I. APPLICABLE LAWS
ASUNCION vs NLRC
362 SCRA 56
Facts:
Limjoco was a Sales Divison of Encyclopaedia Britannica and was in charge of selling the
products through some sales representatives. As compensation, he would receive commissions
from the products sold by his agents. He was also allowed to use the petitioner’s name, goodwill
and logo. It was agreed that office expenses would be deducted from Limjoco’s commissions.
In 1974, Limjoco resigned to pursue his private business and filed a complaint against petitioner
for alleged non-payment of separation pay and other benefits and also illegal deduction from
sales commissions. Petitioner alleged that Limjoco was not an employee of the company but an
independent dealer authorized to promote and sell its products and in return, received
commissions therein. Petitioner also claims that it had no control and supervision over the
complainant as to the manners and means he conducted his business operations. Limjoco
maintained otherwise. He alleged he was hired by the petitioner and was assigned in the sales
department.
The Labor Arbiter ruled that Limjoco was an employee of the company. NLRC also affirmed the
decision and opined that there was no evidence supporting allegation that Limjoco was an
independent contractor or dealer.
Issue:
Whether or not there was an employee-employer relationship between the parties.
SC Ruling:
There was no employee-employer relationship. In determining the relationship, the following
elements must be present: selection and engagement of the employee, payment of wages, power
of dismissal and power to control the employee’s conduct. The power of control is commonly
regarded as the most crucial and determinative indicator of the presence or absence of an
employee-employer relationship. Under the control test, an employee-employer relationship
exists where the person for whom the services are performed reserves a right to control not only
the end to be achieved, but also the manner and means to be employed in reaching that end.
The issuance of guidelines by the petitioner was merely guidelines on company policies which
sales managers follow and impose on their respective agents. Limjoco was not an employee of
the company since he had the free rein in the means and methods for conducting the marketing
operations. He was merely an agent or an independent dealer of the petitioner. He was free to
conduct his work and he was free to engage in other means of livelihood.
In ascertaining the employee-employer relationship, the factual circumstances must be
considered. The element of control is absent where a person who works for another does so
more or less at his own pleasure and is not subject to definite hours or conditions of work, and in
turn is compensated in according to the result of his efforts and not the amount thereof. Hence,
there was no employee-employer relationship.
Pag-asa Steel Works, Inc. vs. CA and Pag-asa Steel Workers Union
[G.R. No.166647. March 31, 2006]
Facts:
Petitioner Pag-Asa Steel Works, Inc. is a corporation duly organized and existing under Philippine
laws and is engaged in the manufacture of steel bars and wire rods. Pag-Asa Steel Workers
Union is the duly authorized bargaining agent of the rank-and-file employees.
RTWPB of NCR issued a wage order which provided for a P 13.00 increase of the salaries
receiving minimum wages. The Petitioner and the union negotiated on the increase. Petitioner
forwarded a letter to the union with the list of adjustments involving rank and file employees. In
September 1999, the petitioner and union entered into an collective bargaining agreement where
it provided wage adjustments namely P15, P25, P30 for three succeeding year. On the first year,
the increase provided were followed until RTWPB issued another wage order where it provided
for a P25.50 per day increase in the salary of employees receiving the minimum wage and
increased the minimum wage to P223.50 per day. Petitioner paid the P25.50 per day increase to
all of its rank-and-file employees.
On November 2000, Wage Order No. NCR-08 was issued where it provided the increase of
P26.50 per day. The union president asked that the wage order be implemented where petitioner
rejected the request claiming that there was no wage distortion and it was not obliged to grant the
wage increase. The union submitted the matter for voluntary arbitration where it favored the
position of the company and dismissed the complaint. The matter was elevated to CA where it
favored the respondents. Hence, this petition.
Issue:
Whether or not the company was obliged to grant the wage increase under Wage Order No.
NCR-08 as a matter of practice.
