1

21 P.I. Manufacturing, Inc., v. P.I. Manufacturing Supervisors AUTHOR: Adre

and Foremen Association NOTES: The case is a motion for reconsideration of our Resolution
[543 SCRA 613 (2008)] dated April 18, 2005 denying the present petition for review on
TOPIC: Wage Distortion certiorari for failure of the petitioner to show that a reversible error
PONENTE: SANDOVAL-GUTIERREZ, J has been committed by the Court of Appeals in its earlier decisions.
CASE LAW/ DOCTRINE: “wage distortion” as: x x x 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. Otherwise stated, wage distortion means the disappearance or virtual disappearance of pay differentials
between lower and higher positions in an enterprise because of compliance with a wage order. Collective Bargaining Agreement
constitutes the law between the parties when freely and voluntarily entered into; The goal of collective bargaining is the making of
agreements that will stabilize business conditions and fix fair standards of working conditions.
FACTS:
• Parties: P.I. Manufacturing, Inc. (PI) – domestic corp engaged in the manufacture and sale of household appliances | P.I,
Manufacturing Supervisors and Foreman Association (PIMASUFA) - an organization of PI’s supervisors and foremen, joined
in this case by its federation, the National Labor Union (NLU).
• Dec. 10, 1987: RA 6640 (AN ACT PROVIDING FOR AN INCREASE IN THE WAGE OF PUBLIC OR GOVERNMENT
SECTOR EMPLOYEES ON A DAILY WAGE BASIS AND IN THE STATUTORY MINIMUM WAGE AND SALARY
RATES OF EMPLOYEES AND WORKERS IN THE PRIVATE SECTOR AND FOR OTHER PURPOSES) was signed into
law by the President which provided for an increase in the statutory minimum wage and salary rates of employees and workers
in the private sector
• In Sec. 2 of RA 6640: The statutory minimum wage rates of workers and employees in the private sector, whether agricultural
or non-agricultural, shall be increased by ten pesos (P10.00) per day, except non-agricultural workers and employees outside
Metro Manila who shall receive an increase of eleven pesos (P11.00) per day: Provided, That those already receiving above
the minimum wage up to one hundred pesos (P100.00) shall receive an increase of ten pesos (P10.00) per day. Excepted from
the provisions of this Act are domestic helpers and persons employed in the personal service of another.
• A new CBA was entered into by the parties (1987 CBA) where the supervisors were granted an increase of 625/month and the
foreman, 475/month.
• The said increases were made retroactive prior to the passage of RA 6440 and every year thereafter until July 26, 1989.
• January 26, 1989: PIMASUFA and NLU filed a complaint with the Arbitration Branch of the NLRC, charging P.I. with
violation of R.A. No. 6640. They attached to their complaint a numerical illustration of wage distortion resulting from the
implementation of R.A. No. 6640
• LA: in favor of PIMAFUSA (give the members of respondent PIMASUFA wage increases equivalent to 13.5% of their basic
pay they were receiving prior to December 14, 1987.)
• NLRC: AFFIRMED THE LA
• CA: AFFIRMED NLRC’s decision but modified the increase to 18.5%
ISSUE(S): WON the implementation of R.A. No. 6640 resulted in a wage distortion and whether such distortion was cured or remedied
by the 1987 CBA
HELD: YES.
Ratio:

R.A. No. 6727, otherwise known as the Wage Rationalization Act, explicitly defines wage distortion 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.

In this case, the Court of Appeals correctly ruled that a wage distortion occurred due to the implementation of R.A. No. 6640.

The 1987 CBA increased the monthly salaries of the supervisors by P625.00and the foremen, by P475.00, effective May 12, 1987. These
increases re-established and broadened the gap, not only between the supervisors and the foremen, but also between them and the rank-
and-file employees. Significantly, the 1987 CBA wage increases almost doubled that of the P10.00 increase under R.A. No. 6640.
TheP625.00/month means P24.03 increase per day for the supervisors, while theP475.00/month means P18.26 increase per day for the
foremen. These increases were to be observed every year, starting May 12, 1987 until July 26, 1989. Clearly, the gap between the wage
rates of the supervisors and those of the foremen was inevitably re-established. It continued to broaden through the years. Interestingly,
such gap as re-established by virtue of the CBA is more than a substantial compliance with R.A. No.6640. To direct petitioner to grant
an across-the-board increase to all of them, regardless of the amount of wages they are already receiving, would be harsh and unfair to
the former.
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22 Congson v. NLRC AUTHOR: Castro
[G.R. No. 114250. April 5, 1995] NOTES:
TOPIC: Form of Payment Article102. Forms of Payment. — No employer shall pay the wages of an
PONENTE: Padilla, J. employee by means of, promissory notes, vouchers, coupons, tokens,
tickets, chits, or any object other than legal tender, even when expressly
requested by the employee.
Payment of wages by check or money order shall be allowed when such
manner of payment is customary on the date of effectivity of this Code, or
is necessary because as specified in appropriate regulations to be issued by
the Secretary of Labor or as stipulated in a collective bargaining
agreement.”
CASE LAW/ DOCTRINE:
Article 102 of the Labor Code is clear. Wages shall be paid only by means of legal tender. The only instance when an employer is
permitted to pay wages in forms other than legal tender, that is, by checks or money order, is when the circumstances prescribed in the
second paragraph of Article 102 are present.
FACTS:
• Petitioner Dominico Congson is the registered owner of Southern Fishing Industry.
• Private respondents (Bargo, Himeno, Badagos, Salvador, Bargo, Mendoza, and Calixihan) were hired as regular piece-rate workers.
• Actual wage rate: P1.00-per-tuna movement. Workers were paid P1.00 per “bariles” per movement [from the fishing boats to the
truck hauler; from the truck hauler down to the cold storage; then finally, from the cold storage to the vessel]
o They were uniformly paid at a rate of P1.00 per tuna weighing thirty (30) to eighty (80) kilos per movement. They worked seven (7)
days a week.
• In the first week of June 1990, petitioner notified his workers of his proposal to reduce the rate- per-tuna movement due to the
scarcity of tuna, to which the private respondents resisted.
• When they reported for work the next day, they were informed that they had been replaced by a new set of workers. When they
requested for a dialogue with the management, it was unheeded as they were only made to wait for further notice.
• On 15 June 1990, private respondents filed a case against petitioner before the NLRC Sub-Regional Arbitration for underpayment
of wages (non-compliance with Rep. Act Nos. 6640 and 6727) and non-payment of overtime pay, 13th month pay, holiday pay, rest
day pay, and five (5)- day service incentive leave pay; and for constructive dismissal. With respect to their monetary claims,
private respondents charged petitioner with violation of the Minimum Wage Law, alleging that with petitioner’s rates and
the scarcity of tuna catches, private respondents’ average monthly earnings each did not exceed ONE THOUSAND PESOS
(P1,000.00).
• Labor Arbiter: In holding petitioner guilty of constructive dismissal, Labor Arbiter Aponesto granted the monetary claims (for a 3-
year period) of complainants for wage differentials (P42, 120 each), 13th month pay and service incentive leave pay payment.
• NLRC: affirmed Labor Arbiter Aponesto’s findings and monetary awards.
• Congson alleges that the computation of wage differentials is erroneous.
o According to Congson, in addition to the amount of P1.00 per ‘bariles’ per movement, complainants get the intestines and liver of
the tuna as part of their salary. That for every tuna delivered, herein complainants extract at least three (3) kilos of intestines and liver.
That the minimum prevailing price of tuna intestine and liver in 1986 to 1990 range from P15.00 to P20.00/kilo. The value of the tuna
intestine and liver should be computed in arriving at the daily wage of herein complainants because the very essence of the agreement
between complainants and respondent is: complainants shall be paid only P1.00 per tuna per movement BUT the intestines and liver of
the tuna delivered shall go to the herein complainants. It should be noted that tuna intestines and liver are easily disposed of in any public
market. Complainants themselves would not have agreed and would not have served respondent that long period of time if they are only
paid P1.00 per tuna movement. What they are after, in truth and in fact is the tuna intestines and liver which they can easily convert into
cash.

Congson’s contention: The combined value of private respondents’ cash wage and the monetary value of the tuna liver and intestines
exceeded the minimum wage fixed by law.

Notwithstanding the fact that the actual cash wage fell below the minimum wage fixed by law, respondent NLRC should have considered
as forming a substantial part of private respondents’ total wages the cash value of the tuna liver and intestines they were entitled to
retrieve.
ISSUE:
Whether tuna intestines and liver are valid forms of compensation
HELD:
No
RATIO:
• The Labor Code expressly provides:
“Article102. Forms of Payment. — No employer shall pay the wages of an employee by means of, promissory notes, vouchers, coupons, tokens,
tickets, chits, or any object other than legal tender, even when expressly requested by the employee.

Payment of wages by check or money order shall be allowed when such manner of payment is customary on the date of effectivity of this Code, or
is necessary because as specified in appropriate regulations to be issued by the Secretary of Labor or as stipulated in a collective bargaining
agreement.”
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• Undoubtedly, petitioner’s practice of paying the private respondents the minimum wage by means of legal tender combined with
tuna liver and intestines runs counter to the abovecited provision of the Labor Code. The fact that said method of paying the minimum
wage was not only agreed upon by both parties in the employment agreement but even expressly requested by private respondents,
does not shield petitioner. Article 102 of the Labor Code is clear. Wages shall be paid only by means of legal tender. The only
instance when an employer is permitted to pay wages in forms other than legal tender, that is, by checks or money order, is when the
circumstances prescribed in the second paragraph of Article 102 are present.

• There is no grave abuse of discretion on the part of respondent NLRC in upholding Labor Arbiter Aponesto’s award of salary
differentials.

23 National Federation of Labor, et al vs. CA, et AUTHOR: Miguel M. Consing

al NOTES:
[G.R. No. 149464; October 19, 2004] Employer – SDPI
TOPIC: Wages; form of payment. Employee/s – Petitioners
PONENTE: Callejo, Sr., J Labor Union – National Federation of Labor (NFL); all the petitioners are
members of the union
CASE LAW/DOCTRINE:
In cases of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses,
the separation pay of employees shall be equivalent to one-month pay or to at least one-half month pay for every year of service,
whichever is higher.

The only instance when an employer is permitted to pay wages in forms other than legal tender, that is, by checks or money order, is
when the circumstances prescribed in the second paragraph of Article 102 are present.
FACTS:
SDPI and NFL executed a collective bargaining agreement (CBA) in which they agreed that in case of permanent or temporary lay-off,
workers affected would be entitled to termination pay as provided by the Labor Code (Art. 283). The petitioners were employees of
SDPI and members of the NFL

ARCI and SDPI entered into a Farm Management Agreement in 1986. In 1988, the Comprehensive Agrarian Reform Law was passed;
it mandated the compulsory acquisition of all lands of public domain leased, held or possessed by multinational corporations or
association or private non-governmental corporations, devoted to agro-industrial enterprises. Because of this, SDPI terminated the
Farm Management Agreement and ceased operations, effective Jan. 17, 1998.

On Dec. 17, 1997, SDPI dismissed the Petitioners because it was ceasing operations. The Petitioners demanded separation pay
equivalent to one month for every year of employment of the employees, based on company policy. However, each of the petitioners
received his separation pay equivalent to one-half month pay for every year of service, and other benefits which were all lumped in one
Metrobank check. They also executed quitclaims in favor of the company. Nevertheless, they filed a complaint with the Labor Arbiter
claiming deficiency in their separation pay.

LA: Dismissed the complaint. the termination of the petitioners’ employment was based on authorized cause, namely, the closure of
SDPI because of the implementation of CARL. Consequently, pursuant to the CBA in relation to Article 283 of the Labor Code, the
dismissed employees should receive separation pay at the rate of one-half month pay per year of service. He also held that the
petitioners had no right to invoke company policy of paying separation pay equivalent to one month pay for every year of employment
granted by SDPI for its retrenched employees in its plantations. He also ruled that the petitioners were estopped from demanding for
separation pay differentials because they voluntarily and willingly executed their respective deeds of quitclaim.

NLRC: Affirmed the above ruling. Also, it is important to note that the petitioners questioned the payment of their separation pay in
the form of checks at this stage of the proceedings. Regarding this newly raised issue, the NLRC upheld the payment via check. It held
that (a) the check is a legal tender; and (b) the statement allows payment of wages in check in special circumstances, as in the present
case where the individual complainants were paid large amounts of monetary benefits.
ISSUE(S) & HELD/RATIO:
First Issue: Are the petitioners entitled to separation pay equivalent to one month for every year of employment?
No. Pursuant to the 1995 CBA between the SDPI and its daily-paid rank-and-file employees, permanent or temporary lay-off workers
affected would be entitled to termination pay as provided by the Labor Code. The parties did not incorporate in the CBA a specific
provision providing that employees terminated from employment due to the closure of business operations would be entitled to
separation pay equivalent to one-month pay for every year of service.

The Labor Code provides in Art. 283 that x x x x in cases of closures or cessation of operations of establishment or undertaking not due
to serious business losses or financial reverses, the separation pay of employees shall be equivalent to one-month pay or to at least one-
half month pay for every year of service, whichever is higher.
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Unless annulled, the CBA, as a contract governing the employer and the employees respecting the terms of employment, should
prevail.

Second Issue: Is payment of separation pay by check prohibited?

No. Art. 102 of the Labor Code provides:
Payment by check—payment of wages by bank checks, postal checks or money orders is allowed where such manner of wage payment
is customary on the date of the effectivity of the Code, where it is stipulated in a collective bargaining agreement, or where all the
following conditions are met:
1. There is a bank or other facility for encashment within a radius of one (1) kilometer from the workplace;
2. The employer, or any of his agents or representatives, does not receive any pecuniary benefit directly or indirectly from the
arrangement;
3. The employee are given reasonable time during banking hours to withdraw their wages from the bank which time shall be considered
as compensable hours worked if done during working hours; and
4. The payment by check is with the written consent of the employees concerned if there is no collective agreement authorizing the
payment of wages by bank checks.

The only instance when an employer is permitted to pay wages in forms other than legal tender, that is, by checks or money order, is
when the circumstances prescribed in the second paragraph of Article 102 are present.

In the present case, the petitioners’ separation pay, other benefits, and the wages from January 1 to 17 were paid in check. Strictly
speaking, SDPI violated the Labor Code when it included wages from January 1 to 17, 1998 in the check. Considering, however, the
amount of other monetary benefits to be paid, payment in check was the most convenient form for both the petitioners and SDPI.
Further, as pointed out by SDPI, the petitioners are deemed estopped from questioning the legality of payment of wages from January 1
to 17, 1998 in check because the same was raised for the first time only in their appeal before the NLRC.

CASE TITLE Bermiso v Escano AUTHOR: De Leon

[G.R. No. Date] G.R. No. L-11606 February 28, 1959
TOPIC: Direct payment of wages
PONENTE: LABRADOR, J.
CASE LAW/ DOCTRINE: No ground for requiring the respondent Hijos de F. Escaño to pay back wages. The latter
respondent did not deal with the petitioners individually, entering into a contract of employment with them. Said respondent
dealt with the group thru its leaders. If the group, thru its leaders, did not allow the petitioners to work and share in the price
paid therefor, the one responsible is not the respondent Escaño but the leader thru whom the group itself made the contract
for work and apportioned the time of work for each member and the pay therefor.
FACTS:

The Hijos de F. Escaño, Inc., hereafter referred to as Escaño or Company, is a domestic engaged in the business of carrying
or transporting passengers and goods by water for compensation within the Philippines.

The Katubsanan sa Mamumuo, hereafter called the Union or simply Katubsanan, is a labor organization duly registered with
the Department of Labor and with office address in Cebu City. It is composed mainly of laborers from the Visayas and
Mindanao. Its members in Cebu are numerous and divided into several groups, sometimes called chapters. One of them is
headed by respondent Sabay as its foreman or "Cabo" and known as the Sabay group. To this group, in which there are no
less than 50 men, formerly belonged some or all of the 45 petitioners.

One of the carriers for whom the Sabay men regularly serve as stevedores is the Escaño. Their relation had its inception in
1947 when, through the representation made by Muaña and Sabay, Salvador Sala, general manager of said carrier, permitted
the Sabay group to do the work of loading and unloading its vessels to the exclusion of all other persons. From the beginning
the Company has not directly paid Muaña, Sabay or the group any compensation for the loading or unloading services
rendered by Sabay men. Neither has it received any payment for the exclusive privilege enjoyed by the group. The practice
which they have continuously followed is that the group collects from the shippers and consignees the charges for the
handling of the cargo based on a schedule of rates which appears to have been previously approved by all the parties affected
by the work, while the Company receives or collects from the shippers or consignees only the freightage for the cargo.

The amount collected from the shippers and consignees is considered as the gross income of the group. From this income
are deducted its expenses if any, for gasoline and spare parts of trucks used, damage to, loss or destruction of, cargo not
imputable to any particular individual or individuals, meals, recreation, wages of casual workers, and an amount equivalent
of two per centum for the Katubsanan for the maintenance of the union clinic and newspaper. The net income is then divided
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into equal shares in accordance with the sharing plan under which each common laborers is entitled to one share and the rest,
including the sub-capataces, capataces, Sabay and the other officers of the group, to one and one-fourth, one and one-half,
one and three-fourths, two, three, or more each, depending on the lenght of membership and importance of the position held
in the group. This division of the group's income is done every Saturday and the shares received by the participating members
constitute their wages for the week.

Petitioners instituted an action before the Court of Industrial Relations, praying for reinstatement with back wages, direct
payment of wages to the laborers instead of through the union, payment of accrued overtime pay and wage differentials,
prohibition from carrying load in excess of 50 kilos, minimum daily wage of P5.00, vacation and sick leave, free
hospitalization, accident insurance, free choice of labor union and grievance committee.
Of the original petitioners only five continued to take interest in the action, the other having desisted therefrom. After hearing
the Court of Industrial Relations ordered the reinstatement of the said five laborers to their former work and positions in the
Sabay group, but without back wages, but dismissed the other claims.
Petitioners argue that the decision violates the law on direct payment of wages.

