Case Summary (G.R. No. 110068)
Factual Background
Petitioner’s private respondent union, Philippine Duplicators Employees Union-TUPAS (respondent union), asked petitioner to pay its member-salesmen thirteenth month pay computed on the basis of the salesmen’s fixed or guaranteed wages plus sales commissions. Petitioner refused the demand. It nevertheless stated that it would respect an opinion from the MOLE. Acting on a request for opinion submitted by respondent union, Director Augusto G. Sanchez of the Bureau of Working Conditions, MOLE, issued an opinion on 17 November 1987. The opinion declared that salesmen receiving a fixed basic wage plus commission, and not purely commission-based compensation, were entitled to thirteenth month pay provided they worked at least one month during the calendar year. It further stated that, in computing thirteenth month pay, the total commissions for the calendar year should be divided by twelve (12).
Despite that opinion, petitioner continued to refuse payment of thirteenth month pay computed using both the fixed wage and commissions. Respondent union then filed a complaint to compel petitioner to pay thirteenth month pay as claimed by its members.
Labor Arbiter Proceedings
After the parties submitted position papers, the Labor Arbiter issued a decision dated 24 October 1989 directing petitioner to pay thirteenth month pay computed in accordance with the requirements of Explanatory Bulletin No. 86-12. Petitioner appealed to the NLRC.
In its appeal, petitioner framed the basic issue as whether an employer was liable to give an employee a separate thirteenth month pay on commissions independently of, aside from, and in addition to, thirteenth month pay on the basic wage. Petitioner argued that commissions fell outside the scope of “basic salary” for purposes of computing thirteenth month pay. It maintained that any expansion of “basic salary” to include commissions required legislative authority, and that the Secretary of Labor and Employment had exceeded authority in issuing Explanatory Bulletin No. 86-12.
NLRC Ruling
On 17 November 1992, the NLRC affirmed the award of the Labor Arbiter. The NLRC held that it was not vested with authority to pass upon the validity of Explanatory Bulletin No. 86-12, and that the issuance of the Secretary of Labor and Employment remained operative as a source of rights until declared invalid by the proper authorities, i.e., the Supreme Court. Petitioner moved for reconsideration, but the NLRC denied it.
Issues Presented to the Supreme Court
Petitioner brought the matter to the Supreme Court through a petition for certiorari. It reiterated its contention that Explanatory Bulletin No. 86-12 and the 17 November 1987 opinion of Director Augusto G. Sanchez were void and without force and effect. Petitioner asserted that the bulletin ran counter to Section 2 (b) of the implementing rules and regulations implementing P.D. No. 851. It also contended that the bulletin was allegedly rendered ineffective by Item No. 4 (a) of the “Revised Guidelines on the Implementation of the 13th Month Pay” issued 16 November 1987 by Secretary Franklin M. Drilon.
Petitioner’s principal interpretive position was that the “basic salary” language, as reflected in the guidelines, expressly excluded sales or incentive commissions from inclusion for computing thirteenth month pay. It further denied that it had any company policy treating commissions as part of the fixed or basic salary of its salesmen. Accordingly, petitioner argued that neither P.D. No. 851 nor Memorandum Order No. 28 expressly or impliedly considered commissions as part of basic salary for thirteenth month pay purposes, and that Explanatory Bulletin No. 86-12 therefore constituted an invalid expansion of the Decree and the memorandum’s coverage.
The Parties’ Contentions
Petitioner anchored its theory on the distinction between basic salary and other remunerations that allegedly were not integrated as part of regular or basic salary. It sought an interpretation under which commissions were excluded from basic salary because commissions were not expressly integrated into “basic salary” by the statutory and amendatory issuances. It also claimed that it had no institutional treatment of commissions as part of basic salary. In sum, petitioner resisted the computation method that combined fixed wage and commissions as the earnings base for thirteenth month pay.
Respondent union, by contrast, relied on the administrative interpretations issued by MOLE in implementing the thirteenth month pay regime for fixed or guaranteed wage plus commission employees. The union maintained that the applicable rules and issuances required thirteenth month pay computation based on total earnings during the calendar year, which included both the fixed or guaranteed wage and commissions, and that petitioner’s refusal unjustifiably deprived the members of mandated benefits.
Legal Basis and Reasoning
The Supreme Court resolved the controversy by focusing on the legal meaning of “basic salary” and its proper relationship to wages and commissions under the thirteenth month pay law and its implementing issuances. The Court first pointed to Article 97 (f) of the Labor Code, which defines “wage” as remuneration or earnings capable of being expressed in money, whether fixed or ascertained on a time, task, piece, or commission basis. The definition covered remuneration payable under a written or unwritten contract for work done or services rendered, and it included the fair and reasonable value of facilities customarily furnished by the employer, while excluding employer profit. The Court held that the sales commissions earned by salesmen who make or close sales constituted part of the compensation or remuneration paid to them for serving as salesmen, and therefore part of the salary or wage for purposes of thirteenth month pay computation.
The Court clarified that the term “basic salary” in P.D. No. 851 and Memorandum Order No. 28 should not be confused with the term “fixed or guaranteed wage.” Basic salary was used to distinguish wage or salary from fringe benefits not integrated into basic salary for certain specified purposes. In San Miguel Corporation v. Inciong, the Court had construed the catch-all references to “allowances” and “monetary benefits” excluded from basic salary as referring to additions in the form of allowances or fringe benefits, which included payments for sick leave, vacation leave, maternity leave, premium pay for rest day, special holidays, regular holidays, and night differential, and cost of living allowances. The Court reasoned that sales commissions were not in the nature of allowances or fringe benefits. On the contrary, commissions were direct remuneration for services rendered and, in petitioner’s own compensation scheme, formed the bulk of the salesmen’s wages.