SC Ruling:
The Court favors the petitioner that wage increase shall not be granted by virtue of CBA or matter
of practice by the company. It is submitted that employers unless exempt are mandated to
implement the said wage order but limited to those entitled thereto. There is no legal basis to
implement the same across-the-board. A perusal of the record shows that the lowest paid
employee before the implementation of Wage Order #8 is P250.00/day and none was receiving
below P223.50 minimum. This could only mean that the union can no longer demand for any
wage distortion adjustment. The provision of wage order #8 and its implementing rules are very
clear as to who are entitled to the P26.50/day increase, i.e., "private sector workers and
employees in the National Capital Region receiving the prescribed daily minimum wage rate of
P223.50 shall receive an increase of Twenty-Six Pesos and Fifty Centavos (P26.50) per day,"
and since the lowest paid is P250.00/day the company is not obliged to adjust the wages of the
workers.
The provision in the CBA that "Any Wage Order to be implemented by the Regional Tripartite
Wage and Productivity Board shall be in addition to the wage increase adverted above" cannot be
interpreted in support of an across-the-board increase. If such were the intentions of this
provision, then the company could have simply accepted the original demand of the union for
such across-the-board implementation, as set forth in their original proposal. The fact that the
company rejected this proposal can only mean that it was never its intention to agree, to such
across-the-board implementation. Wage Order No. NCR-08 clearly states that only those
employees receiving salaries below the prescribed minimum wage are entitled to the wage
increase provided therein, and not all employees across-the-board as respondent Union would
want petitioner to do. Considering therefore that none of the members of respondent Union are
receiving salaries below the P250.00 minimum wage, petitioner is not obliged to grant the wage
increase to them.
Moreover, to ripen into a company practice that is demandable as a matter of right, the giving of
the increase should not be by reason of a strict legal or contractual obligation, but by reason of an
act of liberality on the part of the employer. Hence, even if the company continuously grants a
wage increase as mandated by a wage order or pursuant to a CBA, the same would not
automatically ripen into a company practice.
-NO CASES-
EX-BATAAN VETERANS SECURTY AGENCY, INC. vs. SEC. OF LABOR et. al.
[G.R. No. 152396. November 20, 2007]
Facts:
Ex-Bataan Veterans Security Agency, Inc. (EBVSAI) is in the business of providing security
services while private respondents are EBVSAI's employees assigned to the National Power
Corporation at Ambuklao Hydro Electric Plant, Bokod, Benguet (Ambuklao Plant). On 20
February 1996, private respondents led by Alexander Pocding (Pocding) instituted a complaint for
underpayment of wages against EBVSAI before the Regional Office of the Department of Labor
and Employment (DOLE). On 7 March 1996, the Regional Office conducted a complaint
inspection at the Ambuklao Plant where some violations were noted.
Issue:
Whether or not the Secretary of Labor or his duly authorized representatives acquired jurisdiction
over EBVSAI. Corollary to this is whether the Secretary of Labor or his duly authorized
representatives have jurisdiction over the money claims of private respondents which exceed
P5,000.
SC Ruling:
The petition has no merit. On the Regional Director's jurisdiction over EBVSAI, the he validly
acquired jurisdiction over EBVSAI after receiving the notices of hearing. Thus, EBVSAI cannot
question the jurisdiction after appearing before the Regional Director.
More importantly, on the Regional Director's jurisdiction over the money claims, this Court made
reference to and affirm the ruling in Cirineo Bowling Plaza, Inc. v. Sensing, where this Court
sustained the jurisdiction of the DOLE Regional Director and held that the visitorial and
enforcement powers of the DOLE Regional Director to order and enforce compliance with labor
standard laws can be exercised even where the individual claim exceeds P5,000.
