Page 1 of 86

Contents
Fontera vs Largado ................................................................................................................................ 1
Milan vs NLRC .......................................................................................................................................... 9
Sevilla Trading vs Semana 428 S 239, 2004 ............................................................................ 23
Davao Fuits vs ALU 225 S 562 ........................................................................................................ 32
DIPS vs Abarquez 220 S 197 .......................................................................................................... 37
Vergara vs Coca-cola bottles ........................................................................................................... 47
Traders Royal Bank vs NLRC 189 S 274, 1990 ........................................................................ 52
Boie-Takeda chemicals vs Dela Serna 278 S 329 ................................................................... 65
International vs NLRC 287 S 213, 1998 ..................................................................................... 76

Fontera vs Largado

G.R. No. 205300, March 18, 2015

FONTERRA BRANDS PHILS., INC., Petitioner, v. LEONARDO1 LARGADO

AND TEOTIMO ESTRELLADO, Respondents.

DECISION

VELASCO JR., J.:

The Case

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking the reversal and setting aside of the Decision of the Court of Appeals
(CA) dated September 6, 2012, as well as its January 11, 2013 Resolution
denying reconsideration thereof, in CA-G.R. SP No. 114227,
entitled Leonardo Largado and Teotimo P. Estrellado v. National Labor
Relations Commission (NLRC), Fonterra Brands Phils., Inc./Carlo Mendoza,
Zytron Marketing & Promotions Corp./Francisco Valencia, A.C. Sicat
Marketing & Promotional Services/Arturo Sicat.

The Facts
 Page 2 of 86

Petitioner Fonterra Brands Phils., Inc. (Fonterra) contracted the services of

Zytron Marketing and Promotions Corp. (Zytron) for the marketing and
promotion of its milk and dairy products. Pursuant to the contract, Zytron
provided Fonterra with trade merchandising representatives (TMRs),
including respondents Leonardo Largado (Largado) and Teotimo Estrellado
(Estrellado). The engagement of their services began on September 15,
2003 and May 27, 2002, respectively, and ended on June 6, 2006.

On May 3, 2006, Fonterra sent Zytron a letter terminating its promotions

contract, effective June 5, 2006. Fonterra then entered into an agreement
for manpower supply with A.C. Sicat Marketing and Promotional Services
(A.C. Sicat). Desirous of continuing their work as TMRs, respondents
submitted their job applications with A.C. Sicat, which hired them for a term
of five (5) months, beginning June 7, 2006 up to November 6, 2006.

When respondents 5-month contracts with A.C. Sicat were about to expire,
they allegedly sought renewal thereof, but wereallegedly refused. This
prompted respondents to file complaints for illegal dismissal, regularization,
non-payment of service incentive leave and 13th month pay, and actual and
moral damages, against petitioner, Zytron, and A.C. Sicat.

The Labor Arbiter dismissed the complaint and ruled that: (1) respondents
were not illegally dismissed. As a matter of fact, they were the ones who
refused to renew their contract and that they voluntarily complied with the
requirements for them to claim their corresponding monetary benefits in
relation thereto; and (2) they were consecutively employed by Zytron and
A.C. Sicat, not by Fonterra. The dispositive portion of the
Decision2 reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing, judgment is hereby rendered
DISMISSING the instant case for utter lack of merit.

SO ORDERED.cralawred
The NLRC affirmed the Labor Arbiter, finding that respondents separation
from Zytron was brought about by the execution of the contract between
Fonterra and A.C. Sicat where the parties agreed to absorb Zytrons
personnel, including respondents. Too, respondents failed to present any
evidence that they protested this set-up. Furthermore, respondents failed to
refute the allegation that they voluntarily refused to renew their contract
with A.C. Sicat. Also, respondents did not assert any claim against Zytron
and A.C. Sicat. The NLRC disposed of the case in this
wise:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the appeals are hereby
ordered DISMISSED and the Decision of the Labor Arbiter is AFFIRMED
 Page 3 of 86

[in]toto.

SO ORDERED.3
The NLRC decision was assailed in a petition under Rule 65 before the CA.

Ruling on the petition, the CA, in the questioned Decision,4 found that A.C.
Sicat satisfies the requirements of legitimate job contracting, but Zytron
does not. According to the CA: (1) Zytrons paid-in capital of P250,000
cannot be considered as substantial capital; (2) its Certificate of Registration
was issued by the DOLE months after respondents supposed employment
ended; and (3) its claim that it has the necessary tools and equipment for its
business is unsubstantiated. Therefore, according to the CA, respondents
were Fonterras employees.

Additionally, the CA held that respondents were illegally dismissed since

Fonterra itself failed to prove that their dismissal is lawful. However, the
illegal dismissal should be reckoned from the termination of their supposed
employment with Zytron on June 6, 2006. Furthermore, respondents
transfer to A.C. Sicat is tantamount to a completely new engagement by
another employer. Lastly, the termination of their contract with A.C. Sicat
arose from the expiration of their respective contracts with the latter. The
CA, thus, ruled that Fonterra is liable to respondents and ordered the
reinstatement of respondents without loss of seniority rights, with full
backwages, and other benefits from the time of their illegal dismissal up to
the time of their actual reinstatement. The fallo of the Decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the petition is hereby GRANTED. The
assailed Decision dated 20 November 2009 and Resolution dated 5 March
2010 of the National Labor Relations Commission (NLRC), Seventh Division,
are hereby ANULLED and SET ASIDE. Private respondent Fonterra Brand,
Inc. is hereby ordered to REINSTATE [respondents] without loss of seniority
rights. Private respondents Fonterra Brand, Inc. and Zytron Marketing and
Promotional Corp. are hereby further ORDERED to jointly and severally pay
petitioners their full backwages and other benefits from the time of their
illegal dismissal up to the time of their actual reinstatement; and attorneys
fees.

SO ORDERED.
Zytron and Fonterra moved for reconsideration, but to no avail. Hence, this
petition.

The Issues
 Page 4 of 86

Petitioner presents the following issues for Our

resolution:chanRoblesvirtualLawlibrary

I. The CA erred in ruling that Zytron was a mere labor-only contractor to

petitioner Fonterra, in that:chanRoblesvirtualLawlibrary
a. As held by the Court, there is no absolute figure that constitutes
substantial capital for an independent contractor, and the same
should instead be measured against the type of work it is
obligated to do for the principal. It is most respectfully submitted
that, here, the merchandising work undertaken by Zytrons paid-
in capital of P250,000 was as of 1990, the year it was
incorporated;chanrobleslaw

b. As shown in its Articles of Incorporation, Zytron had been in

business since 1990, or more than a decade before it signed a
merchandising agreement with petitioner Fonterra;chanrobleslaw

c. Very importantly, petitioner Fonterra never exercised the right to

control respondents and other employees of Zytron. Indeed,
respondents neither alleged that petitioner exercised control
over them nor presented proof in support thereof in any of their
previous pleadings.

II. Respondents never claimed nor adduced evidence that they were
dismissed from employment by Zytron. In fact, Zytron denies
terminating them from work. The CA, thus, erred in finding that
respondents were illegally dismissed.

Succinctly, the issues in the case at bar are: (1) whether or not Zytron and
A.C. Sicat are labor-only contractors, making Fonterra the employer of
herein respondents; and (2) whether or not respondents were illegally
dismissed.

Our Ruling

We find merit in the petition.

As regards the CAs conclusion that Zytron is not a legitimate job contractor,
We are of the view that such is immaterial to the resolution of the illegal
dismissal issue for one reason: We find that respondents voluntarily
terminated their employment with Zytron, contrary to their allegation that
their employment with Zytron was illegally terminated.
 Page 5 of 86

We do not agree with the CA that respondents employment with Zytron was
illegally terminated.

As correctly held by the Labor Arbiter and the NLRC, the termination of
respondents employment with Zytron was brought about by the cessation of
their contracts with the latter. We give credence to the Labor Arbiters
conclusion that respondents were the ones who refused to renew their
contracts with Zytron, and the NLRCs finding that they themselves
acquiesced to their transfer to A.C. Sicat.

By refusing to renew their contracts with Zytron, respondents effectively

resigned from the latter. Resignation is the voluntary act of employees who
are compelled by personal reasons to dissociate themselves from their
employment, done with the intention of relinquishing an office, accompanied
by the act of abandonment.5chanroblesvirtuallawlibrary

Here, it is obvious that respondents were no longer interested in continuing

their employment with Zytron. Their voluntary refusal to renew their
contracts was brought about by their desire to continue their assignment in
Fonterra which could not happen in view of the conclusion of Zytrons
contract with Fonterra. Hence, to be able to continue with their assignment,
they applied for work with A.C. Sicat with the hope that they will be able to
continue rendering services as TMRs at Fonterra since A.C. Sicat is
Fonterras new manpower supplier. This fact is even acknowledged by the
CA in the assailed Decision where it recognized the reason why respondents
applied for work at A.C. Sicat. The CA stated that [t]o continuously work as
merchandisers of Fonterra products, [respondents] submitted their job
applications to A.C. Sicat xxx.6 This is further bolstered by the fact that
respondents voluntarily complied with the requirements for them to claim
their corresponding monetary benefits in relation to the cessation of their
employment contract with Zytron.

In short, respondents voluntarily terminated their employment with Zytron

by refusing to renew their employment contracts with the latter, applying
with A.C. Sicat, and working as the latters employees, thereby abandoning
their previous employment with Zytron. Too, it is well to mention that for
obvious reasons, resignation is inconsistent with illegal dismissal. This being
the case, Zytron cannot be said to have illegally dismissed respondents,
contrary to the findings of the CA.

As regards respondents employment with A.C. Sicat and its termination via
non-renewal of their contracts, considering that in labor-only contracting,
the law creates an employer-employee relationship between the principal
 Page 6 of 86

and the labor-only contractors employee as if such employees are directly

employed by the principal employer, and considers the contractor as merely
the agent of the principal,7 it is proper to dispose of the issue on A.C. Sicats
status as a job contractor first before resolving the issue on the legality of
the cessation of respondents employment.

In this regard, We defer to the findings of the CA anent A.C. Sicats status as
a legitimate job contractor, seeing that it is consistent with the rules on job
contracting and is sufficiently supported by the evidence on record.

A person is considered engaged in legitimate job contracting or

subcontracting if the following conditions concur:chanRoblesvirtualLawlibrary

1. The contractor or subcontractor carries on a distinct and independent

business and undertakes to perform the job, work or service on its
own account and under its own responsibility according to its own
manner and method, and free from the control and direction of the
principal in all matters connected with the performance of the work
except as to the results thereof;chanrobleslaw

2. The contractor or subcontractor has substantial capital or investment;

and

3. The agreement between the principal and contractor or subcontractor

assures the contractual employees entitlement to all labor and
occupational safety and health standards, free exercise of the right to
self-organization, security of tenure, and social and welfare benefits.8

On the other hand, contracting is prohibited when the contractor or

subcontractor merely recruits, supplies or places workers to perform a job,
work or service for a principal and if any of the following elements are
present, thus:chanRoblesvirtualLawlibrary

1. The contractor or subcontractor does not have substantial capital or

investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are directly
related to the main business of the principal; or

2. The contractor does not exercise the right to control over the
performance of the work of the contractual employee.9

The CA correctly found that A.C. Sicat is engaged in legitimate job

contracting. It duly noted that A.C. Sicat was able to prove its status as a
 Page 7 of 86

legitimate job contractor for having presented the following evidence, to

wit:chanRoblesvirtualLawlibrary

1. Certificate of Business Registration;chanrobleslaw

2. Certificate of Registration with the Bureau of Internal

Revenue;chanrobleslaw

3. Mayors Permit;chanrobleslaw

4. Certificate of Membership with the Social Security

System;chanrobleslaw

5. Certificate of Registration with the Department of Labor and

Employment;chanrobleslaw

6. Company Profile; and

7. Certifications issued by its clients.10

Furthermore, A.C. Sicat has substantial capital, having assets totaling

P5,926,155.76 as of December 31, 2006. Too, its Agreement with Fonterra
clearly sets forth that A.C. Sicat shall be liable for the wages and salaries of
its employees or workers, including benefits, premiums, and protection due
them, as well as remittance to the proper government entities of all
withholding taxes, Social Security Service, and Medicare premiums, in
accordance with relevant laws.

The appellate court further correctly held that Fonterras issuance of

Merchandising Guidelines, stock monitoring and inventory forms, and promo
mechanics, for compliance and use of A.C. Sicats employees assigned to
them, does not establish that Fonterra exercises control over A.C. Sicat. We
agree with the CAs conclusion that these were imposed only to ensure the
effectiveness of the promotion services to be rendered by the merchandisers
as it would be risky, if not imprudent, for any company to completely entrust
the performance of the operations it has contracted out.

These sufficiently show that A.C. Sicat carries out its merchandising and
promotions business, independent of Fonterras business. Thus, having
settled that A.C. Sicat is a legitimate job contractor, We now determine
whether the termination of respondents employment with the former is
valid.

We agree with the findings of the CA that the termination of respondents

employment with the latter was simply brought about by the expiration of
 Page 8 of 86

their employment contracts.

Foremost, respondents were fixed-term employees. As previously held by

this Court, fixed-term employment contracts are not limited, as they are
under the present Labor Code, to those by nature seasonal or for specific
projects with predetermined dates of completion; they also include those to
which the parties by free choice have assigned a specific date of
termination.11 The determining factor of such contracts is not the duty of the
employee but the day certain agreed upon by the parties for the
commencement and termination of the employment
relationship. chanroblesvirtuallawlibrary
12

In the case at bar, it is clear that respondents were employed by A.C. Sicat
as project employees. In their employment contract with the latter, it is
clearly stated that [A.C. Sicat is] temporarily employing [respondents] as
TMR[s] effective June 6[, 2006] under the following terms and conditions:
The need for your service being only for a specific project, your temporary
employment will be for the duration only of said project of our client, namely
to promote FONTERRA BRANDS products xxx which is expected to be
finished on or before Nov. 06, 2006.13chanroblesvirtuallawlibrary

Respondents, by accepting the conditions of the contract with A.C. Sicat,

were well aware of and even acceded to the condition that their employment
thereat will end on said pre-determined date of termination. They cannot
now argue that they were illegally dismissed by the latter when it refused to
renew their contracts after its expiration. This is so since the non-renewal of
their contracts by A.C. Sicat is a management prerogative, and failure of
respondents to prove that such was done in bad faith militates against their
contention that they were illegally dismissed. The expiration of their contract
with A.C. Sicat simply caused the natural cessation of their fixed-term
employment there at. We, thus, see no reason to disturb the ruling of the CA
in this respect.

With these, We need not belabor the other assigned errors.

IN VIEW OF THE FOREGOING, the instant Petition for Review

is GRANTED. The assailed Decision of the Court of Appeals dated
September 6, 2012 and its January 11, 2013 Resolution denying
reconsideration thereof, in CA-G.R. SP No. 114227, are
hereby REVERSED and SET ASIDE. The Decision of the National Labor
Relations Commission dated November 20, 2009 and its Resolution dated
March 5, 2010 in NLRC Case No. RAB IV 12-23927-06-Q are
hereby REINSTATED.
 Page 9 of 86

SO ORDERED.

Milan vs NLRC

SECOND DIVISION

G.R. No. 202961, February 04, 2015

EMER MILAN, RANDY MASANGKAY, WILFREDO JAVIER, RONALDO

DAVID, BONIFACIO MATUNDAN, NORA MENDOZA, ET
AL., Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION,
SOLID MILLS, INC., AND/OR PHILIP ANG, Respondents.

DECISION

LEONEN, J.:

An employer is allowed to withhold terminal pay and benefits pending the

employees return of its properties.

Petitioners are respondent Solid Mills, Inc.s (Solid Mills) employees.1 They
are represented by the National Federation of Labor Unions (NAFLU), their
collective bargaining agent.2chanroblesvirtuallawlibrary

As Solid Mills employees, petitioners and their families were allowed to

occupy SMI Village, a property owned by Solid Mills.3 According to Solid
Mills, this was [o]ut of liberality and for the convenience of its employees . .
. [and] on the condition that the employees . . . would vacate the premises
anytime the Company deems fit.4chanroblesvirtuallawlibrary

In September 2003, petitioners were informed that effective October 10,

2003, Solid Mills would cease its operations due to serious business
losses.5 NAFLU recognized Solid Mills closure due to serious business losses
in the memorandum of agreement dated September 1, 2003.6 The
memorandum of agreement provided for Solid Mills grant of separation pay
less accountabilities, accrued sick leave benefits, vacation leave benefits,
and 13th month pay to the employees.7 Pertinent portions of the agreement
provide:chanRoblesvirtualLawlibrary

WHEREAS, the COMPANY has incurred substantial financial losses and is

currently experiencing further severe financial losses;chanrobleslaw
 Page 10 of 86

WHEREAS, in view of such irreversible financial losses, the COMPANY will

cease its operations on October 10, 2003;chanrobleslaw

WHEREAS, all employees of the COMPANY on account of irreversible

financial losses, will be dismissed from employment effective October 10,
2003;chanrobleslaw

In view thereof, the parties agree as follows:chanRoblesvirtualLawlibrary

1. That UNION acknowledges that the COMPANY is experiencing severe

financial losses and as a consequence of which, management is
constrained to cease the companys operations.

2. The UNION acknowledges that under Article 283 of the Labor Code,
separation pay is granted to employees who are dismissed due to
closures or cessation of operations NOT DUE to serious business
losses.

3. The UNION acknowledges that in view of the serious business losses

the Company has been experiencing as seen in their audited financial
statements, employees ARE NOT granted separation benefits under
the law.

4. The COMPANY, by way of goodwill and in the spirit of

generosity agrees to grant financial assistance less
accountabilities to members of the Union based on length of service
to be computed as follows: (Italics in this paragraph supplied)

Number of days - 12.625 for every year of service

5. In view of the above, the members of the UNION will receive such
financial assistance on an equal monthly installments basis based on
the following schedule:chanRoblesvirtualLawlibrary

First Check due on January 5, 2004 and every 5th of the month
thereafter until December 5, 2004.

6. The COMPANY commits to pay any accrued benefits the Union

members are entitled to, specifically those arising from sick and
vacation leave benefits and 13th month pay, less accountabilities
based on the following schedule:chanRoblesvirtualLawlibrary

One Time Cash Payment to be distributed anywhere from. . . .

 Page 11 of 86

....

7. The foregoing agreement is entered into with full knowledge by the

parties of their rights under the law and they hereby bind themselves
not to conduct any concerted action of whatsoever kind, otherwise the
grant of financial assistance as discussed above will be
withheld.8 (Emphasis in the original)

Solid Mills filed its Department of Labor and Employment termination report
on September 2, 2003.9chanroblesvirtuallawlibrary

Later, Solid Mills, through Alfredo Jingco, sent to petitioners individual

notices to vacate SMI Village.10chanroblesvirtuallawlibrary

Petitioners were no longer allowed to report for work by October 10,

2003.11 They were required to sign a memorandum of agreement with
release and quitclaim before their vacation and sick leave benefits, 13th
month pay, and separation pay would be released.12 Employees who signed
the memorandum of agreement were considered to have agreed to vacate
SMI Village, and to the demolition of the constructed houses inside as
condition for the release of their termination benefits and separation
pay.13 Petitioners refused to sign the documents and demanded to be paid
their benefits and separation pay.14chanroblesvirtuallawlibrary

Hence, petitioners filed complaints before the Labor Arbiter for alleged non-
payment of separation pay, accrued sick and vacation leaves, and 13th
month pay.15 They argued that their accrued benefits and separation pay
should not be withheld because their payment is based on company policy
and practice.16 Moreover, the 13th month pay is based on law, specifically,
Presidential Decree No. 851.17 Their possession of Solid Mills property is not
an accountability that is subject to clearance procedures.18 They had
already turned over to Solid Mills their uniforms and equipment when Solid
Mills ceased operations.19chanroblesvirtuallawlibrary

On the other hand, Solid Mills argued that petitioners complaint was
premature because they had not vacated its
property.20chanroblesvirtuallawlibrary

The Labor Arbiter ruled in favor of petitioners.21 According to the Labor

Arbiter, Solid Mills illegally withheld petitioners benefits and separation
pay.22 Petitioners right to the payment of their benefits and separation pay
was vested by law and contract.23 The memorandum of agreement dated
 Page 12 of 86

September 1, 2003 stated no condition to the effect that petitioners must

vacate Solid Mills property before their benefits could be given to
them.24 Petitioners possession should not be construed as petitioners
accountabilities that must be cleared first before the release of
benefits.25 Their possession is not by virtue of any employer-employee
relationship.26 It is a civil issue, which is outside the jurisdiction of the
Labor Arbiter.27chanroblesvirtuallawlibrary

The dispositive portion of the Labor Arbiters decision

reads:chanRoblesvirtualLawlibrary

WHEREFORE, premises considered, judgment is

entered ORDERING respondents SOLID MILLS, INC. and/or PHILIP
ANG (President), in solido to pay the remaining 21
complainants:chanRoblesvirtualLawlibrary

1) 19 of which, namely EMER MILAN, RAMON MASANGKAY, ALFREDO

JAVIER, RONALDO DAVID, BONIFACIO MATUNDAN, NORA MENDOZA,
MYRNA IGCAS, RAUL DE LAS ALAS, RENATO ESTOLANO, REX S. DIMAFELIX,
MAURA MILAN, JESSICA BAYBAYON, ALFREDO MENDOZA, ROBERTO IGCAS,
ISMAEL MATA, CARLITO DAMIAN, TEODORA MAHILOM, MARILOU LINGA,
RENATO LINGA their separation pay of 12.625 days pay per year of service,
pro-rated 13th month pay for 2003 and accrued vacation and sick leaves,
plus 12% interest p.a. from date of filing of the lead case/judicial demand on
12/08/03 until actual payment and/or finality;chanrobleslaw

2) the remaining 2 of which, complainants CLEOPATRA ZACARIAS, as she

already received on 12/19/03 her accrued 13th month pay for 2003, accrued
VL/SL total amount of P15,435.16, likewise, complainant Jerry L. Sesma as
he already received his accrued 13th month pay for 2003, SL/VL in the total
amount of P10,974.97, shall be paid only their separation pay of 12.625
days pay per year of service but also with 12% interest p.a. from date of
filing of the lead case/judicial demand on 12/08/03 until actual payment
and/or finality, which computation as of date, amount to as shown in the
attached computation sheet.