(basically, gusto lang nila direct sa members yung payment, kesa sa union muna then distribute)

ISSUE(S): W/N there should be direct payment of wages

HELD: No

RATIO:
With respect to the direct payment of wages to the laborers, the court found that there was no reason for changing the
practice of apportioning the wages for their joint labor and sharing therein, because of the 150 members only 5 were
dissatisfied.

Petitioners argue before us that the decision violates the law on direct payment of wages. The law relied upon by them is
Section 10, par. (b) of Republic Act No. 602, which provides as follows:

SEC. 10. (b) Wages, including wages which may be paid retroactively for whatever reason, shall be paid directly to the
employee to whom they are due, except:

(1) In cases where the employee is insured with his consent by the employer, the latter shall entitled to deduct from the
wage of the employee the amount paid by the employer for premiums on the insurance;

(2) In cases of force majeure rendering such payments impossible; and

(3) In cases where the right of the employee or his union to check-off has been recognized by the employer or authorized in
writing by the individual employees concerned.

There is no question that the work of stevedoring was undertaken by the laborers, not in their individual capacities, but as a
group. The contract to perform the service was made by the leader of the group, for and on behalf of the latter, not for each
and every one of them individually. For the sake of convenience it was necessary that the group must be large enough to be
able to perform the task of loading and unloading in as short time as possible. As the group undertook to render service for
vessels other than those of the Hijos de F. Escaño, it was absolutely necessary that some sort of leadership be instituted in
the group to determine which of the members will work for one vessel and which for another. Leadership is also essential
to obtain work for the group as employers naturally prefer to deal with a leader of a group than with each member
individually. Leadership was, therefore, essential not only to secure work for the group but to arrange the laborers who are
to perform the service. The leadership must be paid for and it was not shown that the head of the groups got the lion's share
of the cost of the service rendered. Under the circumstances we are not prepared to say that the provision of law on direct
payment of wages has been violated. The lower court did not find sufficient evidence to show that racketeering was
employed by the leaders. If any existed the remedy can not be found in this court; it is for the group or organize into a
closely knitted union which would secure the privileges that the selves who would not exploit them.

Lastly, the respondent Hijos de F. Escaño did not pay for the stevedoring charges. These were collected by the group from
the shippers themselves, without the intervention of the respondent Escaño. How can the court order the latter to pay the
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charges to the group or its members, when the charges were collected by the latter from the shippers, in accordance with
the practice of the group itself?

We also find no ground for requiring the respondent Hijos de F. Escaño to pay back wages. The latter respondent did not
deal with the petitioners individually, entering into a contract of employment with them. Said respondent dealt with the
group thru its leaders. If the group, thru its leaders, did not allow the petitioners to work and share in the price paid
therefor, the one responsible is not the respondent Escaño but the leader thru whom the group itself made the contract for
work and apportioned the time of work for each member and the pay therefor. Again as stated above, the remedy must be
sought not in the tribunals of the country but in the laborers themselves who should organized and thru such organization
as they may establish, as envisioned by the Industrial Peace Act, secure the privileges demanded.

DISSENTING/CONCURRING OPINION(S):

25 ERNESTO M. APODACA, AUTHOR: Delfin

vs.
NATIONAL LABOR RELATIONS COMMISSION, NOTES:
JOSE M. MIRASOL and INTRANS PHILS., INC
G.R. No. 80039 April 18, 1989
TOPIC: Prohibition against wage deduction
PONENTE: GANCAYCO
CASE LAW/ DOCTRINE:
• 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 checkoff 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
FACTS:
• Apodaca was employed in Intrans Phils. On August 28, 1985, respondent Jose M. Mirasol persuaded Apodaca to
subscribe to 1,500 shares of Intrans Phils at P100.00 per share or a total of P150,000.00.
• Apodaca made an initial payment of P37,500.00 and was subsequently appointed as President and General Manager
of Intrans Phils but he eventually resigned on 1986.
• On December 19, 1986, Apodaca instituted with the NLRC a complaint against Mirasol and Intrans for the payment
of his unpaid wages, his cost of living allowance, the balance of his gasoline and representation expenses and his
bonus compensation for 1986.
• Both parties submitted their position papers to the labor arbiter. The private respondents admitted that there is due
to petitioner the amount of P17,060.07 but this was applied to the unpaid balance of his subscription in the amount
of P95,439.93.
• Apodaca questioned the set-off alleging that there was no call or notice for the payment of the unpaid subscription
and that, accordingly, the alleged obligation is not enforceable.
• The labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that the employer has no right to
withhold payment of wages already earned under Article 103 of the Labor Code.
• The private respondents appealed with NLRC. It reversed the LA decision.
• The NLRC held that a stockholder who fails to pay his unpaid subscription on call becomes a debtor of the
corporation and that the set-off of said obligation against the wages and others due to petitioner is not contrary
to law, morals and public policy.

ISSUE/HELD:
• WON a set-off of an obligation from wages due can be done as ordered by the NLRC in this case?
HELD:
• No, wage deduction can only be done in certain circumstances and this is not one of those.
RATIO:
 7
• the NLRC has no jurisdiction to determine such intra-corporate dispute between the stockholder and the corporation
as in the matter of unpaid subscriptions. This controversy is within the exclusive jurisdiction of the Securities and
Exchange Commission
• Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said subject matter under the
circumstances of this case, the unpaid subscriptions are not due and payable until a call is made by the corporation
for payment. Private respondents have not presented a resolution of the board of directors of respondent corporation
calling for the payment of the unpaid subscriptions. It does not even appear that a notice of such call has been sent
to petitioner by the respondent corporation.
• What the records show is that the respondent corporation deducted the amount due to petitioner from the amount
receivable from him for the unpaid subscriptions. No doubt such set-off was without lawful basis, if not premature.
As there was no notice or call for the payment of unpaid subscriptions, the same is not yet due and payable.
• Lastly, assuming further that there was a call for payment of the unpaid subscription, the NLRC cannot validly set
it off against the wages and other benefits due petitioner. Article 113 of the Labor Code allows such a
deduction from the wages of the employees by the employer, only in three instances, to wit:

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 checkoff 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.

26 G.R. No. 202961 February 4, 2015 AUTHOR: Enriquez

NOTES:
EMER MILAN, RANDY MASANGKAY, WILFREDO
JAVIER, RONALDO DAVID, BONIFACIO MATUNDAN,
NORA MENDOZA, et al., Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ·SOLID
MILLS, INC., and/or PHILIP ANG, Respondents.

TOPIC: Wage Prohibitions; Prohibition against wage deductions

PONENTE: Leonen
CASE LAW/ DOCTRINE: An employer is allowed to withhold terminal pay and benefits pending the employee's return of its properties

FACTS: Petitioners are employees of Solid Mills. They are represented by the National Federation of Labor Unions (NAFLU), their
collective bargaining agent.

As Solid Mills’ employees, petitioners and their families were allowed to occupy SMI Village, a property owned by Solid
Mills. According to Solid Mills, this was "out 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."

In September 2003, petitioners were informed that 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 which provided for Solid Mills’ grant
of separation pay less accountabilities, accrued sick leave benefits, vacation leave benefits, and 13th month pay to the employees.

Petitioners 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. Petitioners refused to sign the documents
and demanded to be paid their benefits and separation pay.
 8
Hence, petitioners 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
• the 13th month pay is based on law
• their possession of Solid Mills property is not an accountability that is subject to clearance procedures
• they had already turned over to SolidMills their uniforms and equipment when Solid Mills ceased operations

On the other hand, Solid Mills argued that petitioners’ complaint was premature because they had not vacated its property.

LA’s Decision: In favor of Petitioners.

• Solid Mills illegally withheld petitioners’ benefits and separation pay.
• Petitioners’ right to the payment of their benefits and separation pay was vested by law and contract.
• The memorandum of agreement stated no condition to the effect that petitioners must vacate Solid Mills’ property before their
benefits could be given to them.
• Petitioners possession should not be construed as petitioners’ "accountabilities" that must be cleared first before the release of
benefits.
• Their possession "is not by virtue of any employer-employee relationship." It is a civil issue, which is outside the jurisdiction
of the Labor Arbiter.

NLRC reversed and held that because of petitioners’ failure to vacate Solid Mills’ property, Solid Mills was justified in withholding their
benefits and separation pay. Solid Mills granted the petitioners the privilege to occupy its property on account of petitioners’ employment.
It had the prerogative to terminate such privilege. The termination of Solid Mills and petitioners’ employer-employee relationship made
it incumbent upon petitioners to turn over the property to Solid Mills.

CA affirmed and held that 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.\ As a consequence of Solid Mills’ closure and the resulting termination of petitioners,
the employer-employee relationship between them ceased to exist. There was no more reason for them to stay in Solid Mills’
property. Moreover, the memorandum of agreement between Solid Mills and the union representing petitioners provided that Solid Mills’
payment of employees’ benefits should be "less accountabilities."

Hence, this petition for certiorari to the SC.

ISSUE(S): Whether Solid Mills act of withholding petitioner’s benefits was proper

HELD: Yes.

RATIO: Institution of clearance procedures has legal bases

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. The Labor Code provides:

Art. 116. Withholding of wages and kickbacks prohibited.It shall be unlawful for any person, directly or indirectly, to
withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth,
intimidation, threat or by any other means whatsoever without the worker’s consent.

The Labor Code also prohibits the elimination or diminution of benefits. Thus:

Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to
eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of promulgation
of this Code.

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:
 9
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."

"Accountability," in its ordinary sense, means obligation or debt. The ordinary meaning of the term "accountability" does not limit the
definition of accountability to those incurred in the worksite. As long as the debt or obligation was incurred by virtue of the employer-
employee relationship, generally, it shall be included in the employee’s accountabilities that are subject to clearance procedures.

It may be true that not all employees enjoyed the privilege of staying in respondent Solid Mills’ property. However, this alone does not
imply that this privilege when enjoyed was not a result of the employer-employee relationship. Those who did avail of the privilege were
employees of respondent Solid Mills. Petitioners’ possession should, therefore, be included in the term "accountability."

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. Petitioners do not categorically deny respondent 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 respondent Solid Mills allowed the use of its property for the benefit of petitioners as its
employees. Petitioners were merely allowed to possess and use it out of respondent Solid Mills’ liberality. The employer may, therefore,
demand the property at will.

The return of the property’s possession became an obligation or liability on the part of the employees when the employer-employee
relationship ceased. Thus, respondent Solid Mills has the right to withhold petitioners’ wages and benefits because of this existing debt
or liability.

For these reasons, we cannot hold that petitioners are entitled to interest of their withheld separation benefits. These benefits were properly
withheld by respondent Solid Mills because of their refusal to return its property.
DISSENTING/CONCURRING OPINION(S):

27 Five J Taxi v. NLRC AUTHOR: Garcia

[G.R. No. 111474 August 22, 1994] NOTES:
TOPIC: Prohibition against wage deduction
PONENTE: Regalado, J.
CASE LAW/ DOCTRINE:
• Article 114. Deposits for loss or damage. – No employer shall require his worker to make deposits from which deductions shall be
made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except when the
employer is engaged in such trades, occupations or business where the practice of making deposits is a recognized one, or is necessary
or desirable as determined by the Secretary of Labor in appropriate rules and regulation.
FACTS:
• Domingo Maldigan and Gilberto Sabsalon were hired by Five J Taxi as taxi drivers:
o 4 days weekly on a 24-jpir shifting schedule
o Daily Boundary: P700.00 for air-conditioned taxi or P450.00 for non-air-conditioned taxi
o Car washing: P20.00
o Deposit: P15.00 – for any deficiency in their boundary.
• Maldigan failed to report for work for unknown reasons. Later, Five J learned that he was working for “Mine of Gold” Taxi
Company
 10
• Sabsalon, while driving a taxicab of Five J, he was held up by his armed passenger who took all his money and thereafter stabbed
him. He was hospitalized and after his discharge, he went to his home province to recuperate.
• January, 1987 – Sabsalon was re-admitted as a taxi driver, but his working schedule was made on an “alternative basis,” that is, he
drove only every other day. On several occasions, he failed to report for work during his schedule.
• September 22, 1991 – Sabsalon failed to remit his boundary for the previous day. Also, he abandoned his taxi in Makati without
fuel refill worth P300.090. He refused to report for work despite repeated request. It was revealed that he was driving a taxi for
“Bulaklak Company.”
• Maldigan requested for the reimbursement of his daily cash deposits for 2 years, but Five J Taxi told him that not a single centavo
was left of his deposits as these are not even enough to cover the amount spent for the repairs of the taxi he was driving.
• When Maldigan insisted on the refund, his services were terminated. Sabsalon on his part, claimed this termination from
employment was effected when he refused to pay for the washing of his taxi seat covers.
• November 27, 1991 – Sabsalon and Maldigan filed a complaint charging the Five J and Armamento with illegal dismissal and illegal
deductions.
• The complaint was dismissed. The LA held that it took private respondents 2 years to file. NLRC concurred in the findings. MR
was denied.
ISSUE(S):
1. Whether or not Sabsalon and Mandigan are entitled to refund.
2. Whether or not the P20.00 carwash fee was valid.
3. Whether or not their representative is entitled to attorney’s fees.
HELD:
1. Only Sabsalon is entitled
2. Yes.
3. No.

RATIO:
With regard to entitlement to a refund / illegal deduction.
• Article 114 of the Labor Code
o Article 114. Deposits for loss or damage. – No employer shall require his worker to make deposits from which deductions
shall be made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except
when the employer is engaged in such trades, occupations or business where the practice of making deposits is a recognized
one, or is necessary or desirable as determined by the Secretary of Labor in appropriate rules and regulation.
• The same does not apply to or permit deposits not to defray any deficiency which the taxi driver may incur in the remittance of his
“boundary.” Also, when private respondents stopped working for petitioners, the alleged purpose for which petitioners required such
unauthorized deposits no longer existed.
• Any balance due to private respondents after proper accounting must be returned to them with legal interest.
• Sabalon was able to withdraw his deposits through valesor he incurred shortages, such that he is even indebted to petitioners in the
amount of P3,448.00 With respect to Maldigan’s deposits, nothing was questioned was mentioned questioning the same even in the
present.
• Since the evidence shows that he had not withdrawn the same he should be reimbursed the amount of his accumulated cash deposits.
• Respondents are not entitled to the refund of the P20.00 car wash payments they made.
• Car washing a tour of duty is a practice in the taxi industry, and is, in fact, dictated by fair play.
With regard to carwash fee.
• There is no dispute that as a matter of practice in the taxi industry, after a tour of duty, it is incumbent upon the driver to restore the
unit he has driven to the same clean condition when he took it out, and as acclaimed by the respondents, complaints were made to
shoulder the expenses for washing, the amount doled out was paid directly to the person who washed the unit, thus we find nothing
illegal in this practice, much more to consider the amount paid by the driver as illegal deduction in the context of the law.
• Car washing after a tour of duty is a practice in the taxi industry, and is, in fact, dictated by fair play,
With regard to attorney’s fees
• Article 222 Section 3 of PD No. 1691 states that non-lawyers may appear before the NLRC or any labor arbiter only if they represent
themselves, or if they represent their organization or the members thereof. While it may be true that Pulia was the authorized
representative of respondents, he was a non-lawyer who did not fall in either of the foregoing categories. Hence, by clear mandate
of the law, he is not entitled to attorney’s fees.
• No attorney-client relationship.
DISSENTING/CONCURRING OPINION(S):

NIA Jewelry Mfg. Inc. and Elisea Abella vs. Madeline AUTHOR: Tristan
Montecillo, Liza Trinidad NOTES:
[G.R. No.188169, Nov. 28, 2011]
 11
TOPIC: Wage Prohibitions – Prohibition against
requirement to make deposits for loss or damage
PONENTE: Reyes
CASE LAW/ DOCTRINE:

In the making of deductions from the salaries, it must be established that it is authorized by law, or there are regulations
issued by the Secretary of Labor. Further, the posting of cash bonds should be proven as a recognized practice in the
petitioner’s business, or alternatively, the petitioners should seek for the determination by the Secretary of Labor through the
issuance of appropriate rules and regulations that the policy the former seeks to implement is necessary or desirable in the
conduct of business.

FACTS:
• Madeline Montecillo and Liza Trinidad, hereinafter referred to collectively as the respondents, were first employed
as goldsmiths by the petitioner Nia Jewelry Manufacturing of Metal Arts, Inc. (Nia Jewelry) Petitioner Elisea Abella
(Elisea) is Nia Jewelry's president and general manager.

• There were incidents of theft involving goldsmiths in Nia Jewelry's employ.

• Nia Jewelry imposed a policy for goldsmiths requiring them to post cash bonds or deposits in varying amounts but
in no case exceeding 15% of the latter's salaries per week. The deposits were intended to answer for any loss or
damage which Nia Jewelry may sustain by reason of the goldsmiths' fault or negligence in handling the gold entrusted
to them. The deposits shall be returned upon completion of the goldsmiths' work and after an accounting of the gold
received.

• On August 14, 2004, the respondents no longer reported for work.

• September 7, 2004, the respondents filed against Nia Jewelry complaints for illegal dismissal. The respondents
alleged that they were constructively dismissed by Nia Jewelry as their continued employments were made dependent
on their readiness to post the required deposits.

• Nia Jewelry alleged that the goldsmiths were given the option not to post deposits, but to sign authorizations allowing
the former to deduct from the latter's salaries amounts not exceeding 15% of their take home pay should it be found
that they lost the gold entrusted to them.

• Respondents Position: Citing Labor Code Art. 113/114 and Sections 12, 13 and 14, Book III, Rule VIII of the
Omnibus Rules Implementing the Labor Code (Omnibus Rules), Salary deductions made prior to the occurrence of
loss or damage are illegal and constitute as undue interferences in the workers' disposal of their wages.
• 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.
• Article 114. Deposits for loss or damage. No employer shall require his worker to make deposits from which deductions shall
be made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except when the
employer is engaged in such trades, occupations or business where the practice of making deposits is a recognized one, or is
necessary or desirable as determined by the Secretary of Labor in appropriate rules and regulations.

• Petitioners defense: Point out that Section 14, Book III, Rule VIII of the Omnibus Rules does not define the
circumstances when the making of deposits is deemed recognized, necessary or desirable. The petitioners then argue
that the intention of the law is for the courts to determine on a case to case basis what should be regarded as
recognized, necessary or desirable and to test an employer's policy of requiring deposits on the bases of its
reasonableness and necessity.

