A SPECTRUM ON THE LABOR CODE OF THE PHILIPPINES: SETTING

PARAMETERS FORTHE DETERMINATION OF LENGTH OF TIME REQUIRED

FOR THE APPLICATION OF PRINCIPLE OF NON-DIMINUTION OF BENEFITS

By:

Amelyn A. Mote

1
 CHAPTER I

THE PROBLEM AND ITS BACKGROUND

A. Introduction

“We take this opportunity to reaffirm our concern for the lowly worker who, often at

the mercy of his employers, must look up to the law for his protection. Fittingly,

that law regards him with tenderness and even favor and always with faith and

hope in his capacity to help in shaping the nation's future. It is error to take him for

granted. He deserves our abiding respect.”1

The Supreme Court has treated Article 100 of Labor Code of the

Philippines as a non-diminution provision in general; as a general proposition, any

existing benefit, whether or not enjoyed at the time of the promulgation of the
2
Code, may not be reduced or eliminated by the employer.

Generally, employees have a vested right over existing benefits voluntarily

granted to them by their employer. 3 Thus, any benefit and supplement being

1 Cebu Royal Plant v. The Honorable Deputy Minister of Labor, G.R. No. L-58639, August 12, 1987
at https://www.lawphil.net/judjuris/juri1987/aug1987/gr_l_58639_1987.html (last accessed
September 25, 2019)
2 Diego Atienza, 2016, Fundamentals of Labor Law, (Manila: RBS Inc.) 103.
3 University of the East v. University of the East Employees' Association, G.R. No. 179593,
September 14, 2011 at https://lawphil.net/judjuris/juri2011/sep2011/gr_179593_2011.html (last
accessed September 25, 2019)
2
enjoyed by the employees cannot be reduced, diminished, discontinued or

eliminated by the employer.4

Where the grant of supplements or other benefits is the result of contract,

express or implied, or the practice is an established one, in such a way that the

benefits form part of the terms and conditions of employment, the latter cannot be

unilaterally withdrawn or reduced by the employer because the employee has

acquired a vested right therein.5

In the case of Development Bank of the Philippines vs. Court of Appeals,

the Supreme Court held that, to be vested in the accurate legal sense, a right

must be complete and consummated, and of which the person to whom it belongs

cannot be divested without his consent.6

The principle of non-diminution of benefits is actually founded on the

Constitutional mandate to protect the rights of workers, to promote their welfare,

4 Eastern Telecommunications Philippines, Inc., v. Eastern Telecoms Employees Union, G.R. No.
185665, February 8, 2012 at
https://www.lawphil.net/judjuris/juri2012/feb2012/gr_185665_2012.html (last accessed September
25, 2019)
5 Diego, supra note 2.
6 Id.,
3
and to afford them full protection. 7 In turn, said mandate is the basis of Article 4 of

the Labor Code which states that "all doubts in the implementation and

interpretation of this Code, including its implementing rules and regulations, shall
8
be rendered in favor of labor."

There is non-diminution of benefits when the following requisites are

present: (1) the grant or benefit is founded on a policy or has ripened into a

practice over a long period of time; (2) the practice is consistent and deliberate; (3)

the practice is not due to error in the construction or application of a doubtful or

difficult question of law; and (4) the diminution or discontinuance is done

unilaterally by the employer.9

7 Arco Metal Products, Co., Inc. v. Samahan ng mga Manggagawa sa Arco Metal-NAFLU
(SAMARM-NAFLU), G.R. No. 170734, May 14, 2008 at
http://www.chanrobles.com/cralaw/2008maydecisions.php?id=524 (last accessed September 25,
2019)
8 Id.,
9 Supreme Steel Corporation v. Nagkakaisang Manggagawa ng Supreme Independent Union
(NMS-IND-APL), G.R. No. 185556, March 28, 2011 at
http://www.chanrobles.com/cralaw/2011marchdecisions.php?id=302 (last accessed September 25,
2019)
4
 To be considered as a regular company practice, the employee must prove

by substantial evidence that the giving of the benefit is done over a long period of

time, and that it has been made consistently and deliberately. 10

Jurisprudence has not laid down any hard-and-fast rule as to the length of

time that company practice should have been exercised in order to constitute

voluntary employer practice.11 The common denominator in previously decided

cases appears to be the regularity and deliberateness of the grant of benefits over
12
a significant period of time. It requires an indubitable showing that the employer

agreed to continue giving the benefit knowing fully well that the employees are not

covered by any provision of the law or agreement requiring payment thereof. 13 In

sum, the benefit must be characterized by regularity, voluntary and deliberate

intent of the employer to grant the benefit over a considerable period of time. 14

