UST FACULTY UNION, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND UNIVERSITY OF SANTO TOMAS, INC., RESPONDENTS.

The controversy, from which the case arose, has to do with the
payment of the 13th month pay.

An understanding of the incidents that led to the filing of the
instant petition is necessary to resolve the basic issue raised.

To settle a labor dispute regarding the share of the faculty
members in the increase in tuition fees under Presidential Decree No. 451, the
University of Santo Tomas and the UST Faculty Union, represented by Dean (now
Justice) Andres Narvasa and Professor (later, Court
of Appeals Justice) Cecilio Pe,
respectively, entered into an agreement on March 25, 1985, which provided inter alia:

1.0     Under this Agreement
and the Collective Bargaining Agreement that the parties shall eventually
execute, UST shall grant to all its faculty members the additional benefits
specified in the succeeding paragraphs hereof, over and above the benefits
currently enjoyed by the said faculty members, which additional benefits
shall amount in the aggregate to P35,000,000.00,
divided and receivable over a period of
three (3) years, within School Years 1985-1986, 1986-1987,
and 1987-1988, it being explicitly understood and stipulated by both parties
hereto that UST’s total commitments under and by virtue of this Agreement and
the Collective Bargaining Agreement to be hereafter executed, cannot and shall
not exceed nor be less than the amount of P35,000,000.00.

2.0     For School Year
1985-1986, UST shall grant the following:

*        *           *

2.3   Christmas gift of P2,000.00 each to all full-time faculty members – i.e., those with an average assignment of at least
15 units in the current school
year – provided that they have been employed for at least 12 months as of December 1, 1985; and of P1,000.00
each to all part-time faculty members – i.e., those with an average teaching
assignment of less than 15 units in the current school year – or faculty
members employed for less than 12 months as of December 1, 1985;

*        *           *

3.0.    For School Year
1986-1987 and 1987-1988, UST shall grant a salary increase of not less than 10%
in each year under the conditions set forth in paragraph 2.1 (see Annex A) and
the same amount of benefits set out in paragraphs 2.2 to 2.5, inclusive.

*        *           *

6.0     If at the end of
School Year 1987-1988 there should be any unspent balance of the aggregate of
P35,000,000.00, such unspent balance shall be
distributed proportionately to all faculty members.

*        *           *

[Rollo, pp.
64-65.]

UST had not been previously paying its faculty members 13th month
pay.  Presidential Decree No. 851, which
took effect on December 16, 1975
provides:

Section 1.     All
employers are hereby required to pay all their employees receiving a basic
salary of not more than P1,000 a month, regardless of the nature of the
employment, a 13th month pay not later than December 24 of every year.

Section 2.     Employers
already paying their employees a 13th month pay or its equivalent are not
covered by this Decree.

Thus, since the faculty members of UST
were receiving salaries greater than P1,000.00 a
month, UST was not required to pay them any 13th month pay.

On August 13, 1986,
President Aquino issued Memorandum Order No. 28 which
provided:  “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.”

Thus starting with the year 1986 the UST was required by law to
pay its faculty members the 13th month pay. 
At the same time the faculty expected compliance with the Agreement of March 25, 1985 to pay Christmas gifts
of P2,000.00 for full-time faculty members and
P1,000.00 for part-time faculty members. 
It was because of this that the controversy arose.

On December 3, 1986,
Prof. Pe wrote a letter to the rector of the
university expressing the faculty members’ apprehensions regarding reports
“that the 13th month pay is being reduced by deducting therefrom
the amount of the said Christmas
gift.”

The rector replied the next day, December 4, 1986, by attaching a memorandum of its legal
counsel which concluded that “the Christmas bonus already paid to the employees
shall be credited as compliance with the 13th month pay.”