ISSUE (S):

1. WoN respondents were constructively dismissed amounting to illegal dismissal. NO

2. WoN the policy requiring the posting of cash bonds/deposits in this case complied with the requirements of the law.
 12
NO

HELD: YES. Petition is Partially Granted. Nia Jewelry Won the case. The court held that the respondents were not
illegally dismissed however, imposition of Nia Jewelry’s new policy was held to lack legal basis.

RATIO:

1. RE: NO Illegal Dismissal

The petitioners did not whimsically or arbitrarily impose the policy to post cash bonds or make deductions from the workers'
salaries. As attested to by the respondents' fellow goldsmiths in their Joint Affidavit, the workers were convened and informed
of the reason behind the implementation of the new policy. Instead of airing their concerns, the respondents just promptly
stopped reporting for work. Besides, as stressed by the petitioners, the new policy was intended to merely curb the incidences
of gold theft in the work place.

We find no grounds to hold that the respondents were dismissed expressly or even constructively by the petitioners. It was
the respondents who merely stopped reporting for work. While it is conceded that the new policy will impose an additional
burden on the part of the respondents, it was not intended to result in their demotion. Neither is a diminution in pay intended
because as long as the workers observe due diligence in the performance of their tasks, no loss or damage shall result from
their handling of the gold entrusted to them, hence, all the amounts due to the goldsmiths shall still be paid in full.

2. RE: Posting of cash bonds/Deductions from Salaries lacked legal basis (TOPIC)

Article 113 of the Labor Code is clear that there are only three exceptions to the general rule that no deductions from the
employees' salaries can be made. The exception which finds application in the instant petition is in cases where the employer
is authorized by law or regulations issued by the Secretary of Labor to effect the deductions. On the other hand, Article 114
states that generally, deposits for loss or damages are not allowed except in cases where the employer is engaged in such
trades, occupations or business where the practice of making deposits is a recognized one, or is necessary or desirable as
determined by the Secretary of Labor in appropriate rules or regulations.

Petitioners Nia Jewelry had failed to prove that their imposition of the new policy upon the goldsmiths under Nia Jewelry's
employ falls under the exceptions specified in Articles 113 and 114 of the Labor Code.

Articles 113 and 114 of the Labor Code are clear as to what are the exceptions to the general prohibition against requiring
deposits and effecting deductions from the employees' salaries. Hence, a statutory construction of the aforecited provisions
is not called for.

While the petitioners are not absolutely precluded from imposing the new policy, they can only do so upon compliance with
the requirements of the law. In other words, the petitioners should first establish that the making of deductions from the
salaries is authorized by law, or regulations issued by the Secretary of Labor. Further, the posting of cash bonds should be
proven as a recognized practice in the jewelry manufacturing business, or alternatively, the petitioners should seek for the
determination by the Secretary of Labor through the issuance of appropriate rules and regulations that the policy the former
seeks to implement is necessary or desirable in the conduct of business. The petitioners failed in this respect. It bears stressing
that without proofs that requiring deposits and effecting deductions are recognized practices, or without securing the
Secretary of Labor's determination of the necessity or desirability of the same, the imposition of new policies relative to
deductions and deposits can be made subject to abuse by the employers.

29. SHS Perforated Materials, Inc., Winfried Hartmannshenn,
and Hinrich Johann Schumacher vs Jose Manuel F. Diaz
[G.R. No. 185814; October 13, 2010]
TOPIC: Prohibition against withholding of wages
PONENTE: Mendoza, J.
CASE LAW/ DOCTRINE:
AUTHOR: The Taliño (edited by Laureta)
NOTES:
PEZA – Philippine Economic Zone Authority
ECCP – European Chamber of Commerce of the Philippines
 13
• 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.
• Petitioners withheld respondents salary in the sincere belief that respondent did not work for the period in question and was, therefore,
not entitled to it. There was no dishonest purpose or ill will involved hence corporate officers cannot be held personally liable for
the corporate obligations of SHS.
FACTS:
• SHS is a start-up Philippine Corporation registered with the PEZA, with Hartmannshenn (a German) as its president and
Schumacher (also a German) as its treasurer. Schumacher is also the Executive Vice President (EVP) of the ECCP.
• SHS and ECCP have an agreement wherein ECCP will handle the payroll requirements of SHS to help in its business operations
and to limit operational expenses. As such, the wages of SHS Employees are paid out by ECCP through its accounting department
headed by Juliet Taguiang.
• Diaz (respondent) was hired by SHS as the manager for business development located at Lot C3-2A, Phase I, Camelray Industrial
Park II, Calamba, Laguna. He had a probationary status (July 18, 2005 to January 18, 2006) with a monthly salary of Php 100k. His
work hours were from 8am-5pm, subject to the requirements of the job.
• (YOU CAN SKIP THIS IF YOU WANT BUT JUST IN CASE) The daily/general duties of Diaz were to:
o Represent the company in any event organized by the PEZA;
o Perform sales or marketing functions;
o Monitor and follow-up customer’s inquiry on employer’s services;
o Monitor on-going job orders/projects;
o Submit requirements as needed in application/renewal of necessary permits;
o Liaise closely with the other commercial and technical staff of the company;
o Accomplish PEZA documents/requirements for every sales made, with legal assistance where necessary at the
employer’s expense; and
o Perform other related duties and responsibilities.
• Diaz was also instructed by Hartmannshenn to report to the SHS office and plant at least 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
Diaz would have to market and sell.
• During Diaz’s employment, Hartmannshenn was often abroad. His instructions were thus being sent to Diaz through e-mail or
through phone. Whenever he is in the country, he would have meetings with Diaz.
• During one of the meetings, Hartmannshenn expressed his dissatisfaction with the poor performance of Diaz (failure to make any
concrete business proposal or implement any specific measure to improve the productivity of the SHS office and plant and failure
to deliver sales except for a meager Php 2500 for a sample product).
• Hartmannshenn alleged that Diaz acknowledged his poor performance and offered to resign from the company through e-mail.
However, Diaz denied sending such e-mail. But he admitted that he had reported to the office only 8 times from July 18 to Nov. 30,
2005.
• On Nov. 29, 2005, Hartmannshenn instructed Taguiang not to release the salary of Diaz. The next day, Diaz served SHS a demand
letter and his resignation letter. The resignation letter demanded for his unpaid and withheld salary of Php 50k from Nov. 16-30 and
stated that it is because of such illegal and unfair labor practices that he is resigning.
• Hartmannshenn alleged that he met with Diaz in the evening of Nov. 30 accepted his resignation and informed the latter that his
salary would be released upon explanation of his failure to report to work and upon proof that he did work for the period covered by
his withheld salary (Nov. 16-30). Diaz agreed to such conditions but later sent an e-mail on Dec. 1, 2005 asking for the release of
his salary.
• Diaz, however, claimed that the meeting took place in the evening of Dec. 1, during which, he was repeatedly insulted and was
demanded to accept Php 25k instead of his accrued salary and to stop working for SHS. He then sent an e-mail asking for the release
of his salary. A second e-mail was sent the following day demanding, in addition, his 13th month pay, moral and exemplary damages,
and attorney’s fees.
• On Dec. 9, Diaz filed a complaint for illegal dismissal and non-payment of salaries/wages and 13th month pay with prayer for
reinstatement and full backwages.
• LABOR ARBITER: Ruled in favour of Diaz (Php 704,166.67 as backwages; Php 50k for unpaid wages; Php 37,083.33 as unpaid
13th month pay). Diaz was constructively dismissed because the withholding of his salary was contrary to Art. 116 of the Labor Code
because it was not one of the exceptions for allowable wage deduction by the employer under Art. 113. His probationary status was
also deemed regularized because Petitioners failed to conduct a prior evaluation of his performance and to give notice 2 days prior
to his termination as required by the Probationary Contract of Employment and Art. 281.
• NLRC: Reversed the decision of the LA. The withholding of the salary of Diaz was A VALID exercise of management
prerogative. The act was deemed justified as it was reasonable to demand an explanation for failure to report to work and to account
for his work accomplishments. Diaz could not be deemed to have been regularized due to voluntarily resigning prior to the
completion of the probationary period.
• CA: Reversed the decision of the NLRC. The withholding of salary was NOT A VALID exercise of management prerogative as
there is no such thing as a management prerogative to withhold wages temporarily. Diaz’s alleged failure to report to work were
found to be unsubstantiated allegations not corroborated by any other evidence, insufficient to justify the withholding of salary and
lacking in probative value.
ISSUE(S): WON the temporary withholding of respondent’s salary/wages was valid?
 14

HELD: No, it is not.

RATIO:
• 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.
• Sanctioning such would run contrary to Art. 116 of the Labor Code:
ART. 116. Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person, directly or indirectly, to
withhold any amount from the wages of a worker or induce him to give up any part of his wages by force, stealth,
intimidation, threat or by any other means whatsoever without the worker’s consent.
• Any withholding of an employee’s wages by an employer may only be allowed in the form of wage deductions under the
circumstances provided in Art. 113:
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.
• The Court finds petitioners evidence insufficient to prove that respondent did not work from November 16 to November 30,
2005. As can be gleaned from respondents Contract of Probationary Employment and the exchanges of electronic mail messages
between Hartmannshenn and respondent, the latters 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 respondents 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.

• Although it cannot be determined with certainty whether respondent worked for the entire period from Nov. 16-30, 2005, the
consistent rule is that if doubt exists between the evidence presented by the employer and that by the employee, the scales of justice
must be tilted in favor of the latter in line with the policy mandated by Art. 2 and 3 of the Labor Code to afford protection to labor
and construe doubts in favor of labor. For petitioners’ failure to satisfy their burden of proof, respondent is presumed to have
worked during the period in question and is, accordingly, entitled to his salary. Therefore, the withholding of respondent’s salary
by petitioners is contrary to Art. 116 of the Labor Code and, thus, unlawful.
• Petitioners withheld respondents salary in the sincere belief that respondent did not work for the period in question and was, therefore,
not entitled to it. There was no dishonest purpose or ill will involved as they believed there was a justifiable reason to withhold his
salary. Thus, although they unlawfully withheld respondents salary, it cannot be concluded that such was made in bad faith.
Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot be held personally liable for the corporate obligations of
SHS.
DISSENTING/CONCURRING OPINION(S):

EMER MILAN, RANDY MASANGKAY, WILFREDO AUTHOR: PELAYO

JAVIER, RONALDO DAVID, BONIFACIO MATUNDAN, NOTES: Guys nood kayo Moana
NORA MENDOZA, ET AL., (Milan et.al), Petitioner vs. NLRC,
SOLID MILLS, INC., AND/OR PHILIP ANG, Respondents.
G.R. No. 202961 February 04, 2015
PONENTE: LEONEN, J.
TOPIC: Prohibition against withholding of wages
CASE LAW/ 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.
 15
EMERGENCY:
FACTS:
• Milan et.al are Solid Mills, Inc.’s (SM) employees. Represented by National Federation of Labor Unions (NAFLU), their
collective bargaining agent.
• As SM’ employees, Milan et.al. and their families were allowed to occupy SMI Village, a property owned by SM.
• According to SM, 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.”
• September 2003 – Milan et.al were informed that effective October 10, 2003, SM would cease its operations due to serious
business losses. NAFLU recognized SM’s closure due to serious business losses in the memorandum of agreement (MOA) dated
September 1, 2003 which provided for SM’s 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.
• SM filed its DOLE termination report on September 2, 2003.
• Later, SM, through Alfredo Jingco, sent to Milan et.al individual notices to vacate SMI Village.
• Milan et.al. were no longer allowed to report for work by October 10, 2003. They were required to sign a MOA with release
and quitclaim before their vacation and sick leave benefits, 13th month pay, and separation pay would be released.
• Employees who signed the MOA 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.
• Hence, they filed complaints before the Labor Arbiter for alleged non-payment of separation pay, accrued sick and vacation
leaves, and 13th month pay.
• ARGUMENT OF MILAN ET AL: 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 SM property is not an accountability that is subject to clearance procedures. They had already turned over to SM
their uniforms and equipment when SM ceased operations.
• ARGUMENT OF SM: Milan et.al.’s complaint was premature because they had not vacated its property.
• LA – In favor of Milan et.al. SM illegally withheld petitioners’ benefits and separation pay. The MOA dated September 1, 2003
stated no condition to the effect that petitioners must vacate SM’s 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.
They appealed to the NLRC
• NLRC – 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 SM Linga and four other were already paid their respective separation pays
and benefits. Meanwhile, Teodora Mahilom already retired long before SM’s closure. She was already given her retirement
benefits.
• NLRC ruled that because of petitioners’ failure to vacate SM’s property, SM was justified in withholding their benefits and
separation pay. SM granted the petitioners the privilege to occupy its property because petitioners’ employment. It had the
prerogative to terminate such privilege. The termination of SM and petitioners’ employer-employee relationship made it
incumbent upon petitioners to turn over the property to SM.
• CA - ruled that SM’s 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(S):
• WON an employer is allowed to withhold terminal pay and benefits pending the employee’s return of its properties
HELD:
• YES

RATIO:
• 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
 16
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 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.
• Solid Mills won.
DISSENTING/CONCURRING OPINION(S): N/A

31 South Motorists Enterprises v. Roque Tosoc et al AUTHOR: Pineda

[G.R. No. 87449; 23 January 1990] NOTES:
TOPIC: prohibition against keeping employee records in a
place other than the working place PONENTE: Melancio-
Herrera
CASE LAW/ DOCTRINE:
Section 11 of Rule X, Book II of Omnibus Rules Implementing the Labor Code: “All employment records of the EE of the
ER shall be kept and maintained in or about the premises of the workplace. The premises of a workplace shall be understood
to mean the main or branch office or establishment, if any, depending, upon where the EEs are regularly assigned. The
keeping of EE’s records in another place is prohibited.
FACTS:
• Respondent-employees of South Motorists Enterprises (“SME”) filed a complaint with the DOLE Regional District
Office (“RDO”), alleging the non-payment of emergency cost of living allowances (“COLA”).
• During the RDO visit, SME was unable to present employment records, starting that such were unavailable, as they
were transferred to another branch.
• RDO issued an order directing SME to redress the non-payment. SOLE affirmed reward
• SME filed Certiorari (Rule 65), contending that RDO had no jurisdiction to make such monetary awards + SOLE
erred in affirming RDO, as RDO based its decision only on a mere inspection report.
ISSUE(S): W/N SME liable to pay Respondents

HELD:
Yes. SOLE did not err in affirming RDO decision. SME withheld records, and thus cannot now question the basis used by
RDO in reaching a decision.
As to jurisdiction, RDO had jurisdiction for awards P5000 or less. For the awards more than P5000, it did not have
jurisdiction; the Labor Arbiter does under Labor Code.
RATIO:
• Labor Arbiter has jurisdiction over money claims, arising from ER-EE relationship, if the amount is more than
P5000.
• SME’s failure to present employment records was due to their violation of DOLE Rules:
o Section 11 of Rule X, Book II of Omnibus Rules Implementing the Labor Code: “All employment records
of the EE of the ER shall be kept and maintained in or about the premises of the workplace. The premises
of a workplace shall be understood to mean the main or branch office or establishment, if any, depending,
upon where the EEs are regularly assigned. The keeping of EE’s records in another place is prohibited.
DISSENTING/CONCURRING OPINION(S):
 17

CASE TITLE: Gaa v. Court of Appeals AUTHOR: Mendoza

[G.R. No. L-44169 Date December 3, 1985] NOTES:
TOPIC: Prohibition against Garnishment Article 1708. “The laborer' s wage shall not be subject to
PONENTE: Patajo execution or attachment, except for debts incurred for food,
shelter, clothing and medical attendance."
CASE LAW/ DOCTRINE:
Article 1708 of the Civil Code which exempts "laborer's wage" from attachment or execution does not apply to a
responsibly placed employee, supervisory or managerial employee, but only to the rank and file.

In its broadest sense, the word "laborer" includes everyone who performs any kind of mental or physical labor, but as
commonly and customarily used and understood, it only applies to one engaged in some form of manual or physical
labor. That is the sense in which the courts generally apply the term as applied in exemption acts, since persons of that class
usually look to the reward of a day's labor for immediate or present support and so are more in need of the exemption than
are other.

Article 1708 used the word "wages" and not "salary" in relation to "laborer" when it declared what are to be exempted from
attachment and execution. The term "wages" as distinguished from "salary", applies to the compensation for manual
labor, skilled or unskilled, paid at stated times, and measured by the day, week, month, or season, while "salary" denotes a
higher degree of employment, or a superior grade of services, and implies a position of office: by contrast, the term "wages"
indicates considerable pay for a lower and less responsible character of employment, while "salary" is suggestive of a larger
and more important service.

FACTS:
Respondent Europhil Industries Corporation was formerly one of the tenants in Trinity Building at T.M. Kalaw Street, Manila
while Petitioner-Rosario A. Gaa was then the building administrator.

Europhil filed an action with the CFI against Gaa for damages against petitioner for having perpetrated certain acts that
Europhil Industries (considered a trespass upon its rights, namely, cutting of its electricity, and removing its name from the
building directory and gate passes of its officials and employees). CFI ruled in favor of Europhil and ordered Gaa to pay the
former a total of P20, 000 as damages.

The CFI’s decision became final and executory and a writ of garnishment was issued against Gaa. Sheriff Cesar
Roxas served a Notice of Garnishment upon El Grande Hotel, where Gaa was then employed, garnishing her “salary,
commission and/or remuneration”.

Gaa filed with the CFI Manila a motion to lift said garnishment on the ground that her "salaries, commission and/or
remuneration" are exempted from execution under Art 1708 NCC. Gaa’s motion was denied. CA dismissed her petition for
Certiorari.

According to the CA: 1. Gaa is not a mere laborer as contemplated under Article 1708 as the term laborer does not apply to
one who holds a managerial or supervisory position like hers, but only to those "laborers occupying the lower strata; and 2.
It also held that the term "wages" means the pay given "as hire or reward to artisans, mechanics, domestics or menial servants,
and laborers employed in manufactories, agriculture, mines, and other manual occupation and usually employed to
distinguish the sums paid to persons hired to perform manual labor, skilled or unskilled, paid at stated times, and measured
by the day, week, month, or season.