10 Metropolitan Bank and Trust Company v. National Labor Relations Commission, G.R. No.
152928, June 18, 2009 at http://www.chanrobles.com/cralaw/2009junedecisions.php?id=542 (last
accessed September 25, 2019)
11 Ibid.,
12 Ibid.,
13 Ibid.,
14 Ricardo Vergara, Jr. v. Coca-Cola Bottlers Philippines, Inc., G.R No. 176985, April 1, 2013 at
http://www.chanrobles.com/cralaw/2013aprildecisions.php?id=297 (last accessed September 25,
2019)
5
 It is relevant therefore to mention that the court not yet settled on the

specific minimum number of years as the length of time sufficient to ripen the

practice, policy or tradition into a benefit that the employer cannot unilaterally

withdraw. Thus, it can be 6 years, 3 years, even as short as 2 years. 15

Vested benefits of those individuals who have severed employment with an

employer should be protected and not subject to forfeiture, regardless of reasons

for severance, except in the limited case of dismissals resulting from acts of gross

malfeasance that are clearly defined. 16

Despite the existence of the law particularly the provision in Labor Code of

the Philippines regarding the non-diminution of benefits, there are still employees

who are not receiving their company’s benefits regularly albeit the amount of time

they worked and rendered their services in a company. Thus, a question now

arise, what really is the amount of time needed before the employees can be

entitled to their benefits in regular basis and invoked the principle of non-

diminution of benefits?
15 Philippine Journalist Inc., v. Journal Employees Union (JEU), G.R No. 192601, June 3, 2013 at
http://www.chanrobles.com/cralaw/2013junedecisions.php?id=466 (last accessed September 25,
2019)
16 Oecd Guidelines For The Protection Of Rights Of Members And Beneficiaries In Occupational
Pension Plans available at https://www.oecd.org/daf/fin/private-pensions/34018295.pdf (September
25, 2019)
6
B. Conceptual Framework

The problem lies with the seeming inconsistent positions and ruling of the

Supreme Court in determining the period of time in which the act of giving benefits

to the employees by a certain company as their employer be consider as regular

company practice so that the principle of non-diminution will be applicable.

The study analyzed the different points laid down by high Court in resolving

cases involving the issue of regularity of company practice. It also takes into

consideration the reconciliation and harmonization of the seeming inconsistencies

among the cases being decided by the Supreme Court.

The research undertaken is illustrated by the framework presented in Figure 1.

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C. Statement of the Problem

The study analyzed the legal authority involving the non-diminution of the

benefits and the regularity of company practice. Specifically, it sought to answer

the following questions:

1. How the Philippine courts define “long period of time” with regard to non-

diminution of benefits?
a) What factors are being considered in determining such?
2. When is the grant of benefits to the employees ripen into company

practice?
3. How the State protects the employees when the employers violated the

principle of non-diminution of benefits?

b) What arePhilippine
1987 the remedies available to employees in case of violation of
Constitution
Labor Code of the Philippines
non-diminution of benefits?
Related Philippine Supreme Court cases
INPUT Related Foreigh Jurisprudence

D. Significance of the Study

Employment of Descriptive Research Analysis and Interpretation

Company ofpractice,
Collectedjust
Datalike any other fact, habits, customs, usage or
PROCESS
patterns of conduct, must be proven by the offering party who must allege and

establish specific, repetitive conduct that might constitute evidence of habit or

Findings, Conclusion, Recommendation on setting parameters in
determining the considerable
8 length of time in order to consider
the grants of benefits as regular company practice.
OUTPUT
company practice.17 However, the problem is that there is no definite definition or

guidelines for employers as well as to employees and other interested persons as

to the length or period of time to ascertain that the grants of benefits by the

employer in favor of employees has ripen in to company practice so that the

employees acquired vested rights over the said benefits in relation to the principle

of non-diminution of benefits.