3) Nine (9) individual complaints viz., of Maria Agojo, Joey Suarez, Ronaldo
Vergara, Ronnie Vergara, Antonio R. Dulo, Sr., Bryan D. Durano, Silverio P.
Durano, Sr., Elizabeth Duarte and Purificacion Malabanan are DISMISSED
WITH PREJUDICE due to amicable settlement, whereas, that of [RONIE
ARANAS], [EMILITO NAVARRO], [NONILON PASCO], [GENOVEVA PASCO],
[OLIMPIO A. PASCO] are DISMISSED WITHOUT PREJUDICE, for lack of
interest and/or failure to prosecute.
 Page 13 of 86

The Computation and Examination unit is directed to cause the computation

of the award in Pars. 2 and 3 above.28 (Emphasis in the original)

Solid Mills appealed to the National Labor Relations Commission.29 It prayed

for, among others, the dismissal of the complaints against it and the reversal
of the Labor Arbiters decision.30chanroblesvirtuallawlibrary

The National Labor Relations Commission affirmed paragraph 3 of the Labor

Arbiters dispositive portion, but reversed paragraphs 1 and
2. Thus:chanRoblesvirtualLawlibrary

WHEREFORE, the Decision of Labor Arbiter Renaldo O. Hernandez dated

10/17/05 is AFFIRMED in so far as par. 3 thereof is concerned but modified
in that paragraphs 1 and 2 thereof are REVERSED and SET ASIDE.
Accordingly, the following complainants, namely: Emir Milan, Ramon
Masangkay, Alfredo Javier, Ronaldo David, Bonifacio Matundan, Nora
Mendoza, Myrna Igcas, Raul De Las Alas, Renato Estolano, Rex S.
Dimaf[e]lix, Maura Milan, Jessica Baybayon, Alfredo Mendoza, Roberto
Igcas, Cleopatra Zacarias and Jerry L. Sesmas monetary claims in the form
of separation pay, accrued 13th month pay for 2003, accrued vacation and
sick leave pays are held in abeyance pending compliance of their
accountabilities to respondent company by turning over the subject lots they
respectively occupy at SMI Village Sucat Muntinlupa City, Metro Manila to
herein respondent company.31

The National Labor Relations Commission noted that complainants Marilou

Linga, Renato Linga, Ismael Mata, and Carlito Damian were already paid
their respective separation pays and benefits.32 Meanwhile, Teodora
Mahilom already retired long before Solid Mills closure.33 She was already
given her retirement benefits.34chanroblesvirtuallawlibrary

The National Labor Relations Commission ruled that because of petitioners

failure to vacate Solid Mills property, Solid Mills was justified in withholding
their benefits and separation pay.35 Solid Mills granted the petitioners the
privilege to occupy its property on account of petitioners employment.36 It
had the prerogative to terminate such privilege.37 The termination of Solid
Mills and petitioners employer-employee relationship made it incumbent
upon petitioners to turn over the property to Solid
Mills. chanroblesvirtuallawlibrary
38

Petitioners filed a motion for partial reconsideration on October 18,

2010,39 but this was denied in the November 30, 2010
resolution. chanroblesvirtuallawlibrary
40
 Page 14 of 86

Petitioners, thus, filed a petition for certiorari41 before the Court of Appeals
to assail the National Labor Relations Commission decision of August 31,
2010 and resolution of November 30, 2010.42chanroblesvirtuallawlibrary

On January 31, 2012, the Court of Appeals issued a decision dismissing

petitioners petition,43thus:chanRoblesvirtualLawlibrary

WHEREFORE, the petition is hereby ordered DISMISSED.44

The Court of Appeals ruled that Solid Mills act of allowing its employees to
make temporary dwellings in its property was a liberality on its part. It may
be revoked any time at its discretion.45 As a consequence of Solid Mills
closure and the resulting termination of petitioners, the employer-employee
relationship between them ceased to exist. There was no more reason for
them to stay in Solid Mills property.46 Moreover, the memorandum of
agreement between Solid Mills and the union representing petitioners
provided that Solid Mills payment of employees benefits should be less
accountabilities.47chanroblesvirtuallawlibrary

On petitioners claim that there was no evidence that Teodora Mahilom

already received her retirement pay, the Court of Appeals ruled that her
complaint filed before the Labor Arbiter did not include a claim for retirement
pay. The issue was also raised for the first time on appeal, which is not
allowed.48 In any case, she already retired before Solid Mills ceased its
operations.49chanroblesvirtuallawlibrary

The Court of Appeals agreed with the National Labor Relations Commissions
deletion of interest since it found that Solid Mills act of withholding payment
of benefits and separation pay was proper. Petitioners terminal benefits and
pay were withheld because of petitioners failure to vacate Solid Mills
property.50chanroblesvirtuallawlibrary

Finally, the Court of Appeals noted that Carlito Damian already received his
separation pay and benefits.51 Hence, he should no longer be awarded these
claims.52chanroblesvirtuallawlibrary

In the resolution promulgated on July 16, 2012, the Court of Appeals denied
petitioners motion for reconsideration.53chanroblesvirtuallawlibrary

Petitioners raise in this petition the following

errors:chanRoblesvirtualLawlibrary

I
 Page 15 of 86

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT RULED THAT PAYMENT OF THE MONETARY
CLAIMS OF PETITIONERS SHOULD BE HELD IN ABEYANCE PENDING
COMPLIANCE OF THEIR ACCOUNTABILITIES TO RESPONDENT SOLID MILLS
BY TURNING OVER THE SUBJECT LOTS THEY RESPECTIVELY OCCUPY AT SMI
VILLAGE, SUCAT, MUNTINLUPA CITY.

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT UPHELD THE RULING OF THE NLRC DELETING
THE INTEREST OF 12% PER ANNUM IMPOSED BY THE HONORABLE LABOR
ARBITER HERNANDEZ ON THE AMOUNT DUE FROM THE DATE OF FILING OF
THE LEAD CASE/JUDICIAL DEMAND ON DECEMBER 8, 2003 UNTIL ACTUAL
PAYMENT AND/OR FINALITY.

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

REVERSIBLE ERROR WHEN IT UPHELD THE RULING OF THE NLRC DENYING
THE CLAIM OF TEODORA MAHILOM FOR PAYMENT OF RETIREMENT
BENEFITS DESPITE LACK OF ANY EVIDENCE THAT SHE RECEIVED THE
SAME.

IV

WHETHER OR NOT PETITIONER CARLITO DAMIAN IS ENTITLED TO HIS

MONETARY BENEFITS FROM RESPONDENT SOLID MILLS.54

Petitioners argue that respondent Solid Mills and NAFLUs memorandum of

agreement has no provision stating that benefits shall be paid only upon
return of the possession of respondent Solid Mills property.55 It only
provides that the benefits shall be less accountabilities, which should not
be interpreted to include such possession.56 The fact that majority of
NAFLUs members were not occupants of respondent Solid Mills property is
evidence that possession of the property was not contemplated in the
agreement.57 Accountabilities should be interpreted to refer only to
accountabilities that were incurred by petitioners while they were performing
their duties as employees at the worksite.58 Moreover, applicable laws,
company practice, or policies do not provide that 13th month pay, and sick
and vacation leave pay benefits, may be withheld pending satisfaction of
liabilities by the employee.59chanroblesvirtuallawlibrary
 Page 16 of 86

Petitioners also point out that the National Labor Relations Commission and
the Court of Appeals have no jurisdiction to declare that petitioners act of
withholding possession of respondent Solid Mills property is illegal.60 The
regular courts have jurisdiction over this issue.61 It is independent from the
issue of payment of petitioners monetary
benefits. chanroblesvirtuallawlibrary
62

For these reasons, and because, according to petitioners, the amount of

monetary award is no longer in question, petitioners are entitled to 12%
interest per annum.63chanroblesvirtuallawlibrary

Petitioners also argue that Teodora Mahilom and Carlito Damian are entitled
to their claims. They insist that Teodora Mahilom did not receive her
retirement benefits and that Carlito Damian did not receive his separation
benefits.64chanroblesvirtuallawlibrary

Respondents Solid Mills and Philip Ang, in their joint comment, argue that
petitioners failure to turn over respondent Solid Mills property constituted
an unsatisfied accountability for which reason petitioners benefits could
rightfully be withheld.65 The term accountability should be given its
natural and ordinary meaning.66 Thus, it should be interpreted as a state of
being liable or responsible, or obligation.67 Petitioners differentiation
between accountabilities incurred while performing jobs at the worksite and
accountabilities incurred outside the worksite is baseless because the
agreement with NAFLU merely stated accountabilities, without
qualification.68chanroblesvirtuallawlibrary

On the removal of the award of 12% interest per annum, respondents argue
that such removal was proper since respondent Solid Mills was justified in
withholding the monetary claims.69chanroblesvirtuallawlibrary

Respondents argue that Teodora Mahilom had no more cause of action for
retirement benefits claim.70 She had already retired more than a decade
before Solid Mills closure. She also already received her retirement benefits
in 1991.71 Teodora Mahiloms claim was also not included in the complaint
filed before the Labor Arbiter. It was improper to raise this claim for the first
time on appeal. In any case, Teodora Mahiloms claim was asserted long
after the three-year prescriptive period provided in Article 291 of the Labor
Code.72chanroblesvirtuallawlibrary

Lastly, according to respondents, it would be unjust if Carlito Damian would

be allowed to receive monetary benefits again, which he, admittedly, already
received from Solid Mills.73chanroblesvirtuallawlibrary
 Page 17 of 86

The National Labor Relations

Commission may preliminarily
determine issues related to rights
arising from an employer-employee
relationship

The National Labor Relations Commission has jurisdiction to determine,

preliminarily, the parties rights over a property, when it is necessary to
determine an issue related to rights or claims arising from an employer-
employee relationship.

Article 217 provides that the Labor Arbiter, in his or her original jurisdiction,
and the National Labor Relations Commission, in its appellate jurisdiction,
may determine issues involving claims arising from employer-employee
relations. Thus:chanRoblesvirtualLawlibrary

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION.

(1) Except as otherwise provided under this Code, the Labor Arbiters shall
have original and exclusive jurisdiction to hear and decide within thirty (30)
calendar days after the submission of the case by the parties for decision
without extension, even in the absence of stenographic notes, the following
cases involving workers, whether agricultural or non-
agricultural:chanRoblesvirtualLawlibrary

1. Unfair labor practice cases;

2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that
workers may file involving wages, rates of pay, hours of work and
other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages
arising from the employer-employee relations;
5. Cases arising from any violation of Article 264 of this Code, including
questions involving the legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare
and maternity benefits, all other claims, arising from employer-
employee relations including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos
(P5,000.00), regardless of whether accompanied with a claim for
reinstatement.
 Page 18 of 86

(2) The Commission shall have exclusive appellate jurisdiction over all cases
decided by Labor Arbiters. (Emphasis supplied)

Petitioners claim that they have the right to the immediate release of their
benefits as employees separated from respondent Solid Mills is a question
arising from the employer-employee relationship between the parties.

Claims arising from an employer-employee relationship are not limited to

claims by an employee. Employers may also have claims against the
employee, which arise from the same relationship.

In Baez v. Valdevilla,74 this court ruled that Article 217 of the Labor Code
also applies to employers claim for damages, which arises from or is
connected with the labor issue. Thus:chanRoblesvirtualLawlibrary

Whereas this Court in a number of occasions had applied the jurisdictional

provisions of Article 217 to claims for damages filed by employees, we hold
that by the designating clause arising from the employer-employee
relations Article 217 should apply with equal force to the claim of
an employer for actual damages against its dismissed employee, where the
basis for the claim arises from or is necessarily connected with the fact of
termination, and should be entered as a counterclaim in the illegal dismissal
case.75

Baez was cited in Domondon v. National Labor Relations

Commission. 76 One of the issues in Domondon is whether the Labor Arbiter
has jurisdiction to decide an issue on the transfer of ownership of a vehicle
assigned to the employee. It was argued that only regular courts have
jurisdiction to decide the issue.77chanroblesvirtuallawlibrary

This court ruled that since the transfer of ownership of the vehicle to the
employee was connected to his separation from the employer and arose
from the employer-employee relationship of the parties, the employers
claim fell within the Labor Arbiters jurisdiction.78chanroblesvirtuallawlibrary

As a general rule, therefore, a claim only needs to be sufficiently connected

to the labor issue raised and must arise from an employer-employee
relationship for the labor tribunals to have jurisdiction.

In this case, respondent Solid Mills claims that its properties are in
petitioners possession by virtue of their status as its
employees. Respondent Solid Mills allowed petitioners to use its property as
an act of liberality. Put in other words, it would not have allowed petitioners
to use its property had they not been its employees. The return of its
 Page 19 of 86

properties in petitioners possession by virtue of their status as employees is

an issue that must be resolved to determine whether benefits can be
released immediately. The issue raised by the employer is, therefore,
connected to petitioners claim for benefits and is sufficiently intertwined
with the parties employer-employee relationship. Thus, it is properly within
the labor tribunals jurisdiction.

II

Institution of clearance procedures

has legal bases

Requiring clearance before the release of last payments to the employee is a

standard procedure among employers, whether public or private. Clearance
procedures are instituted to ensure that the properties, real or personal,
belonging to the employer but are in the possession of the separated
employee, are returned to the employer before the employees departure.

As a general rule, employers are prohibited from withholding wages from

employees. The Labor Code provides:chanRoblesvirtualLawlibrary

Art. 116. Withholding of wages and kickbacks prohibited. It shall be

unlawful for any person, directly or indirectly, to withhold any amount from
the wages of a worker or induce him to give up any part of his wages by
force, stealth, intimidation, threat or by any other means whatsoever
without the workers consent.

The Labor Code also prohibits the elimination or diminution of benefits.

Thus:chanRoblesvirtualLawlibrary

Art. 100. Prohibition against elimination or diminution of benefits.

Nothing in this Book shall be construed to eliminate or in any way diminish
supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.

However, our law supports the employers institution of clearance

procedures before the release of wages. As an exception to the general rule
that wages may not be withheld and benefits may not be diminished, the
Labor Code provides:chanRoblesvirtualLawlibrary

Art. 113. Wage deduction. No employer, in his own behalf or in behalf of

any person, shall make any deduction from the wages of his employees,
except:chanRoblesvirtualLawlibrary

1. In cases where the worker is insured with his consent by the employer,
 Page 20 of 86

and the deduction is to recompense the employer for the amount paid by
him as premium on the insurance;chanrobleslaw

2. For union dues, in cases where the right of the worker or his union to
check-off has been recognized by the employer or authorized in writing by
the individual worker concerned; and

3. In cases where the employer is authorized by law or regulations issued by

the Secretary of Labor and Employment. (Emphasis supplied)

The Civil Code provides that the employer is authorized to withhold wages
for debts due:chanRoblesvirtualLawlibrary

Article 1706. Withholding of the wages, except for a debt due, shall not be
made by the employer.cralawred

Debt in this case refers to any obligation due from the employee to the
employer. It includes any accountability that the employee may have to the
employer. There is no reason to limit its scope to uniforms and equipment,
as petitioners would argue.

More importantly, respondent Solid Mills and NAFLU, the union representing
petitioners, agreed that the release of petitioners benefits shall be less
accountabilities.

Accountability, in its ordinary sense, means obligation or debt. The

ordinary meaning of the term accountability does not limit the definition of
accountability to those incurred in the worksite. As long as the debt or
obligation was incurred by virtue of the employer-employee relationship,
generally, it shall be included in the employees accountabilities that are
subject to clearance procedures.

It may be true that not all employees enjoyed the privilege of staying in
respondent Solid Mills property. However, this alone does not imply that
this privilege when enjoyed was not a result of the employer-employee
relationship. Those who did avail of the privilege were employees of
respondent Solid Mills. Petitioners possession should, therefore, be included
in the term accountability.

Accountabilities of employees are personal. They need not be uniform

among all employees in order to be included in accountabilities incurred by
virtue of an employer-employee relationship.

Petitioners do not categorically deny respondent Solid Mills ownership of the

 Page 21 of 86

property, and they do not claim superior right to it. What can be gathered
from the findings of the Labor Arbiter, National Labor Relations Commission,
and the Court of Appeals is that respondent Solid Mills allowed the use of its
property for the benefit of petitioners as its employees. Petitioners were
merely allowed to possess and use it out of respondent Solid Mills
liberality. The employer may, therefore, demand the property at
will.79chanroblesvirtuallawlibrary

The return of the propertys possession became an obligation or liability on

the part of the employees when the employer-employee relationship
ceased. Thus, respondent Solid Mills has the right to withhold petitioners
wages and benefits because of this existing debt or liability. In Solas v.
Power and Telephone Supply Phils., Inc., et al., this court recognized this
right of the employer when it ruled that the employee in that case was not
constructively dismissed.80 Thus:chanRoblesvirtualLawlibrary

There was valid reason for respondents withholding of petitioners salary for
the month of February 2000. Petitioner does not deny that he is indebted to
his employer in the amount of around P95,000.00. Respondents explained
that petitioners salary for the period of February 1-15, 2000 was applied as
partial payment for his debt and for withholding taxes on his income; while
for the period of February 15-28, 2000, petitioner was already on absence
without leave, hence, was not entitled to any pay.81

The law does not sanction a situation where employees who do not even
assert any claim over the employers property are allowed to take all the
benefits out of their employment while they simultaneously withhold
possession of their employers property for no rightful reason.

Withholding of payment by the employer does not mean that the employer
may renege on its obligation to pay employees their wages, termination
payments, and due benefits. The employees benefits are also not being
reduced. It is only subjected to the condition that the employees return
properties properly belonging to the employer. This is only consistent with
the equitable principle that no one shall be unjustly enriched or benefited at
the expense of another.82chanroblesvirtuallawlibrary

For these reasons, we cannot hold that petitioners are entitled to interest of
their withheld separation benefits. These benefits were properly withheld by
respondent Solid Mills because of their refusal to return its property.

III
 Page 22 of 86

Mahilom and Damian are not

entitled to the benefits claimed

Teodora Mahilom is not entitled to separation benefits.

Both the National Labor Relations Commission and the Court of Appeals
found that Teodora Mahilom already retired long before respondent Solid
Mills closure. They found that she already received her retirement benefits.
We have no reason to disturb this finding. This court is not a trier of
facts. Findings of the National Labor Relations Commission, especially when
affirmed by the Court of Appeals, are binding upon this
court. chanroblesvirtuallawlibrary
83

Moreover, Teodora Mahiloms claim for retirement benefits was not included
in her complaint filed before the Labor Arbiter. Hence, it may not be raised
in the appeal.

Similarly, the National Labor Relations Commission and the Court of Appeals
found that Carlito Damian already received his terminal benefits. Hence, he
may no longer claim terminal benefits.

The fact that respondent Solid Mills has not yet demolished Carlito Damians
house in SMI Village is not evidence that he did not receive his
benefits. Both the National Labor Relations Commission and the Court of
Appeals found that he executed an affidavit stating that he already received
the benefits.