ISSUE(S):
Whether or not the CA correctly interpreted the application of Article 1708 of the Civil Code.
HELD:
Yes. Gaa’s petition to lift the notice of garnishment was denied.
RATIO:
Gaa is not an ordinary or rank and file laborer but "a responsibly place employee," of El Grande Hotel, "responsible
for planning, directing, controlling, and coordinating the activities of all housekeeping personnel" so as to ensure the
cleanliness, maintenance and orderliness of all guest rooms, function rooms, public areas, and the surroundings of the hotel.
Considering the importance of her function in El Grande Hotel, it is undeniable that she is occupying a position equivalent
to that of a managerial or supervisory position.
 18
Further, Gaa is not within the class pertained in Article 1708. Because the legislature intended the exemption in Article 1708
to operate in favor of any but those who are laboring men or women in the sense that their work is manual. Persons belonging
to this class usually look to the reward of a day's labor for immediate or present support, and such persons are more in need
of the exemption than any others.

DISSENTING/CONCURRING OPINION(S):

33 DEVELOPMENT BANK OF THE PHILIPPINES V AUTHOR: PAGCALIWAGAN

SECRETARY OF LABOR NOTES:
G.R. No. 79351 November 28, 1989 Article 110. WORKER PREFERENCE IN CASE OF
TOPIC: Workers Preference in the Event of Bankruptcy BANKRUPTCY.—In the event of bankruptcy or liquidation
PONENTE: Cortes, J. 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
[Emphasis supplied].

Section 10. 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.
CASE LAW/ DOCTRINE:
What Article 110 of the Labor Code establishes is not a lien, but a preference of credit in favor of employees. This
simply means that during bankruptcy, insolvency or liquidation proceedings involving the existing properties of the
employer, the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which
may be proved therein. It bears repeating that a preference of credit points out solely the order in which creditors
would be paid from the properties of a debtor inventoried and appraised during bankruptcy, insolvency or liquidation
proceedings. Moreover, a preference does not exist in any effective way prior to, and apart from, the institution of
these proceedings, for it is only then that the legal provisions on concurrence and preference of credits begin to apply.
Unlike a lien, a preference of credit does not create in favor of the preferred creditor a charge or proprietary interest
upon any particular property of the debtor. Neither does it vest as a matter of course upon the mere accrual of a
money claim against the debtor. Certainly, the debtor could very well sell, mortgage or pledge his property, and
convey good title thereon, to third parties free from such preference.
FACTS:
Development Bank of the Philippines (DBP) seeks the nullification of the order issued by the Undersecretary of Labor and
Employment, affirming that of the NCR Officer-in-Charge Romeo Young. Order directs the DBP to deliver the properties
of Riverside Mills Corporation (RMC) which it had in its possession to the Ministry of Labor and Employment for proper
disposition in the Labor Case pursuant to Article 110 of the Labor Code.

• The Labor Case involves a complaint for illegal dismissal, unfair labor practice, illegal deductions from salaries and
violation of the minimum wage law filed by private respondents against RMC.
Ø July 3, 1985 – Director of the NCR MOLE ordered RMC to pay private respondents backwages and
separation benefits
Ø October 22, 1985 – Writ of execution was issued directing the sheriff to collect P1,256,678.76 from RMC and
in case of failure to collect, to execute the writ by selling the goods and chattel of RMC not exempt from
execution or, in case of insufficiency, the real or immovable properties of RMC
• Writ of execution was returned unserved and unsatisfied, with the information that the company premises of RMC
had been padlocked and foreclosed by DBP
Ø DBP had instituted extra-judicial foreclosure proceedings as early as 1983 on the properties and other assets
of RMC as a result of the latter’s failure to meet its obligations on the loans it secured from RMC.
 19
• Private respondents filed with the MOLE a “Motion for Delivery of Properties of the RMC in the Possession of DBP
to the MOLE for Proper Disposition” stating that pursuant to Article 110 of the Labor Code, they enjoy 1st preference
over the mortgaged properties of RMC for the satisfaction of the judgment rendered in their favor notwithstanding the
foreclosure of the same by DBP as mortgage creditor.
Ø DBP filed its opposition
• Officer-in-Charge Romeo Young signed order granting private respondents’ motion based on the finding that Article
110 of the Labor Code and the ruling laid down in Philippine Commercial and Industrial Bank (PCIB) v Natural
Mines and Allied Workers’ (NAMAWU-MIF) support the conclusion that private respondents enjoyed a preferential
lien for the payment of their backwages and separation benefits over the properties of RMC which were foreclosed by
DBP.
• DBP filed its MR contending that Article 110 of the Labor Code has no application in this case because:
Ø The properties sought to be delivered have ceased to belong to RMC in view of the fact that DBP had
foreclosed on the mortgage, and the properties have been sold and delivered to 3rd parties;
Ø The requisite condition for the application of Article 110 of the Labor Code is not present since no
bankruptcy or insolvency proceedings over RMC properties and assets have been undertaken.
• Hence, petition for certiorari.
ISSUE(S): WON Secretary of Labor acted with grave abuse of discretion in enforcing private respondents’ right of
preference under Article 110 of the Labor Code notwithstanding the absence of bankruptcy, liquidation or insolvency
proceedings against RMC.

HELD: YES. It is clear from the wording of the law that the preferential right accorded to employees and workers under
Article 110 may be invoked only during bankruptcy or judicial liquidation proceedings against the employer. The law is
unequivocal and admits of no other construction.
RATIO:
Respondents contend that the terms "bankruptcy" or "liquidation" are broad enough to cover a situation where there is a
cessation of the operation of the employer's business as in the case at bar. Court laid down the ruling that Article 110 of the
Labor Code, which cannot be viewed in isolation of, and must always be reckoned with the provisions of the Civil Code on
concurrence and preference of credits, may not be invoked by employees or workers of RMC like private respondents herein,
in the absence of a formal declaration of bankruptcy or a judicial liquidation order of RMC (DBP v Hon. Labor Arbiter
Santos).

The rationale for making the application of Article 110 of the Labor Code contingent upon the institution of bankruptcy or
judicial liquidation proceedings against the employer is premised upon the very nature of a preferential right of credit. A
preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims
which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtor
are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity
exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale of the
debtor's specific property? Indubitably, the preferential right of credit attains significance only after the properties of the
debtor have been inventoried and liquidated, and the claims held by his various creditors have been established

DBP had extra-judicially foreclosed the subject properties from RMC as early as 1983 and purchased the same at public
auction, and that RMC had failed to exercise its right to redeem. Thus, when Officer-in-Charge Young issued on December
11, 1986 the order which directed the delivery of these properties to the MOLE, RMC had ceased to be the absolute owner
thereof. Consequently, the order was directed against properties which no longer belonged to the judgment debtor RMC.

What Article 110 of the Labor Code establishes is not a lien, but a preference of credit in favor of employees. This simply
means that during bankruptcy, insolvency or liquidation proceedings involving the existing properties of the employer, the
employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proved therein.
It bears repeating that a preference of credit points out solely the order in which creditors would be paid from the properties
of a debtor inventoried and appraised during bankruptcy, insolvency or liquidation proceedings. Moreover, a preference does
not exist in any effective way prior to, and apart from, the institution of these proceedings, for it is only then that the legal
provisions on concurrence and preference of credits begin to apply. Unlike a lien, a preference of credit does not create in
favor of the preferred creditor a charge or proprietary interest upon any particular property of the debtor. Neither does it vest
as a matter of course upon the mere accrual of a money claim against the debtor. Certainly, the debtor could very well sell,
mortgage or pledge his property, and convey good title thereon, to third parties free from such preference.
DISSENTING/CONCURRING OPINION(S):
 20

34 REPUBLIC (BOC & BIR) v. PERALTA (CFI judge), QUALITY AUTHOR: RAMOS
TABACCO CORP., FOITAF (long Spanish name), USTC NOTES: Sorry, feel ko important yung POC
EMPLOYEES ASSOCIATION WORKERS UNION-PTGWO [G.R. outline. Included most of it. If naaalala nyo pa
L-56568 May 20, 1987] naman, skip to the next parts J
TOPIC: Worker’s Preference in the Event of Bankruptcy PONENTE:
Feliciano, J.
CASE LAW/ DOCTRINE: LC does not modify the overriding preference of taxes, BUT it does modify the order of
preference under NCC Art 2244
a) firstly, by removing the one year limitation found in Article 2244 (2); and
b) secondly, by moving up claims for unpaid wages of laborers or workers of the Insolvent from second priority to first
priority in the order of preference established by Article 2244
FACTS:
• May 1977: Quality Tabacco commenced voluntary insolvency proceedings. Creditors made their claims
i. P2,806,729.92, by the USTC Association of Employees and workers Union-PTGWO USTC as separation pay
for their members (+ P280,672.99 as attorney's fees awarded by NLRC in a prior case)
ii. P53,805.05 by Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas ("FOITAF) as
separation pay for their members (also awarded by NLRC in the same case)
iii. P1,085,188.22 by BIR for tobacco inspection fees (1 Oct 1967 to 28 Feb 1973)
iv. P276,161.00 by BOC for customs duties and taxes payable on various importations by the Insolvent. These
obligations are secured by surety bonds. (some imported items are still in customs custody)
• CFI Manila (Nov 17, 1980): claims of USTC and FOITAF ("Unions") for separation pay of their respective members
as awarded by the NLRC were to be preferred over the claims of the BOC and the BIR. In so ruling, it relied on LC
Art 110:
o “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. Union paid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.”
• Sol Gen: LC Art 110 is NOT applicable, as it speaks of "wages" – which does NOT include the separation pay claimed
by the Unions
o SEPARATION PAY - given to a laborer for a separation from employment computed on the basis of the
number of years the laborer was employed by the employer; it is a form of penalty or damage against the
employer in favor of the employee for the latter's dismissal or separation
o WAGES - 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
ISSUE(S):
1. WON “wages” embrace separation/termination pay [YES, it does]
2. What impact does LC Art 110 have on the NCC’s scheme for the classification, concurrence, and preference of credits?
[See discussion below]
HELD: Petition GRANTED. CFI orders dated 17 Nov 1980 and 19 Jan 1981 are MODIFIED accordingly. Case is
REMANDED to CFI for further proceedings in insolvency compatible with the rulings set forth above.
1. Separation/termination pay fall within the definition of “wages”
• In the context of insolvency, termination or separation pay is forms part of the remuneration or other money
benefits accruing to employees or workers by reason of their having previously rendered services to their
employer
o Liability for separation pay might have the effect of a penalty, so far as the employer is concerned.
o So far as concerns the employees, separation pay is additional remuneration to which they become entitled
(due to prior services rendered), when they are separated from the employer's service.
o The relationship between separation pay and services rendered is underscored by the fact that separation
pay is measured by the amount (i.e., length) of the services rendered.
 21
• Doubts — assuming that substantial, rather than frivolous doubts remain – in the interpretation of the LC and its
IRRs shall be "resolved in favor of labor."

• LC Art 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, preferred or non-preferred, may be adjudicated
o begin by outlining the scheme constituted by the provisions of the Civil Code
o classify credits against a particular insolvent into 3 general categories
a) special preferred credits listed in Articles 2241 and 2242,
b) ordinary preferred credits listed in Article 2244; and
c) common credits under Article 2245.
o NCC Art 2241 and 2242: these credits constitute liens or encumbrances on the specific property to which
they relate.
o Art 2241 and 2242, jointly with Art 2246 to 2249, establish a Two-Tier Order of Preference.
§ 1st tier: includes only taxes, duties and fees due on specific movable or immovable property.
• duties, taxes and fees due [on insolvent’s specific movable property] to the State or its
subdivisions (Art 2241 [1]) and taxes due upon insolvent's land or building (2242 [1])stand
first in preference in respect of the particular property taxed
• [T]axes in number 1, Art 2241 and number 1, Art 2242 shall first be satisfied.
§ 2nd tier: All other special preferred credits, satisfied pari passu and pro rata from the residual value
of the specific property they relate to
• Other claims (numbers 2 to 13 in Art 2241 and 2 to 10 in Art 2242), all come after taxes in
order of precedence
• such claims enjoy their privileged character as liens and may be paid ONLY to the extent
that taxes have been paid from the proceeds of the specific property (or from any other
sources) and ONLY in respect of the remaining balance of such proceeds.
• these other credits, although constituting liens attaching to particular property, are NOT
preferred one over another inter.
• Provided tax liens shall have been satisfied, non-tax liens in specific property are to be
treated on an equal basis and to be satisfied concurrently and proportionately.
o Art 2243: credits "shall be considered as mortgages or pledges of real or personal property, or liens within
the purview of provisions on insolvency."
o Credits which are specially preferred (tax or non-tax lien) in turn, take precedence over ordinary
preferred credits so far as concerns the property to which the liens have attached.
§ The specially preferred credits must be discharged first out of the proceeds of the property to which
they relate, before ordinary preferred creditors may lay claim to any part of such proceeds.
o If the value of the specific property involved is greater than the all of the tax liens and other specially
preferred credits, the residual value will form part of the "free property" of the insolvent
o If the value of the specific movable or immovable is less than the aggregate of the tax liens and other
specially preferred credits
§ unsatisfied balance of the tax liens and other such credits are to the treated as ordinary credits
under Art 2244 and to be paid in the order of preference there set up
§ Art 2244 creates no liens on determinate property which follow such property – only in respect of
the insolvent's "FREE PROPERTY"
§ Art 2244 creates only simply rights in favor of certain creditors to have the insolvent’s assets
applied in a certain sequence or priority
§ certain taxes and assessments also figure but these do not have the same kind of overriding
preference that Art 2241 (1) and 2242 (1)
a) taxes and assessments due to the national government, excluding those which result in tax
liens under Art 2241 (1) and 2242 (1) but including the balance thereof not satisfied out of
the movable or immovable property to which such liens attached, are 9th in priority;
b) taxes and assessments due any province, excluding those impressed as tax liens under Art
2241 (1) and 2242 (1), but including the balance thereof not satisfied out of the movable or
immovable property to which such liens attached, are tenth in priority; and
c) taxes and assessments due any city or municipality, excluding those impressed as tax liens
under Art 2241 (1) and 2242 (2) but including the balance thereof not satisfied out of the
movable or immovable property to which such liens attached, are 11th in priority.
 22

• CLAIM OF THE BOC (unpaid customs and duties)

o Sec 1204, Tariff and Customs Code: liability of an importer for duties, taxes and fees and other charges
attaching on importation constitute a personal debt due from the importer to the government which can be
discharged only by payment in full of all duties, taxes, fees and other charges legally accruing It also
constitutes a lien upon the articles imported which may be enforced while such articles are in the custody
or subject to the control of the government.
o BOC’s claim for unpaid customs duties and taxes has the status of a specially preferred credit under NCC
Art 2241 (1) ONLY in respect of the articles imported which resulted in the assessment of the unpaid taxes
and duties, and which are still in BOC’s custody or control
§ Goods imported on one occasion are NOT subject to a lien for duties and taxes assessed upon other
importations
§ ties and taxes which remain unsatisfied after levy upon the imported articles on which such duties
and taxes are due, would have to be paid out of the Insolvent's "free property," per Art 2244 (9) –
9th in priority
• CLAIM OF THE BIR (Tabacco Inspection Fees)
o Old NIRC Sec 315 (later Sec 301 of the Tax Code of 1977): unpaid "internal revenue tax," together with
related interest, penalties and costs, constitutes a lien in favor of the Government from the time an assessment
therefor is made and until paid, "upon all property and rights to property belonging to the taxpayer."
§ Tobacco inspection fees are one of the miscellaneous taxes collected both as a regulatory measure
and as a revenue-raising measure: half of the accrues to the Tobacco Inspection Fund, while the
other half accrues to the Cultural Center of the Philippines
§ "tax" is used in Sec 315 of the old Tax Code is used in a broad sense, encompassing all government
revenues collectible by the CIR under said Code, whether involving taxes, in the strict technical
sense thereof, or not
o This claim of the BIR constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien
upon ALL the assets, movable and immovable, of the Insolvent as taxpayer. Under NCC Art 2241 (1), 2242
(1), and 2246-2249, this tax claim must be given preference over any other claim of any other creditor, in
respect of any and all properties of the Insolvent
• CLAIM OF THE UNIONS (Separation Pay)
o LC Art 110 does NOT purport to create a lien in favor of workers or employees for unpaid wages either
upon all of the properties or upon any particular property owned by their employer.
§ Claims for unpaid wages do NOT fall at all within the category of specially preferred claims
established under NCC Art 2241 and 2242,
• EXCEPT to the extent that such claims for unpaid wages are already covered by Art 2241
(6): "claims for laborers' wages, on the goods manufactured or the work done;" or by Art
2242, (3): "claims of laborers and other workers engaged in the construction, reconstruction
or repair of buildings, canals and other works, upon said buildings, canals or other works."
§ To the extent that claims for unpaid wages fall outside the scope of Art 2241 (6) and 2242 (3), they
would come within the ambit of the category of ordinary preferred credits under Art 2244
o Applying NCC Art 2241 (6) here, the claims for separation pay of their members constitute liens attaching
to the processed leaf tobacco, cigars and cigarettes and other products produced or manufactured by the
Insolvent, but NOT to other assets owned by the Insolvent.
§ Even in respect of such tobacco and tobacco products produced by the Insolvent, the claims of the
Unions may be given effect only AFTER the BIR's claim for unpaid tobacco inspection fees have
been satisfied out of the products manufactured by the Insolvent
o Art 2242 (3) also creates a lien upon a building or other real property of the Insolvent in favor of
workmen who constructed or repaired such building or other real property. (NOT relevant here, since the
union members aren’t involved in such work)
§ Thus, the Unions' claims do NOT therefore constitute a lien or encumbrance upon any immovable
property owned by the Insolvent, but rather, upon the Insolvent's existing inventory (processed
tobacco and tobacco products)