On December 9,
1986, Prof. Pe wrote the rector another letter
expressing the union’s disagreement with the university legal counsel’s opinion
and reiterating its position that the Christmas gift is not a bonus and should
be paid in addition to the 13th month pay. 
The letter further stated:

It will be recalled that when you and Fr. Fermin,
and I – in the presence of Alex Tagaro – met at the Quezon City Sports Club in March, 1985 and discussed
possible settlement of our then existing labor dispute in the University, it
was readily agreed that the University would pay the faculty members the
aggregate amount of P35 million demanded by the Union.  It was only thereafter that we proceeded, in
a subsequent meeting held in the same place, to take up the matter of
allocation, that is, how the sum of P35 million would be paid and what
form.  As finally agreed, the payment in cash would be made over a period
of three (3) years in the form of salary increases, increase of contribution to
the Retirement Fund, Christmas gift, hospitalization benefits, and educational
benefits.  All this embodied in our
Agreement dated March 25, 1985
which is part and parcel (Annex “A”) of our CBA dated May 17, 1986. 
So clear was our agreement
that the University’s obligation was to pay the faculty members the total
amount of P35 million – no more, no less – (see par. 1.0 of the March 25
Agreement) that it is expressly and explicitly stipulated therein that at the
end of School Year 1987-88 there should be any unspent balance of the aggregate
P35,000,000.00, such unspent balance shall be
distributed proportionately to all faculty members.  (See par. 6.0.) The
allocation was not intended to affect in any way the obligation of the
University to pay P35 million, no part of which should therefore be considered
as a bonus.  [Rollo,
p. 92.]

When UST did not heed the union’s demand, the latter filed a
complaint with the arbitration branch of the NLRC on December 10, 1986 seeking to compel UST to pay
the faculty members the full amount of their 13th month pay and not to deduct therefrom the P2,000.00 or
P1,000.00 given as Christmas gift.

On January 4, 1989, the Labor
Arbiter rendered a decision dismissing the union’s complaint.  The arbiter ruled that the Christmas gift may be considered an equivalent of the
13th month pay pursuant to the rules implementing P.D. No. 851.

The union appealed to the NLRC. 
In a decision dated August 23,
1989, the NLRC dismissed the appeal and affirmed the arbiter’s
decision.  The union moved for
reconsideration but this was denied on September
29, 1989.

But the issue was ventilated not only before the NLRC.  Individual faculty members filed complaints
before the Grievance Adjudication Committee created pursuant to the CBA.  In a unanimous decision dated March 27, 1987,
the Committee ruled “that the P2,000/1,000 provided
for in Sec. 2.3 of Annex “A” of the CBA is not a Christmas Bonus creditable to
the 13th month pay but part of the P35 million which in the Compromise
Agreement (Annex “A” of CBA) was agreed upon by the Faculty Union and the
respondent University as a settlement of all existing claims of the Union.” [Rollo, p. 86.] The decision was
signed by Justice Eduardo P. Caguioa and Dean Minerva
A. Gonzalez, representing the university, and Atty. Eduardo J. Marino, Jr. and
Prof. Ma. Melvyn P. Alamis,
representing the union.  Although
its representatives signed the committee decision, UST refused to accept the
judgment.

These are the incidents
that led to the filing of the
instant petition.  After comments were
filed by private and public respondents, and petitioner filed a reply, the
petition was given due course on February 27, 1990 and the parties were
required to file their memoranda.  After
the parties complied, the case was deemed submitted.

The leading case on the 13th month pay is National Federation
of Sugar Workers (NFSW) v. Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354, an en banc
decision.  In concluding that
“Christmas bonus,” “milling bonus” and “amelioration bonus,” the yearly total
of which exceeds one month salary, may be considered as an “equivalent” of the
13th month pay under the rules implementing P.D. No. 851, the Court said:

The evident intention of the law, as revealed by the law itself, was to grant an additional
income in the form of a 13th month pay to
employees not already receiving the same.  Otherwise put, the intention was to grant some relief – not to all workers – but only to the
unfortunate ones not actually paid a 13th month salary or what amounts to it,
by whatever name called; but it was not envisioned that a double burden would
be imposed on the employer already paying his employees a 13th month pay or its
equivalent – whether out of pure generosity or on the basis of a binding
agreement and, in the latter case, regardless of the conditional character of
the grant (such as making the payment dependent on profit), so long as there is
actual payment.  Otherwise, what was
conceived to be a 13th month salary would in effect become a 14th or possibly
15th month pay.

This view is justified by the law itself which makes no distinction
in the grant of exemption:  “Employers
already paying their employees a 13th month pay or its equivalent are not covered by this Decree.” (P.D. 851.)

The Rules Implementing P.D. 851 issued by MOLE immediately after
the adoption of said law reinforce this stand.  Under Section 3(e) thereof –

“The term ‘its equivalent’ . . . 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.” (Italics
supplied.)

Having been issued by the agency charged with the implementation of
PD 851 as its contemporaneous interpretation of the law, the quoted rule should
be accorded great weight.

