Case Summary (G.R. No. 188949)
Background and Disputed Issue
The dispute concerns the proper interpretation of the term "basic pay" as used in the computation of the mandatory 13th-month pay under P.D. No. 851. Petitioner had been computing 13th-month pay by dividing the total basic annual salary by twelve, where the total basic annual salary included basic monthly salary, overtime pay for eight hours on Sundays and holidays, night premium pay, and paid vacation and sick leaves. This method persisted unchanged from 1975 until 2006. In 2006, petitioner changed its computation to divide total earnings by 12, which effectively excluded certain remunerations. Respondent objected, claiming the divisor should be eight months due to operational suspensions and that petitioner violated established company practice by failing to guarantee the minimum amount of one month’s pay as 13th-month pay.
Procedural History
After grievance procedures failed, respondent filed a complaint for money claims before the National Labor Relations Commission (NLRC). The Labor Arbiter initially dismissed the complaint, upholding petitioner’s right to rectify the alleged error. The NLRC reversed the Labor Arbiter’s decision, ordering petitioner to comply with established computation practices, including payment based on gross annual basic salary inclusive of premium pays and guaranteed minimum. The Court of Appeals affirmed the NLRC’s ruling. Petitioner then elevated the case to the Supreme Court via a petition for review on certiorari.
Legal Analysis on the Nature and Computation of 13th-Month Pay
The 13th-month pay mandated by P.D. No. 851 is an additional income equivalent to one twelfth (1/12) of the total basic salary earned within a calendar year. It is distinct from wages but is a mandatory benefit to all rank-and-file employees who have worked at least one month in the year, computed on a pro-rata basis for partial-year service. The implementing rules have defined “basic salary” to include remunerations paid for services rendered but excluding cost-of-living allowances, profit-sharing, and other non-regular monetary benefits. The 1987 Revised Guidelines further clarified that overtime pay, premiums, night differential, holiday pay, and cash equivalents of unused leaves are to be excluded—unless they are integrated as part of the regular or basic salary by individual or collective agreement, company practice, or policy.
Company Practice and the Non-Diminution Rule
Petitioner’s long-standing practice spanning nearly thirty years involved including premium pays and other benefits in their 13th-month pay computation. This practice ripened into company policy that cannot be unilaterally rescinded by the employer under Article 100 of the Labor Code, which prohibits the reduction or withdrawal of employee benefits once granted as part of the employment contract, whether written or unwritten. The non-diminution rule applies if the benefit has been granted express policy and consistent practice over a significant period. Although exceptions exist where the original practice was clearly due to a legal error and was corrected promptly, in this case, the alleged error was not corrected until after the dispute arose.
Evaluation of Petitioner’s Claim of Error and Financial Difficulties
Petitioner’s assertion that the previous computation was an inadvertent error lacks merit because the rules and regulations implementing P.D. No. 851 clearly delineate the term “basic salary” and the components to be included or excluded. There was no ambiguity or difficult question of law that could justify a decades-long erroneous computation. The change in formula was made only after the union raised the issue, indicating bad faith in unilateral withdrawal of benefits. Furthermore, petitioner’s financial hardship does not excuse non-compliance or erroneous computation, since exemptions to the mandatory 13th-month pay law require prior authorization from the Secretary of Labor, which petitioner failed to obtain.
Final Ruling and Legal Implications
The Supreme Court affirmed the decisions of the Court of Appeals and th
...continue readingCase Syllabus (G.R. No. 188949)
Case Background and Parties Involved
- The petitioner, Central Azucarera de Tarlac, is a domestic corporation engaged in sugar manufacturing.
- The respondent, Central Azucarera de Tarlac Labor Union-NLU, is a legitimate labor organization and exclusive bargaining representative of the petitioner’s rank-and-file employees.
- The dispute centers on the interpretation of the term “basic pay” crucial in computing the mandatory 13th-month pay under Presidential Decree No. 851.
- The factual circumstances are undisputed; the controversy focuses on proper application and computation relating to compensation law.
Historical Practice of Computing 13th-Month Pay
- Since 1975, petitioner granted 13th-month pay computed by dividing total basic annual salary by twelve (12).
- Included in the total basic annual salary were:
- Basic monthly salary
- First eight (8) hours overtime pay on Sundays and legal/special holidays
- Night premium pay
- Vacation and sick leave pay annually
- This method was consistently applied for nearly thirty (30) years until 2006.
Changes and Developments in 2004–2006
- A strike was staged by the respondent union on November 6, 2004, causing operational interruptions.
- Petitioner declared temporary operation cessations during the strike and again in April-May 2006.
- After lifting suspension, work resumed on a 15-day per month rotation until September 2006.
- In December 2006, petitioner altered the 13th-month pay computation, basing it on total actual earnings divided by 12 months rather than basic salary alone.
Dispute on Computation and Company Practice
- Respondent objected to the new computation alleging:
- The divisor should be 8, reflecting months actually worked.
- Petitioner abandoned the company’s established practice of guaranteeing a 13th-month pay not less than one month’s basic pay.
- Petitioner explained the change as a corrective measure to a longstanding error, asserting that basic pay should only include basic monthly salary.
Efforts to Resolve Dispute Prior to Litigation
- Parties attempted resolution via grievance procedures in their collective bargaining agreement.
- Petitioner’s representative clarified the intent to rectify the computation error during meetings.
- After failing to settle, respondent sought preventive mediation but conciliation efforts failed.
- Eventually, respondent filed a complaint for money claims before the Labor Arbiter due to alleged erroneous 13th-month pay computation.
Labor Arbiter’s Decision
- On October 31, 2007, the