2. LC does not modify the overriding preference of taxes, BUT it does modify the order of preference under NCC Art 2244
o LC Art 110 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.
 23
§ Taxes are the lifeblood of government. Its effective collection is of highest importance for the sovereign. It
is critical for its own survival.
§ As such, the language of a much higher degree of specificity than that exhibited in LC Art 110 of the Labor
Code is necessary to set aside the intent and purpose of the legislator that shines through the precisely crafted
provisions of the Civil Code.
§ It CANNOT be assumed simpliciter that the legislative authority, by using in LC Art 110 the words "first
preference" and "any provision 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 LC Art 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."
o LC Art 110 nonetheless makes an impact on the NCC provisions.
§ Bearing in mind the overriding precedence given to taxes, duties and fees by the Civil Code and the fact that
the Labor Code does not impress any lien on the property of an employer, the use of the phrase "first
preference" in Art 110 indicates that what it intended to modify is the order of preference found in NCC
Art 2244
• order relates to property of the Insolvent that is NOT burdened with the liens created or recognized
by Art 2241 and 2242.
§ LC Art 110 has modified NCC Art 2244 in two respects:
a) firstly, by removing the one year limitation found in Article 2244 (2); and
b) secondly, by moving up claims for unpaid wages of laborers or workers of the Insolvent from
second priority to first priority in the order of preference established by Article 2244

• REMAND ORDER: trial court should inventory the properties of the Insolvent so as to determine specifically:
a) whether the assets of the Insolvent before the trial court includes stocks of processed or manufactured
tobacco products; and
§ If the Insolvent has inventories of processed or manufactured tobacco products,
• such must first satisfy the claim of the BIR for unpaid tobacco inspection fees.
• The remaining value of such inventories after satisfaction of such fees (or should such
inspection fees be satisfied out of other properties of the Insolvent) will be subject to a lien
in favor of the Unions by virtue of Art 2241 (6).
§ If the Insolvent no longer has any inventory of processed or manufactured product,
• claim of the Unions for separation pay would have to be satisfied out of the "free
property" of the Insolvent under NCC Art 2244, as modified by LC Art 110
b) whether the BOC still has in its custody or control articles imported by the Insolvent and subject to the lien
of the government for unpaid customs duties and taxes
§ should the BOC no longer have any importations by the Insolvent still within customs custody or
control, OR should the importations still held by the Bureau of Customs be or have become
insufficient in value for the purpose, customs duties and taxes remaining unpaid would have only
9th priority by virtue of NCC Art 2244 (9).
§ In respect therefore of the Insolvent's "free property, " the claims of the Unions will enjoy 1st
priority under NCC Art 2244 as modified and will be paid ahead of the claims of the BOC for
any customs duties and taxes still remaining unsatisfied
o NOTE: claims of the Unions do NOT include the 10% claim for attorney's fees. Attorney's fees do not stand
on the same footing as separation pay
SEPARATE OPINION: Cruz, J. (Dissenting)
• Main decision reads an exception that is not there. The language of the law is clear that it intended to apply regardless
of any other provision of law. Preference of wages in case of bankruptcy should be given preference over even taxes. If
the law intended for an exception, it would have so stated.
• LC was promulgated later than NCC, the Insolvency Law, and the NIRC. It should prevail over the others.
• Power of taxation, while indispensable, is NOT absolute and may be subordinated to the demands of Social justice

35 Balladares V. Peak Ventures Corp. AUTHOR: REYES

[G.R. No. Date] NOTES:
 24
TOPIC: Jursidiction in Wage Recovery Cases
PONENTE: Nachura
DOCTRINE
• Yes. The Supreme Court ruled that the visitorial and enforcement powers of the
DOLE Regional Director to order and enforce compliance with labor standard laws
can be exercised even when the individual claim exceeds P5,000.
• However, if the labor standards case is covered by the exception clause in Article 128
(b) of the Labor Code, then the Regional Director will have to endorse the case to the
appropriate Arbitration Branch of the NLRC
• In order to divest the Regional Director or his representatives of jurisdiction, the
following elements must be present:
• That the employer contests the findings of the labor regulations officer and raises
issues thereon; (b) that in order to resolve such issues, there is a need to examine
evidentiary matters; and (c) that such matters are not verifiable in the normal course of
inspection.

FACTS:

• Petitioners Nestor J. Balladares et al., were employed by respondent Peak Ventures Corp
as security guards and were assigned at the premises of respondent YMOAA.
• They filed a complaint for underpayment of wages against their employer, Peak Ventures,
with the DOLE. Acting on the complaint, DOLE conducted an inspection of Peak
Ventures and the following violations were noted: underpayment of the minimum wage
and other auxiliary benefits; pertinent employment records were not available at the time
of inspection.
• A Notice of Inspection Result was issued to Peak Ventures instructing them to effect
restitution and/or file its objections within five working days from receipt thereof.
Respondent failed to correct the violations or contest the findings as required, hence, the
parties were summoned for hearing.
• Peak Ventures moved to implead its client YMOAA, claiming that any underpayment of
wages arose from the failure of YMOAA to pay Peak Ventures the amount due petitioners
as prescribed by various wage orders.
• After the hearing, DOLE Regional Director Maximo Lim rendered judgment in favor of
petitioners and ruled that the contractor was jointly and severally liable with the principal.
Lim averred that because Peak Ventures failed to controvert the complaint and its
repeated denial to give access to records, it is deemed to have waived its constitutional
right to due process.
• Petitioners were awarded P1,106,298. Peak Ventures filed a motion for reconsideration,
but the same was denied prompting them to appeal to the CA.

CA RULING:
• The CA granted the petition, ruling that the Regional Director had no jurisdiction to hear
and decide the case, because the claims of each of the petitioners exceeded P5,000.00, and
 25
the power to adjudicate such claims belonged to the Labor Arbiter, pursuant to Servandos,
Inc. v. Secretary of Labor
• The appellate court ratiocinated that this exclusive jurisdiction of the Labor Arbiters was
confirmed by Article 129 of the Labor Code, which excludes from the jurisdiction of the
Regional Directors or any hearing officer of the DOLE the power to hear and decide
claims of employees arising from employer-employee relations exceeding the amount of
P5,000.00 for each employee

ISSUE(S): Does DOLE Regional Director has jurisdiction to even though the claims of the complainants
exceeded P5,000?

HELD: Yes

RATIO:
• Yes. The Supreme Court ruled that the visitorial and enforcement powers of the
DOLE Regional Director to order and enforce compliance with labor standard laws
can be exercised even when the individual claim exceeds P5,000.
• However, if the labor standards case is covered by the exception clause in Article 128
(b) of the Labor Code, then the Regional Director will have to endorse the case to the
appropriate Arbitration Branch of the NLRC
• In order to divest the Regional Director or his representatives of jurisdiction, the
following elements must be present:
• That the employer contests the findings of the labor regulations officer and raises
issues thereon; (b) that in order to resolve such issues, there is a need to examine
evidentiary matters; and (c) that such matters are not verifiable in the normal course of
inspection.
• The rules also provide that the employer shall raise such objections during the hearing
of the case or at any time after receipt of the notice of inspection results. In the case at
bar, Peak Ventures did not contest the findings of the labor regulations officer during
the hearing or after receipt of notice of the inspection results.
• Accordingly, we find no sufficient reason to warrant the certification of the instant
case to the LA and divest the Regional Director of jurisdiction.
• Respondent did not contest the findings of the labor regulations officer. Even during
the hearing, respondent never denied that petitioners were not paid correct wages and
benefits

CASE LAW/ DOCTRINE:

DISSENTING/CONCURRING OPINION(S):

36. Meteoro v. Creative Creatures, Inc., AUTHOR: S A Y O

G.R. No. 171275, July 13, 2009 NOTES:
TOPIC: Wage Recovery/ Jurisdiction
PONENTE: NACHURA
 26
CASE LAW/ DOCTRINE:

The power of the Regional Director to hear and decide the monetary claims of employees is not absolute. The last
sentence of Article 128 (b) of the Labor Code, otherwise known as the “exception clause,” provides an instance when
the Regional Director or his representatives may be divested of jurisdiction over a labor standards case.

Under prevailing jurisprudence, the so-called “exception clause” has the following elements, all of which must concur:
(a) that the employer contests the findings of the labor regulations officer and raises issues thereon; (b) that in order
to resolve such issues, there is a need to examine evidentiary matters; and (c) that such matters are not verifiable in
the normal course of inspection.

FACTS:
• Respondent is a domestic corporation engaged in the business of producing, providing, or procuring the production of
set designs and set construction services for television exhibitions, concerts, theatrical performances, motion pictures
and the like.

• It primarily caters to the production design requirements of ABS-CBN Broadcasting Corporation in Metro Manila and
nationwide
• Petitioners were hired by respondent on various dates as artists, carpenters and welders. They were tasked to design,
create, assemble, set-up and dismantle props, and provide sound effects to respondent’s various TV programs and
movies.

• Petitioners filed their respective complaints for non-payment of night shift differential pay, overtime pay, holiday
pay, 13thmonth pay, premium pay for Sundays and/or rest days, service incentive leave pay, paternity leave pay,
educational assistance, rice benefits, and illegal and/or unauthorized deductions from salaries against respondent,
before the DOLE-NCR.

• Respondent:

Ø claimed that petitioners were contractual employees and/or independent talent workers; and that
petitioners were required to punch their cards.
Ø argued that the DOLE-NCR had no jurisdiction over the complaint of the petitioners because of the absence
of an employer-employee relationship (petitioners were free-lance individuals, performing special services
with skills and expertise inherently exclusive to them like actors, actresses, directors, producers, and script
writers, such that they were treated as special types of workers)

• Petitioners:
Ø averred that they were employees of respondent, as the elements of an employer-employee relationship
existed.
Ø filed a complaint for illegal dismissal against petitioner, with prayer for payment of overtime pay, premium
pay for holiday and rest day, holiday pay, service incentive leave pay, 13th month pay and attorney’s fees
before the National Labor Relations Commission (NLRC

• DOLE Regional Director:

Ø issued an Order directing respondent to pay petitioners the total amount of P2,694,709.00. (representing the
unpaid benefits)
Ø sustained existence of employer- employee relationship (petitioners worked for more than one year doing
same routine work)
Ø upheld the DOLE-NCRs jurisdiction to hear and determine cases in violation of labor standards law.

• (On appeal) DOLE Secretary:

Ø affirmed the Regional Director’s findings. (on jurisdiction: Secretary of Labor or his duly authorized
representative is allowed to use his visitorial and enforcement powers to give effect to labor legislation)

CA: REVERSED (respondent had consistently disputed the existence of employer-employee relationship, thereby placing
the case beyond the jurisdiction of the Regional Director)
 27

Petitioners now come before this Court in this petition for review on certiorari

ISSUE(S): WON CA erred in ruling that the Regional Director has no jurisdiction thus annulling the orders of both the
Director and the Secretary

HELD: NO (NLRC has jurisdiction)

RATIO:
• As it is now worded, and as consistently held in a number of cases, the visitorial and enforcement powers of the
Secretary, exercised through his representatives, encompass compliance with all labor standards laws and other
labor legislation, regardless of the amount of the claims filed by workers.

• This notwithstanding, the power of the Regional Director to hear and decide the monetary claims of employees is
not absolute. The last sentence of Article 128 (b) of the Labor Code, otherwise known as the exception clause,
provides an instance when the Regional Director or his representatives may be divested of jurisdiction over a labor
standards case.

• In the present case, the CA aptly applied the exception clause. At the earliest opportunity, respondent registered its
objection to the findings of the labor inspector.The labor inspector, in fact, noted in its report that respondent
alleged that petitioners were contractual workers and/or independent and talent workers without control or
supervision and also supplied with tools and apparatus pertaining to their job.

• In its position paper, respondent again insisted that petitioners were not its employees. It then questioned the
Regional Directors jurisdiction to entertain the matter before it, primarily because of the absence of an employer-
employee relationship. Finally, it raised the same arguments before the Secretary of Labor and the appellate
court. It is, therefore, clear that respondent contested and continues to contest the findings and conclusions of the
labor inspector.

• We would like to emphasize that “to contest” means to raise questions as to the amounts complained of or the absence
of violation of labor standards laws; or, as in the instant case, issues as to the complainants’ right to labor standards
benefits. To be sure, raising lack of jurisdiction alone is not the “contest” contemplated by the exception clause.

• It is necessary that the employer contest the findings of the labor regulations officer during the hearing or after receipt
of the notice of inspection results. More importantly, the key requirement for the Regional Director and the DOLE
Secretary to be divested of jurisdiction is that the evidentiary matters be not verifiable in the course of
inspection. Where the evidence presented was verifiable in the normal course of inspection, even if presented
belatedly by the employer, the Regional Director, and later the DOLE Secretary, may still examine it; and these
officers are not divested of jurisdiction to decide the case.

DISSENTING/CONCURRING OPINION(S):

37 Tangga-an vs, Philippine Transmarine Carriers, Inc., AUTHOR: SOLIS

Universe Tankship Delaware LLC, and Carlos C. Salinas NOTES:
[G.R. No. Date]
TOPIC: Minimum Wages and Wage Fixing Machinery
PONENTE: Del Castillo, J.
CASE LAW/ DOCTRINE:

FACTS:
• Tangga-an entered into an overseas employment contract with Philippine Transmarine Carriers, Inc. (PTC) for and in
behalf of its foreign employer, Universe Tankship Delaware, LLC. Under the employment contract, he was to be
employed for a period of 6 months as chief engineer of the vessel the S.S. “Kure.” He was to be paid a basic salary of
US$5,000.00; vacation leave pay equivalent to 15 days a months or US$2,500.00 per month and tonnage bonus in the
amount of US$700.00 a month
 28

• 11 Feb 2002—Tangga-an was deployed. One day, while loading liquid cargo at Cedros, Mexico, the vessel suddenly
listed too much at the bow. At that particular time both the master and the chief mate went on shore leave together,
which under maritime standard was prohibited. To avoid any conflict, he chose to ignore the unbecoming conduct of
the senior officer of the vessel.

• 13 March 2002—While their vessel was at sea, their master informed Tangga-an and the rest of the Filipino Engineer
Officers that they would be repatriated on account of the delay in the cargo discharging in Japan, which was
principally a duty belonging to the deck officers. The master imputed the delay to the non-readiness of the turbo
generator and the inopertion of the boom. It was alleged that while they were docked in Japan, discharging, both the
master and the chief mate again went on shore leave together 4:00 PM and returned to the vessel only after midnight.
To save face, they harped on the Engine Department for their mistake.

• Herein defendants contends the following:

ü March 2002-- Tanga-an and his assistant engineers spent 3 hours trying to start the generator but failed. It was
only the third assistant engineer who previously served in the same vessel who was able to turn on the
generator. When the master tried to call the engine room to find out the problem, Tangga-an did not answer
and merely hang up. The master proceeded to the engine room to find out the problem by Tanga-an and his
assistant engineers were running around trying to appear busy.
ü At another time, during a cargo discharging operation requiring the use of a generator system and the
conveyor boom, Tangga-an was nowhere to be found. Apparently, he went on shore leave resulting in a delay
of 2 hours because the machine could not be operated well.
ü Tangga-an failed to give an explanation to both instances, thus, a notice of dismissal was issued against
Tanga-an.

• Lorenzo Tangga-an filed a case for illegal dismissal with a claim for the payment of salaries corresponding to the
unexpired term of the contract against Philippine Transmarine Carriers, Inc., Universe Tankship Delaware LLC, and
Carlos C. Salinas

• LA Gutierrez: finding Tangga-an to have been illegally dismissed. As regards Tangga-an’s claim for back salaries, the
LA found petitioner entitled not to 4 months which is equivalent to the unexpired portion of his contract, but only to 3
months, inclusive of vacation leave pay and tonnage bonus (US$8,200 x 3 months = US$24,600) pursuant to Section
10 of RA 8042 or The Migrant Workers and Overseas Filipinos Act of 2005

• NLRC: affirmed the finding of illegal dismissal. On the issue covering the award of vacation leave pay and tonnage
bonus, the NLRC struck down respondents’ arguments and held that in illegal dismissal cases, the employee is
entitled to all the salaries allowances and other benefits or their monetary equivalents from the time his compensation
is withheld from him until he is actually reinstated, in effect citing Article 279 of the Labor Code. It held that vacation
leave pay and tonnage bonus are provided in petitioner’s employment contract, which thus entitles the latter to the
same in the event of illegal dismissal.

• CA: It adhered to the finding of illegal dismissal. It ordered that Tangga-an is entiled to 3 moths salary representing
the unexpired portion of his contract in the total amount of US$15,000.00.

• Hence this petition.

• Petitioner contends that the CA erred in excluding his vacation leave pay and tonnage bonus in the computation of his
back salaries as they form part of his salaries and benefits under his employment contract with the respondents, a
covenant which is deemed to be the law governing their relations. He adds that under Article 279 of the Labor Code,
he is entitled to full backwages inclusive of allowances and other benefits or their monetary equivalent form the time
his compensation was withheld up to the time he is actually reinstated.

ISSUE(S): WON Tangga-an is entitled to the reinstatement of the monetary awards as decreed in the LA’s Decision, or in
the alternative, the grant of back salaries equivalent to 4 months which corresponds to the unexpired portion of the contract,
inclusive of vacation leave pay and tonnage bonus.

HELD: YES
 29
GRANTS the petition.

RATIO:
• We cannot subscribe to the view that Tanga-an is entitled to 3 month salary only. A plain reading of Section 10
clearly reveals that the choice of which amount to award an illegally dismissed overseas contract worker, i.e., whether
his salaries for the unexpired portion of his employment contract or 3 months salary for every year of the unexpired
term, whichever is less, comes into play only when the employment contract concerned has a term of at least 1 year
or more. This is evident from the wording “for every year of the unexpired term” which follows the wording “salaries
x x x for three months.” To follow petitioners’ thinking that private respondent is entitled to 3 months salary only
simply because it is the lesser amount is to completely disregard and overlook some words used in the statute while
giving effect to some. This is contrary to the well-established rule in legal hermeneutics that in interpreting a statute,
care should be taken that every part or word thereof be given effect since the lawmaking body is presumed to know
the meaning of the words employed in the statute and to have used them advisedly.