Absent any showing that the National Labor Relations Commission and the
Court of Appeals misconstrued these facts, we will not reverse these
findings.

Our laws provide for a clear preference for labor. This is in recognition of
the asymmetrical power of those with capital when they are left to negotiate
with their workers without the standards and protection of law. In cases
such as these, the collective bargaining unit of workers are able to get more
benefits and in exchange, the owners are able to continue with the program
of cutting their losses or wind down their operations due to serious business
losses. The company in this case did all that was required by law.

The preferential treatment given by our law to labor, however, is not a

license for abuse.84 It is not a signal to commit acts of unfairness that will
unreasonably infringe on the property rights of the company. Both labor and
employer have social utility, and the law is not so biased that it does not find
a middle ground to give each their due.
 Page 23 of 86

Clearly, in this case, it is for the workers to return their housing in exchange
for the release of their benefits. This is what they agreed upon. It is what is
fair in the premises.

WHEREFORE, the petition is DENIED. The Court of Appeals decision

is AFFIRMED.

Sevilla Trading vs Semana 428 S 239, 2004

[G.R. No. 152456. April 28, 2004]

SEVILLA TRADING COMPANY, petitioner, vs. A.V.A. TOMAS E.

SEMANA, SEVILLA TRADING WORKERS
UNIONSUPER, respondents.

DECISION
PUNO, J.:

On appeal is the Decision[1] of the Court of Appeals in CA-G.R. SP No.

63086 dated 27 November 2001 sustaining the Decision[2] of Accredited
Voluntary Arbitrator Tomas E. Semana dated 13 November 2000, as well as
its subsequent Resolution[3] dated 06 March 2002 denying petitioners Motion
for Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla Trading Company
(Sevilla Trading, for short), a domestic corporation engaged in trading
business, organized and existing under Philippine laws, added to the base
figure, in its computation of the 13th-month pay of its employees, the
amount of other benefits received by the employees which are beyond the
basic pay. These benefits included:

(a) Overtime premium for regular overtime, legal and special holidays;

(b) Legal holiday pay, premium pay for special holidays;

(c) Night premium;

 Page 24 of 86

(d) Bereavement leave pay;

(e) Union leave pay;

(f) Maternity leave pay;

(g) Paternity leave pay;

(h) Company vacation and sick leave pay; and

(i) Cash conversion of unused company vacation and sick leave.

Petitioner claimed that it entrusted the preparation of the payroll to its

office staff, including the computation and payment of the 13 th-month pay
and other benefits. When it changed its person in charge of the payroll in the
process of computerizing its payroll, and after audit was conducted, it
allegedly discovered the error of including non-basic pay or other benefits in
the base figure used in the computation of the 13th-month pay of its
employees. It cited the Rules and Regulations Implementing P.D. No. 851
(13th-Month Pay Law), effective December 22, 1975, Sec. 2(b) which stated
that:

Basic salary shall include all remunerations or earnings paid by an employer

to an employee for services rendered but may not include cost-of-living
allowances granted pursuant to P.D. No. 525 or Letter of Instruction No.
174, profit-sharing payments, and all allowances and monetary benefits
which are not considered or integrated as part of the regular or basic salary
of the employee at the time of the promulgation of the Decree on December
16, 1975.

Petitioner then effected a change in the computation of the thirteenth

month pay, as follows:

13th-month pay = net basic pay

12 months

where:

net basic pay = gross pay (non-basic pay or other benefits)

Now excluded from the base figure used in the computation of the thirteenth
month pay are the following:

a) Overtime premium for regular overtime, legal and special holidays;

 Page 25 of 86

b) Legal holiday pay, premium pay for special holidays;

c) Night premium;

d) Bereavement leave pay;

e) Union leave pay;

f) Maternity leave pay;

g) Paternity leave pay;

h) Company vacation and sick leave pay; and

i) Cash conversion of unused vacation/sick leave.

Hence, the new computation reduced the employees thirteenth month

pay. The daily piece-rate workers represented by private respondent Sevilla
Trading Workers Union SUPER (Union, for short), a duly organized and
registered union, through the Grievance Machinery in their Collective
Bargaining Agreement, contested the new computation and reduction of
their thirteenth month pay. The parties failed to resolve the issue.
On March 24, 2000, the parties submitted the issue of whether or not the
exclusion of leaves and other related benefits in the computation of 13th-
month pay is valid to respondent Accredited Voluntary Arbitrator Tomas E.
Semana (A.V.A. Semana, for short) of the National Conciliation and
Mediation Board, for consideration and resolution.
The Union alleged that petitioner violated the rule prohibiting the
elimination or diminution of employees benefits as provided for in Art. 100 of
the Labor Code, as amended. They claimed that paid leaves, like sick leave,
vacation leave, paternity leave, union leave, bereavement leave, holiday pay
and other leaves with pay in the CBA should be included in the base figure in
the computation of their 13th-month pay.
On the other hand, petitioner insisted that the computation of the 13 th-
month pay is based on basic salary, excluding benefits such as leaves with
pay, as per P.D. No. 851, as amended. It maintained that, in adjusting its
computation of the 13th-month pay, it merely rectified the mistake its
personnel committed in the previous years.
A.V.A. Semana decided in favor of the Union. The dispositive portion of
his Decision reads as follows:
 Page 26 of 86

WHEREFORE, premises considered, this Voluntary Arbitrator hereby declared

that:

1. The company is hereby ordered to include sick leave and vacation leave,
paternity leave, union leave, bereavement leave and other leave with pay in
the CBA, premium for work done on rest days and special holidays, and pay
for regular holidays in the computation of the 13th-month pay to all covered
and entitled employees;

2. The company is hereby ordered to pay corresponding backwages to all

covered and entitled employees arising from the exclusion of said benefits in
the computation of 13th-month pay for the year 1999.

Petitioner received a copy of the Decision of the Arbitrator on December

20, 2000. It filed before the Court of Appeals, a Manifestation and Motion for
Time to File Petition for Certiorari on January 19, 2001. A month later,
on February 19, 2001, it filed its Petition for Certiorari under Rule 65 of the
1997 Rules of Civil Procedure for the nullification of the Decision of the
Arbitrator. In addition to its earlier allegations, petitioner claimed that
assuming the old computation will be upheld, the reversal to the old
computation can only be made to the extent of including non-basic benefits
actually included by petitioner in the base figure in the computation of their
13th-month pay in the prior years. It must exclude those non-basic benefits
which, in the first place, were not included in the original computation. The
appellate court denied due course to, and dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the grounds of
its appeal, as follows:
1. THE DECISION OF THE RESPONDENT COURT TO REVERT TO THE
OLD COMPUTATION OF THE 13TH-MONTH PAY ON THE BASIS THAT
THE OLD COMPUTATION HAD RIPENED INTO PRACTICE IS
WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS TO CORRECT
ERRORS IN COMPUTATION WHICH WILL CAUSE GRAVE AND
IRREPARABLE DAMAGE TO EMPLOYERS.[4]
First, we uphold the Court of Appeals in ruling that the proper remedy
from the adverse decision of the arbitrator is a petition for review under Rule
43 of the 1997 Rules of Civil Procedure, not a petition for certiorari under
Rule 65. Section 1 of Rule 43 states:

RULE 43

Appeals from the Court of Tax Appeals and

 Page 27 of 86

Quasi-Judicial Agencies to the Court of Appeals

SECTION 1. Scope. This Rule shall apply to appeals from judgments or final
orders of the Court of Tax Appeals and from awards, judgments, final orders
or resolutions of or authorized by any quasi-judicial agency in the exercise of
its quasi-judicial functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities and Exchange
Commission, Office of the President, Land Registration Authority, Social
Security Commission, Civil Aeronautics Board, Bureau of Patents,
Trademarks and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission,
Department of Agrarian Reform under Republic Act No. 6657, Government
Service Insurance System, Employees Compensation Commission,
Agricultural Inventions Board, Insurance Commission, Philippine Atomic
Energy Commission, Board of Investments, Construction Industry Arbitration
Commission, and voluntary arbitrators authorized by law. [Emphasis
supplied.]

It is elementary that the special civil action of certiorari under Rule 65 is

not, and cannot be a substitute for an appeal, where the latter remedy is
available, as it was in this case. Petitioner Sevilla Trading failed to file an
appeal within the fifteen-day reglementary period from its notice of the
adverse decision of A.V.A. Semana. It received a copy of the decision of
A.V.A. Semana on December 20, 2000, and should have filed its appeal
under Rule 43 of the 1997 Rules of Civil Procedure on or before January 4,
2001. Instead, petitioner filed on January 19, 2001 a Manifestation and
Motion for Time to File Petition for Certiorari, and on February 19, 2001, it
filed a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure. Clearly, petitioner Sevilla Trading had a remedy of appeal but
failed to use it.
A special civil action under Rule 65 of the Rules of Court will not be a
cure for failure to timely file a petition for review on certiorari under Rule 45
(Rule 43, in the case at bar) of the Rules of Court. Rule 65 is an independent
action that cannot be availed of as a substitute for the lost remedy of an
ordinary appeal, including that under Rule 45 (Rule 43, in the case at bar),
especially if such loss or lapse was occasioned by ones own neglect or error
in the choice of remedies.[5]
Thus, the decision of A.V.A. Semana had become final and executory
when petitioner Sevilla Trading filed its petition for certiorari on February 19,
2001. More particularly, the decision of A.V.A. Semana became final and
executory upon the lapse of the fifteen-day reglementary period to appeal,
or on January 5, 2001. Hence, the Court of Appeals is correct in holding that
 Page 28 of 86

it no longer had appellate jurisdiction to alter, or much less, nullify the

decision of A.V.A. Semana.
Even assuming that the present petition for certiorari under Rule 65 of
the 1997 Rules of Civil Procedure is a proper action, we still find no grave
abuse of discretion amounting to lack or excess of jurisdiction committed by
A.V.A. Semana. Grave abuse of discretion has been interpreted to mean
such capricious and whimsical exercise of judgment as is equivalent to lack
of jurisdiction, or, in other words where the power is exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, and
it must be so patent and gross as to amount to an evasion of positive duty
or to a virtual refusal to perform the duty enjoined or to act at all in
contemplation of law.[6] We find nothing of that sort in the case at bar.
On the contrary, we find the decision of A.V.A. Semana to be sound,
valid, and in accord with law and jurisprudence. A.V.A. Semana is correct in
holding that petitioners stance of mistake or error in the computation of the
thirteenth month pay is unmeritorious.Petitioners submission of financial
statements every year requires the services of a certified public accountant
to audit its finances. It is quite impossible to suggest that they have
discovered the alleged error in the payroll only in 1999. This implies that in
previous years it does not know its cost of labor and operations. This is
merely basic cost accounting. Also, petitioner failed to adduce any other
relevant evidence to support its contention. Aside from its bare claim of
mistake or error in the computation of the thirteenth month pay, petitioner
merely appended to its petition a copy of the 1997-2002 Collective
Bargaining Agreement and an alleged corrected computation of the
thirteenth month pay. There was no explanation whatsoever why its
inclusion of non-basic benefits in the base figure in the computation of their
13th-month pay in the prior years was made by mistake, despite the clarity
of statute and jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay Cable
and Radio Corp. vs. NLRC,[7] which petitioner Sevilla Trading invokes. In
that case, this Court decided on the proper computation of the cost-of-living
allowance (COLA) for monthly-paid employees. Petitioner Corporation,
pursuant to Wage Order No. 6 (effective 30 October 1984), increased the
COLA of its monthly-paid employees by multiplying the P3.00 daily COLA by
22 days, which is the number of working days in the
company. The Uniondisagreed with the computation, claiming that the daily
COLA rate of P3.00 should be multiplied by 30 days, which has been the
practice of the company for several years. We upheld the contention of the
petitioner corporation. To answer the Unions contention of company
practice, we ruled that:
 Page 29 of 86

Payment in full by Petitioner Corporation of the COLA before the execution of

the CBA in 1982 and in compliance with Wage Orders Nos. 1 (26 March
1981) to 5 (11 June 1984), should not be construed as constitutive of
voluntary employer practice, which cannot now be unilaterally withdrawn by
petitioner. To be considered as such, it should have been practiced over a
long period of time, and must be shown to have been consistent and
deliberate . . . The test of long practice has been enunciated thus:

. . . Respondent Company agreed to continue giving holiday pay knowing

fully well that said employees are not covered by the law requiring payment
of holiday pay. (Oceanic Pharmacal Employees Union [FFW] vs. Inciong, 94
SCRA 270 [1979])

Moreover, before Wage Order No. 4, there was lack of administrative

guidelines for the implementation of the Wage Orders. It was only when the
Rules Implementing Wage Order No. 4 were issued on 21 May 1984 that a
formula for the conversion of the daily allowance to its monthly equivalent
was laid down.

Absent clear administrative guidelines, Petitioner Corporation cannot be

faulted for erroneous application of the law . . .

In the above quoted case, the grant by the employer of benefits through
an erroneous application of the law due to absence of clear administrative
guidelines is not considered a voluntary act which cannot be unilaterally
discontinued. Such is not the case now. In the case at bar, the Court of
Appeals is correct when it pointed out that as early as 1981, this Court has
held in San Miguel Corporation vs. Inciong[8] that:

Under Presidential Decree 851 and its implementing rules, the basic salary of
an employee is used as the basis in the determination of his 13 th-month
pay. Any compensations or remunerations which are deemed not part of the
basic pay is excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations Implementing Presidential Decree 851, the
following compensations are deemed not part of the basic salary:

a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and

Letter of Instruction No. 174;

b) Profit sharing payments;

 Page 30 of 86

c) All allowances and monetary benefits which are not considered or

integrated as part of the regular basic salary of the employee at the time of
the promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations Implementing

Presidential Decree 851 issued by the then Labor Secretary Blas
Ople, overtime pay, earnings and other remunerations are excluded as part
of the basic salary and in the computation of the 13th-month pay.

The exclusion of cost-of-living allowances under Presidential Decree 525 and

Letter of Instruction No. 174 and profit sharing payments indicate the
intention to strip basic salary of other payments which are properly
considered as fringe benefits. Likewise, the catch-all exclusionary phrase all
allowances and monetary benefits which are not considered or integrated as
part of the basic salary shows also the intention to strip basic salary of any
and all additions which may be in the form of allowances or fringe benefits.

Moreover, the Supplementary Rules and Regulations Implementing

Presidential Decree 851 is even more empathic in declaring that earnings
and other remunerations which are not part of the basic salary shall not be
included in the computation of the 13th-month pay.

While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which defines basic salary to
include all remunerations or earnings paid by an employer to an employee,
this cloud is dissipated in the later and more controlling Supplementary
Rules and Regulations which categorically, exclude from the definition of
basic salary earnings and other remunerations paid by employer to an
employee. A cursory perusal of the two sets of Rules indicates that what has
hitherto been the subject of a broad inclusion is now a subject of broad
exclusion. The Supplementary Rules and Regulations cure the seeming
tendency of the former rules to include all remunerations and earnings
within the definition of basic salary.

The all-embracing phrase earnings and other remunerations which are

deemed not part of the basic salary includes within its meaning payments for
sick, vacation, or maternity leaves, premium for works performed on rest
days and special holidays, pay for regular holidays and night differentials. As
such they are deemed not part of the basic salary and shall not be
considered in the computation of the 13th-month pay. If they were not so
excluded, it is hard to find any earnings and other remunerations expressly
excluded in the computation of the 13th-month pay. Then the exclusionary
provision would prove to be idle and with no purpose.
 Page 31 of 86

In the light of the clear ruling of this Court, there is, thus no reason for
any mistake in the construction or application of the law. When petitioner
Sevilla Trading still included over the years non-basic benefits of its
employees, such as maternity leave pay, cash equivalent of unused vacation
and sick leave, among others in the computation of the 13th-month pay, this
may only be construed as a voluntary act on its part. Putting the blame on
the petitioners payroll personnel is inexcusable.
In Davao Fruits Corporation vs. Associated Labor Unions, we
likewise held that:[9]

The Supplementary Rules and Regulations Implementing P.D. No. 851 which
put to rest all doubts in the computation of the thirteenth month pay, was
issued by the Secretary of Labor as early as January 16, 1976, barely one
month after the effectivity of P.D. No. 851 and its Implementing Rules. And
yet, petitioner computed and paid the thirteenth month pay, without
excluding the subject items therein until 1981. Petitioner continued its
practice in December 1981, after promulgation of the aforequoted San
Miguel decision on February 24, 1981, when petitioner purportedly
discovered its mistake.

From 1975 to 1981, petitioner had freely, voluntarily and continuously

included in the computation of its employees thirteenth month pay, without
the payments for sick, vacation and maternity leave, premium for work done
on rest days and special holidays, and pay for regular holidays. The
considerable length of time the questioned items had been included by
petitioner indicates a unilateral and voluntary act on its part, sufficient in
itself to negate any claim of mistake.

A company practice favorable to the employees had indeed been established

and the payments made pursuant thereto, ripened into benefits enjoyed by
them. And any benefit and supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or eliminated by the employer,
by virtue of Sec. 10 of the Rules and Regulations Implementing P.D. No.
851, and Art. 100 of the Labor Code of the Philippines which prohibit the
diminution or elimination by the employer of the employees existing
benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]

With regard to the length of time the company practice should have been
exercised to constitute voluntary employer practice which cannot be
unilaterally withdrawn by the employer, we hold that jurisprudence has not
laid down any rule requiring a specific minimum number of years. In the
above quoted case of Davao Fruits Corporation vs. Associated Labor
Unions,[10] the company practice lasted for six (6) years. In another
case, Davao Integrated Port Stevedoring Services vs.
 Page 32 of 86

Abarquez,[11] the employer, for three (3) years and nine (9) months,
approved the commutation to cash of the unenjoyed portion of the sick leave
with pay benefits of its intermittent workers. While in Tiangco vs.
Leogardo, Jr.,[12] the employer carried on the practice of giving a fixed
monthly emergency allowance from November 1976 to February 1980, or
three (3) years and four (4) months. In all these cases, this Court held that
the grant of these benefits has ripened into company practice or policy which
cannot be peremptorily withdrawn. In the case at bar, petitioner Sevilla
Trading kept the practice of including non-basic benefits such as paid leaves
for unused sick leave and vacation leave in the computation of their 13 th-
month pay for at least two (2) years. This, we rule likewise constitutes
voluntary employer practice which cannot be unilaterally withdrawn by the
employer without violating Art. 100 of the Labor Code:

Art. 100. Prohibition against elimination or diminution of benefits. Nothing in

this Book shall be construed to eliminate or in any way diminish
supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.

IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court

of Appeals in CA-G.R. SP No. 63086 dated 27 November 2001 and its
Resolution dated 06 March 2002 are hereby AFFIRMED.
SO ORDERED.

Davao Fuits vs ALU 225 S 562

G.R. No. 85073 August 24, 1993

DAVAO FRUITS CORPORATION, petitioner,

vs.
ASSOCIATED LABOR UNIONS (ALU) for in behalf of all the rank-and-
file workers/employees of DAVAO FRUITS CORPORATION and
NATIONAL LABOR RELATIONS COMMISSION, respondents.

Dominguez & Paderna Law Offices for petitioners.

The Solicitor General for public respondents.

QUIASON, J.:
 Page 33 of 86

This is a petition for certiorari to set aside the resolution of the National
Labor Relations Commission (NLRC), dismissing for lack of merit petitioner's
appeal from the decision of the Labor Arbiter in NLRC Case No. 1791-MC-X1-
82.

On December 28, 1982 respondent Associated Labor Unions (ALU), for and
in behalf of all the rank-and-file workers and employees of petitioner, filed a
complaint (NLRC Case No. 1791-MC-XI-82) before the Ministry of Labor and
Employment, Regional Arbitration Branch XI, Davao City, against petitioner,
for "Payment of the Thirteenth-Month Pay Differentials." Respondent ALU
sought to recover from petitioner the thirteenth month pay differential for
1982 of its rank-and-file employees, equivalent to their sick, vacation and
maternity leaves, premium for work done on rest days and special holidays,
and pay for regular holidays which petitioner, allegedly in disregard of
company practice since 1975, excluded from the computation of the
thirteenth month pay for 1982.

In its answer, petitioner claimed that it erroneously included items subject of

the complaint in the computation of the thirteenth month pay for the years
prior to 1982, upon a doubtful and difficult question of law. According to
petitioner, this mistake was discovered only in 1981 after the promulgation
of the Supreme Court decision in the case of San Miguel Corporation v.
Inciong (103 SCRA 139).

A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos,

in favor of respondent ALU. The dispositive portion of the decision reads as
follows:

WHEREFORE, in view of all the foregoing considerations,

judgment is hereby rendered ordering respondent to pay the
1982 13th month pay differential to all its rank-and-file
workers/employees herein represented by complainant Union
(Rollo, p. 32).