This study could be of benefit to the following:

To the members of the Congress, this paper will help them to set up new

parameters as supplement to the principle of non-diminution of benefits in order to

comply with the constitutional mandate. This study can serve as a guide to the

lawmaking body in the exercise of its constitutional power, particularly in making or

enacting laws in relation to the topic.

To the Members of the Judiciary, when such issue is presented before them,

this study can provide as a guide by way of presentation.

17 Supra at 14.
9
 To the domestic workers and employees who are actually entitled to such

benefits or supplements by the nature of their employment and length of service,

will have knowledge or information about their rights.

To the professor and law students, this study may furnish them a discussion

of the related law in labor particularly the vested right of the employees.

F. Scope and Delimitation of the Study

This study analyzed the term “long period of time” as one of the requirements

in order to consider the grant of benefits as regular company practice in relation to

Article 100 of the Labor Code of the Philippines. The examination of the said

provision was made in line of the ambiguous and conflicting decisions of the Court

in ascertaining the numbers of days, months or years for the employee to be

entitled to the privilege accorded in the said Article 100.

This paper is limited on the analysis of the Philippine jurisprudence which are

relevant to the vested right of every labor. This likewise limited on matter of

imposition of non-diminution of benefits to the employees. This study did not delve

on other issues of labor which could arise in employee-employers relationship.

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F. Definition of Terms

Benefits - Advantage; profit; privilege.18

Employer- Includes any person acting directly or indirectly in the interest of an

employer in relation to an employee and shall include the

government and all its branches, subdivisions and instrumentalities,

all government-owned or controlled corporations and institutions, as

well as non-profit private institutions or organizations. 19

Employee- Includes any individual employed by an employer. 20

Facilities- items of expense necessary for the laborer's and his family's

existence and subsistence so that by express provision of law (Sec.

2[g]), they form part of the wage and when furnished by the

employer are deductible therefrom, since if they are not so furnished,

the laborer would spend and pay for them just the same. 21

Supplements- Constitute extra remuneration or special privileges or benefits given

to

18 Black’s Law Dictionary

19 A Decree Instituting A Labor Code Thereby Revising And Consolidating Labor And Social Laws
To Afford Protection To Labor, Promote Employment And Human Resources Development And
Insure Industrial Peace Based On Social Justice of (Labor Code), Presidential Decree No. 42, Art.
97(b) (1974)
20 Labor Code, Art. 97(c)
21 Our Haus Realty Development Corporation v. Alexander Parian etc. GR. No. 204651. August 6,
2014 at http://www.chanrobles.com/cralaw/2014augustdecisions.php?id=623 (last accessed
September 25, 2019)
11
 or received by the laborers over and above their ordinary earnings

or

wages.22

Vested Right- Right accrued to possessor with no conditions. 23

Worker- Means any member of the labor force, whether employed or

unemployed.24

Wage- Paid to any employee shall mean the remuneration or earnings,

however designated, capable of being expressed in terms of money,

whether fixed or ascertained on a time, task, piece, or commission basis, or

other method of calculating the same, which is payable by an employer to

an employee under a written or unwritten contract of employment for work

done or to be done, or for services rendered or to be rendered, and

includes the fair and reasonable value, as determined by the Secretary of

Labor, of board, lodging, or other facilities customarily furnished by the

employer to the employee. "Fair and reasonable value" shall not include

any profit to the employer, or to any person affiliated with the employer. 25

22Id.,
23 Black’s Law Dictionary
24 Labor Code, Art. 13 (a)
25 Labor Code, Art. 13 (f)

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 CHAPTER II

REVIEW OF RELATED LITERATURE AND RELATED STUDY

This chapter presents the review of related literature and studies found

relevant to the present study to scrutinize the provisions and legal policies in the

Philippines concerning the labor laws of the Philippines. Also include are studies

and researches conducted in relation to the topic.