• Petitioner must be awarded his salaries corresponding to the unexpired portion of his 6-months employment contract,
or equivalent to 4 months. This includes all his corresponding monthly vacation leave pay and tonnage bonuses
which are expressly provided and guaranteed in his employment contract as part of his monthly salary and benefit
package. These benefits were guaranteed in his employment contract as part of his monthly salary and benefit
package. These benefits were guaranteed to be paid on a monthly basis, and were not made contingent. In fact, their
monetary equivalent was fixed under the contract: US$2,500 for vacation leave pay and US$700 for tonnage bonus
each month. Thus, petitioner is entitled to back salaries of US$32,800 (US$5,000 + US$2,500 + US$700 = US$8,200
x 4 months). “Article 279 of the Labor Code mandates that an employee’s full backwages shall be inclusive of
allowances and other benefits or their monetary equivalent.” As we have time and again held, “it is the obligation of
the employer to pay an illegally dismissed employee or worker the whole amount of the salaries or wages, plus all
other benefits and bonuses and general increases, to which he would have been normally entitled had he not been
dismissed and had not stopped working.” This well-defined principle has likewise been lost on the CA in the
consideration of the case.
DISSENTING/CONCURRING OPINION(S):

38. Noriel R. Montierro vs Rickmers Marine Agency Phils, Inc. AUTHOR: The Taliño
[G.R. No. 210634; January 14, 2015] NOTES:
TOPIC: 18.6 Wage Recovery/Jurisdiction RMAPI – Rickmers Marine Agency Phils., Inc.
PONENTE: Sereno, C.J.
CASE LAW/ DOCTRINE:
§ The Court has already delineated the effectivity of the Crystal Shipping and Vergara rulings in the 2013 case Kestrel Shipping Co.
Inc. v. Munar
§ Based on Kestrel, if the maritime compensation complaint was filed prior to Oct. 6, 2008, the 120-day rule applies; if, on the other
hand, the complaint was filed from Oct. 6, 2008 onwards, the 240-day rule applies.
§ In this case, Montierro filed his Complaint on Dec. 3, 2010, which was after the promulgation of Vergara. Hence, it is the 240-day
rule that applies to this case, and not the 120-day rule.
FACTS:
§ RMAPI, on behalf of its foreign principal, Global Management Ltd., hired Montierro as an Ordinary Seaman with a basic monthly
salary of $420. He was assigned to work on board the vessel MIV CSAV Maresias.

§ May 2010 - While on board the vessel and going down from a crane ladder, Montierro lost his balance and twisted his legs, thus
injuring his right knee. He was examined in Livorno, Spain by Dr. Roberto Santini, who recommended surgical treatment at home
and found him unfit for duty. Montierro was repatriated to the Philippines for further medical treatment.

§ June 4, 2010 - 2 days after his repatriation, Montierro reported to Dr. Natalio G. Alegre II, the company-designated physician. He
underwent an MRI scan of his right knee. The MRI showed he had "meniscal tear, posterior horn of the medical meniscus, and
minimal joint fluid." Upon the recommendation of Dr. Alegre, Montiero underwent arthroscopic partial medical meniscectomy of
his right knee at St. Luke’s Medical Center.

§ Aug. 20, 2010 - Montierro had his 2nd check-up with Dr. Alegre, who noted that his surgical wounds had healed, but that there
was still pain and limitation of motion on his right knee on gaits and squats. The doctor advised him to undergo rehabilitation
medicine and continue physical therapy.
 30

§ Sept. 3, 2010 - The 91st day of Montierro’s treatment, Dr. Alegre issued an interimdisability grade of 10 for "stretching leg of
ligaments of a knee resulting in instability of the joint." He advised Montierro to continue with the latter’s physical therapy and oral
medications.

§ Sept. 17 – Dec. 28, 2010 - Montierro further underwent sessions of treatment and evaluation.

§ Jan. 3, 2011 - The 213th day of Montierro’s treatment, Dr. Alegre issued a final assessment as follows:
Subjective Complaints: Assessment: Plan:
o Cannot flex the knee to 100% o Medial Meniscal Tear, Knee Right o Disability Grade of 10 is given
o No swelling noted o S/P Arthroscopic Meniscectomy based on Sec. 32 of the POEA
o Limited range of motion of contract.
right knee o Lower Extremities #20,
stretching leg of the ligaments of
a knee resulting in instability
of the joint.

§ Dec. 3, 2010 - Meanwhile, 1 month before Dr. Alegre’s issuance of the final disability grading, Montierro filed with the labor
arbiter a complaint for recovery of permanent disability compensation in the amount of $89K, $2.1K as sickness allowance, plus
moral and exemplary damages and attorney’s fees. To support his claim for total permanent disability benefits, Montierro relied on
a Medical Certificate dated Dec. 3, 2010 issued by his physician of choice, Dr. Manuel C. Jacinto, recommending total permanent
disability grading, and explaining the former’s medical condition as follows:
o Patient’s condition started at work when he accidentally fell from a ladder causing his (R) knee to be twisted. Patient’s symptoms
of pain and limited flexion of (R) knee persisted, thus he was assessed to be physically unfit to go back to work.

§ LA: Held that Montierro was entitled to permanent total disability benefits under the POEA-SEC. The LA relied on the 120-day
rule introduced by the 2005 case Crystal Shipping, Inc. v. Natividad. The rule equates the inability of the seafarer to perform work
for more than 120 days to permanent total disability, which entitles a seafarer to full disability benefits. The LA also awarded 1-
month sickness allowance and attorney’s fees.

§ NLRC: Affirmed the decision of the LA.

§ CA: Rendered a Decision partially granting the Petition. It affirmed the NLRC ruling insofar as the latter awarded Montierro 1-
month sickness allowance. The CA held, however, that he was entitled merely to "Grade 10" permanent partial disability benefits
because his disability could not be deemed total and permanent under the 240-day rule established by the 2008 case Vergara v.
Hammonia Maritime Services, Inc. Vergara extends the period to 240 days when, within the first 120-day period (reckoned from the
first day of treatment), a final assessment cannot be made because the seafarer requires further medical attention, provided a
declaration has been made to this effect.

The CA pointed out that only 215 days had lapsed from the time of Montierro’s medical repatriation on June 2, 2010 until Jan. 3,
2011, when the company-designated physician issued a "Grade 10" final disability assessment. It justified the extension of the period
to 240 days on the ground that Dr. Alegre issued an interim disability grade of "10" on Sept. 3, 2010, the 91st day of Montierro’s
treatment, which was within the initial 120-day period. Further, the CA upheld the jurisprudential rule that, in case of conflict, it is
the recommendation issued by the company-designated physician that prevails over the recommendation of the claimant’s physician
of choice.
§ Montierro filed a Rule 45 Petition with the SC. He contends in the main that he is entitled to full disability benefits. To support this
thesis, he argues:
o the 120-day rule laid down in the 2005 case Crystal Shipping, and not the 240-day rule introduced by the 2008 case Vergara,
applies to this case. He cites the more recent cases Wallem Maritime Services, Inc., v. Tanawan, Maersk Filipinas Crewing,
Inc. v. Mesina, and Valenzona v. Fair Shipping Corp., all of which applied the Crystal Shipping doctrine despite the fact
that they were promulgated after Vergara.
ISSUE(S): WON the 120-day rule is applicable.

HELD: Nooooooo…..
RATIO:
§ The Court has already delineated the effectivity of the Crystal Shipping and Vergara rulings in the 2013 case Kestrel Shipping Co.
Inc. v. Munar, by explaining as follows:

“Nonetheless, Vergara was promulgated on Oct. 6, 2008, or more than 2 years from the time Munar filed his complaint and
observance of the principle of prospectivity dictates that Vergara should not operate to strip Munar of his cause of action for
total and permanent disability that had already accrued as a result of his continued inability to perform his customary work and
the failure of the company-designated physician to issue a final assessment.”
 31
§ Thus, based on Kestrel, if the maritime compensation complaint was filed prior to Oct. 6, 2008, the 120-day rule applies; if, on the
other hand, the complaint was filed from Oct. 6, 2008 onwards, the 240-day rule applies.
§ In this case, Montierro filed his Complaint on Dec. 3, 2010, which was after the promulgation of Vergara. Hence, it is the 240-day
rule that applies to this case, and not the 120-day rule.
§ Montierro cannot rely on the cases that he cited, a survey of which reveals that all of them involved Complaints filed before Oct.
6, 2008. Wallem Maritime Services involved a Complaint for disability benefits filed on Nov. 26 1998. In Maersk Filipinas
Crewing, while the Decision did not mention the date the Complaint was filed, the LA’s Decision was rendered on Apr. 14, 2008.
Lastly, in Valenzona, the Complaint was filed sometime before Jan. 31, 2003. It thus comes as no surprise that the cases Montierro
banks on followed the 120-day rule.
§ Applying the 240-day rule to this case, we arrive at the same conclusion reached by the CA. Montierro’s treatment by the company
doctor began on June 4, 2010. It ended on Jan. 3, 2011, when the company doctor issued a "Grade 10" final disability assessment.
Counting the days from the said dates, the assessment by the company doctor was made on the 213th day, well within the 240-day
period. The extension of the period to 240 days is justified by the fact that Dr. Alegre issued an interimdisability grade of "10" on
Sept. 3, 2010, the 91st day of Montierro’s treatment, which was within the 120-day period. Thus, the CA correctly ruled that
Montierro’s condition cannot be deemed a permanent total disability.

01 Dentech vs. NLRC AUTHOR: Tan

[G.R. No. 81477 April 19, 1989] NOTES:

TOPIC: 13th Month Pay; History of the Law

PONENTE: GANCAYCO, J.

CASE LAW/ DOCTRINE:

Under the original provisions of PD 851, all employers are required to pay all their employees receiving a basic salary of not more than
Pl,000.00 a month, regardless of the nature of their employment, a 13th month pay. Under the rules and regulations implementing said
Presidential Decree, financially distressed employers are exempt from payment of 13th month pay IF they have prior authorization of
the Secretary of Labor and Employment.

In 1986, PD 851 was amended and the ceiling of P1,000 basic salary per month was removed. Hence, all employers are now required
to pay all their rank-and-file employees 13th month pay.

FACTS:
• Private respondents Marbella, et al. were employed as welders, upholsterers and painters by Dentech Manufacturing Corporation,
a firm engaged in the manufacture and sale of dental equipment and supplies. They were dismissed from the firm beginning February
14, 1985 due to their alleged abandonment of work without informing the company about their reasons for doing so.

• Marbella et al filed a complaint with the arbitration branch of the NLRC for illegal dismissal and violation of Presidential Decree
No. 851, seeking reinstatement as well as the payment of their 13th month pay and service incentive leave pay, and separation pay
in the event that they are not reinstated.

• Petitioners:
o Private respondents are not entitled to a 13th month pay.
o Each of the private respondents receive a total monthly compensation of more that Pl,000.00 and under Section 1 of
Presidential Decree No. 851, such employees are not entitled to receive a 13th month pay.
o The company is in bad financial shape and pursuant to Section 3 of the Decree, the firm is exempted from complying with
the provisions of the Decree.

• LA: Marbella, et. al won

“We also find respondent's contention for exemption in the payment of (the) 13th month pay as without validity (sic).
The ceiling of P1,000.00 a month in the matter of 13th month pay has been removed and complainants are entitled to
receive from respondents at least the unprescribed 13th month pay for the last three years based on their uncontroverted
pleadings.”

• Petitioners appealed to the NLRC, contending that no provision of law was cited in the Decision of the labor arbiter to support the
view therein that the 13th month pay ceiling of P1,000.00 had been duly eliminated.

• NLRC: Marbella, et. al won. Decision of the LA affirmed.

For the record, Memorandum Order No. 28 issued by President Corazon C. Aquino modified Presidential Decree No.
851 to the extent that all employers are ... (now) required to pay all their rank-and-file employees 13th month pay, thus
in effect removing from exclusion from entitlement to the (sic) 13th month pay those employees who were receiving a
basic salary of more than P1,000.00 a month.
 32

At any rate the simple assertion of the respondent that it is in financial distress and thus exempt (sic) from payment of
13th month pay (sic) to the complainants is not in itself sufficient to evade payment of the 13th month pay to which
complainants were entitled prior to the commencement of the respondent's financial problems.

• The petitioners elevated the case to the SC, contending that Memorandum Order No. 28 cited by the NLRC cannot apply to the case
at bar. They point out that the said Memorandum Order was signed into law only in 1986, long after the case was instituted with
the NLRC and, accordingly, the same cannot be given a retroactive effect.

• In seeking the dismissal of the Petition, the Solicitor General argues:

o That each of the private respondents is actually paid less than Pl,000.00 a month and that, accordingly, they are
entitled to a 13th month pay pursuant to Presidential Decree No. 851.
o That under the rules and regulations implementing the said Decree, a distressed employer shall qualify for
exemption from the requirements of the Decree only upon prior authorization from the Secretary of Labor and
Employment.
o That no such prior authorization had been obtained by the petitioner firm.
o That the Pl,000.00 ceiling recited in Presidential Decree No. 851 has been eliminated by Presidential Decree No.
1364, promulgated on May 1, 1978.

ISSUE(S): Whether the private respondents are entitled as a matter of right to a 13th month pay.

HELD: YES. The P1,000 ceiling refers to basic salary, NOT monthly compensation. Since private respondents’ basic salary is less than
P1,000, they are entitled to 13th month pay. Moreover, petitioner cannot claim exemption as a financially distressed employer since it
failed to obtain the prior authorization from the SOLE.

RATIO:
• Presidential Decree No. 851 was signed into law in 1975 by then President Ferdinand Marcos. Under the original provisions of
Section 1 thereof, all employers are required to pay all their employees receiving a basic salary of not more than Pl,000.00 a month,
regardless of the nature of their employment, a 13th month pay not later than December 24 of every year. Under Section 3 of the
rules and regulations implementing said Presidential Decree, financially distressed employers, i., e., those currently incurring
substantial losses, are not covered by the Decree. Section 7 thereof requires, however, that such distressed employers must obtain
the prior authorization of the Secretary of Labor and Employment before they may qualify for such exemption.

• On May 1, 1978, Presidential Decree No. 1364 was signed into law. The Decree enjoined the Department of Labor and Employment
to stop accepting applications for exemption under, inter alia, Presidential Decree No. 851.

• On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which modified Section 1 of Presidential
Decree No. 851. The said issuance eliminated the Pl,000.00 salary ceiling.

• From the foregoing, it clearly appears that the petitioners have no basis to claim that the company is exempted from complying with
the pertinent provisions of the law relating to the payment of 13th month compensation.

• The Pl,000.00 salary ceiling provided in Presidential Decree No. 851 pertains to basic salary, not total monthly compensation. The
petitioners admit that the private respondents work only five days a week and that they each receive a basic daily wage of P40.00
only. A simple computation of the basic daily wage multiplied by the number of working days in a month results in an amount of
less than Pl,000.00. Thus, there is no basis for the contention that the company is exempted from the provision of Presidential Decree
No. 851 which mandated the payment of 13th month compensation to employees receiving less than P1,000.00 a month.

• Even assuming, arguendo, that the private respondents are each paid a monthly salary of over Pl,000.00, the company is still not in
a position to claim exemption. The rules and regulations implementing Presidential Decree No. 851 provide that a distressed
employer shall qualify for exemption from the requirements of the Decree only upon prior authorization from the Secretary of Labor
and Employment. As correctly pointed out by the Solicitor General, no such prior authorization had been obtained by the petitioner
firm.

Archilles Manufacturing AUTHOR: TIGLAO

Corporation v. NLRC Q: Why are the respondents entitled to 13th month pay?
[G.R. No. 107225 | 02 June 1995] A: Even if you worked even just for a month during one calendar year, you are
TOPIC: 13th Month Pay | PONENTE: entitled to 13th month pay.
J. Bellosillo
CASE LAW/ DOCTRINE:
 33
Although the reinstatement aspect of the decision is immediately executory, it does not follow that it is self executory. There
must be a writ of execution issued in order to allow the employer to exercise his option to merely reinstate the employee in
the payroll under Article 223 of the Labor Code.
FACTS:
§ Private respondents were employed by Archilles to work in its steel factory. They receive a daily wage of Php 96.00.
§ Within the steel factory, there is a bunkhouse where employees, such as responents, may rest.
§ In 1988, a mauling incident occurred involving a relative of an employee. This resulted to Archilles ordering its
employees to desist from bringing their relatives into the bunkhouse. Respondents ignored this directive.
§ In May 1990, Archilles ordered the respondents to remove their families from the bunkhouse. They complied;
however, respondents failed to report this to the management, as required.
§ Instead, they chose to absent themselves from work. Hence, on 18 May 1990, they were terminated in violation of
the bunkhouse order.
§ Respondents filed for illegal dismissal against Archilles.
§ LA: In favor of respondents. Ordered their reinstatement and payment of backwages and 13th month pay for 1990.
§ NLRC: Respondents filed a motion for execution pending appeal. Petitioners opposed.
§ NLRC ruled in favor of Archilles, stating that the dismissal was valid because of the violation of the bunkhouse
order.
§ IMPORTANT: While the NLRC ruled in favor of Archilles, the latter filed a motion for partial reconsideration
insofar as this part of the decision is concerned
“NLRC ordered ARCHILLES to pay private respondents their "withheld" salaries from 19 September 1991
when it filed its opposition to the motion for issuance of a writ of execution until the promulgation of the
NLRC Decision (11 August 1992) on the ground that the order of reinstatement of the Labor Arbiter was
immediately executory, even pending appeal. And since ARCHILLES in its opposition alleged that actual
reinstatement was no longer possible as it would affect the peace and order situation in the steel factory,
clearly, ARCHILLES had opted for payroll reinstatement of private respondents. NLRC also ordered
ARCHILLES to pay their proportionate 13th month pay for 1990 and P12,351.30 representing 10% of the
total judgment award of P123,513.00 as attorney's fees”
§ Archilles now prays for the Court to partially annul the decision insofar as the above quoted portion is concerned.
ISSUE(S):
1. W/N a writ of execution is necessary despite pending appeal.
2. W/N the award of 13th month pay was proper.

HELD: In both cases, the ruling is on the affirmative.