Pragmatic considerations also weigh heavily in favor of crediting
both voluntary and contractual bonuses for the purpose of determining liability
for the 13th month pay.  To require
employers (already giving their employees a 13th month salary or its
equivalent) to give a second 13th month pay would be unfair and productive of
undesirable results.  To the employer who
had acceded and is already bound to give bonuses to his employees, the
additional burden of a 13th month pay would amount to a penalty for his munificence of liberality.  The probable reaction of one so circumstanced
would be to withdraw the bonuses or resist further voluntary grants for fear
that if and when a law is passed giving the same benefits,
his prior concessions might not be given due credit; and this negative attitude
would have an adverse impact on the employees. 
[At pp. 369-370.]

Then, in Dole Philippines, Inc. v. Leogardo,
Jr., G.R. No. 60018, October 23,
1982, 117 SCRA 938, the Court, using the holding in National Federation of Sugar Workers (NFSW) as yardstick, said:

Tested against this norm, it becomes clear that the year-end
productivity bonus granted by petitioner to private respondents pursuant to
their CBA is, in legal contemplation, an integral part of their 13th month pay,
notwithstanding its conditional nature. 
When, therefore, petitioner, in order to comply with the mandate of PD
No. 851, credited the year-end productivity bonus as part of the 13th month pay
and adopted the procedure of paying only the difference between said bonus and
the 1/12th of the worker’s yearly basic salary, it acted well within the letter
and spirit of the law and its implementing rules.  For in the event that “an employer pays less
than one-twelfth of the
employees’ basic salary, all that said employer is required to do under the law
is to pay the difference.”

To hold otherwise would be to impose an unreasonable and undue
burden upon those employers who had demonstrated their sensitivity and concern
for the welfare of their employees.  A
contrary stance would indeed create an absurd situation whereby an employer who
started giving his employees the 13th month pay only because of the
unmistakable force of the law would be in a far better position than another
who, by his own magnanimity or by mutual agreement, had long been extending to
his employees the benefits contemplated under PD No. 851, by whatever
nomenclature these benefits have come to be known.  Indeed, PD No. 851, a
legislation benevolent in its purpose, never intended to bring about
such oppressive situation.  [At pp. 943-944.]

In Brokenshire Memorial Hospital,
Inc. v. NLRC, G.R. No. 69741, August 19, 1986, 143 SCRA 564,
the Court, applying the rulings in National Federation of Sugar
Workers (NFSW) and Dole, held that an employer can not be
made to bear the double burden of giving both 13th month pay and Christmas bonus.

In providing for a 13th month pay, P.D. No. 851 intended to uniformly
provide low-paid employees with additional income.  This is clear from the preamble to the
decree which states:

WHEREAS, it is necessary to further protect the level of real wages
from the ravage of world-wide inflation;

WHEREAS, there has been no increase in the legal minimum wage rates
since 1970;

WHEREAS, the Christmas season is an opportune time for society to
show its concern for the plight of the working masses so they may properly
celebrate Christmas and New Year.

The law wanted to uniformly provide
low-paid employees with additional income because on the average their salaries
for twelve (12) months were
grossly inadequate to meet the expenses for day-to-day subsistence.  This additional income took the form of an
extra month’s salary to be given in December.

Thus, where such additional income, whether granted by the
employer voluntarily or agreed upon by the employer and the employees in a CBA,
or its equivalent is already given by the employer, whether in December or in
some other date, the 13th month pay need not be given.  If, on the other hand, an amount less than
that required by law is given, the employer has only
to pay his employees the deficiency.  In
both instances, the purpose of the law is met.  The modification introduced by
Memorandum Order No. 28 did not substantially alter the purpose of the law but
expands the coverage of the 13th month pay, now to uniformly provide all
rank-and-file employees additional income.

Clearly, from the discussions in National Federation
of Sugar Workers (NFSW), Dole and Brokenshire, what the law wants to prevent is the
imposition of a “double burden” upon the employer who is already paying the
equivalent of a 13th month pay.  The law
exempts from the payment of the 13th month pay employers who are already giving
its equivalent.  Otherwise the goal of
uniformly providing employees with additional income will not be met.  Another inequity will result:  while most employees will be paid thirteen
(13) months salary, some, by virtue of P.D. No. 851, will be receiving salary
for fourteen (14) months.