Labor Code of the Philippines

A code, in the sense used in the phrase “Labor Code,” means a body of

laws. The Labor Code, then, is a body of laws governing the relations between

capital and labor, or between employers and their employees. This does not

13
mean, however, that this body of laws applies only in an employment situation or

where the relationship of employer and employee exists. 26

The Labor Code was promulgated on 1 May 1974 as P. D. No. 442. Article

1 thereof states that, “This Decree shall be known as the Labor Code of the

Philippines.” But the full title of the Decree is “A Decree instituting a Labor Code,

thereby revising and consolidating labor and social laws to afford protection to

labor, promote employment and human resources development and ensure

industrial peace based on social justice.” The purposes of the Decree, found in its

title, directly correspond to the three main areas of responsibility of the

Department of Labor and Employment, which are labor protection, labor relations

and training and employment f the labor force. 27

The Labor Code took effect on 1 November 1974. Between the dates of

promulgation and effectivity, it was extensively amended by P. D. No. 570-A. The

changes introduced by the latter Decree were then described as “perfecting

amendments.” Obviously, however, the goal of perfection was not attained

thereby; the Code has been further amended many times thereafter. 28

26 Supra note 2 at 8.
27Ibid.,
28Ibid.,
14
Constitutional Rights and Mandates

A constitution is generally understood as the basic law of a national

community, to which other laws therein must conform. The Constitution of the

Philippines, therefore, is the source of authority, the inspiration, the guidepost, and

the test of validity in the making of laws in this country, including the laws on labor.

Like other laws initiated by Congress (called “statutes”), the Labor Code is an

instrument to carry out constitutional mandates. If there should be conflict between

constitutional provisions and those of the Labor Code, the Constitution shall

prevail as it is the highest law of the land. The basic policy declared in Article 3 of

the Code is pursuant to the constitutional mandates. 29

While the Labor Code was promulgated under the Constitution of 1973, its

provisions have to be construed in the light of the present, or 1987, Constitution,

which contains a host of provisions that directly affect labor. Consequently, a full

understanding of the Labor Code requires a similar comprehension of the

following Articles of the Constitution;

29 Cesario Alvero Azucena Jr. ,2013, The Labor Code with Comments and Cases, V: 1 (Manila:
RBS Inc) 11
15
 Article II, on the Declaration of Principles and State Policies, especially

Section 9, 10, 18 and 20.

Article III, on the Bill of Rights, especially Section 8.

Article IX-B, on the Constitutional Commissions, particularly Section 2

which indicates the coverage of the Civil Service.

Article XIII, on Social Justice and Human Rights, especially the sub-Article

on Labor.

Article XIII guarantees to all employees the following rights: 1) self-

organization; 2) collective bargaining and negotiations; 3) peaceful concerted

activities including the right to strike in accordance with law; 4) security of tenure;

5) humane conditions of work; 6) a living wage; 7) participation in policy- and

decision-making processes affecting their rights and benefits as may be provided

by law.30

The Constitutional provision aforementioned mandates the State, among

other things, to “promote the principle of shared responsibility between workers

and employers” and to regulate the relations between them, “recognizing the right

30 Diego, supra note 2.

16
of enterprises to reasonable returns on investments, and to expansion and

growth.”31

A constitutional commissioner has characterized the 1987 Constitution as

“especially pro-labor,” for the rights of workers and employees have acquired new

dimensions while some concepts have been constitutionalized. 32

Police Power As The Basis

While social justice is the raison d’etre of labor laws, their basis or

foundation

is the police power of the State. It is the power of Government to enact laws,

within constitutional limits, to promote the order, safety, health, morals and general

welfare of society.33

It is settled that state legislatures may enact laws for the protection of the

safety and health of employees as an exercise of the police power, and this is true

31 Azucena, supra note 20.

32 Vicente B. Foz, 1987, “Labor Concepts in the New Constitution” in The 1987 Constitution: Its
Implications on Employment and Labor Relations, at 158.
33 People vs. Vera Reyes, 67 Phil. 190 (1939)
17
even though such laws affect, not the health of the community generally, but the

health or welfare of operatives in any given situation. 34

Principle of Vested Right

Many of the legal rules that govern any major change with pensions derive

from the concept of “vested rights.” A. The vested right of a public employee to a

pension benefit is based upon a “contract of employment.” In 1947, the California

Supreme Court firmly established that the right of a public employee to a pension

benefit is a right that is based on contract principles. The Kern decision was

based, in part, on earlier court decisions that had construed pension provisions to

be a part of the contemplated compensation for employment services.