RATIO:
Although the reinstatement aspect of the decision is immediately executory, it does not follow that it is self-executory. There
must be a writ of execution which may be issued motu proprio or on motion of an interested party. (Maranaw Hotel Resort
Corporation v. NLRC)

It is important to note that the motions of private respondents for the issuance of a writ of execution were not acted upon by
NLRC. It was not shown that respondent exerted efforts to have their motions resolved. They are deemed to have abandoned
their motions for execution pending appeal. They cannot now ask that the writ of execution be issued since their dismissal
was found to be for cause.

On the second issue, which refers to the propriety of the award of a 13th month pay, paragraph 6 of the Revised Guidelines
on the Implementation of the 13th Month Pay Law (P. D. 851) provides that "(a)n employee who has resigned or whose
services were terminated at any time before the payment of the 13th month pay is entitled to this monetary benefit in
proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar
year up to the time of his resignation or termination from the
service . . . The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-
employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear
himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon
the termination of the relationship."

Furthermore, Sec. 4 of the original Implementing Rules of P.D. 851 mandates employers to pay their employees a 13th month
pay not later than the 24th of December every year provided that they have worked for at least one (1) month during a
calendar year. In effect, this statutory benefit is automatically vested in the employee who has at least worked for one month
 34
during the calendar year. As correctly stated by the Solicitor General, such benefit may not be lost or forfeited even in the
event of the employee's subsequent dismissal for cause without violating his property rights.
RELEVANT PROVISION:
Article 223(3), Labor Code:
In any event, the decision of the Labor Arbiter reinstating a dismissed or separated employee, insofar as the reinstatement
aspect is concerned, shall be immediately executory, even pending appeal. The employee shall either be admitted back to
work under the same terms and conditions prevailing prior to his dismissal or separation or, at the option of the employer,
merely reinstated in the payroll. The posting of the bond by the employer shall not stay the execution for reinstatement
provided herein.

Central Azucarera De Tarlac vs. Central Azucarera De AUTHOR: Valera

Tarlac Labor Union NOTES:
G.R. No. 188949 July 26, 2010
Amount and Date of Payment(13th month Pay): Nachura:
CASE LAW/ DOCTRINE:
Ø The supplemental rules of PD 851 which clarifies that overtime pay, earning and other remuneration that are not part
of the basic salary shall not be included in the computation of the 13th month pay.
Ø Under the Revised Guidelines on the implementation of the 13th month pay, it was specifically stated that the
minimum 13th month pay shall not be less than 1/12 of the total basic salary earned by an employee within a calendar year.
Ø Further, the term basic salary of an employee for the purpose of computing 13th month pay was interpreted to include
all remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary
benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and
sick leave credits, overtime, premium, night differential and holiday pay, and cost of living allowances. However, these
salary related benefits should be included as part of the basic salary in the computation of the 13thmonth pay if, by individual
or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees
FACTS:
• Petitioner is a sugar manufacturer while respondent is a legitimate labor organization which is the exclusive
bargaining representative of p
• etitioner rank and file employees.
• In compliance with PD 851, petitioner granted its employees 13th month pay since 1975. The formula used was the
Total Basic Annual Salary divided by 12. Included in petitioners computation of the Total Basic Annual Salary
were the basic monthly pay, first 8 hours of overtime pay on Sundays and Legal/special holiday; night premium
pay, and vacation of sick leaves for each year. This computation was used by petitioner until 2006.
• On Nov 6, 2004, respondents staged a strike which led to petitioners declaring a temporary cessation of operations.
• On December 2005, all the striking union members were allowed to return to work., but petitioner declared on
April and May another temporary cessation of operations which was lifted on June 2006, the rank and file
employees were allowed to work on 15 days per month rotation basis which lasted til Sept 2006,
• in Dec 2006, petitioner gave the employees their 13th month pay based on the employees total earning during the
year divided by 12
• Respondents objected the computation and averred that petitioner did not adhere to the usual computation of the
13th month pay. They claim that the divisor should have been 8 months and not 12 because the employees worked
only for 8 months’ n 2006. And they also asserted that petitioner did not observe the company practice of giving its
employees the guaranteed amount equivalent to their one month pay, in instances where the computed 13th month
pay was less than their basic monthly pay.
• Parties tried to thresh out their differences in accordance with the grievance procedure, and during a grievance
meeting, the petitioner explained that the change in the computation was intended to rectify and error in the
computation, particularly the concept of basic pay which should have included only the basic monthly pay.
• For failure of the parties to arrive at a settlement, the respondents applied for preventive mediation in the
NCMB(National Conciliation and Mediation Board) despite 4 conciliatory meetings the parties still fail to settle.
• On March 29, 2007, respondents filed a complaint against petitioner for money claims based on the alleged
diminution of benefits. Erroneous computation of 13th month pay before the Regional Arbitration Branch of the
NLRC.
• The LA dismissed the complaint and held that the petitioner had the right to rectify the error in the computation of
the 13th month pay.
• The NLRC reversed the LA decision and ordered to adhere to its established computation of the 13th month pay.
• The CA dismissed Petitioner’s appeal and affirmed the NLRC decision.
 35
ISSUE(S):
WON petitioners have a right to rectify the supposed error in its computation of the 13th month pay?
HELD:
NO.
RATIO:
• The 13th month pay mandated by PD 851 represents an additional income based on wage but not part of the wage. It
is equivalent to 1/12th of the total basic salary earned by an employee within a calendar year. All rank and file
employees, regardless of their designation or employment status and irrespective of the method by which their wages
are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year.
If the employee worked for only a portion of the year, the 13thmonth pay is computed pro rata.
• Petitioner argues that there was an error in its computation of the 13th month pay, as a result of its interpretation of
PD 851, the error was only discovered only after 30 years only when respondents raised such issue.
Ø Petitioners admit that it was an error that was repeatedly committed for almost 30 years, they insist
that the length of time during which an employer has performed a certain act beneficial to the
employees, does not prove that such an act was not done in error. It maintains that the for the claim
for mistake to be negated, there must be a clear showing that the employer had freely, voluntarily and
continuously performed the act, knowing that he is no obligation to do so. Petitioner asserts that such
voluntariness was absent.
• The IRR of PD 851 provides the definition of 13month pay and basic salary
Ø Sec. 2. Definition of certain terms. As used in this issuance:
(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the basic salary of an employee within a
calendar year;
(b) "Basic salary" shall include all remunerations or earnings paid by an employer to an employee for
services rendered but may not include cost of living allowances granted pursuant to Presidential Decree
No. 525 or Letter of Instructions No. 174, profit sharing payments, and all allowances and monetary
benefits which are not considered or integrated as part of the regular or basic salary of the employee at the
time of the promulgation of the Decree on December 16, 1975.
Ø The supplemental rules of PD 851 which clarifies that overtime pay, earning and other remuneration that
are not part of the basic salary shall not be included in the computation of the 13th month pay.
Ø Under the Revised Guidelines on the implementation of the 13th month pay, it was specifically stated that
the minimum 13th month pay shall not be less than 1/12 of the total basic salary earned by an employee
within a calendar year.
Ø Further, the term basic salary of an employee for the purpose of computing 13th month pay was
interpreted to include all remuneration or earnings paid by the employer for services rendered, but does
not include allowances and monetary benefits which are not integrated as part of the regular or basic
salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night
differential and holiday pay, and cost of living allowances. However, these salary related benefits should
be included as part of the basic salary in the computation of the 13thmonth pay if, by individual or
collective agreement, company practice or policy, the same are treated as part of the basic salary of the
employees..
Ø It is clear that there could have no erroneous interpretation of what is included in the term basic salary for
purposes of computing the 13th month pay of employees, since from the inception of PD 851, clear cut
administrative guidelines have been issued to insure uniformity in the interpretation, application and
enforcement of PD 851.
• The SC agrees with the CA in holding that the practice of petitioner in giving 13th month pay based on the
employees gross annual earning which included the basic monthly salary, premium pay for work on rest days
and special holidays , night shift differential pay and holiday pay continued for almost 30 years has ripened
into a company policy or practice which cannot be unilaterally withdrawn.
Ø Art. 100 of the LC, the Non-diminution rule, mandates that the benefits given to employees cannot be
taken back or reduced unilaterally by the employer because the benefit has become part of the
employment contract, written or unwritten since it applies if its shown that the grant is based on an
express policy or has ripened into a practice over a long time and that practice is consistent and deliberate.
Nevertheless, the rule will not apply if the practice is due to error.
Ø Petitioners argument that the gran of benefit was not voluntary and was due to error is untenable. No
doubtful or difficult question of law is involved in this case. The guidelines set are not difficult to
 36
decipher, and the voluntariness of the grant was manifested by the number of years the employer had paid
such benefit. Petitioner’s only changed the formula only after the dispute between the parties erupted,
such act indicates a badge of bad faith.
Ø Petitioner’s argument that it is suffering from financial losses to claim exemption from the coverage of the law
on 13th month pay, Under sec 7. Of the IRR of PD 851, distressed employers shall qualify for exemption from
the requirement is only upon the prior authorization by the Sec. of Labor.
DISSENTING/CONCURRING OPINION(S):

JOSE SONGCO, ROMEO CIPRES, and AMANCIO AUTHOR: ACIDO (edited MENDOZA’s digest)
MANUEL v. NATIONAL LABOR RELATIONS NOTES: Parang wala namang about 13th month pay haha
COMMISSION (FIRST DIVISION), LABOR
ARBITER FLAVIO AGUAS, and F.E. ZUELLIG (M),
INC
G.R. No. 50999-51000. March 23, 1990
TOPIC: 13th Month Pay – Basic Wage/Commissions
PONENTE: Medialdea

CASE LAW/ DOCTRINE:

Commission is the recompense, compensation or reward of an agent, salesman, executor, trustee, receiver, factor, broker, or
bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal.

FACTS:
• Private respondent F.E. Zuellig Inc. filed with the DOLE Regional Office No. 4 an application seeking clearance to
terminate the services of petitioners allegedly on the ground of retrenchment due to financial losses. At first the
petitioners opposed the application alleging that the company is not suffering from any losses and that they are being
dismissed because of their membership in the union.
• However, at the last hearing of the case, petitioners manifested that they are no longer contesting their dismissal.
The parties then agreed that the sole issue to be resolved is the basis of the separation pay due to petitioners.
Petitioners, who were in the sales force of Zuellig, received monthly salaries of at least P400.00. In addition, they
received commissions for every sale they made.
• According to Article XIV - Retirement Gratuity of their CBA: “Any employee, who is separated from employment
due to old age, sickness, death or permanent lay-off not due to the fault of said employee shall receive from the
company a retirement gratuity in an amount equivalent to 1 month’s salary per year of service. “
• On the other hand, Article 284 of the Labor Code states that: “In case of termination due to the installation of labor-
saving devices or redundancy, the separation pay shall be equivalent to 1 month pay or to at least 1 month pay for
every year of service, whichever is higher. In case of retrenchment to prevent losses and other similar causes, the
separation pay shall be equivalent to 1 month pay or at least 1/2 month pay for every year of service, whichever is
higher.”
• LA: The petitioners’ separation pay should be computed similar to what was stated in the CBA or equivalent to
their one month salary (exclusive of commissions, allowances, etc.) for every year of service that they have
worked.
• NLRC: dismissed the petitioners’ appeal. Hence, this petition for certiorari in the SC.

ISSUE:
Whether or not earned sales commission should be included in the monthly salary of petitioner for the purpose of computation
of their separation pay.

HELD:
Yes. Petition granted.
RATIO:
• Article 97(f) by itself is explicit that commission is included in the definition of the term "wage". It has been
repeatedly declared by the courts that where the law speaks in clear and categorical language, there is no room for
interpretation or construction; there is only room for application.
• Salary," the etymology of which is the Latin word "salarium," is often used interchangeably with "wage", the
etymology of which is the Middle English word "wagen". Both words generally refer to one and the same meaning,
that is, a reward or recompense for services performed. Likewise, "pay" is the synonym of "wages" and "salary".
 37
• Inasmuch as the words "wages", "pay" and "salary" have the same meaning, and commission is included in
the definition of "wage", the logical conclusion, therefore, is, in the computation of the separation pay of
petitioners, their salary base should include also their earned sales commissions.
• Granting, in gratia argumenti, that the commissions were in the form of incentives or encouragement, so that the
petitioners would be inspired to put a little more industry on the jobs particularly assigned to them, still these
commissions are direct remuneration services rendered which contributed to the increase of income of
Zuellig. Commission is the recompense, compensation or reward of an agent, salesman, executor, trustees,
receiver, factor, broker or bailee, when the same is calculated as a percentage on the amount of his
transactions or on the profit to the principal.
• Since the commissions in the present case were earned by actual market transactions attributable to petitioners, these
should be included in their separation pay.

05. Boie Takeda v. dela Serna AUTHOR: Adre

[228 SCRA 329 (1993)] NOTES: same case as Pau’s. under cash/wage commission.
TOPIC: Basic wage/commissions 2 consolidated cases.
PONENTE: NARVASA, C.J
CASE LAW/ DOCTRINE: Commissions do not form part of the “basic salary”. In remunerative schemes consisting 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 or other related transactions. They are,
as such, additional pay, which this Court has made clear do not form part of the “basic salary.”
FACTS:
state of the law when the controversies at bar arose:
P.D. No. 851: Thirteen-Month Pay Law.
• Sec. 1:, “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:
o Defined “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 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)
1st case: Boie-Takeda Chemicals, Inc. v. Dela Serna
• A routine inspection was conducted in the premises of Boie-Takeda by Labor and Development Officer Reynaldo B. Ramos.
He found that in computing the medical representatives 1-month pay, the commissions were not included. 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.
• Boie-Takeda 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.
2nd Case: Philippine Fuji Xerox Corp. v. Trajano: routine inspection was likewise conducted and there was underpayment (62
employees) of 13th month pay since commissions were not included. They were directed to pay within 5 days but Fuji took no action.
R.D. Piezas issued order for payment and an appeal was made by Fuji but was denied.
ISSUE(S): WON COMMISSIONS ARE INCLUDED IN THE COMPUTATION OF 13TH MONTH PAY.
HELD: NO.
WHEREFORE, the consolidated petitions are hereby GRANTED. The second paragraph of Section 5 (a) of the Revised Guidelines on
the Implementation of the 13th Month Pay Law issued on November 126, 1987 by then Labor Secretary Franklin M. Drilon is declared
null and void as being violative of the law said Guidelines were issued to implement, hence issued with grave abuse of discretion
 38
correctible by the writ of prohibition and certiorari. The assailed Orders of January 17, 1990 and October 10, 1991 based thereon are SET
ASIDE.
RATIO:
Contrary to respondent’s contention, M.O No. 28 did not repeal, supersede or abrogate P.D. 851:
• 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.
• 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.”

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 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.
Just In Case: Present case distinguished from Songco v. National Labor Relations Commission.—Respondents would do well to
distinguish this case from Songco vs. National Labor Relations Commission upon which they rely so heavily. What was involved therein
was the term “salary” without the restrictive adjective “basic”. Thus, in said case, we construed the term in its generic sense to refer to
all types of “direct remunerations for services rendered,” including commissions. In the same case, we also took judicial notice of the
fact “that some salesmen do not receive any basic salary but depend on commissions and allowances or commissions alone, although an
employer-employee relationship exists,” which statement is quite significant in that it speaks of a “basic salary” apart and distinct from
“commissions” and “allowances”. Instead of supporting respondents’ stand, it would appear that Songco itself recognizes that
commissions are not part of “basic salary.”

PHILIPPINE DUPLICATORS, INC. v. NLRC, PHILIPPINE AUTHOR: Castro

DUPLICATORS EMPLOYEES UNION-TUPAS NOTES: Supra case. Copied from Dan the Man’s
[G.R. 110068. Feb 15, 1995] digest. Only reworded the issue and omitted some
TOPIC: Basic wage/commissions details.
PONENTE: Feliciano, J.
CASE LAW/ DOCTRINE: Sales commissions, which are effectively an integral portion of the basic salary structure of an employee,
shall be included in determining his 13th month pay.
FACTS:
• Previously (1993), the Court rendered a decision through its 3rd division directing Phil. Duplicators to pay 13th month pay to its
employees computed on the basis of their fixed wages plus sales commissions.
• Phil. Duplicators now contend that the decision in Boie-Takeda Chemicals, Inc. vs. Hon. Dionisio de la Serna should be used as
precedent for this case under the doctrine of stare decisis.
o Via (a) a Motion for Leave to Admit 2nd Motion for Reconsideration and (b) a 2nd MR
o Petitioner: decision in the Duplicators case should now be considered as abandoned or reversed by the Boie-Takeda
decision, considering that the latter went "directly opposite and contrary to" the conclusion reached in the former
• Boie-Takeda case
o NOTE: the similar issue in this case and in Boie-Takeda is the “commission” of the employees in form of “bonuses” and
WON they should be deemed part of the basic salary in the computation of the 13th month pay.
o nullified the Sec 5(a), 2nd par. of the Revised Guidelines on the implementation of the 13th month pay law issued by
Secretary of Labor Drilon
ISSUE(S): Whether sales commissions shall be included in the term basic salary for the purpose of computing the 13th month pay
HELD: Yes

SALES COMMISSIONS PRODUCTIVITY BONUSES (Boie-Takeda)

intimately related to or directly proportional to the extent or
energy of an employee's endeavors
Paid upon the specific results achieved by a salesman-employee.
Percentage of the sales closed by a salesman and operates as an
integral part of such salesman's basic pay
Generally tied to the productivity or profit generation of the
employer corporation.
Not directly dependent on the extent an individual employee
exerts himself
Is an extra - no specific additional services are rendered by any
particular employee and hence not legally demandable, absent a
contractual undertaking to pay it.
 39

• The case of Phil. Duplicators is that of a sales commission and should thus be included in the "basic salary" for the computation
of their 13th month pay.
o Sales commissions were an integral part of the basic salary structure of Philippine Duplicators' employees salesmen.
o These commissions are NOT overtime payments, nor profit-sharing payments nor any other fringe benefit.
o Thus, the salesmen's commissions, comprising a pre-determined percent of the selling price of the goods sold by each
salesman, were properly included in the term "basic salary" for purposes of computing their 13th month pay.
• Supplementary Rules and Regulations Implementing P.D. No. 851 (later issued by former Labor Minister Ople) sought to clarify
the scope of items excluded in the computation of the 13th month pay: “Sec. 4. Overtime pay, earnings and other remunerations
which are NOT part of the basic salary shall not be included in the computation of the 13th month pay.”
o 3rd item excluded from "basic salary" is cast in open ended and circular terms (other remunerations which are not part of
the basic salary)
o However, what particular types of earnings and remuneration are or are not properly included or integrated in the basic
salary are questions to be resolved on a case to case basis, in the light of the specific and detailed facts of each case.
o In principle, where these earnings and remuneration are closely akin to fringe benefits, overtime pay or profit-sharing
payments, they are properly EXCLUDED in computing the 13th month pay.
o Sales commissions (an integral portion of the basic salary structure of an employee), shall be included in determining his
13th month pay.

