RODOLFO DE JESUS, EDELWINA DG. PARUNGAO AND REBECCA A. BARBO, PETITIONERS, VS. COMMISSION ON AUDIT, RESPONDENT.

De Jesus versus Commission on Audit

The Case

This is a consolidated special civil action against the Commission on Audit, brought by officials and employees of the Local Water Utilities Administration, a government-owned and controlled corporation. The petitioners assail a Commission on Audit decision that sustained the corporate auditor's disallowance of the rice allowance paid to them from 1991 to 1994. The case matters because it fixes the meaning of the second sentence of Section 12 of the Salary Standardization Law: whether the continued grant of a benefit enjoyed before the law took effect requires a separate authority from the Department of Budget and Management, the Office of the President, or a legislative issuance, or whether the law itself authorizes it for incumbents.

Procedural History

The Local Water Utilities Administration's corporate auditor disallowed several payrolls covering the rice allowances for the years 1991 to 1994, invoking Section 12 of the Salary Standardization Law, its implementing circular, and Memorandum Order No. 177 with its implementing circular. The petitioners appealed the disallowances to the Commission on Audit. The Commission, in its decision of November 1996, denied the appeals and sustained the disallowance, holding that until the implementing circular was nullified by a proper court, the Commission had to observe and carry out its mandate, and that the corporation had failed to submit the required list of allowances. Two separate petitions then reached the Supreme Court, one for certiorari and one for review on certiorari, and the Court consolidated them upon motion of the Office of the Solicitor General. The Court also noted that the Solicitor General took a position adverse to the Commission, and that the Office of the Government Corporate Counsel later appeared for all petitioners, curing any defect in representation.

Facts

Since 1982, the officials and employees of the Local Water Utilities Administration had been receiving a rice subsidy, first at 200 pesos for every two months under a board resolution, later increased to 350 pesos in 1986 under a series of board resolutions. In the interim, the President issued Memorandum Order No. 177, prescribing policies for rationalizing compensation in government-owned and controlled corporations, and directing the payment of a transition allowance to incumbents receiving additional fringe benefits for at least twelve months before its effectivity. The Department of Budget and Management issued a corporate budget circular to implement it.

On July 1, 1989, Congress passed the Salary Standardization Law, which, subject to exceptions, deemed all allowances included in the standardized rates. The Department of Budget and Management then issued Corporate Compensation Circular No. 10, which listed the rice subsidy among benefits not integrated into basic salary and allowed to continue only for incumbents as of June 30, 1989, subject to the condition that the grant be with appropriate authorization from the Department of Budget and Management, the Office of the President, or a legislative issuance.

Even after the law took effect, the rice allowance continued and was increased to 600 pesos per month per employee under a board resolution of August 1991. The corporate auditor then disallowed the payrolls for 1991 to 1994. The petitioners argued that the implementing circular, being unenforceable for lack of publication, could not supplant Section 12 of the law. The Commission on Audit upheld the disallowance. Meanwhile, the Supreme Court had already ruled in a prior case involving the same petitioners that Corporate Compensation Circular No. 10 was ineffective for want of publication.

Issues

• Whether or not the Commission on Audit erred in relying on Corporate Compensation Circular No. 10 as the legal basis for sustaining the disallowance of the rice allowances.
• Whether or not the rice subsidy granted after the effectivity of the Salary Standardization Law is already included in the standardized salary rates and may no longer be given separately.
• Whether or not the phrase "shall continue to be authorized" in Section 12 of the Salary Standardization Law requires a separate authority from the Department of Budget and Management, the Office of the President, or a legislative issuance.

Applicable Provisions

Section 12 of Republic Act No. 6758, the Salary Standardization Law, provides:

SECTION 12. Consolidation of Allowances and Compensation. – All allowances, except for representation and transportation allowances; clothing and laundry allowances; subsistence allowance of marine officers and crew on board government vessels and hospital personnel; hazard pay; allowances of foreign service personnel stationed abroad; and such other additional compensation not otherwise specified herein as may be determined by the DBM, shall be deemed included in the standardized salary rates herein prescribed. Such other additional compensation, whether in cash or in kind, being received by incumbents only as of July 1, 1989 not integrated into the standardized salary rates shall continue to be authorized.

