21

P.I.
Manufacturing,
Inc.,
v.
P.I.
Manufacturing Supervisors and Foremen
Association
[543 SCRA 613 (2008)]
TOPIC: Wage Distortion
PONENTE: SANDOVAL-GUTIERREZ, J

AUTHOR: Adre
NOTES: The case is a motion for reconsideration
of our Resolution dated April 18, 2005 denying the
present petition for review on certiorari for failure of
the petitioner to show that a reversible error has
been committed by the Court of Appeals in its
earlier decisions.

CASE LAW/ DOCTRINE:

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 PIs 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 NLRCs 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, eective 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-le employees.

Signicantly, 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.

22 Congson v. NLRC
[G.R. No. 114250. April 5, 1995]
TOPIC: Form of Payment
PONENTE: Padilla, J.

AUTHOR: Castro
NOTES:
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.

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 nonpayment 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 petitioners 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 Aponestos 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.

Congsons 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.

Undoubtedly, petitioners 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 Aponestos
award of salary differentials.

23 National Federation of Labor, et al vs.
CA, et al
[G.R. No. 149464; October 19, 2004]
TOPIC: Wages; form of payment.
PONENTE: Callejo, Sr., J

AUTHOR: Miguel M. Consing

NOTES:
Employer SDPI
Employee/s Petitioners
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 onehalf 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 onemonth 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.

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 checkpayment 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. Escao 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 Escao 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. Escao, Inc., hereafter referred to as Escao 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.
STEVEDORE: a person employed, or a contractor
engaged, at a dock to load and unload cargo from ships.

One of the carriers for whom the Sabay men regularly serve as stevedores is the Escao. Their relation
had its inception in 1947 when, through the representation made by Muaa 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
Muaa, 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 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. Escao, 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. Escao did not pay for the stevedoring charges. These were collected
by the group from the shippers themselves, without the intervention of the respondent Escao. How can
the court order the latter to pay the 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. Escao 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
Escao 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, JOSE NOTES:
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:
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.

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.

LAs 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 petitioners 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 employees 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 workers 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:
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 employees
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 propertys 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
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 attorneys fees.
HELD:
ONLY MALDIGAN IS ENTITLED. SABSALON NO LONGER HAD
1. Only Sabsalon is entitled
ANY DEPOSIT LEFT TO BE REFUNDED BECAUSE HE ALREADY WITHDREW OR
INCURRED SHORTAGES OVER THE YEARS.
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 Maldigans 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 attorneys 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 attorneys
fees.

No attorney-client relationship.

DISSENTING/CONCURRING OPINION(S):

NIA Jewelry Mfg. Inc. and Elisea Abella vs. AUTHOR: Tristan
Madeline Montecillo, Liza Trinidad
NOTES:
[G.R. No.188169, Nov. 28, 2011]
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 petitioners 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 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.
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. 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 Jewelrys 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 AUTHOR: The Talio (edited by Laureta)
Hartmannshenn, and Hinrich Johann Schumacher vs NOTES:
Jose Manuel F. Diaz
PEZA Philippine Economic Zone Authority
[G.R. No. 185814; October 13, 2010]
ECCP European Chamber of Commerce of the
TOPIC: Prohibition against withholding of wages
Philippines
PONENTE: Mendoza, J.
CASE LAW/ DOCTRINE:
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 customers inquiry on employers 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 employers 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 Diazs 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,
th
in addition, his 13 month pay, moral and exemplary damages, and attorneys fees.
th
On Dec. 9, Diaz filed a complaint for illegal dismissal and non-payment of salaries/wages and 13 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
th
37,083.33 as unpaid 13 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. Diazs
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 respondents salary/wages was valid?

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
workers consent.
Any withholding of an employees 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 respondents 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 JAVIER, AUTHOR: PELAYO
RONALDO DAVID, BONIFACIO MATUNDAN, NORA NOTES: Guys nood kayo Moana
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 employees 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.

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 SMs closure due to serious business losses
in the memorandum of agreement (MOA) dated September 1, 2003 which provided for SMs 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 SMs 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 SMs closure. She was already given her
retirement benefits.
NLRC ruled that because of petitioners failure to vacate SMs 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 SMs 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 employees return of its
properties
HELD:
YES

RATIO:
The fact that majority of NAFLUs 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 employees departure.
As a general rule, employers are prohibited from withholding wages from employees (Art. 116, Labor
Code). The Labor Code also prohibits the elimination or diminution of benefits (Art. 100, Labor Code).
However, our law supports the employers institution of clearance procedures before the release of
wages. As an exception to the general rule that wages may not be withheld and benefits may not be
diminished, the Labor Code provides: Art. 113. Wage deduction. No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of his employees, except:
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 AUTHOR: Pineda
al
NOTES:
[G.R. No. 87449; 23 January 1990]
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 EEs 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.
SMEs 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 EEs records in another place is prohibited.
DISSENTING/CONCURRING OPINION(S):

