as 1983. Private respondents, in a motion, moved for the delivery
of RMC properties in possession of DBP, relying on the provisions of Article 110 of the Labor Code giving
them first preference over the mortgaged properties of RMC for the satisfaction of the judgment
rendered in their favor. Which motion was granted. On appeal, the decision was affirmed.
Issue:
Whether or not Article 110 of the Labor Code finds application on the instant case. Article 110 provides
that in case of bankruptcy or liquidation of an employer's business, his workers enjoy first preference as
regards wages due them for services rendered during the period prior to the bankruptcy or liquidation.
Ruling:
The Supreme Court held that Article 110 cannot be applied in the instant case because the important
requisite that employer's business must be bankrupt is lacking. The Supreme Court ruled that in the
Philippine jurisdiction, bankruptcy, insolvency and general judicial liquidation proceedings are the only
means to establish that a business is bankrupt or insolvent. Absent of such judicial declaration, the
business cannot be considered bankrupt for the purpose of applying the provisions of Article 110.
G.R. Nos. 82763-64 March 19, 1990
DEVELOPMENT BANK OF THE PHILIPPINES, vs. NLRC
FACTS: LIRAG was a mortgage debtor of DBP. LAND was the bargaining representative of the more or
less 800 former rank and file employees of LIRAG., LIRAG started terminating the services of its
employees on the ground of retrenchment. LIRAG has since ceased operations presumably due to
financial reverses.
Joselito Albay, one of the employees dismissed, filed a complaint before NLRC against LIRAG for illegal
dismissal . LAND also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity
pay, sick leave and vacation leave pay and emergency allowance . These two cases were consolidated
and jointly heard by the NLRC. Labor Arbiter ordered LIRAG to pay the individual complainants. The
NLRC affirmed . That judgment became final and executory. A Writ of Execution was issued.
DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage
obligation. DBP acquired said mortgaged properties for P31,346,462.90. Since DBP was the sole
mortgagee, no actual payment was made, the amount of the bid having been merely credited in partial
satisfaction of LIRAG's indebtedness.
By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained
unsatisfied. LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the
foreclosure sale. Labor Arbiter granted the Writ of Garnishment and directed DBP to remit to the NLRC
the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at public
auction in order to satisfy the judgment previously rendered.
DBP sought reconsideration which was denied. DBP appealed that denial to the NLRC which affirmed
the appealed Order and dismissed the DBP appeal.
The Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of LIRAG. A
partial Compromise Agreement was entered into between APT and LAND whereby APT paid the
complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and
present, with respect to all assets of LITEX transferred by DBP to APT”. However LAND filed its
opposition to the Compromise Agreement for being contrary to law, morals and public policy.
ISSUE: Whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor
Arbiter granting the Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to
satisfy the judgment in these cases.
RULING: We are constrained to rule in the affirmative.
Article 110 of the Labor Code provides: Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards
wages due them for services rendered during the period prior to the bankruptcy or liquidation, any
provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may
establish any claim to a share in the assets of the employer.
Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in
isolation but must be read in relation to the Civil Code scheme on classification and preference of
credits.
In the event of insolvency, a principal objective should be to effect an equitable distribution of the
insolvent's property among his creditors. To accomplish this there must first be some proceeding where
notice to all of the insolvents's creditors may be given and where the claims of preferred creditors may
be bindingly
A distinction should be made between a preference of credit and a lien. A preference applies only to
claims which do not attach to specific properties. A lien creates a charge on a particular property. The
right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on
the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a
preference in application. It is a method adopted to determine and specify the order in which credits
should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first
preference in the discharge of the funds of the judgment debtor.
The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an identified immovable property, which a
preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the
Civil Code on classification of credits. The preference given by Article 110, when not falling within Article
2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary
preferred credit although its impact is to move it from second priority to first priority in the order of
preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra).
Separate Opinions
CRUZ, J., dissenting:
I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present
majorityponencia. Even then, I was convinced that it was the intention of the legislature to give absolute
preference to the workers' claims pursuant to the social justice policy. The amendment of Article 110 of
the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I
reiterate it now and repeat that:
Social Justice is not a mere catch phrase to be mouthed with sham fervor in Labor Day celebrations for
the delectation and seduction of the working class. It is a mandate we should pursue with energy and
sincerity if we are to truly insure the dignity and well-being of the laborer.
I am proud to dissent once again on the side of labor.
PADILLA, J., dissenting:
The material facts are riot disputed. Lirag Textile (LIRAG) ceased operations by early 1982. Pursuant to a
final and executory judgment of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its
workers for unpaid wages and salaries which, as of 12 February 1986, amounted to P6,292,380.00.
