Title
Iran vs. National Labor Relations Commission
Case
G.R. No. 121927
Decision Date
Apr 22, 1998
Petitioner terminated employees for alleged irregularities; SC ruled commissions count toward minimum wage, procedural lapses in termination, and partial 13th-month pay credit.
soft drinks company
drivers
minimum wage requirements

Case Summary (G.R. No. 121927)

Factual Background

In the course of his softdrinks distribution business, petitioner hired drivers/salesmen who drove delivery trucks and promoted, sold, and delivered softdrinks to outlets in Mandaue City. Truck helpers assisted in delivering softdrinks to the same outlets. As part of their compensation scheme, petitioner paid commissions per case sold. For the drivers/salesmen, the agreed commission rates were P0.10 per case of regular softdrinks and P0.12 per case of family size softdrinks. For the truck helpers, the agreed commission rates were P0.08 per case of regular softdrinks and P0.10 per case of family size softdrinks.

Sometime in June 1991, petitioner conducted an audit and discovered alleged cash shortages and irregularities attributed to private respondents. While he was investigating the irregularities and awaiting settlement of the cash shortages, petitioner required private respondents to report for work every day. However, he did not allow them to go on their assigned routes. A few days later, despite the instruction to report for work, the private respondents stopped reporting, which petitioner treated as abandonment. He then terminated their services.

On November 7, 1991, petitioner filed a complaint for estafa against private respondents. Private respondents, on the other hand, filed complaints on December 5, 1991 against petitioner for illegal dismissal, illegal deduction, underpayment of wages, premium pay for holiday and rest day, holiday pay, service incentive leave pay, 13th month pay, allowances, separation pay, recovery of cash bond, damages, and attorneys’ fees.

Labor Arbiter’s Ruling

After consolidation of the complaints and hearing before Labor Arbiter Ernesto F. Carreon, the labor arbiter found that petitioner had validly terminated private respondents for just cause based on the evidence of irregularities and the employees’ failure to report as instructed.

Nonetheless, the labor arbiter ruled that petitioner had not complied with the minimum wage requirement in compensating private respondents. The labor arbiter also found that petitioner failed to pay 13th month pay. Accordingly, the labor arbiter ordered petitioner to pay the monetary awards stated in the dispositive portion, which included amounts for each complainant and an award for attorneys’ fees amounting to 10% of the gross award, for a grand total award of P81,528.29. Other claims were dismissed for lack of merit.

Appeals to the NLRC and the Modification

Both parties seasonably appealed to the NLRC. Petitioner challenged, among others, the labor arbiter’s refusal to include the commissions he paid in determining compliance with the minimum wage requirement. Petitioner also raised on appeal, for the first time, vouchers purportedly showing payment of 13th month pay.

Private respondents contested the labor arbiter’s findings on the absence of illegal dismissal and also assailed mathematical computations relating to wage differentials, particularly as to Jesus Bandilao.

On December 21, 1994, the NLRC affirmed the validity of the dismissal, but held that the dismissal did not comply with procedural due process requirements for terminating employees. The NLRC corrected the labor arbiter’s computation of wage differentials for Jesus Bandilao, modifying the computation from P154.00 to P4,550.00. It also awarded an additional P1,000.00 to each complainant as indemnity for failure to observe procedural due process.

Petitioner’s motion for reconsideration was denied on July 31, 1995, and he elevated the matter to the Supreme Court.

Issues Raised Before the Supreme Court

Petitioner presented three principal issues. First, he argued that the NLRC committed grave abuse of discretion by excluding commissions received by private respondents in computing compliance with the minimum wage requirement. Second, he asserted that the NLRC gravely erred in finding him liable for procedural lapses in terminating private respondents and in awarding each an indemnity fee. Third, he contended that the NLRC erred in not crediting an advance amount reflected in vouchers as part of private respondents’ 13th month pay.

Resolution on the Inclusion of Commissions in Minimum Wage Computation

The Supreme Court found merit in petitioner’s position regarding commissions. The NLRC had reasoned that a minimum wage should be received as mandated by law and should not depend on commissions earned, and that including commissions in wage computation would negate the practice of granting commissions only after an employee has already earned the minimum wage or beyond it.

