G.R. No. 92174 - Boie-Takeda Chemicals, Inc. vs. De La Serna

Case Summary (G.R. No. 92174)

Key Dates

Relevant statutory and administrative dates: Presidential Decree No. 851 promulgated December 16, 1975; Rules and Regulations implementing P.D. 851 issued December 22, 1975; Supplementary Rules thereafter (dates as in the record); Memorandum Order No. 28 issued August 13, 1986 (removed P1,000 ceiling); Revised Guidelines promulgated November 16, 1987; routine inspections leading to enforcement actions: May 2, 1989 (Boie-Takeda), September 7, 1989 (Philippine Fuji Xerox); administrative orders and appeals culminating in orders of July 24, 1989; Acting Secretary order January 17, 1990; regional order August 23, 1990; undersecretary order October 10, 1991.

Applicable Law and Authorities

Primary statutory source: Presidential Decree No. 851 (Thirteenth Month Pay). Relevant implementing instruments: the original Rules and Regulations (Minister Blas Ople, Dec. 22, 1975), Supplementary Rules and Regulations, Memorandum Order No. 28 (1986), and the Revised Guidelines (Secretary Franklin Drilon, Nov. 16, 1987). Judicial precedent cited and applied in the decision includes San Miguel Corp. v. Inciong and Songco v. NLRC, as well as administrative-law principles limiting agency rulemaking authority (cases cited in the decision).

Legal Issue Presented

Whether the Revised Guidelines’ provision requiring inclusion of commissions in the computation of thirteenth month pay unlawfully exceeded statutory authority (constituted grave abuse of discretion) by expanding the statutory concept of “basic salary,” and whether the administrative orders enforcing those Guidelines should therefore be set aside.

Statutory and Regulatory Framework

P.D. No. 851 mandates payment of a thirteenth month pay computed on “basic salary.” The original implementing rules defined “thirteenth month pay” as 1/12 of the basic salary and provided that “basic salary” includes remunerations paid for services but expressly excluded cost-of-living allowances pursuant to other instruments, profit-sharing, and allowances not integrated as part of regular/basic salary as of December 16, 1975. Supplementary Rules subsequently clarified that overtime pay and other remunerations not part of basic salary shall not be included in the 13th-month computation. Memorandum Order No. 28 (1986) removed the P1,000 salary ceiling but did not alter the definition or concept of “basic salary.” The 1987 Revised Guidelines defined basic salary broadly but contained a specific paragraph (second paragraph of Section 5(a)) treating commissions together with fixed wages for computation of 13th month pay for employees paid fixed or guaranteed wage plus commission.

Factual Background — Boie-Takeda

A May 2, 1989 routine inspection found that Boie-Takeda had omitted commissions from the 13th-month computation for medical representatives. A Notice of Inspection Results required restitution of underpayment for 1986–1988. Boie-Takeda contested, arguing commissions are not part of basic salary and thus excluded. Administrative proceedings resulted in an order directing payment; on reconsideration, the Acting Labor Secretary affirmed but excluded commissions earned prior to August 13, 1989 (the date of Memorandum Order No. 28).

Factual Background — Philippine Fuji Xerox

A September 7, 1989 inspection led to a finding of underpayment of 13th month pay for salesmen for 1986–1988, premised on the Revised Guidelines. A regional order required restitution; the employer appealed and the appeal was denied by an Undersecretary on October 10, 1991. The two petitions were consolidated due to the common legal issue.

Petitioners’ Contentions

Petitioners asserted that under P.D. 851 the 13th month pay is computed solely on “basic salary” as that term was defined in P.D. 851 and its implementing/supplementary rules, which exclude commissions and other nonregular remunerations. They argued the Revised Guidelines’ inclusion of commissions exceeded the Secretary’s authority, amounted to usurpation of legislative power, and was contrary to equal protection (though the Court ultimately did not decide the constitutional claim).