Petitioner appealed the decision of the Labor Arbiter to the NLRC, which
affirmed the said decision accordingly dismissed the appeal for lack of merit.

Petitioner elevated the matter to this Court in a petition for review under
Rule 45 of the Revised Rules of Court. This error notwithstanding and in the
interest of justice, this Court resolved to treat the instant petition as a
special civil action for certiorari under Rule 65 of the Revised Rules of Court
(P.D. No. 1391, Sec. 5; Rules Implementing P.D. No. 1391, Rule II, Sec. 7;
Cando v. National Labor Relations Commission, 189 SCRA 666 [1990]: Pearl
 Page 34 of 86

S. Buck Foundation, Inc. v. National Labor Relations Commission, 182 SCRA

446 [1990]).

The crux of the present controversy is whether in the computation of the

thirteenth month pay given by employers to their employees under P.D.
No. 851, payments for sick, vacation and maternity leaves, premiums for
work done on rest days and special holidays, and pay for regular holidays
may be excluded in the computation and payment thereof, regardless of
long-standing company practice.

Presidential Decree No. 851, promulgated on December 16, 1975, mandates

all employers to pay their employees a thirteenth month pay. How this pay
shall be computed is set forth in Section 2 of the "Rules and Regulations
Implementing Presidential Decree No. 851," thus:

SECTION 2. . . .

(a) "Thirteenth month pay" shall mean one twelfth (1/12) of the
basic salary of an employee within a calendar year.

(b) "Basic Salary" shall include all renumerations or earnings

paid by an employer to an employee for services rendered but
may not include cost of living allowances granted pursuant to
Presidential Decree No. 525 or Letter of Instructions No. 174,
profit-sharing payments, and all allowances and monetary
benefits which are not considered or integrated as part of the
regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.

The Department of Labor and Employment issued on January 16, 1976 the
"Supplementary Rules and Regulations Implementing P.D. No. 851" which in
paragraph 4 thereof further defines the term "basic salary," thus:

4. Overtime pay, earnings and other renumerations which are

not part of the basic salary shall not be included in the
computation of the 13th month pay.

Clearly, the term "basic salary" includes renumerations or earnings paid by

the employer to employee, but excludes cost-of-living allowances, profit-
sharing payments, and all allowances and monetary benefits which have not
been considered as part of the basic salary of the employee as of December
16, 1975. The exclusion of cost-of-living allowances and profit sharing
payments shows the intention to strip "basic salary" of payments which are
otherwise considered as "fringe" benefits. This intention is emphasized in the
 Page 35 of 86

catch all phrase "all allowances and monetary benefits which are not
considered or integrated as part of the basic salary." Basic salary, therefore
does not merely exclude the benefits expressly mentioned but all payments
which may be in the form of "fringe" benefits or allowances (San Miguel
Corporation v. Inciong, supra, at 143-144). In fact, the Supplementary Rules
and Regulations Implementing P.D. No. 851 are very emphatic in declaring
that overtime pay, earnings and other renumerations shall be excluded in
computing the thirteenth month pay.

In other words, whatever compensation an employee receives for an eight-

hour work daily or the daily wage rate in the basic salary. Any compensation
or remuneration other than the daily wage rate is excluded. It follows
therefore, that payments for sick, vacation and maternity leaves, premium
for work done on rest days special holidays, as well as pay for regular
holidays, are likewise excluded in computing the basic salary for the purpose
of determining the thirteen month pay.

Petitioner claims that the mistake in the interpretation of "basic salary" was
caused by the opinions, orders and rulings rendered by then Acting Labor
Secretary Amado C. Inciong, expressly including the subject items in
computing the thirteenth month pay. The inclusion of these items is clearly
not sanctioned under P.D. No. 851, the governing law and its implementing
rules, which speak only of "basis salary" as the basis for determining the
thirteenth month pay.

Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was
erased by the Supplementary Rules and Regulations which clarified the
definition of "basic salary."

As pointed out in San Miguel Corporation v. Inciong, (supra):

While doubt may have been created by the prior Rules and
Regulations and Implementing Presidential Decree 851 which
defines basic salary to include all remunerations or earnings paid
by an employer to an employee, this cloud is dissipated in the
later and more controlling Supplementary Rules and Regulations
which categorically, exclude from the definition of basic salary
earnings and other remunerations paid by employer to an
employee. A cursory perusal of the two sets of Rules indicates
that what has hitherto been the subject of broad inclusion is now
a subject of broad exclusion. The Supplementary Rules and
Regulations cure the seeming tendency of the former rules to
include all remunerations and earnings within the definition of
basic salary.
 Page 36 of 86

The all-embracing phrase "earnings and other remunerations

which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves,
premium for work performed on rest days and special holidays,
pay for regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be considered
in the computation of the 13th-month pay. If they were not so
excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in computation of the 13th
month-pay. Then the exclusionary provision would prove to be
idle and with purpose.

The "Supplementary Rules and Regulations Implementing P.D. No. 851,"

which put to rest all doubts in the computation of the thirteenth month pay,
was issued by the Secretary of Labor as early as January 16, 1976, barely
one month after the effectivity of P.D. No. 851 and its Implementing Rules.
And yet, petitioner computed and paid the thirteenth month pay, without
excluding the subject items therein until 1981. Petitioner continued its
practice in December 1981, after promulgation of the afore-quoted San
Miguel decision on February 24, 1981, when petitioner purportedly
"discovered" its mistake.

From 1975 to 1981, petitioner had freely, voluntarily and continuously

included in the computation of its employees' thirteenth month pay, the
payments for sick, vacation and maternity leaves, premiums for work done
on rest days and special holidays, and pay for regular holidays. The
considerable length of time the questioned items had been included by
petitioner indicates a unilateral and voluntary act on its part, sufficient in
itself to negate any claim of mistake.

A company practice favorable to the employees had indeed been established

and the payments made pursuant thereto, ripened into benefits enjoyed by
them. And any benefit and supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or eliminated by the employer,
by virtue of Section 10 of the Rules and Regulations Implementing P.D. No.
851, and Article 100 of the labor of the Philippines, which prohibit the
diminution or elimination by the employer of the employees' existing
benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).

Petitioner cannot invoke the principle of solutio indebiti which as a civil law
concept that is not applicable in Labor Law. Besides, in solutio indebiti, the
obligee is required to return to the obligor whatever he received from the
latter (Civil Code of the Philippines, Arts. 2154 and 2155). Petitioner in the
instant case, does not demand the return of what it paid respondent ALU
 Page 37 of 86

from 1975 until 1981; it merely wants to "rectify" the error it made over
these years by excluding unilaterally from the thirteenth month pay in 1982
the items subject of litigation. Solutio indebiti, therefore, is not applicable to
the instant case.

WHEREFORE, finding no grave abuse of discretion on the part of the NLRC,

the petition is hereby DISMISSED, and the questioned decision of
respondent NLRC is AFFIRMED accordingly.

Cruz, Grio-Aquino, Davide, Jr. and Bellosillo, JJ., concur.

DIPS vs Abarquez 220 S 197

G.R. No. 102132. March 19, 1993.

DAVAO INTEGRATED PORT STEVEDORING SERVICES, petitioner, vs. RUBEN

V. ABARQUEZ, in his capacity as an accredited Voluntary Arbitrator and THE
ASSOCIATION OF TRADE UNIONS (ATU-TUCP), respondents.

Libron, Gaspar & Associates for petitioner.

Bansalan B. Metilla for Association of Trade Unions (ATUTUCP).

SYLLABUS

1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR RELATIONS;

COLLECTIVE BARGAINING AGREEMENT; DEFINED; NATURE THEREOF;
CONSTRUCTION TO BE PLACED THEREON. A collective bargaining
agreement (CBA), as used in Article 252 of the Labor Code, refers to a
contract executed upon request of either the employer or the exclusive
bargaining representative incorporating the agreement reached after
negotiations with respect to wages, hours of work and all other terms and
conditions of employment, including proposals for adjusting any grievances
or questions arising under such agreement. While the terms and conditions
of a CBA constitute the law between the parties, it is not, however, an
ordinary contract to which is applied the principles of law governing ordinary
contracts. A CBA, as a labor contract within the contemplation of Article
1700 of the Civil Code of the Philippines which governs the relations between
labor and capital, is not merely contractual in nature but impressed with
public interest, thus, it must yield to the common good. As such, it must be
construed liberally rather than narrowly and technically, and the courts must
 Page 38 of 86

place a practical and realistic construction upon it, giving due consideration
to the context in which it is negotiated and purpose which it is intended to
serve.

2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. It is thus erroneous for
petitioner to isolate Section 1, Article VIII of the 1989 CBA from the other
related section on sick leave with pay benefits, specifically Section 3 thereof,
in its attempt to justify the discontinuance or withdrawal of the privilege of
commutation or conversion to cash of the unenjoyed portion of the sick
leave benefit to regular intermittent workers. The manner they were
deprived of the privilege previously recognized and extended to them by
petitioner-company during the lifetime of the CBA of October 16, 1985 until
three (3) months from its renewal on April 15, 1989, or a period of three (3)
years and nine (9) months, is not only tainted with arbitrariness but likewise
discriminatory in nature. It must be noted that the 1989 CBA has two (2)
sections on sick leave with pay benefits which apply to two (2) distinct
classes of workers in petitioner's company, namely: (1) the regular non-
intermittent workers or those workers who render a daily eight-hour service
to the company and are governed by Section 1, Article VIII of the 1989 CBA;
and (2) intermittent field workers who are members of the regular labor pool
and the present regular extra labor pool as of the signing of the agreement
on April 15, 1989 or those workers who have irregular working days and are
governed by Section 3, Article VIII of the 1989 CBA. It is not disputed that
both classes of workers are entitled to sick leave with pay benefits provided
they comply with the conditions set forth under Section 1 in relation to the
last paragraph of Section 3, to wit: (1) the employee-applicant must be
regular or must have rendered at least one year of service with the
company; and (2) the application must be accompanied by a certification
from a company-designated physician. the phrase "herein sick leave
privilege," as used in the last sentence of Section 1, refers to the privilege of
having a fixed 15-day sick leave with pay which, as mandated by Section 1,
only the non-intermittent workers are entitled to. This fixed 15-day sick
leave with pay benefit should be distinguished from the variable number of
days of sick leave, not to exceed 15 days, extended to intermittent workers
under Section 3 depending on the number of hours of service rendered to
the company, including overtime pursuant to the schedule provided therein.
It is only fair and reasonable for petitioner-company not to stipulate a fixed
15-day sick leave with pay for its regular intermittent workers since, as the
term "intermittent" implies, there is irregularity in their work-days.
Reasonable and practical interpretation must be placed on contractual
provisions. Interpetatio fienda est ut res magis valeat quam pereat. Such
interpretation is to be adopted, that the thing may continue to have efficacy
rather than fail.
 Page 39 of 86

3. ID.; ID.; ID.; SICK LEAVE BENEFITS; NATURE AND PURPOSE. Sick
leave benefits, like other economic benefits stipulated in the CBA such as
maternity leave and vacation leave benefits, among others, are by their
nature, intended to be replacements for regular income which otherwise
would not be earned because an employee is not working during the period
of said leaves. They are non-contributory in nature, in the sense that the
employees contribute nothing to the operation of the benefits. By their
nature, upon agreement of the parties, they are intended to alleviate the
economic condition of the workers.

4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR; CASE AT BAR.

Petitioner-company's objection to the authority of the Voluntary Arbitrator to
direct the commutation of the unenjoyed portion of the sick leave with pay
benefits of intermittent workers in his decision is misplaced. Article 261 of
the Labor Code is clear. The questioned directive of the herein public
respondent is the necessary consequence of the exercise of his arbitral
power as Voluntary Arbitrator under Article 261 of the Labor Code "to hear
and decide all unresolved grievances arising from the interpretation or
implementation of the Collective Bargaining Agreement." We, therefore, find
that no grave abuse of discretion was committed by public respondent in
issuing the award (decision). Moreover, his interpretation of Sections 1 and
3, Article VIII of the 1989 CBA cannot be faulted with and is absolutely
correct.

5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION AGAINST

ELIMINATION OR DIMINUTION OF BENEFITS; BENEFITS GRANTED
PURSUANT TO COMPANY PRACTICE OR POLICY CANNOT BE PEREMPTORILY
WITHDRAWN. Whatever doubt there may have been early on was clearly
obliterated when petitioner-company recognized the said privilege and paid
its intermittent workers the cash equivalent of the unenjoyed portion of their
sick leave with pay benefits during the lifetime of the CBA of October 16,
1985 until three (3) months from its renewal on April 15, 1989. Well-settled
is it that the said privilege of commutation or conversion to cash, being an
existing benefit, the petitioner-company may not unilaterally withdraw, or
diminish such benefits. It is a fact that petitioner-company had, on several
instances in the past, granted and paid the cash equivalent of the unenjoyed
portion of the sick leave benefits of some intermittent workers. Under the
circumstances, these may be deemed to have ripened into company practice
or policy which cannot be peremptorily withdrawn.

DECISION

ROMERO, J p:
 Page 40 of 86

In this petition for certiorari, petitioner Davao Integrated Port Services

Corporation seeks to reverse the Award 1 issued on September 10, 1991 by
respondent Ruben V. Abarquez, in his capacity as Voluntary Arbitrator of the
National Conciliation and Mediation Board, Regional Arbitration Branch XI in
Davao City in Case No. AC-211-BX1-10-003-91 which directed petitioner to
grant and extend the privilege of commutation of the unenjoyed portion of
the sick leave with pay benefits to its intermittent field workers who are
members of the regular labor pool and the present regular extra pool in
accordance with the Collective Bargaining Agreement (CBA) executed
between petitioner and private respondent Association of Trade Unions
(ATU-TUCP), from the time it was discontinued and henceforth.

The facts are as follows:

Petitioner Davao Integrated Port Stevedoring Services (petitioner-company)

and private respondent ATU-TUCP (Union), the exclusive collective
bargaining agent of the rank and file workers of petitioner-company, entered
into a collective bargaining agreement (CBA) on October 16, 1985 which,
under Sections 1 and 3, Article VIII thereof, provide for sick leave with pay
benefits each year to its employees who have rendered at least one (1) year
of service with the company, thus:

"ARTICLE VIII

Section 1. Sick Leaves The Company agrees to grant 15 days sick leave
with pay each year to every regular non-intermittent worker who already
rendered at least one year of service with the company. However, such sick
leave can only be enjoyed upon certification by a company designated
physician, and if the same is not enjoyed within one year period of the
current year, any unenjoyed portion thereof, shall be converted to cash and
shall be paid at the end of the said one year period. And provided however,
that only those regular workers of the company whose work are not
intermittent, are entitled to the herein sick leave privilege.

xxx xxx xxx

Section 3. All intermittent field workers of the company who are members
of the Regular Labor Pool shall be entitled to vacation and sick leaves per
year of service with pay under the following schedule based on the number
of hours rendered including overtime, to wit:

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

 Page 41 of 86

Less than 750 NII NII

751 825 6 days 6 days

826 900 7 7

901 925 8 8

926 1,050 9 9

1,051 1,125 10 10

1,126 1,200 11 11

1,201 1,275 12 12

1,276 1,350 13 13

1,351 1,425 14 14

1,426 1,500 15 15

The conditions for the availment of the herein vacation and sick leaves shall
be in accordance with the above provided Sections 1 and 2 hereof,
respectively."

Upon its renewal on April 15, 1989, the provisions for sick leave with pay
benefits were reproduced under Sections 1 and 3, Article VIII of the new
CBA, but the coverage of the said benefits was expanded to include the
"present Regular Extra Labor Pool as of the signing of this Agreement."
Section 3, Article VIII, as revised, provides, thus:

"Section 3. All intermittent field workers of the company who are

members of the Regular Labor Pool and present Regular Extra Labor Pool as
of the signing of this agreement shall be entitled to vacation and sick leaves
per year of service with pay under the following schedule based on the
number of hours rendered including overtime, to wit:

Hours of Service Per Vacation Sick Leave

Calendar Year Leave

Less than 750 NII NII

751 825 6 days 6 days

 Page 42 of 86

826 900 7 7

901 925 8 8

926 1,050 9 9

1,051 1,125 10 10

1,126 1,200 11 11

1,201 1,275 12 12

1,276 1,350 13 13

1,351 1,425 14 14

1,426 1,500 15 15

The conditions for the availment of the herein vacation and sick leaves shall
be in accordance with the above provided Sections 1 and 2 hereof,
respectively."

During the effectivity of the CBA of October 16, 1985 until three (3) months
after its renewal on April 15, 1989, or until July 1989 (a total of three (3)
years and nine (9) months), all the field workers of petitioner who are
members of the regular labor pool and the present regular extra labor pool
who had rendered at least 750 hours up to 1,500 hours were extended sick
leave with pay benefits. Any unenjoyed portion thereof at the end of the
current year was converted to cash and paid at the end of the said one-year
period pursuant to Sections 1 and 3, Article VIII of the CBA. The number of
days of their sick leave per year depends on the number of hours of service
per calendar year in accordance with the schedule provided in Section 3,
Article VIII of the CBA.

The commutation of the unenjoyed portion of the sick leave with pay
benefits of the intermittent workers or its conversion to cash was, however,
discontinued or withdrawn when petitioner-company under a new assistant
manager, Mr. Benjamin Marzo (who replaced Mr. Cecilio Beltran, Jr. upon
the latter's resignation in June 1989), stopped the payment of its cash
equivalent on the ground that they are not entitled to the said benefits
under Sections 1 and 3 of the 1989 CBA.

The Union objected to the said discontinuance of commutation or conversion

to cash of the unenjoyed sick leave with pay benefits of petitioner's
 Page 43 of 86

intermittent workers contending that it is a deviation from the true intent of

the parties that negotiated the CBA; that it would violate the principle in
labor laws that benefits already extended shall not be taken away and that it
would result in discrimination between the non-intermittent and the
intermittent workers of the petitioner-company.

Upon failure of the parties to amicably settle the issue on the interpretation
of Sections 1 and 3, Article VIII of the 1989 CBA, the Union brought the
matter for voluntary arbitration before the National Conciliation and
Mediation Board, Regional Arbitration Branch XI at Davao City by way of
complaint for enforcement of the CBA. The parties mutually designated
public respondent Ruben Abarquez, Jr. to act as voluntary arbitrator.

After the parties had filed their respective position papers, 2 public
respondent Ruben Abarquez, Jr. issued on September 10, 1991 an Award in
favor of the Union ruling that the regular intermittent workers are entitled to
commutation of their unenjoyed sick leave with pay benefits under Sections
1 and 3 of the 1989 CBA, the dispositive portion of which reads:

"WHEREFORE, premises considered, the management of the respondent

Davao Integrated Port Stevedoring Services Corporation is hereby directed
to grant and extend the sick leave privilege of the commutation of the
unenjoyed portion of the sick leave of all the intermittent field workers who
are members of the regular labor pool and the present extra pool in
accordance with the CBA from the time it was discontinued and henceforth.

SO ORDERED."

Petitioner-company disagreed with the aforementioned ruling of public

respondent, hence, the instant petition.

Petitioner-company argued that it is clear from the language and intent of

the last sentence of Section 1, Article VIII of the 1989 CBA that only the
regular workers whose work are not intermittent are entitled to the benefit
of conversion to cash of the unenjoyed portion of sick leave, thus: ". . . And
provided, however, that only those regular workers of the Company whose
work are not intermittent are entitled to the herein sick leave privilege."

Petitioner-company further argued that while the intermittent workers were

paid the cash equivalent of their unenjoyed sick leave with pay benefits
during the previous management of Mr. Beltran who misinterpreted Sections
1 and 3 of Article VIII of the 1985 CBA, it was well within petitioner-
company's rights to rectify the error it had committed and stop the payment
 Page 44 of 86

of the said sick leave with pay benefits. An error in payment, according to
petitioner-company, can never ripen into a practice.

We find the arguments unmeritorious.

A collective bargaining agreement (CBA), as used in Article 252 of the Labor

Code, refers to a contract executed upon request of either the employer or
the exclusive bargaining representative incorporating the agreement reached
after negotiations with respect to wages, hours of work and all other terms
and conditions of employment, including proposals for adjusting any
grievances or questions arising under such agreement.

