G.R. No. 85073 - Davao Fruits Corp. vs. Associated Labor Unions

In December 1982, the respondent, Associated Labor Unions (ALU), on behalf of the rank-and-file workers of Davao Fruits Corporation, filed a complaint before the Ministry of Labor and Employment, Regional Arbitration Branch XI, in Davao City.
The complaint (NLRC Case No. 1791-MC-XI-82) pertained to the alleged erroneous computation of the thirteenth month pay for 1982. Claims asserted that petitioner Davao Fruits Corporation included in its computation certain items—namely, payments for sick, vacation and maternity leaves; premiums for work done on rest days and special holidays; and pay for regular holidays—even though these should have been excluded.

Since 1975, petitioner had a long-standing company practice that involved including these additional remunerations in the computation of the thirteenth month pay.
Petitioner, however, later argued that this inclusion was based on a questionable interpretation of “basic salary” and admitted that the practice was erroneous—a mistake discovered in 1981 following the Supreme Court’s decision in San Miguel Corporation v. Inciong.

Labor Arbiter Pedro C. Ramos rendered a decision on March 7, 1984, ordering Davao Fruits Corporation to pay the 1982 thirteenth month pay differential to its rank-and-file employees, as represented by ALU.
The decision was subsequently affirmed by the National Labor Relations Commission (NLRC), dismissing petitioner’s appeal for lack of merit.
Petitioner elevated the case to the Supreme Court through a petition for review under Rule 45 of the Revised Rules of Court, which was treated as a special civil action for certiorari under Rule 65.

Presidential Decree No. 851 mandates the payment of the thirteenth month pay to employees, with computation based on the “basic salary.”
The implementing rules of PD No. 851 define “basic salary” as all remunerations paid for services rendered, excluding cost-of-living allowances, profit-sharing, and all other allowances or monetary benefits not then considered part of the basic salary.
The Department of Labor and Employment’s Supplementary Rules (issued January 16, 1976) further clarify that overtime pay, earnings, and other remunerations (including the subject items) are expressly excluded from the computation.

Whether, in computing the thirteenth month pay, payments for sick, vacation and maternity leaves, premiums for work on rest days and special holidays, and pay for regular holidays should be excluded from the “basic salary” required by PD No. 851.
Whether petitioner’s long-standing practice of including these items, and the subsequent “discovery” of an alleged mistake in 1981, can justify a unilateral correction in computing the thirteenth month pay for 1982.
Whether the principle of solutio indebiti, a civil law concept, is applicable in the context of the disputed computation of the thirteenth month pay under labor law.