However, if the labor standards case is covered by the exception clause in Article 128(b) of the
Labor Code, then the Regional Director will have to endorse the case to the appropriate
Arbitration Branch of the NLRC. In order to divest the Regional Director or his representatives of
jurisdiction, the following elements must be present: (a) that the employer contests the findings of
the labor regulations officer and raises issues thereon; (b) that in order to resolve such issues,
there is a need to examine evidentiary matters; and (c) that such matters are not verifiable in the
normal course of inspection. The rules also provide that the employer shall raise such objections
during the hearing of the case or at any time after receipt of the notice of inspection results. In this
case, the Regional Director validly assumed jurisdiction over the money claims of private
respondents even if the claims exceeded P5,000 because such jurisdiction was exercised in
accordance with Article 128(b) of the Labor Code and the case does not fall under the exception
clause. The Court also notes that EBVSAI did not contest the findings of the labor regulations
officer during the hearing or after receipt of the notice of inspection results.
Hence, the petition was denied.
American Wire & cable Daily Rated Employees Union vs. Amercan Wire & Cable Co., Inc.,
& the Court of Appeals
[G.R. No.155059. April 29, 2005]
Facts:
American Wire and Cable Co., Inc., is a corporation engaged in the manufacture of wires and
cables. There are two unions in this company, the American Wire and Cable Monthly-Rated
Employees Union and the American Wire and Cable Daily-Rated Employees Union.
On 16 February 2001, an original action was filed before the NCMB of the Department of Labor
and Employment by the two unions for voluntary arbitration. They alleged that the private
respondent, without valid cause, suddenly and unilaterally withdrew and denied certain benefits
and entitlements which they have long enjoyed. These are Service Award, 35% premium pay of
an employee’s basic pay for the work rendered during Holy Monday, Holy Tuesday, Holy
Wednesday, December 23, 26, 27, 28 and 29, Christmas Party and Promotional Increase.
Issue:
Whether or not the respondent company violated Article 100 of the Labor Code.
SC Ruling:
The Court ruled that company is not guilty of violating Art. 100 of the Labor Code.
Article 100 of the Labor Code provides:
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.
The certain benefits and entitlements are considered bonuses. A bonus can only be enforceable
and demandable if it has ripened into a company practice. It must also be expressly agreed by
the employer and employee or it must be on a fixed amount.
The assailed benefits were never subjects of any agreement between the union and the
company. It was never incorporated in the CBA. Since all these benefits are in the form of
bonuses, it is neither enforceable nor demandable.
Manila Jockey Club Employees Labor Union vs. Manila Jockey Club
[G.R. No.167601. March 7, 2007]
Facts:
Petitioner Manila Jockey Club Employees Labor Union-PTGWO and respondent Manila Jockey
Club, Inc., a corporation with a legislative franchise to conduct, operate and maintain horse races,
entered into a Collective Bargaining Agreement (CBA) effective January 1, 1996 to December 31,
2000. The CBA governed the economic rights and obligations of respondent’s regular monthly
paid rank-and-file employees. In the CBA, the parties agreed to a 7-hour work schedule from 9:00
a.m. to 12:00 noon and from 1:00 p.m. to 5:00 p.m. on a work week of Monday to Saturday.
On April 3, 1999, respondent issued an inter-office memorandum declaring that, effective April
20, 1999, the hours of work of regular monthly-paid employees shall be from 1:00 p.m. to 8:00
p.m. when horse races are held, that is, every Tuesday and Thursday. The memorandum,
however, maintained the 9:00 a.m. to 5:00 p.m. schedule for non-race days.
On October 12, 1999, petitioner and respondent entered into an Amended and Supplemental
CBA retaining Section 1 of Article IV and Section 2 of Article XI, supra, and clarified that any
conflict arising therefrom shall be referred to a voluntary arbitrator for resolution.
Subsequently, before a panel of voluntary arbitrators of the National Conciliation and Mediation
Board (NCMB), petitioner questioned the above office memorandum as violative of the prohibition
against non-diminution of wages and benefits guaranteed under Section 1, Article IV, of the CBA
which specified the work schedule of respondent's employees to be from 9:00 a.m. to 5:00 p.m.
Petitioner claimed that as a result of the memorandum, the employees are precluded from
rendering their usual overtime work from 5:00 p.m. to 9:00 p.m.