While the terms and conditions of a CBA constitute the law between the
parties, 3 it is not, however, an ordinary contract to which is applied the
principles of law governing ordinary contracts. 4 A CBA, as a labor contract
within the contemplation of Article 1700 of the Civil Code of the Philippines
which governs the relations between labor and capital, is not merely
contractual in nature but impressed with public interest, thus, it must yield
to the common good. As such, it must be construed liberally rather than
narrowly and technically, and the courts must place a practical and realistic
construction upon it, giving due consideration to the context in which it is
negotiated and purpose which it is intended to serve. 5

It is thus erroneous for petitioner to isolate Section 1, Article VIII of the

1989 CBA from the other related section on sick leave with pay benefits,
specifically Section 3 thereof, in its attempt to justify the discontinuance or
withdrawal of the privilege of commutation or conversion to cash of the
unenjoyed portion of the sick leave benefit to regular intermittent workers.
The manner they were deprived of the privilege previously recognized and
extended to them by petitioner-company during the lifetime of the CBA of
October 16, 1985 until three (3) months from its renewal on April 15, 1989,
or a period of three (3) years and nine (9) months, is not only tainted with
arbitrariness but likewise discriminatory in nature. Petitioner-company is of
the mistaken notion that since the privilege of commutation or conversion to
cash of the unenjoyed portion of the sick leave with pay benefits is found in
Section 1, Article VIII, only the regular non-intermittent workers and no
other can avail of the said privilege because of the proviso found in the last
sentence thereof.

It must be noted that the 1989 CBA has two (2) sections on sick leave with
pay benefits which apply to two (2) distinct classes of workers in petitioner's
company, namely: (1) the regular non-intermittent workers or those
workers who render a daily eight-hour service to the company and are
governed by Section 1, Article VIII of the 1989 CBA; and (2) intermittent
 Page 45 of 86

field workers who are members of the regular labor pool and the present
regular extra labor pool as of the signing of the agreement on April 15, 1989
or those workers who have irregular working days and are governed by
Section 3, Article VIII of the 1989 CBA.

It is not disputed that both classes of workers are entitled to sick leave with
pay benefits provided they comply with the conditions set forth under
Section 1 in relation to the last paragraph of Section 3, to wit: (1) the
employee-applicant must be regular or must have rendered at least one year
of service with the company; and (2) the application must be accompanied
by a certification from a company-designated physician.

Sick leave benefits, like other economic benefits stipulated in the CBA such
as maternity leave and vacation leave benefits, among others, are by their
nature, intended to be replacements for regular income which otherwise
would not be earned because an employee is not working during the period
of said leaves. 6 They are non-contributory in nature, in the sense that the
employees contribute nothing to the operation of the benefits. 7 By their
nature, upon agreement of the parties, they are intended to alleviate the
economic condition of the workers.

After a careful examination of Section 1 in relation to Section 3, Article VIII

of the 1989 CBA in light of the facts and circumstances attendant in the
instant case, we find and so hold that the last sentence of Section 1, Article
VIII of the 1989 CBA, invoked by petitioner-company does not bar the
regular intermittent workers from the privilege of commutation or conversion
to cash of the unenjoyed portion of their sick leave with pay benefits, if
qualified. For the phrase "herein sick leave privilege," as used in the last
sentence of Section 1, refers to the privilege of having a fixed 15-day sick
leave with pay which, as mandated by Section 1, only the non-intermittent
workers are entitled to. This fixed 15-day sick leave with pay benefit should
be distinguished from the variable number of days of sick leave, not to
exceed 15 days, extended to intermittent workers under Section 3
depending on the number of hours of service rendered to the company,
including overtime pursuant to the schedule provided therein. It is only fair
and reasonable for petitioner-company not to stipulate a fixed 15-day sick
leave with pay for its regular intermittent workers since, as the term
"intermittent" implies, there is irregularity in their work-days. Reasonable
and practical interpretation must be placed on contractual provisions.
Interpetatio fienda est ut res magis valeat quam pereat. Such interpretation
is to be adopted, that the thing may continue to have efficacy rather than
fail. 8
 Page 46 of 86

We find the same to be a reasonable and practical distinction readily

discernible in Section 1, in relation to Section 3, Article VIII of the 1989 CBA
between the two classes of workers in the company insofar as sick leave
with pay benefits are concerned. Any other distinction would cause
discrimination on the part of intermittent workers contrary to the intention of
the parties that mutually agreed in incorporating the questioned provisions
in the 1989 CBA.

Public respondent correctly observed that the parties to the CBA clearly
intended the same sick leave privilege to be accorded the intermittent
workers in the same way that they are both given the same treatment with
respect to vacation leaves - non-commutable and non-cumulative. If they
are treated equally with respect to vacation leave privilege, with more
reason should they be on par with each other with respect to sick leave
privileges. 9 Besides, if the intention were otherwise, during its
renegotiation, why did not the parties expressly stipulate in the 1989 CBA
that regular intermittent workers are not entitled to commutation of the
unenjoyed portion of their sick leave with pay benefits?

Whatever doubt there may have been early on was clearly obliterated when
petitioner-company recognized the said privilege and paid its intermittent
workers the cash equivalent of the unenjoyed portion of their sick leave with
pay benefits during the lifetime of the CBA of October 16, 1985 until three
(3) months from its renewal on April 15, 1989. Well-settled is it that the said
privilege of commutation or conversion to cash, being an existing benefit,
the petitioner-company may not unilaterally withdraw, or diminish such
benefits. 10 It is a fact that petitioner-company had, on several instances in
the past, granted and paid the cash equivalent of the unenjoyed portion of
the sick leave benefits of some intermittent workers. 11 Under the
circumstances, these may be deemed to have ripened into company practice
or policy which cannot be peremptorily withdrawn. 12

Moreover, petitioner-company's objection to the authority of the Voluntary

Arbitrator to direct the commutation of the unenjoyed portion of the sick
leave with pay benefits of intermittent workers in his decision is misplaced.
Article 261 of the Labor Code is clear. The questioned directive of the herein
public respondent is the necessary consequence of the exercise of his
arbitral power as Voluntary Arbitrator under Article 261 of the Labor Code
"to hear and decide all unresolved grievances arising from the interpretation
or implementation of the Collective Bargaining Agreement." We, therefore,
find that no grave abuse of discretion was committed by public respondent
in issuing the award (decision). Moreover, his interpretation of Sections 1
and 3, Article VIII of the 1989 CBA cannot be faulted with and is absolutely
correct.
 Page 47 of 86

WHEREFORE, in view of the foregoing, the petition is DISMISSED. The award

(decision) of public respondent dated September 10, 1991 is hereby
AFFIRMED. No costs.

SO ORDERED.

Vergara vs Coca-cola bottles

G.R. No. 176985 April 1, 2013

RICARDO E. VERGARA, JR., Petitioner,

vs.
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.

DECISION

PERALTA, J.:

Before Us is a petition for review on certiorari under Rule 45 of the Rules of

Civil Procedure assailing the January 9, 2007 Decision1 and March 6, 2007
Resolution2 of the Court of Appeals (CA) in CA .. G.R. SP No. 94622, which
affirmed the January 31, 2006 Decision3 and March 8, 2006 Resolution4 of
the National Labor Relations Commission (NLRC) modifying the September
30, 2003 Decision5 of the Labor Arbiter (LA) by deleting the sales
management incentives in the computation of petitioner's retirement
benefits.

Petitioner Ricardo E. Vergara, Jr. was an employee of respondent Coca-Cola

Bottlers Philippines, Inc. from May 1968 until he retired on January 31, 2002
as a District Sales Supervisor (DSS) for Las Pias City, Metro Manila. As
stipulated in respondents existing Retirement Plan Rules and Regulations at
the time, the Annual Performance Incentive Pay of RSMs, DSSs, and SSSs
shall be considered in the computation of retirement benefits, as follows:
Basic Monthly Salary + Monthly Average Performance Incentive (which is the
total performance incentive earned during the year immediately preceding
12 months) No. of Years in Service.6

Claiming his entitlement to an additional PhP474,600.00 as Sales

Management Incentives (SMI)7 and to the amount of PhP496,016.67 which
respondent allegedly deducted illegally, representing the unpaid accounts of
two dealers within his jurisdiction, petitioner filed a complaint before the
 Page 48 of 86

NLRC on June 11, 2002 for the payment of his "Full Retirement Benefits,
Merit Increase, Commission/Incentives, Length of Service, Actual, Moral and
Exemplary Damages, and Attorneys Fees."8

After a series of mandatory conference, both parties partially settled with

regard the issue of merit increase and length of service.9 Subsequently, they
filed their respective Position Paper and Reply thereto dealing on the two
remaining issues of SMI entitlement and illegal deduction.

On September 30, 2003, the LA rendered a Decision10 in favor of petitioner,

directing respondent to reimburse the amount illegally deducted from
petitioners retirement package and to integrate therein his SMI privilege.
Upon appeal of respondent, however, the NLRC modified the award and
deleted the payment of SMI.

Petitioner then moved to partially execute the reimbursement of illegal

deduction, which the LA granted despite respondents opposition.11 Later,
without prejudice to the pendency of petitioners petition for certiorari before
the CA, the parties executed a Compromise Agreement12 on October 4,
2006, whereby petitioner acknowledged full payment by respondent of the
amount of PhP496,016.67 covering the amount illegally deducted.

The CA dismissed petitioners case on January 9, 2007 and denied his

motion for reconsideration two months thereafter. Hence, this present
petition to resolve the singular issue of whether the SMI should be included
in the computation of petitioners retirement benefits on the ground of
consistent company practice. Petitioner insistently avers that many DSSs
who retired without achieving the sales and collection targets were given the
average SMI in their retirement package.

We deny.

This case does not fall within any of the recognized exceptions to the rule
that only questions of law are proper in a petition for review on certiorari
under Rule 45 of the Rules of Court. Settled is the rule that factual findings
of labor officials, who are deemed to have acquired expertise in matters
within their respective jurisdiction, are generally accorded not only respect
but even finality, and bind us when supported by substantial
evidence.13Certainly, it is not Our function to assess and evaluate the
evidence all over again, particularly where the findings of both the CA and
the NLRC coincide.

In any event, even if this Court would evaluate petitioner's arguments on its
supposed merits, We still find no reason to disturb the CA ruling that
 Page 49 of 86

affirmed the NLRC. The findings and conclusions of the CA show that the
evidence and the arguments of the parties had all been carefully considered
and passed upon. There are no relevant and compelling facts to justify a
different resolution which the CA failed to consider as well as no factual
conflict between the CA and the NLRC decisions.

Generally, employees have a vested right over existing benefits voluntarily

granted to them by their employer.14Thus, any benefit and supplement being
enjoyed by the employees cannot be reduced, diminished, discontinued or
eliminated by the employer.15 The principle of non-diminution of benefits is
actually founded on the Constitutional mandate to protect the rights of
workers, to promote their welfare, and to afford them full protection.16 In
turn, said mandate is the basis of Article 4 of the Labor Code which states
that "all doubts in the implementation and interpretation of this Code,
including its implementing rules and regulations, shall be rendered in favor
of labor."17

There is diminution of benefits when the following requisites are present: (1)
the grant or benefit is founded on a policy or has ripened into a practice over
a long period of time; (2) the practice is consistent and deliberate; (3) the
practice is not due to error in the construction or application of a doubtful or
difficult question of law; and (4) the diminution or discontinuance is done
unilaterally by the employer.18

To be considered as a regular company practice, the employee must prove

by substantial evidence that the giving of the benefit is done over a long
period of time, and that it has been made consistently and
deliberately.19Jurisprudence has not laid down any hard-and-fast rule as to
the length of time that company practice should have been exercised in
order to constitute voluntary employer practice.20 The common denominator
in previously decided cases appears to be the regularity and deliberateness
of the grant of benefits over a significant period of time.21 It requires an
indubitable showing that the employer agreed to continue giving the benefit
knowing fully well that the employees are not covered by any provision of
the law or agreement requiring payment thereof.22 In sum, the benefit must
be characterized by regularity, voluntary and deliberate intent of the
employer to grant the benefit over a considerable period of time.23

Upon review of the entire case records, We find no substantial evidence to

prove that the grant of SMI to all retired DSSs regardless of whether or not
they qualify to the same had ripened into company practice. Despite more
than sufficient opportunity given him while his case was pending before the
NLRC, the CA, and even to this Court, petitioner utterly failed to adduce
proof to establish his allegation that SMI has been consistently, deliberately
 Page 50 of 86

and voluntarily granted to all retired DSSs without any qualification or

conditions whatsoever. The only two pieces of evidence that he stubbornly
presented throughout the entirety of this case are the sworn statements of
Renato C. Hidalgo (Hidalgo) and Ramon V. Velazquez (Velasquez), former
DSSs of respondent who retired in 2000 and 1998, respectively. They
claimed that the SMI was included in their retirement package even if they
did not meet the sales and collection qualifiers.24 However, juxtaposing
these with the evidence presented by respondent would reveal the frailty of
their statements.

The declarations of Hidalgo and Velazquez were sufficiently countered by

respondent through the affidavits executed by Norman R. Biola (Biola),
Moises D. Escasura (Escasura), and Ma. Vanessa R. Balles (Balles).25 Biola
pointed out the various stop-gap measures undertaken by respondent
beginning 1999 in order to arrest the deterioration of its accounts
receivables balance, two of which relate to the policies on the grant of SMI
and to the change in the management structure of respondent upon its re-
acquisition by San Miguel Corporation. Escasura represented that he has
personal knowledge of the circumstances behind the retirement of Hidalgo
and Velazquez. He attested that contrary to petitioners claim, Hidalgo was
in fact qualified for the SMI. As for Velazquez, Escasura asserted that even if
he (Velazquez) did not qualify for the SMI, respondents General Manager in
its Calamba plant still granted his (Velazquez) request, along with other
numerous concessions, to achieve industrial peace in the plant which was
then experiencing labor relations problems. Lastly, Balles confirmed that
petitioner failed to meet the trade receivable qualifiers of the SMI. She also
cited the cases of Ed Valencia (Valencia) and Emmanuel Gutierrez
(Gutierrez), both DSSs of respondent who retired on January 31, 2002 and
December 30, 2002, respectively. She noted that, unlike Valencia, Gutierrez
also did not receive the SMI as part of his retirement pay, since he failed to
qualify under the policy guidelines. The verity of all these statements and
representations stands and holds true to Us, considering that petitioner did
not present any iota of proof to debunk the same.1wphi1

Therefore, respondent's isolated act of including the SMI in the retirement

package of Velazquez could hardly be classified as a company practice that
may be considered an enforceable obligation. To repeat, the principle against
diminution of benefits is applicable only if the grant or benefit is founded on
an express policy or has ripened into a practice over a long period of time
which is consistent and deliberate; it presupposes that a company practice,
policy and tradition favorable to the employees has been clearly established;
and that the payments made by the company pursuant to it have ripened
into benefits enjoyed by them.26 Certainly, a practice or custom is, as a
general rule, not a source of a legally demandable or enforceable
 Page 51 of 86

right.27 Company practice, just like any other fact, habits, customs, usage or
patterns of conduct, must be proven by the offering party who must allege
and establish specific, repetitive conduct that might constitute evidence of
habit or company practice.28

To close, We rule that petitioner could have salvaged his case had he step
up to disprove respondents contention that he miserably failed to meet the
collection qualifiers of the SMI. Respondent argues that

An examination of the Companys aged trial balance reveals that petitioner

did not meet the trade receivable qualifier. On the contrary, the said trial
balance reveals that petitioner had a large amount of uncollected overdue
accounts. For the year 2001, his percentage collection efficiency for current
issuance was at an average of 13.5% a month as against the required 70%.
For the same, petitioners collection efficiency was at an average of 60.25%
per month for receivables aged 1-30 days, which is again, way below the
required 90%. For receivables aged 31-60 days during said year, petitioners
collection efficiency was at an average of 56.17% per month, which is
approximately half of the required 100%. Worse, for receivables over 60
days old, petitioners average collection efficiency per month was a
reprehensively low 14.10% as against the required 100%.29

The above data was repeatedly raised by respondent in its Rejoinder (To
Complainants Reply) before the LA,30Memorandum of Appeal31 and
Opposition (To Complainant-Appellees Motion for Reconsideration)32 before
the NLRC, and Comment (On the Petition),33 Memorandum (For the Private
Respondent),34 and Comment (On the Motion for Reconsideration)35 before
the CA. Instead of frontally rebutting the data, petitioner treated them with
deafening silence; thus, reasonably and logically implying lack of evidence to
support the contrary.

WHEREFORE, the petition is DENIED. The January 9, 2007 Decision and

March 6, 2007 Resolution of the Court of Appeals in CA-G.R. SP No. 94622,
which affirmed the January 31, 2006 Decision and March 8, 2006 Resolution
of the NLRC deleting the LA's inclusion of sales management incentives in
the computation of petitioner's retirement benefits, is hereby AFFIRMED.

SO ORDERED.
 Page 52 of 86

Traders Royal Bank vs NLRC 189 S 274, 1990

G.R. No. 120592 March 14, 1997

TRADERS ROYAL BANK EMPLOYEES UNION-

INDEPENDENT, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and EMMANUEL NOEL A.
CRUZ, respondents.

REGALADO, J.:

Petitioner Traders Royal Bank Employees Union and private respondent Atty.
Emmanuel Noel A. Cruz, head of the E.N.A. Cruz and Associates law firm,
entered into a retainer agreement on February 26, 1987 whereby the former
obligated itself to pay the latter a monthly retainer fee of P3,000.00 in
consideration of the law firm's undertaking to render the services
enumerated in their contract. 1 Parenthetically, said retainer agreement was
terminated by the union on April 4, 1990. 2

During the existence of that agreement, petitioner union referred to private

respondent the claims of its members for holiday, mid-year and year-end
bonuses against their employer, Traders Royal Bank (TRB). After the
appropriate complaint was filed by private respondent, the case was certified
by the Secretary of Labor to the National Labor Relations Commission
(NLRC) on March 24, 1987 and docketed as NLRC-NCR Certified Case No.
0466. 3

On September 2, 1988, the NLRC rendered a decision in the foregoing case

in favor of the employees, awarding them holiday pay differential, mid-year
bonus differential, and year-end bonus differential. 4 The NLRC, acting on a
motion for the issuance of a writ of execution filed by private respondent as
counsel for petitioner union, raffled the case to Labor Arbiter Oswald
Lorenzo. 5

However, pending the hearing of the application for the writ of execution,
TRB challenged the decision of the NLRC before the Supreme Court. The
Court, in its decision promulgated on August 30, 1990, 6 modified the
decision of the NLRC by deleting the award of mid-year and year-end bonus
differentials while affirming the award of holiday pay differential. 7
 Page 53 of 86

The bank voluntarily complied with such final judgment and determined the
holiday pay differential to be in the amount of P175,794.32. Petitioner never
contested the amount thus found by TRB. 8 The latter duly paid its concerned
employees their respective entitlement in said sum through their payroll. 9

After private respondent received the above decision of the Supreme Court
on September 18, 1990, 10 he notified the petitioner union, the TRB
management and the NLRC of his right to exercise and enforce his attorney's
lien over the award of holiday pay differential through a letter dated October
8, 1990. 11

Thereafter, on July 2, 1991, private respondent filed a motion before Labor

Arbiter Lorenzo for the determination of his attorney's fees, praying that ten
percent (10%) of the total award for holiday pay differential computed by
TRB at P175,794.32, or the amount of P17,579.43, be declared as his
attorney's fees, and that petitioner union be ordered to pay and remit said
amount to him. 12

The TRB management manifested before the labor arbiter that they did not
wish to oppose or comment on private respondent's motion as the claim was
directed against the union, 13 while petitioner union filed a comment and
opposition to said motion on July 15, 1991. 14 After considering the position
of the parties, the labor arbiter issued an order 15 on November 26, 1991
granting the motion of private respondent, as follows:

WHEREFORE, premises considered, it is hereby ordered that the

TRADERS ROYAL BANK EMPLOYEES UNION with offices at
Kanlaon Towers, Roxas Boulevard is hereby ordered (sic) to pay
without delay the attorney's fees due the movant law firm,
E.N.A. CRUZ and ASSOCIATES the amount of P17,574.43 or ten
(10%) per cent of the P175,794.32 awarded by the Supreme
Court to the members of the former.

This constrained petitioner to file an appeal with the NLRC on

December 27, 1991, seeking a reversal of that order. 16

On October 19, 1994, the First Division of the NLRC promulgated a

resolution affirming the order of the labor arbiter. 17 The motion for
reconsideration filed by petitioner was denied by the NLRC in a resolution
dated May 23, 1995, 18hence the petition at bar.

Petitioner maintains that the NLRC committed grave abuse of discretion

amounting to lack of jurisdiction in upholding the award of attorney's fees in
the amount of P17,574.43, or ten percent (10%) of the P175,794.32
 Page 54 of 86

granted as holiday pay differential to its members, in violation of the

retainer agreement; and that the challenged resolution of the NLRC is null
and void, 19 for the reasons hereunder stated.

