Case Summary (G.R. No. L-17361)
Factual Background
FRANKLIN BAKER COMPANY OF THE PHILIPPINES manufactured dessicated coconut in San Pablo City and employed Tomas Zamora as a compulsory member of the Social Security System. The company temporarily suspended operations for annual overhauling and lack of production orders from its parent in the United States, from December 22, 1957 to February 18, 1958, during which Zamora rendered no actual services. Zamora thereafter went on sick leave without pay from March 9, 1958 until his death on June 13, 1958. Petitioner filed a death claim with the System on July 10, 1958. Upon processing, the System found no premium remittances for Zamora for February, March, and June 1958; of the unpaid premiums, P5.85 was chargeable to the employee and P8.18 to the employer. The System deducted the employee’s share from the death benefits and billed petitioner for its share. The Commission had adopted the rule that "employers are liable to the 3 1/2% company's share during the months when there are no premiums remitted, if there is existing employer-employee relationship between them during those months."
Procedural History
Petitioner sought reconsideration of the System’s demand by filing a petition for reconsideration with the Social Security Commission. The Commission resolved to dismiss the petition on April 28, 1960. Petitioner appealed the Commission’s resolution to this Court under G. R. No. L-17361, and this Court rendered its decision on April 29, 1963.
Issues Presented
Petitioner presented two principal issues for judicial review: first, whether an employer is liable for its 3 1/2% share of Social Security premiums for months in which an employee receives no compensation because the employee was on leave without pay; and second, whether the Commission exceeded its authority in adopting a "theoretical salary" basis — specifically, using the salary of the month immediately preceding the wageless month or, for variable wage earners, the daily rate multiplied by the number of days the employee would have worked — to compute the employer’s 3 1/2% contribution in months when the employee received no compensation. Petitioner asserted that such a practice departs from SECTION 19 of the Social Security Act (R. A. 1161, as amended by Act 1792), which provides in pertinent part: "SECTION 19. Employer's contribution. Beginning as of the last day of the month immediately preceding the month when an employee's compulsory coverage takes effect and every month thereafter during his employment, his employer shall pay, with respect to such covered employee in his employ, a monthly contribution equal to three and a half per centum of the monthly compensation of said covered employees."
Petitioner’s Contentions
Petitioner argued that when an employee receives no compensation his employer should not be required to pay the employer’s share because there is no salary on which to compute the contribution. Petitioner further contended that the Commission’s adoption of a "theoretical salary" to compute the employer’s 3 1/2% contribution effectively amended the statutory scheme and thereby amounted to unlawful legislation beyond the Commission’s rulemaking authority under the Social Security Act.
Respondent and Commission Position
The SOCIAL SECURITY SYSTEM, through the Social Security Commission, maintained the policy enunciated in Circular Nos. 21 and 24 and formalized in Resolution No. 139, Series of 1958, that absence of compensation for a particular month did not preclude adoption of a theoretical salary for contribution purposes. The Commission’s policy provided that where an employee did not earn any compensation for a particular month, the basis for premium contributions would be the salary for the month immediately preceding the wageless month, or, for variable wage earners, the daily rate multiplied by the number of days the employee would have worked in that month. The System applied that rule to charge petitioner its share for the unpaid months and billed petitioner accordingly.
Supreme Court’s Analysis and Legal Reasoning
The Court examined prior decisions construing employer liability under the Social Security Act and relied on authorities including Insular Lumber Co. vs. SSS, G. R. No. L-17623, Jan. 31, 1963, Roman Archbishop of Manila vs. SSS, 110 Phil., 616, and Insular Life Assurance Co. Ltd., et al., vs. SSS, G. R. No. L-16359, Dec. 28, 1961, which uniformly held that payment of contributions by an employer is compulsory during coverage and that coverage is determined solely by the existence of an employer-employee relationship as contemplated by Section 9 of the Social Security Act. The Court observed that an employee on leave without pay remains an employee whose contract of employment has not terminated, and that the employer remains bound to accept the employee upon return. The Court thus concluded that the employer’s obligation to remit contributions continues during such periods. Because
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Case Syllabus (G.R. No. L-17361)
Parties and Procedural Posture
- Franklin Baker Company of the Philippines was the petitioner and appellant before the Court.
- Social Security System was the respondent and appellee before the Court.
- The case arose from an order of the Social Security System which was the subject of a petition for reconsideration to the Social Security Commission.
- The Social Security Commission dismissed the petition for reconsideration by resolution on April 28, 1960.
- The petitioner appealed to the Court from the Commission's resolution challenging the System's billing for unpaid contributions.
- The opinion of the Court was delivered by Makalintal, J., with concurrence by the listed members of the Court.
Key Facts
- Franklin Baker Company manufactured desiccated coconut in San Pablo City and employed Tomas Zamora.
- Both the petitioner and Tomas Zamora were compulsory members of the Social Security System.
- The petitioner temporarily ceased operations from December 22, 1957 to February 18, 1958 for annual overhauling and for lack of production orders.
- Tomas Zamora rendered no actual services during the shutdown period and went on sick leave without pay from March 9, 1958 until his death on June 13, 1958.
- The Social Security System received a death claim application on July 10, 1958 filed by the petitioner for the designated beneficiaries of Tomas Zamora.
- The System found no premium remittances for Zamora for the months of February, March, and June, 1958 and computed unpaid premiums of P5.85 chargeable to the employee and P8.18 due from the employer.
- The System deducted the employee's share from the death benefits and billed the petitioner for the employer's share.
- The Social Security Commission, by Resolution No. 139, Series of 1958, adopted the rule that employers are liable to the three and a half percent company share during months when no premiums were remitted if an employer-employee relationship existed.
Issues Presented
- Whether an employer is liable for its share of Social Security premiums during periods when an employee receives no compensation.
- Whether the Social Security Commission exceeded its authority by adopting a theoretical salary basis to compute employer contributions for months in which the employee received no compensation.
Contentions
- The petitioner contended that an employer is not liable for its share of premiums when an employee receives no compensation and that imposition of a theoretical salary basis effectively amended the statute.
- The petitioner asserted that the Commission lacked authority to compute employer contributions on a theoretical salary when Section 19 of the Social Security Act ties contributions to the employee's monthly compensation.
- The System and Commission relied on their adopted rules and prior administrative practice to justify liability and the use of a theoretical salary for computation.