The NCMB’s panel of voluntary arbitrators, in a decision dated October 18, 2001, upheld
respondent's prerogative to change the work schedule of regular monthly-paid employees under
Section 2, Article XI, of the CBA. Petitioner moved for reconsideration but the panel denied the
motion.
Issue:
Whether or not the respondent violated the non-diminution of benefits under Article 100 of the
Labor Code.
SC Ruling:
The Court ruled that the respondent did not violate the principle of non-diminution of benefits. The
provision of the CBA also grants respondent the prerogative to relieve employees from duty
because of lack of work. Petitioner’s argument, therefore, that the change in work schedule
violates Article 100 of the Labor Code because it resulted in the diminution of the benefit enjoyed
by regular monthly-paid employees of rendering overtime work with pay, is untenable.
Section 1, Article IV, of the CBA does not guarantee overtime work for all the employees but
merely provides that "all work performed in excess of seven (7) hours work schedule and on days
not included within the work week shall be considered overtime and paid as such."
Respondent was not obliged to allow all its employees to render overtime work everyday for
the whole year, but only those employees whose services were needed after their regular
working hours and only upon the instructions of management. The overtime pay was not
given to each employee consistently, deliberately and unconditionally, but as a
compensation for additional services rendered. Thus, overtime pay does not fall within the
definition of benefits under Article 100 of the Labor Code on prohibition against elimination or
diminution of benefits.
Arco Metal vs. Products Co., Inc., et al., vs. Samahan ng Mga Manggagawa sa Arco-Metal-
NAFLU
[G.R. No. 170734, May 14, 2008]
Facts:
Petitioner is a company engaged in the manufacture of metal products, whereas respondent is
the labor union of petitioner’s rank and file employees. Sometime in December 2003, petitioner
paid the 13th month pay, bonus, and leave encashment of three union members in amounts
proportional to the service they actually rendered in a year, which is less than a full twelve (12)
months. Respondent protested the prorated scheme, claiming that on several occasions
petitioner did not prorate the payment of the same benefits to seven (7) employees who had not
served for the full 12 months. According to respondent, the prorated payment violates the rule
against diminution of benefits under Article 100 of the Labor Code. Thus, they filed a complaint
before the National Conciliation and Mediation Board (NCMB).
Issue:
Whether or not the grant of 13th month pay, bonus, and leave encashment in full regardless of
actual service rendered constitutes voluntary employer practice and, consequently, whether or
not the prorated payment of the said benefits constitute diminution of benefits under Article 100 of
the Labor Code.
SC Ruling:
Any benefit and supplement being enjoyed by employees cannot be reduced, diminished,
discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded
on the Constitutional mandate to "protect the rights of workers and promote their welfare and to
afford labor full protection. Said mandate in turn 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.
Jurisprudence is replete with cases which recognize the right of employees to benefits which
were voluntarily given by the employer and which ripened into company practice. Thus in
DavaoFruits Corporation v. Associated Labor Unions, et al. where an employer had freely and
continuously included in the computation of the 13th month pay those items that were expressly
excluded by the law, we held that the act which was favorable to the employees though not
conforming to law had thus ripened into a practice and could not be withdrawn, reduced,
diminished, discontinued or eliminated. In Sevilla Trading Company v. Semana, we ruled that the
employer’s act of including non-basic benefits in the computation of the 13th month pay was a
voluntary act and had ripened into a company practice which cannot be peremptorily withdrawn.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy of freely,
voluntarily and consistently granting full benefits to its employees regardless of the length of
service rendered. True, there were only a total of seven employees who benefited from such a
practice, but it was an established practice nonetheless. Jurisprudence has not laid down any rule
specifying a minimum number of years within which a company practice must be exercised in
order to constitute voluntary company practice. Thus, it can be six (6) years, three (3) years, or
even as short as two (2) years. Petitioner cannot shirk away from its responsibility by merely
claiming that it was a mistake or an error, supported only by an affidavit of its manufacturing
group head. Hence, petition was denied.
