Title
Boie-Takeda Chemicals, Inc. vs. De La Serna
Case
G.R. No. 92174
Decision Date
Dec 10, 1993
Companies contested Labor Department's inclusion of commissions in 13th month pay computation; Supreme Court ruled commissions excluded from "basic salary" under PD 851.
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Case Digest (G.R. No. 92174)

Facts:

Context of the Case:
The case involves consolidated petitions from Boie-Takeda Chemicals, Inc. and Philippine Fuji Xerox Corp. questioning the inclusion of commissions in the computation of the 13th month pay for their employees. The petitions challenge the Revised Guidelines on the Implementation of the Thirteenth Month Pay (Presidential Decree No. 851) issued by then Labor Secretary Franklin Drilon, which required commissions to be included in the computation.

Background of the Thirteenth Month Pay Law:
Presidential Decree No. 851, or the Thirteenth Month Pay Law, mandates employers to pay their rank-and-file employees a 13th month pay not later than December 24 of every year. The law defines "basic salary" as the basis for computation, excluding certain allowances and benefits.

Petitioners' Claims:
Boie-Takeda and Fuji Xerox argued that commissions earned by their employees (medical representatives and salesmen, respectively) should not be included in the computation of the 13th month pay, as these are not part of the "basic salary." They contended that the Revised Guidelines exceeded the authority of the law and violated the equal protection clause of the Constitution.

Administrative Proceedings:
Labor inspections revealed that both companies had excluded commissions in the computation of the 13th month pay for their employees. The Labor Department issued orders directing the companies to rectify the underpayment. The companies contested these orders, but their appeals were denied by the Secretary of Labor, prompting them to file petitions before the Supreme Court.

Issue:

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Ruling:

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Ratio:

  1. Definition of "Basic Salary":
    The Court reiterated that "basic salary," as defined under Presidential Decree No. 851 and its implementing rules, excludes additional remunerations such as commissions, overtime pay, and other allowances. Commissions are considered additional compensation for extra efforts and are not part of the basic salary.

  2. Scope of Implementing Rules:
    Administrative rules and regulations must be in harmony with the law they seek to implement. The Revised Guidelines issued by the Secretary of Labor expanded the definition of "basic salary" to include commissions, which was not authorized by the law. This exceeded the scope of the implementing rule-making authority.

  3. Exclusion of Commissions:
    The Court emphasized that commissions are not part of the basic salary because they are contingent on performance and are not guaranteed. Including them in the computation of the 13th month pay would contradict the clear intent of the law.

  4. Equal Protection Clause:
    The Court did not find it necessary to address the equal protection issue, as it had already resolved the case based on the interpretation of the law and the invalidity of the Revised Guidelines.

  5. Precedent and Statutory Construction:
    The Court relied on its previous decisions and the Labor Code provisions to conclude that commissions are excluded from the definition of basic salary. It also noted that the inclusion of commissions in the computation would render the exclusionary provisions of the law meaningless.

In conclusion, the Court ruled that commissions should not be included in the computation of the 13th month pay under Presidential Decree No. 851.


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