Respondents’ Contentions

Respondents argued the petitions were an improper vehicle for attacking the constitutionality or validity of administrative rules via certiorari. They contended Memorandum Order No. 28 modified P.D. 851 and that the Revised Guidelines merely clarified an ambiguity concerning the nature of commissions. They further relied on Songco v. NLRC to show that commissions are encompassed within the broader term “wage” and to support inclusion in certain computations.

Court’s Analysis — Effect of Memorandum Order No. 28

The Court held that Memorandum Order No. 28 merely modified Section 1 of P.D. 851 by removing the salary ceiling; it did not repeal, supersede, or alter the concept of “basic salary” as defined under P.D. 851 and its implementing rules. Therefore, the definitions and exclusions in the implementing rules remain controlling for computation of the thirteenth month pay.

Court’s Analysis — Meaning of “Basic Salary” and Commissions

Relying on San Miguel Corp. v. Inciong and the various implementing and supplementary rules, the Court concluded that “basic salary” is to be understood in its ordinary sense as the regular rate for a standard work period, exclusive of extra or fringe payments (bonuses, overtime, commissions). The Supplementary Rules’ categorical exclusion of overtime and other remunerations clarified earlier ambiguity and confirmed that commissions—payments for extra efforts or results—do not form part of basic salary for purposes of P.D. 851.

Distinction from Songco v. NLRC

The Court distinguished Songco on the ground that Songco construed the unqualified term “salary” (or “wage”) to include commissions in the generic sense, but did not define the specific term “basic

Case Syllabus (G.R. No. 92174)

Case Caption, Reports and Decision Date

Case reported at 298-A Phil. 295, Second Division.
Consolidated petitions: G.R. No. 92174 (Boie-Takeda Chemicals, Inc. v. Hon. Dionisio C. de la Serna) and G.R. No. 102552 (Philippine Fuji Xerox Corp. v. Cresenciano B. Trajano and Philippine Fuji Xerox Employees Union).
Decision rendered December 10, 1993.
Opinion written by Chief Justice Narvasa; Justices Padilla, Regalado, Nocon, and Puno concurred.

Central Legal Question

What items of employee remuneration must be included in the computation of thirteenth month pay?
Specifically, whether the respondent labor officials committed grave abuse of discretion amounting to lack of jurisdiction by applying Section 5 of the Revised Guidelines on the Implementation of the Thirteenth Month Pay (promulgated November 16, 1987 by Secretary Franklin Drilon), which treated commissions as part of the basic salary for 13th month pay computation.
Whether the Revised Guidelines exceeded the authority granted by Presidential Decree No. 851 or violated the equal protection clause of the Constitution.