The imposition of a “double burden” does not obtain in the
present case even if UST pays both
the 13th month pay and the Christmas gift of P2,000.00
or P1,000.00.  The Christmas gift is part
of the lump sum of P35M which the school has obliged itself to pay the faculty
members in full settlement of their share in the increase of tuition fees pursuant to
P.D. No. 451.  It is not
a bonus, incentive or additional income.  Neither is the giving
of the Christmas gift an act of
liberality on the part of the university.  The Christmas gift was partial payment, according to a schedule agreed upon by UST
and the faculty union, of the university’s
outstanding obligation to the faculty members
for their share in the increase in
tuition fees under P.D. No. 451.  Once the university has fully paid the P35M
to the faculty members within the time frame and in the forms specified in the
agreement, its obligation to pay a Christmas gift of P2,000.00
or P1,000.00, as part of the P35M compromise package, ceases.  UST would then have to comply only with P.D.
No. 851 as amended by Memorandum Order No. 28 by paying the 13th month pay.

The Christmas gift is clearly not an “equivalent” of the 13th
month pay under the rules implementing P.D. No. 851.  It is not akin to a “Christmas bonus,”
“mid-year bonus,” “profit-sharing payments” or “other cash bonuses.” [Sec. 3.]

[A] bonus is an amount granted and paid to
an employee for his industry and loyalty which contributed to the success of
the employer’s business and made possible the realization of profits.  It is an act of generosity of the employer .
. .  It is also granted by an enlightened
employer to spur the employee to greater efforts for the success of the business
and realization of bigger profits.  [Philippine Education Co., Inc. v. Court of Industrial Relations,
92 Phil. 381, 385 (1952).]

The Christmas gift cannot therefore be compared to the “Christmas
bonus,” “milling bonus,” and “amelioration bonus” in National Federation
of Sugar Workers (NFSW), the “year-end productivity
bonus” in Dole, and the “Christmas bonus” in Brokenshire
which were actually forms of incentives and additional income for the
employees.  Neither is it in the same
category as the fixed “transportation allowance” ruled as a form of bonus
equivalent to the 13th month pay in FEU
Employees Labor Union v. FEU, G.R. Nos.
69224-5, December 18, 1987, 156 SCRA 629 (consolidated with Cebu
Institute of Technology v. Ople, G.R. No. 58870, December 18, 1987, 156 SCRA 629, the lead case
under which FEU is indexed.)

We are not saying that these cases are no longer good law.  What we are saying is that the facts and
circumstances in the case now before us are at variance with those in the aforecited cases and, hence, do not call for a disposition
similar to that in said cases.

This is not the first time that the Court has ruled in this
fashion.  In United CMC Textile
Workers Union v. Valenzuela, G.R. No. 70763, April
30, 1987, 149 SCRA 424, we ruled that an employer still has to give the 13th
month pay under P.D. No. 851 on top of the Christmas bonus in graduated
amounts, based on length of
service, provided in the CBA.  In said
case, the Court distilled from the facts and circumstances the conclusion that
the purpose of the bonus was to reward employees for their length of service, a
purpose different from that in P.D. No. 851 which seeks to uniformly provide
low-paid employees additional income.

To recapitulate,
under P.D. No. 851, as amended by Memorandum Order No. 28, and the March 25,
1985 agreement, UST has to pay its
faculty members both the 13th month pay and the Christmas gift of P2,000.00 or
P1,000.00 for the years 1986 and 1987. 
Payment of the Christmas gift provided in the March 25, 1985 agreement cannot be credited as
partial compliance with P.D. No. 851, as amended.  Consequently, we find that the NLRC gravely
abused its discretion when it affirmed the dismissal of the union’s complaint.

WHEREFORE, the petition is GRANTED and the
decision of the NLRC dated August 23,
1989 and its resolution dated September 29, 1989 are SET ASIDE.  UST is DIRECTED to pay
its faculty members 13th month pay in accordance with P.D. No. 851, as
amended by Memorandum Order No. 28, and the Christmas gift under the Agreement
dated March 25, 1985 for the years 1986 and 1987.

SO ORDERED.

Fernan, C.J., Melencio-Herrera,
Gutierrez, Jr., Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grino-Aquino, Medialdea, and Regalado, JJ., concur.

Narvasa and
Padilla, JJ., no part.

Paras, J., on leave.