This is the provision the Court construes: its second sentence is the source of the petitioners' right to keep receiving the rice allowance.

Section 2 of Memorandum Order No. 177 provides:

SECTION 2. Allowances of Incumbents. – Incumbents of positions in corporate entities covered by this Memorandum Order who are presently receiving additional monthly compensation/fringe benefits and other emoluments which were continuously enjoyed for a period of at least twelve months prior to the effectivity of this Order, including those authorized solely by their governing boards effected on or before December 31, 1987, the aggregate of which exceeds the standardized rates prescribed pursuant to existing compensation laws, rules, and regulations as administered by the Department of Budget and Management, shall continue to receive such excess allowance, which shall be referred to as "transition allowance." The "transition allowance" shall be correspondingly reduced by the amount of any salary increase or salary adjustment that the incumbent shall receive in the future.

The Court reads this as an express authorization for benefits granted solely by governing boards, with no requirement of approval by the Department of Budget and Management.

Ruling

On the first issue, the Court held that the disallowance cannot rest on Corporate Compensation Circular No. 10, because that circular was already declared ineffective for lack of publication in the Official Gazette or in a newspaper of general circulation, following the rule in Tañada versus Tuvera that an administrative circular implementing an existing law must be published to be enforceable.

On the second issue, the Court held that the rice allowance is not deemed included in the standardized salary rates. Section 12 expressly recognizes the continued grant of additional compensation received by incumbents as of July 1, 1989 and not integrated into the standardized rates, in keeping with the principle of non-diminution of pay. The Court relied on its earlier rulings that the legislature intended to protect incumbents receiving allowances beyond those authorized by the law.

On the third issue, the Court rejected the Commission's reading of the phrase "shall continue to be authorized." The provision does not qualify as to the source of the benefit; it is enough that the benefit existed before the law took effect and was not included in the standardized rates. The Court also held that Memorandum Order No. 177 expressly authorized benefits granted solely by governing boards, and that the implementing circular, insofar as it empowered the Department of Budget and Management to determine which benefits qualified, arrogated an authority not stated in the order. Since the disallowed period fell after the law took effect, the order and its implementing circular no longer governed. The Court distilled the requirements:

Under Section 12 of R.A. No. 6758, the only requirements for the continuous grant of allowances and fringe benefits on top of the standardized salary rates are as follows: (1) the employee must be an incumbent as of July 1, 1989; and (2) the allowance or benefit was not consolidated in the standardized salary rate as prescribed by R.A. No. 6758.

Doctrine

Under the second sentence of Section 12 of the Salary Standardization Law, an additional compensation, whether in cash or in kind, received by an incumbent as of July 1, 1989 and not integrated into the standardized salary rates shall continue to be authorized. Only two requisites must concur: the employee is an incumbent as of July 1, 1989, and the benefit was not consolidated into the standardized rate. No separate authority from the Department of Budget and Management, the Office of the President, or a legislative issuance is required, and the source of the benefit, even a governing board resolution alone, does not matter. This implements the principle of non-diminution of pay. An implementing circular that adds a condition not found in the law or the order it implements, or that arrogates to the Department of Budget and Management the power to determine which benefits qualify, is invalid. And an administrative circular implementing an existing law must be published in the Official Gazette or a newspaper of general circulation before it may be enforced.

Disposition

The petitions were granted, the assailed Commission on Audit decision was set aside, and no costs were pronounced.

Remember This

Memorize the two requisites: an incumbent as of July 1, 1989, and a benefit not integrated into the standardized salary rate; nothing more is needed for its continued grant. Examiners use this case to test the non-diminution of pay under Section 12 of the Salary Standardization Law and the publication requirement for implementing circulars.