Statutory and Regulatory Framework

Presidential Decree No. 851 (Thirteenth Month Pay Law):
- Section 1: Required all employers to pay all employees receiving basic salary of not more than P1,000.00 a month a 13th month pay not later than December 24 of every year.
- Section 2: Employers already paying a 13th month pay or its equivalent are not covered.
Rules and Regulations Implementing P.D. 851 (promulgated December 22, 1975 by Labor Minister Blas Ople):
- Section 2 Definitions:
  - (a) Thirteenth month pay defined as one twelfth (1/12) of the basic salary 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 P.D. 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 at the time of the Decree (December 16, 1975).
- Section 3 Employers covered and exemptions:
  - (c) Employers already paying their employees a 13-month pay or more in a calendar year or its equivalent at the time of issuance are excluded.
  - (e) Employers of those paid purely by commission, boundary or task basis, and those paid a fixed amount for a specific work are excluded, except piece rate workers are covered.
  - "Its equivalent" includes Christmas bonus, mid-year bonus, profit-sharing payments and other cash bonuses amounting to not less than 1/12th of basic salary, but excludes cash and stock dividends, cost of living allowances, other allowances regularly enjoyed, and non-monetary benefits.
  - Where employer pays less than 1/12th, employer must pay the difference.
Supplementary Rules and Regulations Implementing P.D. 851 (issued later by Minister Ople):
- Section 4: Overtime pay, earnings and other remunerations which are not part of basic salary shall not be included in the computation of the 13th month pay.
Presidential Memorandum Order No. 28 (August 13, 1986, President Corazon C. Aquino):
- Modified Section 1 of P.D. 851 by removing the P1,000.00 salary ceiling so that all rank-and-file employees are required to be paid a 13th month pay by December 24 every year.
- Did not purport to alter the concept or method of computation under P.D. 851.
Revised Guidelines on the Implementation of the 13th Month Pay Law (November 16, 1987, Secretary Franklin Drilon):
- Section 4 (Amount and Payment):
  - Basic salary for computing 13th month pay shall include all remunerations or earnings paid by the employer for services rendered but does not include certain allowances and monetary benefits not integrated as part of regular or basic salary, such as cash equivalent of unused vacation/sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances.
  - These salary-related benefits should be included in computing 13th month pay if by individual/collective agreement, company practice or policy they are treated as part of basic salary.
- Section 5 (13th Month Pay for Certain Types of Employees):
  - (a) Employees paid by results (piece work) are by law entitled to 13th month pay.
  - Employees paid a fixed or guaranteed wage plus commission are entitled to the mandated 13th month pay based on total earnings during the calendar year, i.e., on both fixed wage and commission (this second paragraph of Section 5(a) is the provision under challenge).

Facts — Boie-Takeda Chemicals, Inc. (G.R. No. 92174)

Routine inspection conducted May 2, 1989 at petitioner’s premises by Labor and Development Officer Reynaldo B. Ramos under Inspection Authority No. 4-209-89.
Inspector found Boie-Takeda not including commissions earned by its medical representatives in computation of their 13th month pay.
Notice of Inspection Results served on Boie-Takeda through its president Benito Araneta required restitution/correction within ten calendar days for alleged underpayment for years 1986, 1987 and 1988 totaling P558,810.89.
Boie-Takeda contested the Notice, arguing commissions are not part of regular/basic salary and are not regular in nature because no sales yields no commission.
Regional Director Luna C. Piezas summoned Boie-Takeda to appear June 9 and 16, 1989; petitioner did not appear despite due notice; matter resolved based on evidence on record.
On July 24, 1989 Director Piezas issued an Order directing Boie-Takeda to pay medical representatives and managers the total amount of P565,746.47 representing underpayment of 13th month pay for years 1986–1988, pursuant to the revised guidelines, within ten days.
Boie-Takeda filed a motion for reconsideration on August 3, 1989 (treated as appeal).
Acting Labor Secretary Dionisio de la Serna resolved the appeal January 17, 1990, affirming the July 24, 1989 Order but modifying it to exclude sales commissions earned before August 13, 1989 (the effectivity date of Memorandum Order No. 28) from the computation of 13th month pay.
Resulted in petition docketed as G.R. No. 92174.

Facts — Philippine Fuji Xerox Corp. (G.R. No. 102552)

Routine inspection conducted September 7, 1989 at petitioner’s premises pursuant to Routine Inspection Authority No. NCR-LSED-RI-494-89.
Notice of Inspection Results to Manager Nicolas O. Katigbak reported underpayment of 13th month pay of about 62 employees for the period 1986–1988 pursuant to Revised Guidelines.
Philippine Fuji Xerox was requested to rectify/restitute the violation within five working days; no action taken.
Eduardo G. Gonzales, President of Philxerox Employees Union, wrote Labor Secretary Franklin Drilon requesting follow-up of inspection findings.
Conciliation conference held before Labor Employment and Development Officer Mario F. Santos, NCR Office; no amicable settlement; parties filed position papers.
Regional Director Luna C. Piezas issued an Order dated August 23, 1990 ordering restitution to salesmen of the portion of 13th month pay arising f