FACTS OF PHIL. DUPLICATORS FACTS OF BOIE-TAKEDA

• Employees were salesmen • Employees were medical representatives (NOT salesmen –
they do not effect sales at all)
• Make or close a sale of duplicating machines • Engaged in the promotion of pharmaceutical products or
medical devices manufactured by their employer.
• They commonly leave medical samples with each physician
visited; but those samples are not sold" to the physician and
the physician is as a matter of professional ethics, prohibited
from selling such samples to their patients
• Phil. Duplicators pays its salesmen a small fixed or • They had a guaranteed wage
guaranteed wage
• Sales commissions received for every duplicating machine • Commissions paid to or received by medical representatives
sold constituted part of the basic compensation or were “productivity bonuses”
remuneration of the salesmen of Philippine Duplicators for
doing their job
• Portion of the salary structure representing commissions
simply comprised an automatic increment to the monetary
value initially assigned to each unit of work rendered by a
salesman
• The greater part of the salesmen's wages or salaries being
composed of the sales or incentive commissions (“sales
commissions”) earned on actual sales closed by them (70-
85% of their wage)

07. Iran v. NLRC AUTHOR: Concepcion/Pineda

[G.R. No. 121927; 22 April 1998] NOTES:
TOPIC: 13th month pay
CASE LAW/ DOCTRINE:
• PD 851, which provides for the payment of 13th month pay, intends to grant additional income (in the form of the
13th month pay) to employees NOT YET receiving the same. It does not intend for a double burden to be imposed
on the employer. Hence, if the employer already pays the equivalent of 1/12 of the employee’s basic salary (i.e. 13th
month pay) on his own initiative, he is already deemed complying with PD 851.

FACTS:
• Iran is engaged in softdrinks merchandising and distribution. Respondent-Employees serve as drivers, salesmen, field
personnel, etc.
• Due to cash shortages discovered by Iran, the Respondents were terminated.
• Respondents filed for illegal dismissal and underpayment of 13th month pay.
• In response, Iran presented vouchers denominated as 13th month pay signed by Respondents as proof that the latter has
already received the 13th month pay.
 40
th
• LA, NLRC: valid dismissal, but Iran must pay 13 month pay

ISSUE(S): W/N the vouchers prove due payment was made by Iran

HELD: Yes. However, the amount covered by the vouchers does not meet the value of the 13th month pay. Iran must pay
difference between amount due and voucher amount. Also, the vouchers do not cover the entire period of employment,
hence, for the years Iran failed to pay, he must pay. (In sum, 13th month pay is still due. But Iran can credit the amount
paid as reflected in vouchers.)

Not-related: Dismissal for just cause, but there was failure to follow procedural due process, hence damages must be
awarded.

RATIO:
• Amount of 13th month pay = 1/12 of the employee’s basic salary (annual)
• PD 851, which provides for the payment of 13th month pay, intends to grant additional income (in the form of the
13th month pay) to employees NOT YET receiving the same. It does not intend for a double burden to be imposed
on the employer. Hence, if the employer already pays the equivalent of 1/12 of the employee’s basic salary (i.e. 13th
month pay) on his own initiative, he is already deemed complying with PD 851.
• Hence, the amount already paid by Iran to Respondents must be credited from the 13th month pay amount due to
them.
DISSENTING/CONCURRING OPINION(S):

08 CASE TITLE Framanlis Farms, Inc. v. MOLE AUTHOR: De Leon

G.R. No. 72616-17 March 8, 1989
TOPIC: Substitute payment
PONENTE: GRIÑO-AQUINO, J.
CASE LAW/ DOCTRINE: such benefits in the form of food or free electricity, assuming they were given, were not a proper
substitute for the 13th month pay required by law.

FACTS:
In April 1980, eighteen (18) employees of the petitioners filed against their employer, and the other petitioners two labor
standard cases alleging that in 1977 to 1979 they were not paid emergency cost of living allowance (ECOLA) minimum
wage, 13th month pay, holiday pay, and service incentive leave pay.

Petitioners (company) alleged that the private respondents were not regular workers on their hacienda but were migratory
(sacadas) or pakyaw workers who worked on-and-off and were hired seasonally, or only during the milling season, to do
piece-work on the farms, hence, they were not entitled to the benefits claimed by them. They also alleged that under the
decrees, the living allowance shall be paid on a monthly, not percentage, basis depending on the total assets or authorized
capital stock of the employer, whichever is higher and applicable. They admitted that their total assets and authorized capital
stock exceeded P2 million. However, in 1977 they had applied for exemption under PDs 525 and 1123 but no ruling has
been issued by the Ministry of Labor on their application.

The claims for holiday pay, service incentive leave pay, social amelioration bonus and underpayment of minimum wage
were not controverted. With respect to the complainants' other claims, the petitioners submitted only random payrolls which
showed that the women workers were underpaid as they were receiving an average daily wage of P5.94 only, although the
male workers received P10 more or less, per day.

Minister of labor ruled in favor of the employees.

Deputy minister of labor modified. (binawasan yung award, mahaba yung award pag nilagay ko dito)
Anyway, both of them ruled that:
“The claims for 13th month pay for 1977, as well as for ECOLA under PD Nos. 525 and 1123 shall, pending outcome of
respondent's application for exemption therefrom, be held in abeyance."

Deputy Minister clarified that pakyaw workers were excluded from holiday and service incentive leave pay
 41
Upon the denial of its motion for reconsideration, Framanlis Farms, Inc. filed this petition for certiorari alleging that the
Deputy Minister erred:

2. in requiring the petitioners to pay 13th month pay despite the fact that they (petitioners) had substantially
complied with the requirement by extending yearly bonuses and other benefits in kind and in cash to the
complainants, pursuant to Section 3(c) of PD 851 which exempts the employer from paying 13th month pay when
its equivalent has already been given;
3. in not precisely stating who among the private respondents are pakyaw and non-pakyaw workers.

ISSUE(S): W/N the petitioner complied with the requirement of 13th month pay

HELD: No.

RATIO: petitioners admitted that they failed to pay their workers 13th month pay in 1978 and 1979. However, they argued
that they substantially complied with the law by giving their workers a yearly bonus and other non-monetary benefits
amounting to not less than 1/12th of their basic salary, in the form of:

1. a weekly subsidy of choice pork meat for only P9.00 per kilo and later increased to P11 per kilo in March
1980, instead of the market price of P10 to P15 per kilo;

2. free choice pork meat in May and December of every year; and

3. free light or electricity.

4. all of which were allegedly "the equivalent" of the 13th month pay.

Unfortunately, under Section 3 of PD No. 851, such benefits in the form of food or free electricity, assuming they were
given, were not a proper substitute for the 13th month pay required by law. PD 851 provides:

Section 3. Employees covered — The Decree shall apply to all employees except to:

x x x. xxx xxx

The term 'its equivalent' as used in paragraph (c) hereof shall include Christmas bonus, mid-year bonus, profit-
sharing payments and other cash bonuses amounting to not less than 1/12 of the basic salary but shall not include
cash and stock dividends, cost of living allowances and all other allowances regularly enjoyed by the employee, as
well as non-monetary benefits.

Where an employer pays less than 1/12 of the employee's basic salary, the employer shall pay the difference."

Neither may year-end rewards for loyalty and service be considered in lieu of 13th month pay. Section 10 of the Rules and
Regulations Implementing Presidential Decree No. 851 provides:

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."

The failure of the Minister's decision to identify the pakyaw and non-pakyaw workers does not render said decision
invalid. The workers may be identified or determined in the proceedings for execution of the judgment.

DISSENTING/CONCURRING OPINION(S):

G.R. No. 100701 March 28, 2001 AUTHOR: LAST NAME

NOTES: Sinama ko lang yung issue about bonus.

 42
PRODUCERS BANK OF THE
PHILIPPINES, petitioner, YEAR MID- CHRISTMAS 13TH MO.
vs. YEAR BONUS PAY
NATIONAL LABOR RELATIONS COMMISSION BONUS
and PRODUCERS BANK EMPLOYEES Previous one mo. one mo. basic one mo.
ASSOCIATION,1respondents. years basic basic
1984 one mo. None One-half
TOPIC: Bonus; Definition; When Demandable basic mo. basic
1985 one-half none one-half mo.
PONENTE: GONZAGA-REYES mo. basic basic
1986 one-half one-half mo. one mo.
mo. basic basic Basic
1987 one-half one-half mo. one mo.
mo. basic basic Basic

CASE LAW/ DOCTRINE: The matter of giving them bonuses over and above their lawful salaries and allowances is
entirely dependent on the profits, if any, realized by the Bank from its operations during the past year. Bonuses are not
part of labor standards in the same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are
provided by the Labor Code.
FACTS: Producers Bank of the Philippines, a banking institution, has been providing several benefits to its employees since 1971
when it started its operation. Among the benefits it had been regularly giving is a mid-year bonus equivalent to an employee's one-
month basic pay and a Christmas bonus equivalent to an employee's one whole month salary (basic pay plus allowance);

When P.D. 851, the law granting a 13th month pay, took effect, the basic pay previously being given as part of the Christmas bonus
was applied as compliance to it (P.D. 851), the allowances remained as Christmas bonus;

From 1981 up to 1983, the bank continued giving one month basic pay as mid-year bonus, one month basic pay as 13th month pay
but the Christmas bonus was no longer based on the allowance but on the basic pay of the employees which is higher;

In the early part of 1984, the bank was placed under conservatorship but it still provided the traditional mid-year bonus;

By virtue of an alleged Monetary Board Resolution No. 1566, the bank only gave a one-half (1/2) month basic pay as compliance
of the 13th month pay and none for the Christmas bonus.

Thus, a complaint was filed by private respondent with the Arbitration Branch NCR of NLRC charging petitioner with diminution
of benefits.

Labor Arbiter found private respondent's claims to be unmeritorious and dismissed its complaint.3 In a complete reversal, however,
the NLRC4 granted all of private respondent's claims except for damages.

Consquently, the petitioners filed a petition for certiorari before the SC.

Petitioner asserts that it cannot be compelled to pay the alleged bonus differentials due to its depressed financial condition, as
evidenced by the fact that in 1984 it was placed under conservatorship by the Monetary Board. According to petitioner, it sustained
losses in the millions of pesos from 1984 to 1988, an assertion which was affirmed by the labor arbiter. Moreover, petitioner points
out that the collective bargaining agreement of the parties does not provide for the payment of any mid-year or Christmas bonus.
On the contrary, section 4 of the collective bargaining agreement states that –

Acts of Grace. Any other benefits or privileges which are not expressly provided in this Agreement, even if now
accorded or hereafter accorded to the employees, shall be deemed purely acts of grace dependent upon the sole
judgment and discretion of the BANK to grant, modify or withdraw .

On the other hand, private respondent argues that the mid-year and Christmas bonuses, by reason of their having been
given for thirteen consecutive years, have ripened into a vested right and, as such, can no longer be unilaterally withdrawn
by petitioner without violating Article 100 of Presidential Decree No. 4429 which prohibits the diminution or elimination
of benefits already being enjoyed by the employees. Although private respondent concedes that the grant of a bonus is
discretionary on the part of the employer, it argues that, by reason of its long and regular concession, it may become part
of the employee's regular compensation.
 43

ISSUE(S): Whether Petitioner is justified in reducing the bonus

HELD: Yes.

RATIO: A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of
the employer's business and made possible the realization of profits. It is an act of generosity granted by an enlightened employer
to spur the employee to greater efforts for the success of the business and realization of bigger profits. The granting of a bonus is
a management prerogative, something given in addition to what is ordinarily received by or strictly due the recipient. Thus, a bonus
is not a demandable and enforceable obligation, except when it is made part of the wage, salary or compensation of the employee.

However, an employer cannot be forced to distribute bonuses which it can no longer afford to pay. To hold otherwise would be to
penalize the employer for his past generosity. Thus, in Traders Royal Bank v. NLRC, we held that:

The matter of giving them bonuses over and above their lawful salaries and allowances is entirely dependent on
the profits, if any, realized by the Bank from its operations during the past year. Bonuses are not part of labor
standards in the same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are
provided by the Labor Code.

In this case, Petitioner was not only experiencing a decline in its profits, but was reeling from tremendous losses triggered by a
bank-run which began in 1983. In such a depressed financial condition, petitioner cannot be legally compelled to continue paying
the same amount of bonuses to its employees. Thus, the conservator was justified in reducing the mid-year and Christmas bonuses
of petitioner's employees. To hold otherwise would be to defeat the reason for the conservatorship which is to preserve the assets
and restore the viability of the financially precarious bank. Ultimately, it is to the employees' advantage that the conservatorship
achieve its purposes for the alternative would be petitioner's closure whereby employees would lose not only their benefits, but
their jobs as well.
DISSENTING/CONCURRING OPINION(S):

11 Eastern Telecommunications Philippines, Inc. (ETPI) v. AUTHOR: Garcia

Eastern Telecoms Employees Union (ETEU) NOTES:
[G.R. No. 185665 February 8, 2012] Art. 100. Prohibition against elimination or diminution of benefits.
TOPIC: PONENTE: – 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.
CASE LAW/ DOCTRINE:
A bonus is a gratuity or act of liberality of the giver which the recipient has nor right to demand as a matter of right; A bonus, however,
becomes a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the employee.
FACTS:
• ETPI is a corporation engaged in the business of providing telecommunications facilities, particularly leasing international date
lines or circuits, regular landlines, internet and data services, employing approximately 400 employees.
• ETEU is the certified exclusive bargaining agent of the company’s rank and file employees.
• The labor dispute was a spin-off of the company’s plan to defer payment of the 2003 14th,15th, and 16th month bonuses Sometime
in April 2004. The company’s main ground in postponing the payment of bonuses is due to allege continuing deterioration of
company’s financial position which started in the year 2000.
• Such payment would also be subject to availability of funds.
• The union strongly opposed the deferment in payment of the bonuses by filing a preventive mediation complaint with the NCMB.
They invoked the Side Agreement of the existing CBA (2001-2004):
o 4. Employment Related Bonuses. The Company confirms that the 14th, 15th, and 16th month bonuses (other than
13th month pay) are granted.
• The said agreement was reduced to a MOA. The company made a sudden turnaround it is position by declaring that they will no
longer pay the bonuses until the issue is resolved through compulsory arbitration.
• ETEU filed a Notice of Strike on the ground of unfair labor practice (ULP).
• Secretary of Labor certified the labor dispute for compulsory arbitration.
• ETEU
o ETPI had consistently and voluntarily been giving out the said bonuses to its employees from 1975 to 2002,
even when it did not realize any net profits.
o The payment of these monetary benefits had ripened into a company practice.
 44
o Such practice had been expressly confirmed in the Side Agreements of the CBA
o The unjustified and malicious refusal of the company to pay the subject bonuses was a clear violation of the
economic provision of the CBA and constitutes unfair labor practice.
• ETPI
NLRC had no jurisdiction over the issue which merely involved interpretation of the economic provision of the
o
CBA Side Agreement.
o Bonuses were not part of the legally demandable wage and the grant thereof to its employees was an act of pure
gratuity and generosity on its part, involving the exercise of management prerogative and always dependent on
the financial performance and realization of profits.
o To require the company to pay the bonuses during its dire financial straits would in effect penalize it for its past
generosity.
o Invoked Art. 1267 – rebus sic standibus
o The bonus provision in the Side Agreement was a mere affirmation that the distribution of bonuses was
discretionary to the company.
• NLRC ruled in favor of ETPI and denied ETEU’s motion for reconsideration. CA ruled in favor of the union.
ISSUE(S):
Whether the members of the ETEU are entitled to the payment of the subject bonuses
HELD:
Yes.
RATIO:
• From a legal point of view, a bonus is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter
of right. The grant of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be
obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee’s basic salaries or wages.
• A bonus becomes a demandable or enforceable obligation when it is made part of the wage or salary or compensation of the
employee.
• If it is additional compensation which the employer promised and agreed to give without any conditions imposed for its payment,
such as success of business or greater production or output, then it is part of the wage.
• In this case, it is indubitable that the ETPI and ETEU agreed on the inclusion of a provision for the grant of the subject bonuses in
the Side Agreement (twice one 1998-2001 and another in 2001-2004). A reading of the provision reveals that the same provides for
the giving of 14th, 15th, and 16th month bonuses without qualification.
• The records are also bereft of any showing that the ETPI made it clear before or during the execution of the Side Agreements that
the bonuses shall be subject to any condition.
• The continuous conferment of bonuses by ETPI to the union members from 1998-22002 by virtue of the Side Agreements evidently
negates its argument that the giving of the subject bonuses is a management prerogative.
• Nowhere in the Side Agreement does it say that the subject bonuses shall be conferred once during the year the Side Agreement was
signed.
• The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is, therefore, only in
absolutely exceptional changes of circumstances that equity demands assistance for the debtor.
• Considering that ETPI had been continuously suffering huge losses from 2000 to 2002, its business losses in the year 2003 were not
exactly unforeseen or unexpected.
• ETPI’s act of granting the same has become an established company practice such that it has virtually become part of the employee’s
salary wage.
• The giving of the subject bonuses cannot be peremptorily withdrawn by ETPI without violating Art. 100 of the Labor Code.
DISSENTING/CONCURRING OPINION(S):