The Court further explained that P.D. No. 851 and the relevant implementing framework did not exclude commissions from basic salary merely because commissions were variable or computed on sales. What the implementing rules excluded were profit-sharing payments and allowances and monetary benefits not considered or integrated as part of regular or basic salary. Those exclusions referred to fringe benefits. Since commissions were remuneration for services and were part of wage, they did not fall within the category of fringe benefits excluded from basic salary.
The Court also relied on the character of the administrative issuances. It held that Director Augusto G. Sanchez’s opinion and Explanatory Bulletin No. 86-12 constituted contemporaneous administrative construction of the term “basic salary” by the executive officers tasked to execute the law, and such construction deserved respect. The Court cited the principle that contemporaneous construction by executive officers is entitled to great respect and ordinarily controls. It then noted that Secretary Franklin M. Drilon’s Revised Guidelines on the Implementation of the 13th Month Pay reiterated the same administrative position. While petitioner had chosen to emphasize Item No. 4 (a) of the Revised Guidelines, the Court pointed out that Item No. 5 (a) expressly provided that employees paid a fixed or guaranteed wage plus commission were entitled to thirteenth month pay based on their total earnings during the calendar year, including both their fixed or guaranteed wage and commission.
In addition, the Court drew support from its earlier jurisprudence on commissions as wage. It discussed Songco v. National Labor Relations Commission, where the Court held that earned sales commissions should be included in the salary base for computing separation pay. The Court emphasized that, even if commissions were framed as incentives to induce greater enterprise,
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Case Syllabus (G.R. No. 110068)
Parties and Procedural Posture
- Philippine Duplicators, Inc. invoked certiorari to challenge the National Labor Relations Commission (NLRC) decision affirming an award of 13th month pay to its salesmen-members.
- Philippine Duplicators Employees Union-TUPAS sued for payment of 13th month pay on the ground that the computation should include both fixed or guaranteed wages and sales commissions.
- The Labor Arbiter ordered the employer to pay 13th month pay in accordance with Explanatory Bulletin No. 86-12 issued by the then Ministry of Labor and Employment.
- The NLRC affirmed, ruling that it was not vested with authority to pass upon the validity of Explanatory Bulletin No. 86-12 and treating the issuance as operative until invalidated by proper authorities.
- The employer’s motion for reconsideration in the NLRC failed, and the employer then filed this petition for certiorari.
Key Factual Allegations
- Philippine Duplicators, Inc. was engaged in the distribution of foreign-made copying machines and related consumables.
- The employer’s salesmen received a small fixed or guaranteed wage, with the greater portion of their compensation composed of sales or incentive commissions based on the selling price of the duplicating machines they sold.
- The union requested payment of 13th month pay computed on the basis of the salesmen’s fixed or guaranteed wages plus commissions.
- The employer refused the request but stated it would respect an opinion from the MOLE.
- A MOLE opinion by Director Augusto G. Sanchez declared that salesmen receiving a fixed basic wage plus commission were entitled to 13th month pay based on total earnings during the calendar year, and that commissions for the year should be divided by twelve (12) for computation.
- Despite the MOLE ruling, the employer refused to pay 13th month pay that included commissions, leading to the union’s complaint before the Labor Arbiter.
- The employer’s position was that commissions fell outside the statutory and regulatory scope of basic salary for 13th month pay computation.
Statutory and Regulatory Framework
- P.D. No. 851 required employers to pay 13th month pay to employees receiving a basic salary of not more than P1,000.00 a month, regardless of the nature of employment, not later than December 24 of every year.
- The Implementing Rules and Regulations for P.D. No. 851 defined “13th month pay” as one-twelfth (1/12) of the basic salary within a calendar year.
- The same Implementing Rules defined “basic salary” as including remuneration or earnings for services rendered, but excluding profit-sharing payments and exclusions described as allowances and monetary benefits not considered or integrated as part of the regular or basic salary as of the decree’s promulgation.
- Memorandum Order No. 28 modified P.D. No. 851 by requiring payment of 13th month pay to all rank-and-file employees.
- MOLE Explanatory Bulletin No. 86-12 stated that employees paid a fixed or guaranteed wage plus commission were entitled to 13th month pay based on total earnings during the calendar year, i.e., both fixed wage and commission.
- Director Augusto G. Sanchez’s opinion adopted the Explanatory Bulletin’s approach and specified that total commissions for the calendar year should be divided by twelve (12) for computation.
- Revised Guidelines on the Implementation of the 13th Month Pay Law issued by Secretary Franklin M. Drilon contained two relevant provisions:
- Item No. 4 (a) addressed the concept of basic salary and exclusions for certain salary-related benefits, subject to inclusion when treated as part of basic salary by agreement or practice.
- Item No. 5 (a) expressly provided that employees paid a fixed or guaranteed wage plus commission were entitled to 13th month pay based on their total earnings during the calendar year, i.e., both fixed or guaranteed wage and commission.
- The Court relied on Article 97 (f) of the Labor Code, which defined wage broadly to include remuneration or earnings, whether fixed or on a time, task, piece, or commission basis, payable for services rendered, a