LIRAG's only remaining asset was mortgaged to Development Bank of the Philippines (DBP) which on 15
April 1983 foreclosed the mortgage and acquired said property at public auction for P31,346.462.90, in
partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers through their union (LAND)
thereupon sought to garnish on DBP the proceeds of the foreclosure sale, to the extent of their
adjudged unpaid wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection. The issue
therefore, in practical terms, is whether P6,292,380.00 should be deducted from the P31,346,462.90
realized by DBP from the foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for LIRAG
workers' unpaid wages, thereby leaving a balance of P25,054,082.90 only in partial satisfaction of
LIRAG's debt to DBP.
The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary
claims of its members, viz. LIRAG's workers, over that of DBP, in the absence of a formal declaration of
bankruptcy or judicial liquidation of LIRAG's business.
I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor
Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10,
Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code.
Before its amendment by Republic Act 6715, Article 110 of the Labor Code provided —
Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards wages due them for services rendered
during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
After Republic Act 6715, Art. 110 now provides:
Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards their wages and other monetary claims, any
provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be
paid in full before claims of the government and other creditors may be paid.
Section 10 of the Implementing Rules, before Republic Act 6715 provided:
Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first
preference and shall be paid in full before other creditors may establish any claim to a share in the
assets of the employer.
After Republic Act 6715, Section 10 of the Rules now provides:
Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or
liquidation of the employer's business, the unpaid wages and other monetary claims of the employees
shall be given first preference and shall be paid in full before the claims of government and other
creditors may be paid.
The majority, in my considered opinion, has failed to fully take into account the radical change
introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors
ordained by the Civil Code.
Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to
2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties
and fees on specific movable or immovable property. All other special preferred credits stand on a
second tier. 1
Under the system of preferences in the Civil Code, only taxes enjoy absolute preference i.e., they
exclude the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale
of the property subject of the preference, and taxes can even exhaust such proceeds. All other special
preferred credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make
the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos.
2 to 10 of Article 2242 must be convened and the import of their claims ascertained in some proceeding
where the claims of all may be bindingly adjudicated.
With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of
preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute
preference over all other claims, including those of the Government, in cases where a debtor-employer
is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers,
to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate
intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the
rights of workers and promoting their welfare. 2
I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a
judicial liquidation of the employer's business is a condition sine qua non to the operation of the
preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons:
First, the majority reads into the aforesaid law and implementing rule a qualification that is not there.
Nowhere is it stated in the present law and its new implementing rule that a prior declaration of
bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it
will be noted that the phrase declaration of bankruptcy or judicial liquidation of the employer's
business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code has been deleted in the new implementing rule. What is to me even
more obvious and, therefore, significant in the present law and implementing new rule is
the unconditional and unqualified grant of priority to workers' monetary claims over and above all
other claims as against all the assets of an employer incapable of fully paying his obligations.
Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the
property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to
enforce the workers' preferential right over the assets of the insolvent debtor as against other creditors
of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors,
including the Government, until unpaid wages and monetary claims of the workers are first satisfied in
full. Further, it appears that such a proceeding is essential only where the credits are concurring and
enjoy no preference over one another, but not when the law accords to one of the credits absolute
priority and undisputed supremacy. This submission finds support, by analogy, in the case of De Barreto
vs. Villanueva, where the Court stated:
Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the
foreclosure (as in the case now before us) is not the proceeding contemplated by law for the
enforcement of preference under Article 2242, unless the claimant were enforcing credit for taxes that
enjoy absolute priority. If none of the claim is for taxes, a dispute between two creditors will not enable
the court to ascertain the prorata dividend corresponding to each, because the rights of other creditors
likewise enjoying preference under Article 2242 cannot be ascertained. 3 (Emphasis ours)
In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency,
bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the
insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims
of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or
judicial liquidation of the employer's business should not be a price imposed upon the workers to
enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is
only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord
protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit,
not to decimate but to give it breath and life.
ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of
LAND.
Paras, J., concur.
SARMIENTO, J., dissenting:
I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act
No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other
indebtedness, including taxes, of management, with or without a declaration of insolvency.
It is likewise so, because labor enjoys protection not only from statute but from the very Constitution.
