UST Faculty Union vs. National Labor Relations Commission

Factual Background

Before the controversy, UST did not pay its faculty members a 13th month pay. Presidential Decree No. 851 originally required the payment of 13th month pay only to employees receiving a basic salary of not more than P1,000.00 a month, and it exempted employers already paying their employees a 13th month pay or its equivalent. Because the faculty members of UST received salaries exceeding P1,000.00 a month, UST took the position that it was not required to pay 13th month pay under the original text of the decree.

On August 13, 1986, President Aquino issued Memorandum Order No. 28, which modified Section 1 of P.D. No. 851 by requiring all employers to pay a 13th month pay to all rank-and-file employees, starting with the year 1986. Around the same period, the faculty expected UST to comply with the March 25, 1985 agreement regarding Christmas gifts, believing that the statutory 13th month pay would be paid in addition to those contractual benefits.

Pursuant to the March 25, 1985 agreement—intended as part of the overall settlement of the faculty union’s demand over their share in the increase in tuition fees under Presidential Decree No. 451—UST undertook an aggregate commitment of P35,000,000.00 to be receivable over three school years (1985-1986, 1986-1987, and 1987-1988). For School Year 1985-1986, the agreement expressly required that UST grant a Christmas gift of P2,000.00 to full-time faculty members and P1,000.00 to part-time faculty members, subject to conditions on employment and assignment units. For the subsequent school years (1986-1987 and 1987-1988), the agreement provided for salary increases and other benefits, with a stipulation that at the end of School Year 1987-1988, any unspent balance of the P35,000,000.00 aggregate would be distributed proportionately to the faculty.

The Dispute and the Competing Interpretations

After Memorandum Order No. 28 took effect, the faculty members confronted what they viewed as an unlawful reduction of 13th month pay by deducting the Christmas gift amounts from the statutory requirement. On December 3, 1986, Prof. Cecilio Pe wrote the rector expressing the faculty’s apprehension that the Christmas gift was being treated as part of the 13th month pay. The rector, on December 4, 1986, responded by attaching a memorandum of legal counsel concluding that the Christmas bonus already paid could be credited as compliance with 13th month pay.

Prof. Pe disagreed in a subsequent letter on December 9, 1986. He emphasized the parties’ prior negotiations and the purpose of the March 25, 1985 agreement, describing the Christmas gift as not a bonus but a component of the agreed allocation of the P35,000,000.00 settlement. He relied on the stipulation that UST’s total commitments under the agreement and the collective bargaining agreement would neither exceed nor fall short of P35,000,000.00, and on the requirement that any unspent balance be distributed proportionately to faculty at the end of School Year 1987-1988.

Administrative Proceedings Before the NLRC

Because UST allegedly refused to heed the union’s position, the union filed a complaint with the arbitration branch of the NLRC on December 10, 1986, seeking to compel UST to pay the faculty members the full amount of 13th month pay without deducting the P2,000.00 or P1,000.00 given as Christmas gift.

On January 4, 1989, the Labor Arbiter dismissed the complaint. The arbiter ruled that the Christmas gift could be considered an equivalent of 13th month pay under the rules implementing P.D. No. 851. The union appealed to the NLRC, which on August 23, 1989 dismissed the appeal and affirmed the dismissal. The union’s motion for reconsideration was denied on September 29, 1989.

The question, however, was also litigated through the CBA’s internal grievance mechanisms. Individual faculty members filed complaints before the Grievance Adjudication Committee established under the CBA. In a unanimous decision dated March 27, 1987, the committee ruled that the P2,000.00/P1,000.00 amounts under Sec. 2.3 of Annex A of the CBA were not creditable as a Christmas bonus toward the 13th month pay. Instead, it characterized the Christmas gift as part of the P35,000,000.00 lump sum compromise, agreed upon by the faculty union and UST as settlement of their then existing claims under the tuition increase dispute.

UST refused to accept the committee’s judgment, and those events formed the basis for the petition that the Supreme Court later resolved.

The Parties’ Contentions on Review

The petition required the Supreme Court to determine whether the Christmas gift stipulated in the March 25, 1985 agreement could be credited as an “equivalent” of statutory 13th month pay, thereby allowing UST to deduct the gift amounts from the 13th month pay mandated by P.D. No. 851, as modified by Memorandum Order No. 28.