Although petitioner union concedes that the NLRC has jurisdiction to decide
claims for attorney's fees, it contends that the award for attorney's fees
should have been incorporated in the main case and not after the Supreme
Court had already reviewed and passed upon the decision of the NLRC. Since
the claim for attorney's fees by private respondent was neither taken up nor
approved by the Supreme Court, no attorney's fees should have been
allowed by the NLRC.

Thus, petitioner posits that the NLRC acted without jurisdiction in making the
award of attorney's fees, as said act constituted a modification of a final and
executory judgment of the Supreme Court which did not award attorney's
fees. It then cited decisions of the Court declaring that a decision which has
become final and executory can no longer be altered or modified even by the
court which rendered the same.

On the other hand, private respondent maintains that his motion to

determine attorney's fees was just an incident of the main case where
petitioner was awarded its money claims. The grant of attorney's fees was
the consequence of his exercise of his attorney's lien. Such lien resulted
from and corresponds to the services he rendered in the action wherein the
favorable judgment was obtained. To include the award of the attorney's
fees in the main case presupposes that the fees will be paid by TRB to the
adverse party. All that the non-inclusion of attorney's fees in the award
means is that the Supreme Court did not order TRB to pay the opposing
party attorney's fees in the concept of damages. He is not therefore
precluded from filing his motion to have his own professional fees
adjudicated.

In view of the substance of the arguments submitted by petitioner and

private respondent on this score, it appears necessary to explain and
consequently clarify the nature of the attorney's fees subject of this petition,
in order to dissipate the apparent confusion between and the conflicting
views of the parties.

There are two commonly accepted concepts of attorney's fees, the so-called
ordinary and extraordinary. 20 In its ordinary concept, an attorney's fee is
the reasonable compensation paid to a lawyer by his client for the legal
services he has rendered to the latter. The basis of this compensation is the
fact of his employment by and his agreement with the client.
 Page 55 of 86

In its extraordinary concept, an attorney's fee is an indemnity for damages

ordered by the court to be paid by the losing party in a litigation. The basis
of this is any of the cases provided by law where such award can be made,
such as those authorized in Article 2208, Civil Code, and is payable not to
the lawyer but to the client, unless they have agreed that the award shall
pertain to the lawyer as additional compensation or as part thereof.

It is the first type of attorney's fees which private respondent demanded

before the labor arbiter. Also, the present controversy stems from
petitioner's apparent misperception that the NLRC has jurisdiction over
claims for attorney's fees only before its judgment is reviewed and ruled
upon by the Supreme Court, and that thereafter the former may no longer
entertain claims for attorney's fees.

It will be noted that no claim for attorney's fees was filed by private
respondent before the NLRC when it acted on the money claims of
petitioner, nor before the Supreme Court when it reviewed the decision of
the NLRC. It was only after the High Tribunal modified the judgment of the
NLRC awarding the differentials that private respondent filed his claim before
the NLRC for a percentage thereof as attorney's fees.

It would obviously have been impossible, if not improper, for the NLRC in the
first instance and for the Supreme Court thereafter to make an award for
attorney's fees when no claim therefor was pending before them. Courts
generally rule only on issues and claims presented to them for adjudication.
Accordingly, when the labor arbiter ordered the payment of attorney's fees,
he did not in any way modify the judgment of the Supreme Court.

As an adjunctive episode of the action for the recovery of bonus differentials

in NLRC-NCR Certified Case No. 0466, private respondent's present claim for
attorney's fees may be filed before the NLRC even though or, better stated,
especially after its earlier decision had been reviewed and partially affirmed.
It is well settled that a claim for attorney's fees may be asserted either in
the very action in which the services of a lawyer had been rendered or in a
separate action. 21

With respect to the first situation, the remedy for recovering attorney's fees
as an incident of the main action may be availed of only when something is
due to the client. 22 Attorney's fees cannot be determined until after the
main litigation has been decided and the subject of the recovery is at the
disposition of the court. The issue over attorney's fees only arises when
something has been recovered from which the fee is to be paid. 23
 Page 56 of 86

While a claim for attorney's fees may be filed before the judgment is
rendered, the determination as to the propriety of the fees or as to the
amount thereof will have to be held in abeyance until the main case from
which the lawyer's claim for attorney's fees may arise has become final.
Otherwise, the determination to be made by the courts will be
premature. 24 Of course, a petition for attorney's fees may be filed before
the judgment in favor of the client is satisfied or the proceeds thereof
delivered to the client. 25

It is apparent from the foregoing discussion that a lawyer has two options as
to when to file his claim for professional fees. Hence, private respondent was
well within his rights when he made his claim and waited for the finality of
the judgment for holiday pay differential, instead of filing it ahead of the
award's complete resolution. To declare that a lawyer may file a claim for
fees in the same action only before the judgment is reviewed by a higher
tribunal would deprive him of his aforestated options and render ineffective
the foregoing pronouncements of this Court.

Assailing the rulings of the labor arbiter and the NLRC, petitioner union
insists that it is not guilty of unjust enrichment because all attorney's fees
due to private respondent were covered by the retainer fee of P3,000.00
which it has been regularly paying to private respondent under their retainer
agreement. To be entitled to the additional attorney's fees as provided in
Part D (Special Billings) of the agreement, it avers that there must be a
separate mutual agreement between the union and the law firm prior to the
performance of the additional services by the latter. Since there was no
agreement as to the payment of the additional attorney's fees, then it is
considered waived.

En contra, private respondent contends that a retainer fee is not the

attorney's fees contemplated for and commensurate to the services he
rendered to petitioner. He asserts that although there was no express
agreement as to the amount of his fees for services rendered in the case for
recovery of differential pay, Article 111 of the Labor Code supplants this
omission by providing for an award of ten percent (10%) of a money
judgment in a labor case as attorney's fees.

It is elementary that an attorney is entitled to have and receive a just and

reasonable compensation for services performed at the special instance and
request of his client. As long as the lawyer was in good faith and honestly
trying to represent and serve the interests of the client, he should have a
reasonable compensation for such services. 26 It will thus be appropriate, at
this juncture, to determine if private respondent is entitled to an additional
 Page 57 of 86

remuneration under the retainer agreement 27 entered into by him and

petitioner.

The parties subscribed therein to the following stipulations:

xxx xxx xxx

The Law Firm shall handle cases and extend legal services under the
parameters of the following terms and conditions:

A. GENERAL SERVICES

1. Assurance that an Associate of the Law Firm shall be

designated and be available on a day-to-day basis depending on
the Union's needs;

2. Legal consultation, advice and render opinion on any actual

and/or anticipatory situation confronting any matter within the
client's normal course of business;

3. Proper documentation and notarization of any or all

transactions entered into by the Union in its day-to-day course
of business;

4. Review all contracts, deeds, agreements or any other legal

document to which the union is a party signatory thereto but
prepared or caused to be prepared by any other third party;

5. Represent the Union in any case wherein the Union is a party

litigant in any court of law or quasi-judicial body subject to
certain fees as qualified hereinafter;

6. Lia(i)se with and/or follow-up any pending application or any

papers with any government agency and/or any private
institution which is directly related to any legal matter referred
to the Law Firm.

B. SPECIAL LEGAL SERVICES

1. Documentation of any contract and other legal

instrument/documents arising and/or required by your Union
which do not fall under the category of its ordinary course of
business activity but requires a special, exhaustive or detailed
study and preparation;
 Page 58 of 86

2. Conduct or undertake researches and/or studies on special

projects of the Union;

3. Render active and actual participation or assistance in

conference table negotiations with TRB management or any
other third person(s), juridical or natural, wherein the presence
of counsel is not for mere consultation except CBA negotiations
which shall be subject to a specific agreement (pursuant to PD
1391 and in relation to BP 130 & 227);

4. Preparation of Position Paper(s), Memoranda or any other

pleading for and in behalf of the Union;

5. Prosecution or defense of any case instituted by or against the

Union; and,

6. Represent any member of the Union in any proceeding

provided that the particular member must give his/her assent
and that prior consent be granted by the principal officers.
Further, the member must conform to the rules and policies of
the Law Firm.

C. FEE STRUCTURE

In consideration of our commitment to render the services

enumerated above when required or necessary, your Union shall
pay a monthly retainer fee of THREE THOUSAND PESOS (PHP
3,000.00), payable in advance on or before the fifth day of every
month.

An Appearance Fee which shall be negotiable on a case-to-case

basis.

Any and all Attorney's Fees collected from the adverse party by
virtue of a successful litigation shall belong exclusively to the
Law Firm.

It is further understood that the foregoing shall be without

prejudice to our claim for reimbursement of all out-of-pocket
expenses covering filing fees, transportation, publication costs,
expenses covering reproduction or authentication of documents
related to any matter referred to the Law Firm or that which
redound to the benefit of the Union.
 Page 59 of 86

D. SPECIAL BILLINGS

In the event that the Union avails of the services duly

enumerated in Title B, the Union shall pay the Law Firm an
amount mutually agreed upon PRIOR to the performance of such
services. The sum agreed upon shall be based on actual time
and effort spent by the counsel in relation to the importance and
magnitude of the matter referred to by the Union. However,
charges may be WAIVED by the Law Firm if it finds that time and
efforts expended on the particular services are inconsequential
but such right of waiver is duly reserved for the Law Firm.

xxx xxx xxx

The provisions of the above contract are clear and need no further
interpretation; all that is required to be done in the instant controversy is its
application. The P3,000.00 which petitioner pays monthly to private
respondent does not cover the services the latter actually rendered before
the labor arbiter and the NLRC in behalf of the former. As stipulated in Part
C of the agreement, the monthly fee is intended merely as a consideration
for the law firm's commitment to render the services enumerated in Part A
(General Services) and Part B (Special Legal Services) of the retainer
agreement.

The difference between a compensation for a commitment to render legal

services and a remuneration for legal services actually rendered can better
be appreciated with a discussion of the two kinds of retainer fees a client
may pay his lawyer. These are a general retainer, or a retaining fee, and a
special
retainer. 28

A general retainer, or retaining fee, is the fee paid to a lawyer to secure his
future services as general counsel for any ordinary legal problem that may
arise in the routinary business of the client and referred to him for legal
action. The future services of the lawyer are secured and committed to the
retaining client. For this, the client pays the lawyer a fixed retainer fee which
could be monthly or otherwise, depending upon their arrangement. The fees
are paid whether or not there are cases referred to the lawyer. The reason
for the remuneration is that the lawyer is deprived of the opportunity of
rendering services for a fee to the opposing party or other parties. In fine, it
is a compensation for lost opportunities.

A special retainer is a fee for a specific case handled or special service

rendered by the lawyer for a client. A client may have several cases
 Page 60 of 86

demanding special or individual attention. If for every case there is a

separate and independent contract for attorney's fees, each fee is
considered a special retainer.

As to the first kind of fee, the Court has had the occasion to expound on its
concept in Hilado vs. David 29 in this wise:

There is in legal practice what is called a "retaining fee," the

purpose of which stems from the realization that the attorney is
disabled from acting as counsel for the other side after he has
given professional advice to the opposite party, even if he should
decline to perform the contemplated services on behalf of the
latter. It is to prevent undue hardship on the attorney resulting
from the rigid observance of the rule that a separate and
independent fee for consultation and advice was conceived and
authorized. "A retaining fee is a preliminary fee given to an
attorney or counsel to insure and secure his future services, and
induce him to act for the client. It is intended to remunerate
counsel for being deprived, by being retained by one party, of
the opportunity of rendering services to the other and of
receiving pay from him, and the payment of such fee, in the
absence of an express understanding to the contrary, is neither
made nor received in payment of the services contemplated; its
payment has no relation to the obligation of the client to pay his
attorney for the services for which he has retained him to
perform." (Emphasis supplied).

Evidently, the P3,000.00 monthly fee provided in the retainer agreement

between the union and the law firm refers to a general retainer, or a
retaining fee, as said monthly fee covers only the law firm's pledge, or as
expressly stated therein, its "commitment to render the legal services
enumerated." The fee is not payment for private respondent's execution or
performance of the services listed in the contract, subject to some particular
qualifications or permutations stated there.

Generally speaking, where the employment of an attorney is under an

express valid contract fixing the compensation for the attorney, such
contract is conclusive as to the amount of compensation. 30 We cannot,
however, apply the foregoing rule in the instant petition and treat the fixed
fee of P3,000.00 as full and sufficient consideration for private respondent's
services, as petitioner would have it.

We have already shown that the P3,000.00 is independent and different

from the compensation which private respondent should receive in payment
 Page 61 of 86

for his services. While petitioner and private respondent were able to fix a
fee for the latter's promise to extend services, they were not able to come
into agreement as to the law firm's actual performance of services in favor of
the union. Hence, the retainer agreement cannot control the measure of
remuneration for private respondent's services.

We, therefore, cannot favorably consider the suggestion of petitioner that

private respondent had already waived his right to charge additional fees
because of their failure to come to an agreement as to its payment.

Firstly, there is no showing that private respondent unequivocally opted to

waive the additional charges in consonance with Part D of the agreement.
Secondly, the prompt actions taken by private respondent, i.e., serving
notice of charging lien and filing of motion to determine attorney's fees, belie
any intention on his part to renounce his right to compensation for
prosecuting the labor case instituted by the union. And, lastly, to adopt such
theory of petitioner may frustrate private respondent's right to attorney's
fees, as the former may simply and unreasonably refuse to enter into any
special agreement with the latter and conveniently claim later that the law
firm had relinquished its right because of the absence of the same.

The fact that petitioner and private respondent failed to reach a meeting of
the minds with regard to the payment of professional fees for special
services will not absolve the former of civil liability for the corresponding
remuneration therefor in favor of the latter.

Obligations do not emanate only from contracts. 31 One of the sources of

extra-contractual obligations found in our Civil Code is the quasi-contract
premised on the Roman maxim that nemo cum alterius detrimento
locupletari protest. As embodied in our law, 32 certain lawful, voluntary and
unilateral acts give rise to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at the expense of
another.

A quasi-contract between the parties in the case at bar arose from private
respondent's lawful, voluntary and unilateral prosecution of petitioner's
cause without awaiting the latter's consent and approval. Petitioner cannot
deny that it did benefit from private respondent's efforts as the law firm was
able to obtain an award of holiday pay differential in favor of the union. It
cannot even hide behind the cloak of the monthly retainer of P3,000.00 paid
to private respondent because, as demonstrated earlier, private
respondent's actual rendition of legal services is not compensable merely by
said amount.
 Page 62 of 86

Private respondent is entitled to an additional remuneration for pursuing

legal action in the interest of petitioner before the labor arbiter and the
NLRC, on top of the P3,000.00 retainer fee he received monthly from
petitioner. The law firm's services are decidedly worth more than such basic
fee in the retainer agreement. Thus, in Part C thereof on "Fee Structure," it
is even provided that all attorney's fees collected from the adverse party by
virtue of a successful litigation shall belong exclusively to private
respondent, aside from petitioner's liability for appearance fees and
reimbursement of the items of costs and expenses enumerated therein.

A quasi-contract is based on the presumed will or intent of the obligor

dictated by equity and by the principles of absolute justice. Some of these
principles are: (1) It is presumed that a person agrees to that which will
benefit him; (2) Nobody wants to enrich himself unjustly at the expense of
another; and (3) We must do unto others what we want them to do unto us
under the same circumstances. 33

As early as 1903, we allowed the payment of reasonable professional fees to

an interpreter, notwithstanding the lack of understanding with his client as
to his remuneration, on the basis of quasi-contract. 34 Hence, it is not
necessary that the parties agree on a definite fee for the special services
rendered by private respondent in order that petitioner may be obligated to
pay compensation to the former. Equity and fair play dictate that petitioner
should pay the same after it accepted, availed itself of, and benefited from
private respondent's services.

We are not unaware of the old ruling that a person who had no knowledge
of, nor consented to, or protested against the lawyer's representation may
not be held liable for attorney's fees even though he benefited from the
lawyer's services. 35 But this doctrine may not be applied in the present case
as petitioner did not object to private respondent's appearance before the
NLRC in the case for differentials.

Viewed from another aspect, since it is claimed that petitioner obtained

respondent's legal services and assistance regarding its claims against the
bank, only they did not enter into a special contract regarding the
compensation therefor, there is at least the innominate contract of facio ut
des (I do that you may give). 36 This rule of law, likewise founded on the
principle against unjust enrichment, would also warrant payment for the
services of private respondent which proved beneficial to petitioner's
members. In any case, whether there is an agreement or not, the courts can
fix a reasonable compensation which lawyers should receive for their
professional services. 37 However, the value of private respondent's legal
 Page 63 of 86

services should not be established on the basis of Article 111 of the Labor
Code alone. Said article provides:

Art. 111. Attorney's fees. (a) In cases of unlawful withholding

of wages the culpable party may be assessed attorney's fees
equivalent to ten percent of the amount of the wages recovered.

xxx xxx xxx

The implementing provision 38 of the foregoing article further states:

Sec. 11. Attorney's fees. Attorney's fees in any judicial or

administrative proceedings for the recovery of wages shall not
exceed 10% of the amount awarded. The fees may be deducted
from the total amount due the winning party.

In the first place, the fees mentioned here are the extraordinary attorney's
fees recoverable as indemnity for damages sustained by and payable to the
prevailing part. In the second place, the ten percent (10%) attorney's fees
provided for in Article 111 of the Labor Code and Section 11, Rule VIII, Book
III of the Implementing Rules is the maximum of the award that may thus
be granted. 39 Article 111 thus fixes only the limit on the amount of
attorney's fees the victorious party may recover in any judicial or
administrative proceedings and it does not even prevent the NLRC from
fixing an amount lower than the ten percent (10%) ceiling prescribed by the
article when circumstances warrant it. 40

The measure of compensation for private respondent's services as against

his client should properly be addressed by the rule of quantum meruit long
adopted in this jurisdiction. Quantum meruit, meaning "as much as he
deserves," is used as the basis for determining the lawyer's professional fees
in the absence of a contract, 41but recoverable by him from his client.

Where a lawyer is employed without a price for his services being agreed
upon, the courts shall fix the amount on quantum meruit basis. In such a
case, he would be entitled to receive what he merits for his services. 42

It is essential for the proper operation of the principle that there is an

acceptance of the benefits by one sought to be charged for the services
rendered under circumstances as reasonably to notify him that the lawyer
performing the task was expecting to be paid compensation therefor. The
doctrine of quantum meruit is a device to prevent undue enrichment based
on the equitable postulate that it is unjust for a person to retain benefit
without paying for it. 43
 Page 64 of 86

Over the years and through numerous decisions, this Court has laid down
guidelines in ascertaining the real worth of a lawyer's services. These factors
are now codified in Rule 20.01, Canon 20 of the Code of Professional
Responsibility and should be considered in fixing a reasonable compensation
for services rendered by a lawyer on the basis of quantum meruit. These
are: (a) the time spent and the extent of services rendered or required; (b)
the novelty and difficulty of the questions involved; (c) the importance of the
subject matter; (d) the skill demanded; (e) the probability of losing other
employment as a result of acceptance of the proffered case; (f) the
customary charges for similar services and the schedule of fees of the IBP
chapter to which the lawyer belongs; (g) the amount involved in the
controversy and the benefits resulting to the client from the services; (h) the
contingency or certainty of compensation; (i) the character of the
employment, whether occasional or established; and (j) the professional
standing of the lawyer.

Here, then, is the flaw we find in the award for attorney's fees in favor of
private respondent. Instead of adopting the above guidelines, the labor
arbiter forthwith but erroneously set the amount of attorney's fees on the
basis of Article 111 of the Labor Code. He completely relied on the operation
of Article 111 when he fixed the amount of attorney's fees at
P17,574.43. 44 Observe the conclusion stated in his order. 45

xxx xxx xxx

FIRST. Art. 111 of the Labor Code, as amended, clearly declares

movant's right to a ten (10%) per cent of the award due its
client. In addition, this right to ten (10%) per cent attorney's
fees is supplemented by Sec. 111, Rule VIII, Book III of the
Omnibus Rules Implementing the Labor Code, as amended.

xxx xxx xxx

As already stated, Article 111 of the Labor Code regulates the amount
recoverable as attorney's fees in the nature of damages sustained by and
awarded to the prevailing party. It may not be used therefore, as the lone
standard in fixing the exact amount payable to the lawyer by his client for
the legal services he rendered. Also, while it limits the maximum allowable
amount of attorney's fees, it does not direct the instantaneous and
automatic award of attorney's fees in such maximum limit.