Compensation in the form of pension benefits accrued as soon as employment

services were rendered. In a sense, the pension benefit was “part of the contract

of employment itself.” 35

Employer contributions to the pension fund represent deferred

compensation. In June 2011, CalPERS published a paper called “Vested Rights of

34 Supra note 31 at 16
35 Kern v. Long Beach (1947) 29 Cal.2d 848. 4 O’Dea v. Cook (1917) 176 Cal. 659. 5 Terpinas v.
Seafarer’s Intern. Union of North America (9th Cir. 1984) 722 F.2d 1445 at
http://www.calpers.ca.gov/eip-docs/about/press/news/vested-rights.pdf
18
CalPERS Members.” The purpose of this paper was to present CalPERS’

institutional views regarding the level of assurance the law provides that promised
36
pensions will be available upon retirement.

Pension benefits are an “integral portion of the contemplated compensation

set forth in the contract of employment between the city” and its employees and

are “an indispensable part of that contract.”6 Therefore, the “right to a pension

becomes a vested one upon acceptance of employment by the applicant.” Based

on these cases, it appears that a public employee’s contractual right to receive a

pension benefit vests on the first day on which the employee performs any work

for the employer. This is the day that triggers the obligation to pay wages, and

based on Kern, by extension, also triggers the obligation to pay any deferred

wages in the form of a pension benefit. 37

As noted by one court, the concept of vested compensation is inimical to

the process of collective bargaining. Individual rights derived from the collective

bargaining agreement itself may be subsequently changed or waived through

collective bargaining. On the one hand, this category of rights does not “become

36 Id.,
37 Id.,
19
permanently and irrevocably vested as a matter of contract law, because the

benefits were earned on a year-to-year basis under previous MOUs that expired

under their own terms.” On the other hand, “individual statutory or constitutional

rights that flow from sources outside the collective bargaining agreement itself”

can create vested rights.” The courts have identified three circumstances under

which an employer may make modifications to vested pension benefits: • First:

when both parties agree to the change. • Second: when, prior to the time of

retirement, the employer makes reasonable modifications to maintain the integrity

of the pension system. • Third: when the terms of the pension plan or “contract”

provide that modifications may be made, such as for “optional benefits” pursuant

to Government Code 205.38

Significance of Foreign Decisions

The fact that the Industrial Peace Act, precursor of the present labor

relations law, was modelled after US laws is significant because American court

decisions influence our courts’ rulings. The Philippine Supreme Court has ruled

that where our labor statutes are based upon or patterned after statutes in foreign

jurisdiction, the “decisions of the high courts in those jurisdictions construing and

38https://www.cacities.org/UploadedFiles/LeagueInternet/51/51d19baa-1377-4b8e-b79d
240e9df43dca.pdf accessed on October 3, 2019
20
interpreting the Act should receive the careful attention of this court in the

application of our own law.”39

Numerous Labor Code provisions, such as those relating to employer-

employee relations, unfair labor practices, bargaining unit, duty to bargain, and

strikes and lockouts, are substantially similar to those of the Industrial Peace Act.

It follows that the court rulings construing the pertinent Industrial Peace Act

provisions are still applicable to the Labor Code provisions, unless there is

substantial statutory departure. It should be remembered in this regard that

“judicial decisions applying or interpreting the laws or the Constitution (shall) form

part of the legal system of the Philippines.” 40

39 Cerezo vs. Atlantic Gulf and Pacific Co., 33 Phil. 425.

40 Civil Code, Art. 8
21