DAVAO FRUITS CORPORATION, PETITIONER, VS. ASSOCIATED LABOR UNIONS (ALU) FOR AND IN BEHALF OF ALL THE RANK-AND-FILE WORKERS/EMPLOYEES OF DAVAO FRUITS CORPORATION AND NATIONAL LAB…

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-XI-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 and 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 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. x x x

(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.”

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

Clearly, the term “basic salary” includes all
remunerations or earnings paid by the employer to the 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 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 remunerations 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 is 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 and special holidays, as well as pay for
regular holidays, are likewise excluded computing the basic salary for the
purpose of determining the thirteenth 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 G. 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 “basic 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 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 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 the computation of the 13th-month pay. Then the exclusionary provision would prove to be idle and with
no 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 Code 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 is 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 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, (Chairman), Griño-Aquino, Davide, Jr., and Bellosillo, JJ., concur.