Thus:
Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare. (Article II)
xxx xxx xxx
Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and
promote full employment and equality or employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate
in policy and decision-making processes affecting their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and employers and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their
mutual compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers recognizing the right of labor to
its just share in the fruits of production and the right of enterprises to reasonable returns on
investments, and to expansion and growth. (Article XIII)
On the other hand, under the Labor Code:
Art. 3. Declaration of basic policy — The State shall afford protection to labor, promote full employment,
ensure equal work opportunities regardless of sex, race or creed and regulate the relations between
workers and employers. The State shall assure the rights of workers to self-organization, collective
bargaining security of tenure, and just and humane conditions of work.
Art. 4. Construction in favor of labor — All doubts in the implementation and interpretation of the
provisions of this code, including its implementing rules and regulations, shall be resolved in favor of
labor.
Under the Civil Code:
Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed
with public interest that labor contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop,
wages, working conditions, hours of labor and similar subjects.
xxx xxx xxx
Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the
safety and decent living for the laborer.
It is true that under the Charter, "[n]o person shall be deprived," among other things, "of property
without due process of law," however, the basic document also states, that:
Sec. 6. The use of property bears a social function, and all economic agents shall contribute to the
common good. Individuals and private groups, including corporations, cooperatives, and similar
collective organizations, shall have the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice and to intervene when the common
good so demands. (Article XII)
Pascual says that in any productive economy, the first factor is labor. [PASCUAL, LABOR AND TENANCY
RELATIONS LAW 2 (1975 ed.)]. I agree with him. For in any enterprise, it is labor on which management
depends to run its business, to till its land, and to make its money. Yet, labor has been the doormat of
the economy when it should be its hub. And now, we will make them fall in line along with creditors of
management in collecting what it (labor) already owns — its just wages. I do not think that this is in
accord with established State policies.
Separate Opinions
CRUZ, J., dissenting:
I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present
majorityponencia. Even then, I was convinced that it was the intention of the legislature to give absolute
preference to the workers' claims pursuant to the social justice policy. The amendment of Article 110 of
the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I
reiterate it now and repeat that:
Social Justice is not a mere catch phrase to be mouthed with sham fervor in Labor Day celebrations for
the delectation and seduction of the working class. It is a mandate we should pursue with energy and
sincerity if we are to truly insure the dignity and well-being of the laborer.
I am proud to dissent once again on the side of labor.
PADILLA, J., dissenting:
The material facts are riot disputed. Lirag Textile (LIRAG) ceased operations by early 1982. Pursuant to a
final and executory judgment of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its
workers for unpaid wages and salaries which, as of 12 February 1986, amounted to P6,292,380.00.
LIRAG's only remaining asset was mortgaged to Development Bank of the Philippines (DBP) which on 15
April 1983 foreclosed the mortgage and acquired said property at public auction for P31,346.462.90, in
partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers through their union (LAND)
thereupon sought to garnish on DBP the proceeds of the foreclosure sale, to the extent of their
adjudged unpaid wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection. The issue
therefore, in practical terms, is whether P6,292,380.00 should be deducted from the P31,346,462.90
realized by DBP from the foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for LIRAG
workers' unpaid wages, thereby leaving a balance of P25,054,082.90 only in partial satisfaction of
LIRAG's debt to DBP.
The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary
claims of its members, viz. LIRAG's workers, over that of DBP, in the absence of a formal declaration of
bankruptcy or judicial liquidation of LIRAG's business.
I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor
Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10,
Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code.
Before its amendment by Republic Act 6715, Article 110 of the Labor Code provided —
Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards wages due them for services rendered
during the period prior to the bankruptcy or liquidation, any provision of law to the contrary
notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a
share in the assets of the employer.
After Republic Act 6715, Art. 110 now provides:
Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as regards their wages and other monetary claims, any
provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be
paid in full before claims of the government and other creditors may be paid.
Section 10 of the Implementing Rules, before Republic Act 6715 provided:
Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the
declaration of bankruptcy or judicial liquidation of the employer's business shall be given first
preference and shall be paid in full before other creditors may establish any claim to a share in the
assets of the employer.
After Republic Act 6715, Section 10 of the Rules now provides:
Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or
liquidation of the employer's business, the unpaid wages and other monetary claims of the employees
shall be given first preference and shall be paid in full before the claims of government and other
creditors may be paid.
The majority, in my considered opinion, has failed to fully take into account the radical change
introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors
ordained by the Civil Code.
Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to
2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties
and fees on specific movable or immovable property. All other special preferred credits stand on a
second tier. 1
Under the system of preferences in the Civil Code, only taxes enjoy absolute preference i.e., they
exclude the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale
of the property subject of the preference, and taxes can even exhaust such proceeds. All other special
preferred credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make
the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos.