UST and the NLRC adhered to the view that the Christmas gift should be treated as creditable as an equivalent under the implementing rules, consistent with the arbiter’s conclusion. The union contested that characterization and maintained that the Christmas gift formed part of the agreed P35,000,000.00 settlement package linked to the faculty members’ share in the tuition increase under P.D. No. 451, and that it was not a bonus, incentive, or additional income comparable to the bonuses contemplated in the controlling jurisprudence on P.D. No. 851 and its implementing rules.

Legal Basis and the Jurisprudential Framework

In resolving the controversy, the Court used its earlier rulings as controlling norms on when a payment may be credited as the statutory 13th month pay “or its equivalent.” The decision emphasized National Federation of Sugar Workers (NFSW) v. Ovejera, where the Court explained that the intention of P.D. No. 851 was to provide relief only to employees who were not already receiving a 13th month pay or an equivalent, so that employers would not be compelled to bear a double burden by granting both 13th month pay and what is already paid as an equivalent. The Court in NFSW reasoned that double compliance would effectively create more than one 13th month payment and would contradict the statutory exemption for employers already paying a 13th month pay or its equivalent. It also accorded significant weight to the rules implementing P.D. No. 851, particularly Section 3(e), defining “its equivalent” as including cash bonuses meeting a specified proportion of basic salary.

The Court also discussed Dole Philippines, Inc. v. Legorardo, Jr., which applied the NFSW standard and held that a year-end productivity bonus granted under a CBA could be considered an integral part of 13th month pay for purposes of determining only the difference when the employer paid less than the required one-twelfth proportion of basic salary. It further highlighted Brokenshire Memorial Hospital, Inc. v. NLRC, which reaffirmed the principle that an employer should not be made to bear both 13th month pay and a Christmas bonus when the employer already provides an equivalent form of additional income.

While acknowledging these precedents, the Court in the present case carefully distinguished the character of UST’s Christmas gift from the bonuses that jurisprudence treated as equivalents under P.D. No. 851.

The Court’s Reasoning

The Court held that, under the facts, UST had to pay both statutory 13th month pay and the contractual Christmas gift amounts for 1986 and 1987. The Court reasoned that UST’s Christmas gift formed part of the P35,000,000.00 tuition-increase settlement. It was not a bonus, incentive, or additional income granted by UST as a separate benefit. It was instead described as partial payment, delivered according to a schedule agreed upon by UST and the faculty union, of the university’s outstanding obligation arising from the faculty members’ share in the increase in tuition fees under P.D. No. 451.

The Court underscored that once UST fully paid the P35,000,000.00 settlement within the agreed time frame and in the forms specified in the agreement, the university’s obligation to provide the Christmas gift as part of that compromise package would cease. At that point, UST’s remaining legal duty would be limited to complying with P.D. No. 851, as amended by Memorandum Order No. 28, by paying statutory 13th month pay.

The Court further held that the Christmas gift was “clearly” not an “equivalent” of 13th month pay within the meaning of the implementing rules. In doing so, it rejected the attempt to analogize the Christmas gift to the types of payments previously treated as equivalents, such as the Christmas bonus, mid-year bonus, profit-sharing payments, and year-end productivity incentives discussed in NFSW and Dole, as well as the Christmas bonus in Brokenshire. It also distinguished the Christmas gift from the transportation allowance treated as a form of bonus equivalent to 13th month pay in FEU Employees Labor Union v. FEU and Cebu Institute of Technology v. Ople.

The Court clarified that its jurisprudence did not lay down a categorical rule that all payments labeled “Christmas gift” or related to the Christmas season must always be credited as equivalents under P.D. No. 851. It explained that cases such as United CMC Textile Workers Union v. Valenzuela demonstrated that where the purpose of the bonus and the purpose of P.D. No. 851 differed, crediting the bonus as compliance might not follow. Applying this reasoning, the Court concluded that the Christmas gift here had a different nature and purpose than the bonuses that jurisprudence had credited as equivalents: the Christmas gift was part of a negotiated compromise of an underlying claim for tuition-increase shares, not an incentive or additional income intended to serve the function of P.D. No. 851.

Because the Christmas gift did not fall within the class of payments treated as statutory equivalents, the Court held that the NLRC gravely abused i