North Davao Mining Corp. & Asset Privatization Trust vs. NLRC
[254 SCRA 721 (1996)]
Facts:
Petitioner North Davao Mining Corporation was incorporated in 1974 as a 100% privately-owned
company. Later, the Philippine National Bank became part owner thereof as a result of a
conversion into equity of a portion of loans obtained by North Davao from said bank. On June 30,
1986, PNB transferred all its loans to and equity in North Davao in favor of the national
government which later turned them over to petitioner Asset Privatization Trust As of December
31, 1990 the national government held 81.8% of the common stock and 100% of the preferred
stock of said company.
Respondent Wilfredo Guillema is one among several employees of North Davao who were
separated by reason of the company’s closure on May 31, 1992, and who were the complainants
in the cases before the respondent labor arbiter. On May 31, 1992, petitioner North Davao
completely ceased operations due to serious business reverses. From 1988 until its closure in
1992, North Davao suffered net losses averaging three billion pesos per year, for each of the five
years prior to its closure. All told five months prior to its closure, its total liabilities had exceeded
its assets by 20.392 billion pesos. When it ceased operations, its remaining employees were
separated and given the equivalent of 12.5 days’ pay for every year of service, computed on their
basic monthly pay, in addition to the commutation to cash of their unused vacation and sick
leaves. However, it appears that, during the life of the petitioner corporation, from the beginning
of its operations in 1981 until its closure in 1992, it had been giving separation pay equivalent to
thirty days’ pay for every year of service. Moreover, the employees had to collect their salaries at
a bank in Tagum, Davao del Norte, some 58 kilometers from their workplace and about 2 ½hours’
travel time by public transportation; this arrangement lasted from 1981 up to 1990.
Subsequently, a complaint was filed with respondent labor arbiter by respondent Wilfredo
Guillema and 271 other seperated employees for additional separation pay; back wages;
transportation allowance; hazard pay; etc., amounting to P58,022,878.31.
Issue:
Whether or not time spent in collecting wages in a place other than the place of employment is
compensable notwithstanding that the same is done during official time.
SC Ruling:
It is undisputed that because of security reasons, from the time of its operations, petitioner NDMC
maintained its policy of paying its workers at a bank in Tagum, Davao del Norte, which usually
took the workers about two and a half (2 1/2) hours of travel from the place of work and such
travel time is not official. Records also show that on February 12,1992, when an inspection was
conducted by the Department of Labor and Employment at the premises of petitioner NDMC at
Amacan, Maco, Davao del Norte, it was found out that petitioners had violated labor standards
law, one of which is the place of payment of wages.
Section 4, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code provides that:
Place of payment. - (a) As a general rule, the place of payment shall be at or near the place of
undertaking. Payment in a place other than the workplace shall be permissible only under the
following circumstances: (1) When payment cannot be effected at or near the place of work by
reason of the deterioration of peace and order conditions, or by reason of actual or impending
emergencies caused by fire, flood, epidemic or other calamity rendering payment thereat
impossible; (2) When the employer provides free transportation to the employees back and forth;
and (3) Under any analogous circumstances; provided that the time spent by the employees in
collecting their wages shall be considered as compensable hours worked.
From the evidence on record, we find that the hours spent by complainants in collecting salaries
at a bank in Tagum, Davao del Norte shall be considered compensable hours worked.
Considering further the distance between Amacan, Maco to Tagum which is 2½ hours by travel
and the risks in commuting all the time in collecting complainants’ salaries, would justify the
granting of backwages equivalent to 2 days in a month.
Thus, on December 21, 1998, Latagfiled a case for payment of his retirement pay before the
NLRC. Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag, substituted
him. On January 10, 2000, the Labor Arbiter rendered a decision in favor of Latag.
Issue:
Whether or not Latag is entitled to retirement benefits considering she signed a waiver of
quitclaim.
SC Ruling:
The respondent is entitled to retirement benefits despite of the waiver of quitclaims.