CASE TITLE: Gaa v. Court of Appeals
[G.R. No. L-44169 Date December 3, 1985]
TOPIC: Prohibition against Garnishment
PONENTE: Patajo

AUTHOR: Mendoza
NOTES:
Article 1708. The laborer' s wage shall not be
subject to 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 CFIs 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. Gaas 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. Gaas 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.
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
SECRETARY OF LABOR
G.R. No. 79351 November 28, 1989
TOPIC: Workers Preference in the Event of
Bankruptcy
PONENTE: Cortes, J.

AUTHOR: PAGCALIWAGAN
NOTES:
Article 110. WORKER PREFERENCE IN CASE OF
BANKRUPTCY.In the event of bankruptcy or
liquidation of an employer's business, his workers
shall enjoy first preference as regards wages due
them for services rendered during the period prior
to the bankruptcy or liquidation, any provision of
law to the contrary notwithstanding. Unpaid wages

shall be paid in full before other creditors may

establish any claim to a share in the assets of the
employer [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.
July 3, 1985 Director of the NCR MOLE ordered RMC to pay private respondents
backwages and separation benefits
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
DBP had instituted extra-judicial foreclosure proceedings as early as 1983 on the
properties and other assets of RMC as a result of the latters failure to meet its obligations
on the loans it secured from RMC.
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.
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:
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;
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-inCharge 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):

34 REPUBLIC (BOC & BIR) v. PERALTA (CFI judge), AUTHOR: RAMOS
QUALITY TABACCO CORP., FOITAF (long Spanish NOTES: Sorry, feel ko important yung
name), USTC EMPLOYEES ASSOCIATION WORKERS POC outline. Included most of it. If
UNION-PTGWO [G.R. L-56568 May 20, 1987]
naaalala nyo pa naman, skip to the next
TOPIC: Workers Preference in the Event of Bankruptcy parts J
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 NCCs 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.
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
o

o
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 insolvents 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.
Art 2243: credits "shall be considered as mortgages or pledges of real or personal
property, or liens within the purview of provisions on insolvency."
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.
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
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
insolvents 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.

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 BOCs 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 BOCs 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
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
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 arent 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.
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 AUTHOR: REYES

Corp.
NOTES:
[G.R. No. Date]
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 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
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 respondents 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:

claimed that petitioners were contractual employees and/or independent talent
workers; and that petitioners were required to punch their cards.
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 freelance 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:
averred that they were employees of respondent, as the elements of an employeremployee relationship existed.
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 attorneys fees before the National Labor Relations Commission
(NLRC

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

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, AUTHOR: SOLIS

Inc., Universe Tankship Delaware LLC, and Carlos NOTES:
C. Salinas
[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

11 Feb 2002Tangga-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 2002While 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:
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.
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.
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-ans 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 petitioners 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
LAs 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
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 employees 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 welldefined 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 AUTHOR: The Talio
Phils, Inc.
NOTES:
[G.R. No. 210634; January 14, 2015]
RMAPI Rickmers Marine Agency Phils., Inc.
TOPIC: 18.6 Wage Recovery/Jurisdiction
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 companydesignated 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. Lukes 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.
Sept. 3, 2010 - The 91st day of Montierros 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 latters 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 Montierros treatment, Dr. Alegre issued a final assessment as follows:
Subjective Complaints:
Assessment:
Plan:
o Cannot flex the knee to o Medial Meniscal Tear, Knee Right o Disability Grade of 10 is given
100%
o S/P Arthroscopic Meniscectomy
based on Sec. 32 of the POEA
o No swelling noted

contract.
o Limited range of motion
o Lower
Extremities
#20,
of right knee
stretching leg of the ligaments

of
a knee resulting in instability
of the joint.
Dec. 3, 2010 - Meanwhile, 1 month before Dr. Alegres 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 attorneys 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 formers medical condition as follows:
o Patients condition started at work when he accidentally fell from a ladder causing his (R) knee to be
twisted. Patients 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 attorneys 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 Montierros 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 Montierros 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
claimants 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 companydesignated physician to issue a final assessment.

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 LAs 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. Montierros
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 Montierros treatment, which was within the 120-day period. Thus, the CA correctly ruled that
Montierros condition cannot be deemed a permanent total disability.