The Supreme Court held that the NLRC’s position lacked support in law and jurisprudence. The Court cited Article 97(f) of the Labor Code, which defines wage to include remuneration or earnings, “however designated,” expressible in money on a time, task, piece, or commission basis, payable by an employer to an employee under an employment contract for work done or to be done, and includes the fair and reasonable value of facilities. The definition expressly encompassed commissions as part of wages. The Court emphasized that commissions constitute direct remuneration for services rendered. It further explained that commissions are compensation or reward calculated as a percentage of transactions or profits to the principal, which aligns with the nature of salesman work and the commission-based remuneration scheme.

The Court then addressed the NLRC’s concern about undermining the notion that commissions are paid only after minimum wages are met. The Supreme Court rejected that notion as a legal barrier. It pointed out that minimum wage sets a floor below which remuneration cannot fall, not a rule excluding commissions from the wage component used to measure compliance. The Court considered its prior ruling in Philippine Agricultural Commercial and Industrial Workers Union vs. NLRC, where it acknowledged that drivers and conductors compensated purely on a commission basis automatically became entitled to the basic minimum pay mandated by law if commissions were less than the required basic minimum for eight hours. From that, the Court inferred that when commissions equal or exceed the minimum wage, the employer would not necessarily be required to pay additional minimum pay, because the purpose of the minimum wage requirement is to ensure a wage floor.

Accordingly, the Supreme Court held that commissions are included in determining compliance with minimum wage requirements.

Resolution on Procedural Due Process in Termination

On the procedural issue, the Supreme Court treated the requirements for lawful dismissal as settled. It reiterated that in terminating employees, the employer must furnish two written notices: one apprising the employee of the particular acts or omissions for which dismissal is sought, and a subsequent notice informing the employee of the employer’s decision to dismiss.

The Court examined petitioner’s explanation. Petitioner admitted that when cash irregularities were discovered, he instructed private respondents to report for work and settle their accountabilities, but he did not allow them to go on their routes. In petitioner’s own framing, the return-to-work order and settlement instruction were treated as the first notice. The Supreme Court found that the instruction did not satisfy the first notice requirement because private respondents were not told that their dismissal was being sought. Petitioner’s own statement underscored that recovery of misappropriated funds was the first concern, not effecting dismissal.

Given that the first notice must inform employees that dismissal is sought, the Court concluded that the lack of the appropriate first notice rendered the termination defective. The Court explained that notice and hearing are essential elements of due process and cannot be disregarded. These requirements serve to prevent arbitrary exercise of the employer’s prerogative to dismiss.

The Court also considered petitioner’s claim that private respondents’ failure to report amounted to abandonment authorizing dismissal. It agreed with the NLRC that Section 2 of Book V, Rule XIV of the Omnibus Rules Implementing the Labor Code required that in cases of abandonment, notice should be sent to the workers’ last known address. Petitioner failed to comply with that requirement. Because of the procedural due process violation, the Court imposed nominal damages consistent with controlling jurisprudence. It modified the award on indemnity for procedural due process from the NLRC’s P1,000.00 to P5,000.00 each.

Resolution on Credit for 13th Month Pay Vouchers

On the 13th month pay issue, the Supreme Court addressed petitioner’s argument that vouchers submitted on appeal should be credited as part of 13th month pay. Petitioner argued that under Section 3(e) of the rules implementing P.D. No. 851, where an employer pays less than 1/12 of the employee’s basic salary as 13th month pay, the employer must pay the difference. The petitioner contended that the NLRC should have credited the vouchers even if they were submitted only on appeal.

The Supreme Court acknowledged the governing labor principle that technical evidentiary rules do not bind the NLRC. It also observed the legislative intent behind P.D. No. 851, which was to grant additional income to employees who do not yet receive 13th month pay, not to impose a double burden on employers that already pay the benefit or its equivalent.

However, the Court limited the credit. It noted that the vouchers petitioner presented covered only a particular year and did not cover amounts for other years claimed

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