It, therefore, behooves the adjudicator in questions and circumstances

similar to those in the case at bar, involving a conflict between lawyer and
client, to observe the above guidelines in cases calling for the operation of
 Page 65 of 86

the principles of quasi-contract and quantum meruit, and to conduct a

hearing for the proper determination of attorney's fees. The criteria found in
the Code of Professional Responsibility are to be considered, and not
disregarded, in assessing the proper amount. Here, the records do not
reveal that the parties were duly heard by the labor arbiter on the matter
and for the resolution of private respondent's fees.

It is axiomatic that the reasonableness of attorney's fees is a question of

fact. 46 Ordinarily, therefore, we would have remanded this case for further
reception of evidence as to the extent and value of the services rendered by
private respondent to petitioner. However, so as not to needlessly prolong
the resolution of a comparatively simple controversy, we deem it just and
equitable to fix in the present recourse a reasonable amount of attorney's
fees in favor of private respondent. For that purpose, we have duly taken
into account the accepted guidelines therefor and so much of the pertinent
data as are extant in the records of this case which are assistive in that
regard. On such premises and in the exercise of our sound discretion, we
hold that the amount of P10,000.00 is a reasonable and fair compensation
for the legal services rendered by private respondent to petitioner before the
labor arbiter and the NLRC.

WHEREFORE, the impugned resolution of respondent National Labor

Relations Commission affirming the order of the labor arbiter is MODIFIED,
and petitioner is hereby ORDERED to pay the amount of TEN THOUSAND
PESOS (P10,000.00) as attorney's fees to private respondent for the latter's
legal services rendered to the former.

SO ORDERED.

Boie-Takeda chemicals vs Dela Serna 278 S 329

G.R. No. 92174 December 10, 1993

BOIE-TAKEDA CHEMICALS, INC., petitioner,

vs.

HON. DIONISIO DE LA SERNA, Acting Secretary of the Department of Labor

and Employment, respondent.

G.R. No. L-102552 December 10, 1993

 Page 66 of 86

PHILIPPINE FUJI XEROX CORP., petitioner,

vs.

CRESENCIANO B. TRAJANO, Undersecretary of the Department of Labor and

Employment, and PHILIPPINE FUJI XEROX EMPLOYEES UNION, respondents.

Herrera, Laurel, De los Reyes, Roxas & Teehankee for Boie-Takeda

Chemicals, Inc. and Phil Xerox Corp.

The Solicitor General for public respondents.

NARVASA, C.J.:

What items or items of employee remuneration should go into the

computation of thirteenth month pay is the basic issue presented in these
consolidated petitions. Otherwise stated, the question is whether or not the
respondent labor officials in computing said benefit, committed "grave abuse
of discretion amounting to lack of jurisdiction," by giving effect to Section 5
of the Revised Guidelines on the implementation of the Thirteenth Month Pay
(Presidential Decree No. 851) promulgated by then Secretary of Labor and
Employment, Hon. Franklin Drilon, and overruling petitioner's contention
that said provision constituted a usurpation of legislative power because not
justified by or within the authority of the law sought to be implemented
besides being violative of the equal protection of the law clause of the
Constitution.

Resolution of the issue entails, first, a review of the pertinent provisions of

the laws and implementing regulations.

Sections 1 and 2 of Presidential Decree No. 851, the Thirteenth Month Pay
Law, read as follows:

Sec 1. All employees are hereby required to pay all their

employees receiving basic salary of not more than P1,000.00 a
month, regardless of the nature of the employment, a 13th
month pay not later than December 24 of every year.

Sec. 2. Employers already paying their employees a 13th month

pay or its equivalent are not covered by this Decree.

The Rules and Regulations Implementing P.D. 851 promulgated by then

Labor Minister Blas Ople on December 22, 1975 contained the following
relevant provisions relative to the concept of "thirteenth month pay" and the
employers exempted from giving it, to wit:
 Page 67 of 86

Sec. 2. Definition of certain terms. . . .

a) "Thirteenth month pay" shall mean one twelfth (1/12) of the

basic salary of an employee within a calendar year;

b) "Basic Salary" shall include all remunerations or earnings paid

by an employer to an employee for services rendered but may
not include cost of living allowances granted pursuant to
Presidential Decree No. 525 or Letter of Instructions No. 174,
profit sharing payments, and all allowances and monetary
benefits which are not considered or integrated as part of the
regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.

Sec. 3. Employers covered. . . . (The law applies) to all

employers except to:

xxx xxx xxx

c) Employers already paying their employers a 13-month pay or

more in calendar year or is equivalent at the time of this
issuance;

xxx xxx xxx

e) Employers of those who are paid on purely commission,

boundary, or task basis, and those who are paid a fixed amount
for performing a specific work, irrespective of the time consumed
in the performance thereof, except where the workers are paid
on piece-rate basis in which case the employer shall be covered
by this issuance insofar as such workers are concerned.

xxx xxx xxx

The term "its equivalent" as used in paragraph (c) shall include

Christmas bonus, mid-year bonus, profit-sharing payments and
other cash bonuses amounting to not less than 1/12th of the
basic salary but shall not include cash and stock dividends, cost
of living allowances and all other allowances regularly enjoyed by
the employee, as well as non-monetary benefits. Where an
employer pays less than 1/12th of the employee's basic salary,
the employer shall pay the difference.
 Page 68 of 86

Supplementary Rules and Regulations implementing P.D. 851 were

subsequently issued by Minister Ople which inter alia set out items of
compensation not included in the computation of the 13th month pay, viz.:

Sec. 4. Overtime pay, earnings and other remunerations which

are not part of the basic salary shall not be included in the
computation of the 13th month pay.

On August 13, 1986, President Corazon C. Aquino promulgated

Memorandum Order No. 28, which contained a single provision modifying
Presidential Decree No. 851 by removing the salary ceiling of P1,000.00 a
month set by the latter, as follows:

Section 1 of Presidential Decree No. 851 is hereby modified to

the extent that all employers are hereby required to pay all their
rank-and-file employees a 13th month pay not later than
December 24, of every year.

Slightly more than a year later, on November 16, 1987, Revised Guidelines
on the Implementation of the 13th Month Pay Law were promulgated by
then Labor Secretary Franklin Drilon which, among other things, defined
with particularity what remunerative items were and were not embraced in
the concept of 13th month pay, and specifically dealt with employees who
are paid a fixed or guaranteed wage plus commission. The relevant
provisions read:

4. Amount and payment of 13th Month Pay.

xxx xxx xxx

The basic salary of an employee for the purpose of computing

the 13th month pay shall include all remunerations or earnings
paid by the employer for services rendered but does not include
allowances and monetary benefits which are not considered or
integrated as part of the regular or basic salary, such as the cash
equivalent of unused vacation and sick leave credits, overtime,
premium, night differential and holiday pay, and cost-of-living
allowances. However, these salary-related benefits should be
included as part of the basic salary in the computation of the
13th month pay if by individual or collective agreement,
company practice or policy, the same are treated as part of the
basic salary of the employees.

xxx xxx xxx

 Page 69 of 86

5. 13th Month Pay for Certain Types of Employees.

(a) Employees Paid by Results. Employees who are paid on

piece work basis are by law entitled to the 13th month pay.

Employees who are paid a fixed or guaranteed wage plus

commission are also entitled to the mandated 13th month pay
based on their total earnings during the calendar year, i.e., on
both their fixed or guaranteed wage and commission.

This was the state of the law when the controversies at bar arose out of the
following antecedents:

(RE G.R. No. 92174) A routine inspection was conducted on May 2, 1989 in
the premises of petitioner Boie-Takeda Chemicals, Inc. by Labor
and Development Officer Reynaldo B. Ramos under Inspection Authority
No. 4-209-89. Finding that Boie-Takeda had not been including the
commissions earned by its medical representatives in the computation of
their 13th month pay, Ramos served a Notice of Inspection Results 1 on
Boie-Takeda through its president, Mr. Benito Araneta, requiring Boie-
Takeda within ten (10) calendar days from notice to effect restitution or
correction of "the underpayment of 13th month pay for the year(s) 1986,
1987 and 1988 of Med Rep (Revised Guidelines on the Implementation of
13th month pay # 5) in the total amount of P558,810.89."

Boie-Takeda wrote the Labor Department contesting the Notice of Inspection

Results, and expressing the view "that the commission paid to our medical
representatives are not to be included in the computation of the 13th month
pay . . . (since the) law and its implementing rules speak of REGULAR or
BASIC salary and therefore exclude all other remunerations which are not
part of the REGULAR salary." It pointed out that, "if no sales is (sic) made
under the effort of a particular representative, there is no commission during
the period when no sale was transacted, so that commissions are not and
cannot be legally defined as regular in nature. 2

Regional Director Luna C. Piezas directed Boie-Takeda to appear before his

Office on June 9 and 16, 1989. On the appointed dates, however, and
despite due notice, no one appeared for Boie-Takeda, and the matter had
perforce to be resolved on the basis of the evidence at hand. On July 24,
1989, Director Piezas issued an Order 3directing Boie-Takeda:

. . . to pay . . . (its) medical representatives and its managers

the total amount of FIVE HUNDRED SIXTY FIVE THOUSAND
SEVEN HUNDRED FORTY SIX AND FORTY SEVEN CENTAVOS
 Page 70 of 86

(P565,746.47) representing underpayment of thirteenth (13th)

month pay for the years 1986, 1987, 1988, inclusive, pursuant
to the . . . revised guidelines within ten (10) days from receipt of
this Order.

A motion for reconsideration 4 was seasonably filed by Boie-Takeda under

date of August 3, 1989. Treated as an appeal, it was resolved on
January 17, 1990 by then Acting Labor Secretary Dionisio de la Serna, who
affirmed the July 24, 1989 Order with modification that the sales
commissions earned by Boie-Takeda's medical representatives before August
13, 1989, the effectivity date of Memorandum Order No. 28 and its
Implementing Guidelines, shall be excluded in the computation of their 13th
month pay. 5

Hence the petition docketed as G.R. No. 92174.

(RE G.R. No. 102552) A similar Routine Inspection was conducted in the
premises of Philippine Fuji Xerox Corp. on September 7, 1989 pursuant to
Routine Inspection Authority No. NCR-LSED-RI-494-89. In his Notice of
Inspection Results, 6 addressed to the Manager, Mr. Nicolas O. Katigbak,
Senior Labor and Employment Officer Nicanor M. Torres noted the following
violation committed by Philippine Fuji Xerox Corp., to wit:

Underpayment of 13th month pay of 62 employees, more or less

pursuant to Revised Guidelines on the Implementation of the
13th month pay law for the period covering 1986, 1987 and
1988.

Philippine Fuji Xerox was requested to effect rectification and/or restitution

of the noted violation within five (5) working days from notice.

No action having been taken thereon by Philippine Fuji Xerox,

Mr. Eduardo G. Gonzales, President of the Philxerox Employee Union, wrote
then Labor Secretary Franklin Drilon requesting a follow-up of the inspection
findings. Messrs. Nicolas and Gonzales were summoned to appear before
Labor Employment and Development Officer Mario F. Santos, NCR Office,
Department of Labor for a conciliation conference. When no amicable
settlement was reached, the parties were required to file their position
papers.

Subsequently, Regional Director Luna C. Piezas issued an Order dated

August 23, 1990, 7 disposing as follows:
 Page 71 of 86

WHEREFORE, premises considered, Respondent PHILIPPINE FUJI

XEROX is hereby ordered to restitute to its salesmen the portion
of the 13th month pay which arose out of the non-
implementation of the said revised guidelines, ten (10) days
from receipt hereof, otherwise,
MR. NICANOR TORRES, the SR. LABOR EMPLOYMENT OFFICER is
hereby Ordered to proceed to the premises of the Respondent
for the purpose of computing the said deficiency (sic) should
respondent fail to heed his Order.

Philippine Fuji Xerox appealed the aforequoted Order to the Office of the
Secretary of Labor. In an Order dated October 120, 1991, Undersecretary
Cresenciano B. Trajano denied the appeal for lack of merit. Hence, the
petition in G.R. No. 102552, which was ordered consolidated with G.R. No.
92174 as involving the same issue.

In their almost identically-worded petitioner, petitioners, through common

counsel, attribute grave abuse of discretion to respondent labor officials
Hon. Dionisio dela Serna and Undersecretary Cresenciano B. Trajano in
issuing the questioned Orders of January 17, 1990 and October 10, 1991,
respectively. They maintain that under P.D. 851, the 13th month pay is
based solely on basic salary. As defined by the law itself and clarified by the
implementing and Supplementary Rules as well as by the Supreme Court in
a long line of decisions, remunerations which do not form part of the basic or
regular salary of an employee, such as commissions, should not be
considered in the computation of the 13th month pay. This being the case,
the Revised Guidelines on the Implementation of the 13th Month Pay Law
issued by then Secretary Drilon providing for the inclusion of commissions in
the 13th month pay, were issued in excess of the statutory authority
conferred by P.D. 851. According to petitioners, this conclusion becomes
even more evident when considered in light of the opinion rendered by Labor
Secretary Drilon himself in "In Re: Labor Dispute at the Philippine Long
Distance Telephone Company" which affirmed the contemporaneous
interpretation by then Secretary Ople that commissions are excluded from
the basic salary. Petitioners further contend that assuming that Secretary
Drilon did not exceed the statutory authority conferred by P.D. 851, still the
Revised Guidelines are null and void as they violate the equal protection of
the law clause.

Respondents through the Office of the Solicitor General question the

propriety of petitioners' attack on the constitutionality of the Revised
Guidelines in a petition for certiorari which, they contend, should be confined
purely to the correction of errors and/or defects of jurisdiction, including
matters of grave abuse of discretion amounting to lack or excess of
 Page 72 of 86

jurisdiction and not extend to a collateral attack on the validity and/or

constitutionality of a law or statute. They aver that the petitions do not
advance any cogent reason or state any valid ground to sustain the
allegation of grave abuse of discretion, and that at any rate, P.D. No. 851,
otherwise known as the 13th Month Pay Law has already been amended by
Memorandum Order No. 28 issued by President Corazon C. Aquino on
August 13, 1986 so that commissions are now imputed into the computation
of the 13th Month Pay. They add that the Revised Guidelines issued by then
Labor Secretary Drilon merely clarified a gray area occasioned by the silence
of the law as to the nature of commissions; and worked no violation of the
equal protection clause of the Constitution, said Guidelines being based on
reasonable classification. Respondents point to the case of Songco
vs. National Labor Relations Commission, 183 SCRA 610, wherein the Court
declared that Article 97(f) of the Labor Code is explicit that commission is
included in the definition of the term "wage".

We rule for the petitioners.

Contrary to respondents' contention, Memorandum Order No. 28 did not

repeal, supersede or abrogate P.D. 851. As may be gleaned from the
language of the Memorandum Order No. 28, it merely "modified" Section 1
of the decree by removing the P1,000.00 salary ceiling. The concept of 13th
Month Pay as envisioned, defined and implemented under P.D. 851
remained unaltered, and while entitlement to said benefit was no longer
limited to employees receiving a monthly basic salary of not more than
P1,000.00, said benefit was, and still is, to be computed on the basic salary
of the employee-recipient as provided under P.D. 851. Thus, the
interpretation given to the term "basic salary" as defined in P.D. 851 applies
equally to "basic salary" under Memorandum Order No. 28.

In the case of San Miguel Corp. vs. Inciong, 103 SCRA 139, this Court
delineated the coverage of the term "basic salary" as used in P.D. 851. We
said at some length:

Under Presidential Decree 851 and its implementing rules, the

basic salary of an employee is used as the basis in the
determination of his 13th month pay. Any compensations or
remunerations which are deemed not part of the basic pay is
excluded as basis in the computation of the mandatory bonus.

Under the Rules and Regulations implementing Presidential

Decree 851, the following compensations are deemed not part of
the basic salary:
 Page 73 of 86

a) Cost-of-living allowances granted pursuant to

Presidential Decree 525 and Letter of Instructions
No. 174;

b) Profit-sharing payments;

c) All allowances and monetary benefits which are

not considered or integrated as part of the regular
basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.

Under a later set of Supplementary Rules and Regulations

Implementing Presidential Decree 851 Presidential Decree 851
issued by then Labor Secretary Blas Ople, overtime pay,
earnings and other remunerations are excluded as part of the
basic salary and in the computation of the 13th month pay.

The exclusion of the cost-of-living allowances under Presidential

Decree 525 and Letter of Instructions No. 174, and profit-
sharing payments indicate the intention to strip basic salary of
other payments which are properly considered as "fringe"
benefits. Likewise, the catch-all exclusionary phrase "all
allowances and monetary benefits which are not considered or
integrated as part of the basic salary" shows also the intention to
strip basic salary of any and all additions which may be in the
form of allowances or "fringe" benefits.

Moreover, the Supplementary Rules and Regulations

Implementing Presidential Decree 851 is even more emphatic in
declaring that earnings and other remunerations which are not
part of the basic salary shall not be included in the computation
of the 13th-month pay.

While doubt may have been created by the prior Rules and
Regulations Implementing Presidential Decree 851 which defines
basic salary to include all remunerations or earnings paid by an
employer to an employee, this cloud is dissipated in the later
and more controlling Supplementary Rules and Regulations
which categorically exclude from the definitions of basic salary
earnings and other remunerations paid by an employer to an
employee. A cursory perusal of the two sets of Rules indicates
that what has hitherto been the subject of a broad inclusion is
now a subject of broad exclusion. The Supplementary Rules and
Regulations cure the seeming tendency of the former rules to
 Page 74 of 86

include all remunerations and earnings within the definition of

basic salary.

The all embracing phrase "earnings and other remunerations"

which are deemed not part of the basic salary includes within its
meaning payments for sick, vacation, or maternity leaves,
premium for works performed on rest days and special holidays,
pays for regular holidays and night differentials. As such they are
deemed not part of the basic salary and shall not be considered
in the computation of the 13th-month pay. If they were not
excluded, it is hard to find any "earnings and other
remunerations" expressly excluded in the computation of the
13th month pay. Then the exclusionary provision would prove to
be idle and with no purpose.

This conclusion finds strong support under the Labor Code of the
Philippines. To cite a few provisions:

Art. 87. Overtime Work. Work may be performed beyond eight

(8) hours a day provided that the employee is paid for the
overtime work, additional compensation equivalent to his regular
wage plus at least twenty-five (25%) percent thereof.

It is clear that overtime pay is an additional compensation other

than and added to the regular wage or basic salary, for reason of
which such is categorically excluded from the definition of basic
salary under the Supplementary Rules and Regulations
Implementing Presidential Decree 851.

In Article 93 of the same Code, paragraph

c) work performed on any special holiday shall be paid an

additional compensation of at least thirty percent (30%) of the
regular wage of the employee.

It is likewise clear the premiums for special holiday which is at

least 30% of the regular wage is an additional pay other than
and added to the regular wage or basic salary. For similar
reason, it shall not be considered in the computation of the 13th
month pay.

Quite obvious from the foregoing is that the term "basic salary" is to be
understood in its common, generally-accepted meaning, i.e., as a rate of
pay for a standard work period exclusive of such additional payments as
 Page 75 of 86

bonuses and overtime. 8 This is how the term was also understood in the
case of Pless v. Franks, 308 S.W. 2nd. 402, 403, 202 Tenn. 630, which held
that in statutes providing that pension should not less than 50 percent of
"basic salary" at the time of retirement, the quoted words meant the salary
that an employee (e.g., a policeman) was receiving at the time he retired
without taking into consideration any extra compensation to which he might
be entitled for extra work. 9

In remunerative schemes consisting of a fixed or guaranteed wage plus

commission, the fixed or guaranteed wage is patently the "basic salary" for
this is what the employee receives for a standard work period. Commissions
are given for extra efforts exerted in consummating sales or other related
transactions. They are, as such, additional pay, which this Court has made
clear do not form part of the "basic salary."

Respondents would do well to distinguish this case from Songco vs. National
Labor Relations Commission, supra, upon which they rely so heavily. What
was involved therein was the term "salary" without the restrictive adjective
"basic". Thus, in said case, we construed the term in its generic sense to
refer to all types of "direct remunerations for services rendered," including
commissions. In the same case, we also took judicial notice of the fact "that
some salesmen do not receive any basic salary but depend on commissions
and allowances or commissions alone, although an employer-employee
relationship exists," which statement is quite significant in that it speaks of a
"basic salary" apart and distinct from "commissions" and "allowances".
Instead of supporting respondents' stand, it would appear that Songco itself
recognizes that commissions are not part of "basic salary."

In including commissions in the computation of the 13th month pay, the

second paragraph of Section 5(a) of the Revised Guidelines on the
Implementation of the 13th Month Pay Law unduly expanded the concept of
"basic salary" as defined in P.D. 851. It is a fundamental rule that
implementing rules cannot add to or detract from the provisions of the law it
is designed to implement. Administrative regulations adopted under
legislative authority by a particular department must be in harmony with the
provisions of the law they are intended to carry into effect. They cannot
widen its scope. An administrative agency cannot amend an act of
Congress. 10

Having reached this conclusion, we deem it unnecessary to discuss the other

issues raised in these petitions.