2 to 10 of Article 2242 must be convened and the import of their claims ascertained in some proceeding
where the claims of all may be bindingly adjudicated.
With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of
preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute
preference over all other claims, including those of the Government, in cases where a debtor-employer
is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers,
to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate
intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the
rights of workers and promoting their welfare. 2
I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a
judicial liquidation of the employer's business is a condition sine qua non to the operation of the
preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons:
First, the majority reads into the aforesaid law and implementing rule a qualification that is not there.
Nowhere is it stated in the present law and its new implementing rule that a prior declaration of
bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it
will be noted that the phrase declaration of bankruptcy or judicial liquidation of the employer's
business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations
Implementing the Labor Code has been deleted in the new implementing rule. What is to me even
more obvious and, therefore, significant in the present law and implementing new rule is
the unconditional and unqualified grant of priority to workers' monetary claims over and above all
other claims as against all the assets of an employer incapable of fully paying his obligations.
Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the
property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to
enforce the workers' preferential right over the assets of the insolvent debtor as against other creditors
of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors,
including the Government, until unpaid wages and monetary claims of the workers are first satisfied in
full. Further, it appears that such a proceeding is essential only where the credits are concurring and
enjoy no preference over one another, but not when the law accords to one of the credits absolute
priority and undisputed supremacy. This submission finds support, by analogy, in the case of De Barreto
vs. Villanueva, where the Court stated:
Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the
foreclosure (as in the case now before us) is not the proceeding contemplated by law for the
enforcement of preference under Article 2242, unless the claimant were enforcing credit for taxes that
enjoy absolute priority. If none of the claim is for taxes, a dispute between two creditors will not enable
the court to ascertain the prorata dividend corresponding to each, because the rights of other creditors
likewise enjoying preference under Article 2242 cannot be ascertained. 3 (Emphasis ours)
In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency,
bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the
insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims
of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or
judicial liquidation of the employer's business should not be a price imposed upon the workers to
enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is
only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord
protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit,
not to decimate but to give it breath and life.
ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of
LAND.
Paras, J., concur.
SARMIENTO, J., dissenting:
I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act
No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other
indebtedness, including taxes, of management, with or without a declaration of insolvency.
It is likewise so, because labor enjoys protection not only from statute but from the very Constitution.
Thus:
Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers
and promote their welfare. (Article II)
xxx xxx xxx
Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and
promote full employment and equality or employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations,
and peaceful concerted activities, including the right to strike in accordance with law. They shall be
entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate
in policy and decision-making processes affecting their rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and employers and the
preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their
mutual compliance therewith to foster industrial peace.
The State shall regulate the relations between workers and employers recognizing the right of labor to
its just share in the fruits of production and the right of enterprises to reasonable returns on
investments, and to expansion and growth. (Article XIII)
On the other hand, under the Labor Code:
Art. 3. Declaration of basic policy — The State shall afford protection to labor, promote full employment,
ensure equal work opportunities regardless of sex, race or creed and regulate the relations between
workers and employers. The State shall assure the rights of workers to self-organization, collective
bargaining security of tenure, and just and humane conditions of work.
Art. 4. Construction in favor of labor — All doubts in the implementation and interpretation of the
provisions of this code, including its implementing rules and regulations, shall be resolved in favor of
labor.
Under the Civil Code:
Art. 1700. The relations between capital and labor are not merely contractual. They are so impressed
with public interest that labor contracts must yield to the common good. Therefore, such contracts are
subject to the special laws on labor unions, collective bargaining, strikes and lockouts, closed shop,
wages, working conditions, hours of labor and similar subjects.
xxx xxx xxx
Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the
safety and decent living for the laborer.
It is true that under the Charter, "[n]o person shall be deprived," among other things, "of property
without due process of law," however, the basic document also states, that:
Sec. 6. The use of property bears a social function, and all economic agents shall contribute to the
common good. Individuals and private groups, including corporations, cooperatives, and similar
collective organizations, shall have the right to own, establish, and operate economic enterprises,
subject to the duty of the State to promote distributive justice and to intervene when the common
good so demands. (Article XII)
Pascual says that in any productive economy, the first factor is labor. [PASCUAL, LABOR AND TENANCY
RELATIONS LAW 2 (1975 ed.)]. I agree with him. For in any enterprise, it is labor on which management
depends to run its business, to till its land, and to make its money. Yet, labor has been the doormat of
the economy when it should be its hub. And now, we will make them fall in line along with creditors of
management in collecting what it (labor) already owns — its just wages. I do not think that this is in
accord with established State policies.
Footnotes