01 Dentech vs. NLRC

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

AUTHOR: Tan
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.
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 A: Even if you worked even just for a month during one
1995]
calendar year, you are entitled to 13th month pay.
th
TOPIC: 13 Month Pay |
PONENTE: J. Bellosillo
CASE LAW/ DOCTRINE:
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 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 AUTHOR: Valera
Azucarera De Tarlac Labor Union
NOTES:
G.R. No. 188949 July 26, 2010
Amount and Date of Payment(13th month
Pay): Nachura:
CASE LAW/ DOCTRINE:

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.

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.

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 Petitioners appeal and affirmed the NLRC decision.
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.
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
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.
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.
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.
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..
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.
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.
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 decipher, and the voluntariness of the grant was
manifested by the number of years the employer had paid such benefit. Petitioners
only changed the formula only after the dispute between the parties erupted, such
act indicates a badge of bad faith.
Petitioners 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 MANUEL v. NATIONAL LABOR
RELATIONS
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

AUTHOR: ACIDO (edited MENDOZAs digest)

NOTES: Parang wala namang about 13th
month pay haha

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 months 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".
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.

PHILIPPINE
DUPLICATORS,
INC.
v.
NLRC, AUTHOR: Castro
PHILIPPINE DUPLICATORS EMPLOYEES UNION- NOTES: Supra case. Copied from
TUPAS
Dan the Mans digest. Only
[G.R. 110068. Feb 15, 1995]
reworded the issue and omitted
TOPIC: Basic wage/commissions
some 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
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

PRODUCTIVITY
BONUSES
(BoieTakeda)
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.

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

Employees were salesmen

Make or close a sale of duplicating

machines

FACTS OF BOIE-TAKEDA
Employees were medical representatives
(NOT salesmen they do not effect sales
at all)
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

Phil. Duplicators pays its salesmen a

small fixed or guaranteed wage
Sales commissions received for every
duplicating machine sold constituted part
of
the
basic
compensation
or
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

[G.R. No. 121927; 22 April 1998]
TOPIC: 13th month pay

and the physician is as a matter of

professional ethics, prohibited from
selling such samples to their patients
They had a guaranteed wage
Commissions paid to or received by
medical
representatives
were
productivity bonuses

AUTHOR: Concepcion/Pineda
NOTES:

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 employees 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.
LA, NLRC: valid dismissal, but Iran must pay 13th 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 employees 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 employees 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. AUTHOR: De Leon
MOLE
G.R. No. 72616-17 March 8, 1989
TOPIC: Substitute payment
PONENTE: GRIO-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
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 nonpakyaw 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. x x x

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 nonmonetary 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):

05. Boie Takeda v. dela Serna

AUTHOR: Adre
[228 SCRA 329 (1993)]
NOTES: same case as Paus. under
TOPIC: Basic wage/commissions
cash/wage commission.
PONENTE: NARVASA, C.J
2 consolidated cases.
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 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 respondents 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.

AUTHOR: LAST NAME

NOTES: Sinama ko lang yung issue about bonus.
PRODUCERS BANK OF THE

PHILIPPINES, petitioner,
YEAR
MID-
CHRISTMAS 13TH MO.
vs.
YEAR
BONUS
PAY
NATIONAL LABOR RELATIONS COMMISSION and
BONUS

PRODUCERS BANK EMPLOYEES
one mo.
one mo.
Previous one mo.
ASSOCIATION,1respondents.
basic
basic
basic
years
one mo.
One-half
1984
None
TOPIC: Bonus; Definition; When Demandable
basic
mo. basic

one-half
one-half
1985
none
PONENTE: GONZAGA-REYES
mo.
mo. basic
basic
one-half one-half mo. one mo.
1986
mo.
basic
Basic
basic
one-half one-half mo. one mo.
1987
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 midyear 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);
G.R. No. 100701 March 28, 2001

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 midyear 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.

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. Eastern Telecoms Employees Union (ETEU)
[G.R. No. 185665 February 8, 2012]
TOPIC: PONENTE:

AUTHOR: Garcia
NOTES:
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.

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 companys rank and file employees.
th
th
th
The labor dispute was a spin-off of the companys plan to defer payment of the 2003 14 ,15 , and 16
month bonuses Sometime in April 2004. The companys main ground in postponing the payment of
bonuses is due to allege continuing deterioration of companys 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):
th
th
th
o 4. Employment Related Bonuses. The Company confirms that the 14 , 15 , and 16
th
month bonuses (other than 13 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.
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
o NLRC had no jurisdiction over the issue which merely involved interpretation of the
economic provision of the 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.

Invoked Art. 1267 rebus sic standibus

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 ETEUs 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 employees 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
th
th
th
provision reveals that the same provides for the giving of 14 , 15 , and 16 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.
ETPIs act of granting the same has become an established company practice such that it has virtually become
part of the employees 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):

o
o