WHEREFORE, the consolidated petitions are hereby GRANTED. The second

paragraph of Section 5 (a) of the Revised Guidelines on the Implementation
 Page 76 of 86

of the 13th Month Pay Law issued on November 126, 1987 by then Labor
Secretary Franklin M. Drilon is declared null and void as being violative of
the law said Guidelines were issued to implement, hence issued with grave
abuse of discretion correctible by the writ of prohibition and certiorari. The
assailed Orders of January 17, 1990 and October 10, 1991 based thereon
are SET ASIDE.

SO ORDERED.

International vs NLRC 287 S 213, 1998

[G.R. No. 106331 March 9, 1998]

INTERNATIONAL PHARMACEUTICALS, INC., petitioner, vs. NATIONAL

LABOR RELATIONS COMMISSION (NLRC), FOURTH DIVISION,
and DR. VIRGINIA CAMACHO QUINTIA, respondents.

DECISION
MENDOZA, J.:

This is a petition for certiorari to set aside the decision of the National
Labor Relations Commission which affirmed in toto the decision of the Labor
Arbiter, finding petitioner guilty of the illegal dismissal of private respondent
Virginia Camacho Quintia, as well as its resolution denying reconsideration.
Petitioner International Pharmaceuticals, Inc. (IPI) is a corporation
engaged in the manufacture, production and sale of pharmaceutical
products. In March 1983, it employed private respondent Virginia Camacho
Quintia as Medical Director of its Research and Development department,
replacing one Diana Villaraza.[1] The government, in that year, launched a
program encouraging the development of herbal medicine and offering
incentives to interested parties. Petitioner decided to venture into the
development of herbal medicine, although it is now alleged that this was
merely experimental, to find out if it would be feasible to include herbal
medicine in its business.[2] One of the government requirements was the
hiring of a pharmacologist. Petitioner avers that it was only for this purpose
that private respondent was hired, hence its contention that private
respondent was a project employee.
 Page 77 of 86

The contract of employment provided for a term of one year from the
date of its execution on March 19, 1983, subject to renewal by mutual
consent of the parties at least thirty days before its expiration. It provided
for a monthly compensation of P4,000.00. It was agreed that Quintia could
continue teaching at the Cebu Doctors Hospital,[3] where she was, at that
time, a full-time member of the faculty.
Quintia claimed that when her contract of employment was about to
expire, she was invited by Xavier University in Cagayan de Oro City to be the
chairperson of its pharmacology department. However, Pio Castillo, the
president and general manager, prevailed upon her to stay, assuring her of
security of tenure. Because of this assurance, she declined the offer of
Xavier University.[4] Indeed, after her contract expired on March 19, 1984,
she remained in the employ of petitioner where she not only performed the
work of Medical Director of its Research and Development department but
also that of company physician. This continued until her termination on July
12, 1986.
In her complaint, private respondent alleges that the reason for her
termination was her taking up the cudgels for the rank and file employees
when she felt they were given a raw deal by the officers of their own Savings
and Loan Association. She claimed that sometime in June 1986, while Pio
Castillo was in China, the Association declared dividends to its members.
Due to complaints of the employees, meetings were held during which
private respondent pointed out the inequality in the imposition of interest
rate to the low-salaried employees and led them in the demand for a full
disclosure of the associations financial status. Her participation was resented
by the associations officers, all of whom were appointed by management, so
that when Castillo arrived, private respondent was summoned to Castillos
office where she was berated for her acts and humiliated in front of some
laborers. When she sought permission to explain her side, she was
arrogantly turned down and told to leave.[5]
On July 10, 1986, Quintia was replaced as head of the Research and
Development department by Paz Wong. Two days later, on July 12, 1986,
she received an inter-office memorandum officially terminating her services
allegedly because of the expiration of her contract of employment.
On January 21, 1987,[6] private respondent filed a complaint, charging
petitioner with illegal dismissal and praying that petitioner be ordered to
reinstate private respondent and to pay her full backwages and moral
damages.[7]
In its position paper, petitioner claimed that private respondent had been
hired on a consultancy basis coterminous with the duration of the project
involving the development of herbal medicine and that her employment was
 Page 78 of 86

terminated upon the abandonment of that project. It explained that

Quintias employment, which lasted for more than two years after the
original contract expired, was by virtue of an oral agreement with the same
terms as the written contract or, at the very least, by virtue of implied
extensions of the said contract which lasted until the company decided that
nothing would come out from said project.[8]
In a decision rendered on December 18, 1990, the Labor Arbiter found
private respondent to have been illegally dismissed. He held that private
respondent was a regular employee and not a project employee and so could
not be dismissed without just and/or legal causes as provided in the Labor
Code. Moreover, he found that petitioner failed to observe due process in
terminating Quintias services. For this reason, the Labor Arbiter ordered the
petitioner to reinstate private respondent and to pay her backwages for
three years, including 13th month pay and Service Incentive Leave, moral
damages and attorneys fees amounting to P177,099.94. He further ruled
that if reinstatement was no longer feasible, petitioner should pay private
respondent P6,000 as separation pay.
On appeal, the NLRC affirmed the ruling in a decision dated May 26,
1992. Petitioner moved for reconsideration, but its motion was denied for
lack of merit. The NLRC directed the Labor Arbiter to conduct a hearing to
determine whether reinstatement was feasible. Hence, this petition.
We find the petition to be without merit.
First. Art. 280 of the Labor Code provides:

Art. 280. Regular and casual employment. - The provisions of written

agreement to the contrary notwithstanding and regardless of the oral
agreement of the parties, an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer
except where the employment has been fixed for a specific project or
undertaking, the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or service to
be performed is seasonal in nature and the employment is for the duration
of the season.

An employment shall be deemed to be casual if it is not covered by the

preceding paragraph: Provided, That any employee who has rendered at
least one year of service, whether such service is continuous or broken, shall
be considered a regular employee with respect to the activity in which he is
employed and his employment shall continue while such activity exists.
 Page 79 of 86

In Brent School, Inc. v. Zamora,[9] it was held that although work done
under a contract is necessary and desirable in relation to the usual business
of the employer, a contract for a fixed period may nonetheless be made so
long as it is entered into freely, voluntarily and knowingly by the
parties. Applying this ruling to the case at bar, the NLRC held that the
written contract between petitioner and private respondent was valid, but,
after its expiration on March 18, 1984, as the petitioner had decided to
continue her services, it must respect the security of tenure of the employee
in accordance with Art. 280. It said:

To our mind, when complainant was allowed to continue working without the
benefit of a contract after the expiration of the one year period provided in
their written contract, that act completely changed the complexion of the
relationship between the parties.

The NLRC cited the following facts to justify its ruling: Quintia was
continued as Medical Director and even given the additional function of
company physician after the expiration of the original contract; she
undertook various civic activities for and in behalf of petitioner, such as
conducting free clinics and giving out IPI products; she did work which was
necessary and desirable in relation to the trade or business of petitioner;
and her employment lasted for more than (3) three years.
Petitioner contends:

(1) that the NLRCs reliance on Art. 280 is clearly contrary to this Courts
decisions;

(2) that private respondents tasks are really not necessary and desirable to
the usual business of petitioner;

(3) that there is clearly no legal or factual basis to support respondent

NLRCs reliance on the absence of a new written contract as indicating that
respondent Quintia became a regular employee.[10]

Petitioners first ground is that the ruling of the NLRC is contrary to

the Brent School decision. He contends that Art. 280 should not be so
interpreted as to render employment contracts with a fixed term invalid. But
the NLRC precisely upheld the validity of the contract in accordance with
the Brent School case. Indeed, the validity of the written contract is not in
issue in this case. What is in issue is whether private respondent did not
become a regular employee after the expiration of the written contract on
March 18, 1984 on the basis of the facts pointed out by the NLRC, simply
because there was in the beginning a contract of employment with a fixed
term.
 Page 80 of 86

Petitioner also invokes the ruling in Singer Sewing Machine v. Drilon[11] in

which it was stated:

The definition that regular employees are those who perform activities which
are desirable and necessary for the business of the employer is not
determinative in this case. Any agreement may provide that one party shall
render services for and in behalf of another for a consideration (no matter
how necessary for the latters business) even without being hired as an
employee. This is precisely true in the case of an independent contractorship
as well as in an agency agreement. The Court agrees with the petitioners
argument that Article 280 is not the yardstick for determining the existence
of an employment relationship because it merely distinguishes between two
kinds of employees, i.e., regular employees and casual employees, for
purposes of determining the right of an employee to certain benefits, to join
or form a union, or to security of tenure. Article 280 does not apply where
the existence of an employment relationship is in dispute.

Petitioner argues:

Even assuming arguendo that respondent Quintia was performing tasks

which were necessary and desirable to the main business of petitioner, said
standard cannot apply since said Article merely distinguishes between
regular and casual employment for the purpose of determining entitlement
to benefits under the Labor Code. In this case, respondent Quintias alleged
status as regular employee has precisely been disputed by petitioner. And,
as this Honorable Court noted in the foregoing case, an agreement may
provide that one party will render services, no matter how necessary for the
other partys business, without being hired as a regular employee, and this is
precisely the nature of the contract entered into by the parties in this
case.[12]

Clearly, petitioner misapplies the ruling in Singer. Quintias status as an

employee is not disputed in this case. Therefore, in determining whether she
was a project employee or a regular employee, the question is whether her
work was necessary and desirable to the main business of the employer. It
is true that, as held in Singer, parties can enter into an agreement for the
rendering of services by one to the other and that however necessary such
services may be to the latters business the contract will not necessarily give
rise to an employer-employee relationship if the elements of such
relationship are not present. But that is not the question in this case. Quintia
was an employee. The question is whether, given the fact that she was an
employee, she was a regular or a project employee, considering that she
had been continued in the service of petitioner for more than two years
following the expiration of her written contract.
 Page 81 of 86

Petitioners second point is that private respondents tasks were not really
necessary and desirable in respect of the usual business of petitioner, the
work done by Quintia being on a temporary basis only.[13] According to
petitioner, Quintias engagement was only for the duration of its herbal
medicine development project. In addition, petitioner points out that private
respondent was not required to keep fixed office hours and this arrangement
continued even after the expiration of the written contract, thus indicating
the temporary nature of her employment.
Petitioners allegations are contrary to the factual findings of both the
NLRC and the Labor Arbiter, particularly their findings that she was the head
of petitioners Research and Development department; that in addition, she
performed the function of company physician; and that she undertook
various civic activities in behalf of petitioner and that this engagement lasted
for more than three years (1983 - 1986).[14] Certainly, as the NLRC
observed, these facts show complainant working not as consultant but as a
regular employee albeit a managerial one.[15] It should be added that Quintia
was hired to replace one Diana Villaraza,[16] which suggests that the position
to which she was appointed by petitioner was an existing one, so much so
that after the termination of Quintiasemployment, somebody else (Paz
Wong) was appointed in her place.[17] If private respondents employment
was for a particular project which had allegedly been terminated, why would
there be a need to replace her?
We are not prepared to throw overboard the findings of both the NLRC
and the Labor Arbiter on the matter. These are essentially factual matters
which are within the competence of the labor agencies to determine.
Their findings are accorded by this Court respect and finality if, as in this
case, they are supported by substantial evidence.[18]
Indeed, the terms of the written employment contract are clear:

. . . That the FIRST PARTY is a manufacturer of medicines and

pharmaceutical preparations, while the SECOND PARTY is a Doctor of
Medicine and Pharmacologist of long standing;

That the FIRST PARTY desires to hire the SECOND PARTY as Medical Director
of its Research and Development department, which the latter accepts,
under the following terms and conditions, to wit:

1. That the SECOND PARTY shall perform and/or cause the performance of
the following:

a) Microbiological research and testing;

b) Clinical research and testing;

 Page 82 of 86

c) Prove and support First Partys claims in its brochures, literature and
advertisements;

d) Register with and cause the approval by Food and Drug Administration of
all pharmaceutical and medical preparations developed and tested by the
First Partys R&D department; and

e) To do and perform such other duties as may, from time to time, be

assigned by the First Party consonant to and in accord with the position
herein conferred. . . .

There is no mention whatsoever of any project or of any consultancy in

the contract. As aptly observed by the Solicitor General, the duties of Quintia
as provided for in the contract reject any notion of consultancy. Clearly, she
was hired as Medical Director of the Research and Development department
of petitioner company and not as consultant nor for any particular
project. The work she performed was manifestly necessary and desirable to
the usual business of petitioner, considering that it is engaged in the
manufacture and production of medicinal preparations. Petitioner itself
admits that research and development are part of its business.[19]
We agree with the Labor Arbiter that the fact that she was not required
to report at a fixed hour or to keep fixed hours of work does not detract
from her status as a regular employee. As petitioner itself admits, Quintia
was a managerial employee[20] and therefore not covered by the Labor Code
provisions on hours of work. What this Court said in once
case [21] is apropos:

The primary standard, . . . of determining a regular employment is the

reasonable connection between the particular activity performed by the
employee in relation to the usual business or trade of the employer. The test
is whether the former is usually necessary or desirable in the usual business
or trade of the employer. The connection can be determined by considering
the nature of the work performed and its relation to the scheme of the
particular business or trade in its entirety. Also, if the employee has been
performing the job for at least one year, even if the performance is not
continuous or merely intermittent, the law deems the repeated and
continuing need for its performance as sufficient evidence of the necessity if
not indispensability of that activity to the business. Hence, the employment
is also considered regular, but only with respect to such activity and while
such activity exists.

Neither does the fact that private respondent was teaching full-time at
the Cebu Doctors College negate her regular status since this fact does not
affect the nature of Quintias work. Whether ones employment is regular is
 Page 83 of 86

not determined by the number of hours one works, but by the nature of the
work and by the length of time one has been in that particular job.
Considering the foregoing, it is clear that Quintia became a regular
employee of petitioner after her contract expired on March 18, 1984 and her
services were continued for more than two years in the usual trade or
business of the employer.
Petitioner goes on to state his third point that there is clearly no legal or
factual basis to support respondent NLRCs reliance on the absence of a new
written contract as indicating that respondent Quintia became a regular
employee.[22] In support, the petitioner again cites the Brent
School case [23] where it was recognized that term contracts can be made
orally.[24] Hence, it is argued that the mere fact that there was no
subsequent written contract does not mean that the original agreement was
abandoned and/or that respondent became a regular employee due to the
absence thereof and/or that the parties had executed a new agreement, in
the absence of evidence showing intent to abandon and/or novate the
same. It posits that, based on the acts of the parties, an implied renewal
was entered into, or, at the very least, petitioner claims, the absence of a
written contract only indicates that the parties impliedly agreed to extend
their written contract.
There is absolutely no principle of law to support the proposition urged
by petitioner. On the other hand the written contract in this case provided
that it was subject to renewal by mutual consent of the parties at least thirty
days before its expiration on March 18, 1984. There is no evidence to show
that the parties mutually agreed to renew their contract. On the other hand,
to sustain petitioners contention that there was an implied extension after
the expiration of the original contract would make it possible for employers
like petitioner to circumvent Art. 280 of the Labor Code and thus prevent an
employee from becoming regular through the simple expedient of making
him sign a contract for a term and then extend to him a contract term, after
term, after term.
Moreover, assuming that petitioner is correct that there was at least an
implied renewal of the written contract containing the same terms and
conditions, then Quintias termination should have been effective in March of
1986 or March of 1987 rather than July of 1986. It should be noted that the
fixed term stated in the written contract allegedly renewed is one
year. Considering that the said contract was executed on March 19, 1983,
then if there really were implied renewals with the same terms and
conditions, private respondents employment should not have been
terminated in July of 1986. As discussed earlier, the decision of the NLRC is
based not alone on inference drawn from the expiration of the contract
 Page 84 of 86

but on facts which, in light of Art. 280, show that private respondents work
was in pursuance of the business of petitioner.
Second. Prescinding from the premise that private respondent was a
project employee, petitioner claims that because it had discontinued its
herbal medicine project after it had been shown not to be viable, private
respondents employment had to be terminated, too.
We have already shown why this claim has no basis and no
merit. Petitioner was unable to prove that it had actually undertaken a
project. Private respondents contract will be searched in vain for any
mention of a project. What it states is that Quintias employment was one for
a definite period, not for a project as petitioner would have it. A project
employment is one where the employment has been fixed for a specific
project/undertaking, the completion or termination of which has been
determined at the time of the engagement of the employee.[25] Quintias
engagement after the expiration of the written contract cannot be said to
have been pre-determined because, if petitioners other claim is to be
believed, it was essentially contingent upon the feasibility of herbal medicine
as part of petitioners business and for as long as the herbal medicine
development was being pursued by it.
It follows from the conclusion that private respondent Quintia was a
regular employee that she could only be dismissed for just or authorized
cause.[26] The records are bereft of any evidence showing the existence of
any of the specified causes in the Labor Code.It may be that an employer is
allowed wider discretion in terminating employment in respect of managerial
personnel compared to rank-and-file employees, and that such managerial
employees can be separated from the service for loss of
confidence. [27] However, a mere allegation of such ground is not
sufficient. As this Court has held in Western Shipping Agency, Inc. v.
NLRC:[28]

Loss of confidence is a valid ground for the dismissal of managerial

employees . . . But even managerial employees enjoy security of tenure, . . .
and, . . . can only be dismissed after cause is shown in an appropriate
proceeding. The loss of confidence must be substantiated by evidence. The
burden of proof is on the employer to show grounds justifying the loss of
confidence.

Petitioner in this case failed to discharge this burden, as both the Labor
Arbiter and the NLRC found.
Moreover, as the labor arbiter found, petitioner failed to accord due
process to private respondent in terminating her services. In the case
of Aurora Land Projects Corp. v. NLRC it was stated: [29]
 Page 85 of 86

The law requires that the employer must furnish the worker sought to be
dismissed with two written notices before termination of employee can be
legally effected: (1) notice which apprises the employee of the particular
acts or omissions for which his dismissal is sought; and (2) the subsequent
notice which informs the employee of the employers decision to dismiss him
(Section 13, BP 130; Sections 2-6, Rule XIV, Book V Rules and Regulations
Implementing the Labor Code as amended). Failure to comply with the
requirements taints the dismissal with illegality. This procedure is
mandatory; in the absence of which, any judgment reached by management
is void and inexistent. (Tingson, Jr. v. NLRC, 185 SCRA 498 [1990]; National
Service Corporation v. NLRC, 168 SCRA 122 [1988]; Ruffy v. NLRC, 182
SCRA 365 [1990].

The memoranda dated July 12, 1986 and July 10, 1986, copies of which
were furnished the complainant, informing her of the termination of her
contract and the appointment of a replacement, without apprising her of the
particular acts or omissions for which her dismissal was sought, do not
suffice to satisfy the requirements of notice. Nor was petitioner given the
opportunity to be heard.[30] Consequently, her dismissal from the service
was illegal.
Third. Petitioner contends that the reinstatement of private respondent is
not feasible because the position which she held was abolished on account of
its decision to discontinue its herbal medicine development project and that,
in any event, because the position is a sensitive one which needs an
employee in whom the petitioner has full faith and confidence. It is also
contended that reinstatement would be untenable considering the
antagonism engendered as a result of this case.[31]
As regards the claim that the position has already been abolished and,
therefore, reinstatement is impossible, suffice it to state that the factual
findings of the Labor Arbiter belie this. A replacement for private respondent
was appointed two (2) days prior to her termination. If the position had been
abolished, there would have been no necessity for a replacement.
But we agree that because of antagonism generated by this case and the
private respondents own preference for separation pay, reinstatement
would no longer be feasible. It would thus be in the best interest of the
parties to order the payment of separation pay in lieu of reinstatement. Such
an amount should not be equivalent to one-half month salary for every year
of service only, as ordered by the Labor Arbiter and affirmed by the NLRC
but, in accordance with our decisions,[32] it must be equivalent to one month
salary for every year of service.
Private respondent should be given separation pay and backwages in
accordance with the Labor Code. The backwages, however, are to be
 Page 86 of 86

computed only for three years from July 12, 1986, the date of her dismissal,
without deduction or qualification, considering that the dismissal was
made before the effectivity on March 21, 1989, of R.A. No. 6715, which
provides for the payment of full backwages to employees who are illegally
dismissed.[33]
WHEREFORE, the petition is DISMISSED. The decision of the National
Labor Relations Commission is MODIFIED by ordering petitioner to pay
private respondent separation pay equivalent to one month salary for every
year of service. In all other respects, the decision of the NLRC is AFFIRMED.
SO ORDERED.