LEGASPI ST. JUDE DRUGSTORE AND ALFREDO ARNULFO RAMOS, PETITIONERS, VS. SARAH A. GUBOT, LALAINE GUBOT AND NATIONAL LABOR RELATIONS COMMISSION, THIRD DIVISION, RESPONDENTS.

Legaspi St. Jude Drugstore versus Gubot

The Case

This is a labor case in which two resigned employees, Sarah Gubot and Lalaine Gubot, sought to recover money withheld from their salaries by their former employer, Legaspi St. Jude Drugstore, and its proprietor and manager, Alfredo Arnulfo Ramos. The employer had deducted a monthly amount from their wages as a so-called cash bond, and had also failed to pay their thirteenth month pay. The case matters because it fixes the rule on wage deductions: an employer may not withhold any part of an employee's salary except under the narrow exceptions the law allows, and the employee's consent, to be valid, must come before the deduction, not after it.

Procedural History

Sarah and Lalaine filed separate complaints for their money claims before the Labor Arbiter. On September 14, 2012, the Labor Arbiter rendered a decision ordering the payment of their cash bond, their thirteenth month pay, moral and exemplary damages, and attorney's fees. The employer appealed to the National Labor Relations Commission, which affirmed the Labor Arbiter's findings, modifying only the amount of moral and exemplary damages. The employer's motion for reconsideration was dismissed. The employer then filed a petition for certiorari before the Supreme Court, assailing the rulings of the National Labor Relations Commission.

Facts

Alfredo Arnulfo Ramos, proprietor and manager of Legaspi St. Jude Drugstore, hired Sarah Gubot in May 2003 and Lalaine Gubot in April 2007. In May 2008, the drugstore began deducting 250 pesos per month from their salaries to serve as a cash bond, and the amount was increased to 500 pesos in 2009. The employer described the cash bond as the amount deducted from the employees' salary every month to answer for any loss of cash or products in the store.

On November 8, 2011, Sarah and Lalaine resigned. They asked for the return of their accrued cash bond and the payment of their thirteenth month pay, but the employer refused despite repeated demands. This prompted them to file separate complaints to recover their money claims. They maintained that the salary deduction was without their consent and that they were not given their thirteenth month pay.

The employer countered that the deduction was made with their consent, pointing to a document titled Mga Katungkulan at Responsibilidad, which provided that the cash bond would be refunded only after an inventory of their accountabilities and the issuance of a clearance. The employer claimed that the two employees failed to comply with these requisites. The records showed, however, that the cash bond was imposed in May 2008, while the alleged consent was signed only on July 29, 2011.

Issues

• Whether or not the deduction from the employees' salaries for a cash bond was valid, considering that their consent was given only after the deductions had already been made.
• Whether or not the employees are entitled to the return of their accrued cash bond.
• Whether or not the employees are entitled to thirteenth month pay.
• Whether or not the employees are entitled to moral and exemplary damages and attorney's fees.
• Whether or not the National Labor Relations Commission committed grave abuse of discretion in its rulings.

Applicable Provisions

Article 113 of the Labor Code provides:

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: In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance; 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 In cases where the employer is authorized by law or regulations issued by the Secretary of Labor and Employment.

This is the general prohibition on wage deductions, and the Court used it to test whether the cash bond fell under any of the three exceptions.

Article 114 of the Labor Code provides:

Deposits for loss or damage. No employer shall require his worker to make deposits from which deductions shall be made for the reimbursement of loss of or damage to tools, materials, or equipment supplied by the employer, except when the employer is engaged in such trades, occupations or business where the practice of making deposits is a recognized one, or is necessary or desirable as determined by the Secretary of Labor in appropriate rules or regulations.

This provision governs deposits for loss or damage, and the Court required the employer to show that the cash bond was a recognized practice in its trade or was approved by the Secretary of Labor.

Ruling

On the first issue, the Court held that the deduction was invalid. The consent given by Sarah and Lalaine came after the deduction, not before it. The cash bond was imposed in May 2008, but the alleged consent was signed only on July 29, 2011. The Court stressed that deductions from wages are prohibited, and that the employer failed to prove that the imposition of a cash bond fell under the exceptions in Articles 113 and 114 of the Labor Code. The employer must establish that the deduction is authorized by law or by regulations issued by the Secretary of Labor, or that the posting of the cash bond is a recognized practice in the trade or business, or that the Secretary of Labor approved the policy as necessary or desirable in the conduct of the business. The Court also adopted the observation of the National Labor Relations Commission that the fund against which the offsetting was made was illegally amassed, and that the quitclaim agreement could not validate what was, at its inception, an illegal practice. Consent, as required by law, is prior consent.

On the second issue, the Court held that Sarah and Lalaine are entitled to the return of their accrued cash bond, since the deductions were illegal.

On the third issue, the Court maintained the grant of thirteenth month pay. It applied the settled rule that one who pleads payment has the burden of proving it, and that the employer must show the employee has been paid the correct salaries and wages since it has the proof of payment in its possession. The employer failed to discharge this burden.

On the fourth issue, the Court deleted the award of moral and exemplary damages and attorney's fees, because Sarah and Lalaine did not claim these in their complaints or position paper, and did not prove that they were entitled to them.

On the fifth issue, the Court held that the employer failed to establish grave abuse of discretion. Not every error in a proceeding, or every erroneous conclusion of law or of fact, is an act in excess of jurisdiction or an abuse of discretion.

Doctrine

No employer may make any deduction from the wages of employees except under the exceptions in Article 113 of the Labor Code, namely, insurance premiums with the worker's consent, union dues with check-off recognition or written authorization, and deductions authorized by law or regulations issued by the Secretary of Labor. A cash bond deducted from wages is an additional burden on the employee and is valid only if the employer proves it falls under these exceptions or under Article 114, that is, that the practice of making deposits is recognized in the trade or business, or is necessary or desirable as determined by the Secretary of Labor. Consent to a wage deduction must be prior consent; consent given after the deductions have already been made does not validate them, and a later quitclaim cannot cure an illegal practice. Finally, the employer bears the burden of proving payment of wages and thirteenth month pay, since the proof of payment is in its possession.

Disposition

The petition was partly granted. The decision of the National Labor Relations Commission was modified to delete the award for moral and exemplary damages and attorney's fees, while the return of the cash bond and the payment of thirteenth month pay were sustained.

Remember This

The one line to memorize: consent to a wage deduction must be prior consent, and a cash bond deducted from wages is illegal unless it falls under the exceptions of Articles 113 and 114 of the Labor Code. Examiners use this case to test the rule on wage deductions, the validity of cash bonds, and the employer's burden of proving payment of thirteenth month pay.