There is no dispute the fact that the late Pedro M. Latag is entitled to retirement benefits. Rather,
the bone of contention is the number of years that he should be credited with in computing those
benefits. The findings of the NLRC that Pedro must be credited only with his service to R & E
Transport, Inc., because the evidence shows that the aforementioned companies are two
different entities. After a careful and painstaking review of the evidence on record, the court
supports the NLRC's findings.
As to the Quitclaim and Waiver signed by Respondent Latag, the CA committed no error when it
ruled that the document was invalid and could not bar her from demanding the benefits legally
due her husband. This is not say that all quitclaims are invalid per se. Courts, however, are wary
of schemes that frustrate workers' rights and benefits, and look with disfavor upon quitclaims and
waivers that bargain these away.
Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc.
Article 287 of the Labor Code, as amended by Republic Act No. 7641, 30 provides: Retirement.
— In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60) years or more,
but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who
has served at least five (5) years in said establishment, may retire and shall be entitled to
retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a
fraction of at least six (6) months being considered as one whole year. Unless the parties provide
for broader inclusions, the term one half-month salary shall mean fifteen (15) days plus one-
twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of
service incentive leaves
The rules implementing the New Retirement Law similarly provide the above-mentioned formula
for computing the one-half month salary. Since Pedro was paid according to the "boundary"
system, he is not entitled to the 13th month 32 and the service incentive pay; hence, his
retirement pay should be computed on the sole basis of his salary.
It is accepted that taxi drivers do not receive fixed wages, but retain only those sums in excess of
the "boundary" or fee they pay to the owners or operators of their vehicles. Thus, the basis for
computing their benefits should be the average daily income. In this case, the CA found that
Pedro was earning an average of five hundred pesos (P500) per day. We thus compute his
retirement pay as follows: P500 x 15 days x 14 years of service equals P105,000.
Intercontinental Broadcasting Corporation vs. Noemi Amarilla [G.R. No. 162775. October
27, 2006.]
Facts:
On various dates, petitioner employed the following persons at its Cebu station: Candido C.
Quiñones, Jr, Corsini R. Lagahit, as Studio Technician, Anatolio G. Otadoy, as Collector and
Noemi Amarilla, as Traffic Clerk. On March 1986, the government sequestered the station,
including its properties, funds and other assets, and took over its management and operations
from its owner, Roberto Benedicto. However, in December 1986, the government and Benedicto
entered into a temporary agreement under which the latter would retain its management and
operation. On November 1990, the Presidential Commission on Good Government (PCGG) and
Benedicto executed a Compromise Agreement, where Benedicto transferred and assigned all his
rights, shares and interests in petitioner station to the government.
In the meantime, the four employees retired from the company and received, on staggered basis,
their retirement benefits under the 1993 Collective Bargaining Agreement between petitioner and
the bargaining unit of its employees. In the meantime, a P1,500.00 salary increase was given to
all employees of the company, current and retired, effective July 1994. However, when the four
retirees demanded theirs, petitioner refused and instead informed them via a letter that their
differentials would be used to offset the tax due on their retirement benefits in accordance with
the National Internal Revenue Code (NIRC).
The four retirees filed separate complaints against IBC TV-13 Cebu and Station Manager Louella
F. Cabañero for unfair labor practice and non-payment of backwages before the NLRC.
Issue:
Whether or not the retirement benefits of respondents are part of their gross income.
SC Ruling:
The Court agrees with petitioner that under the CBA, it is not obliged to pay for the taxes on the
respondents' retirement benefits. CBA did not provide a provision where petitioner obliged itself
to pay the taxes on the retirement benefits of its employees. The Court also agrees with petitioner
that, under the NIRC, the retirement benefits of respondents are part of their gross income
subject to taxes.
Section 28 (b) (7) (A) of the NIRC of 1986 23 provides: Gross Income. — (b) Exclusions from
gross income. — The following items shall not be included in gross income and shall be exempt
from taxation under this Title: (7) Retirement benefits, pensions, gratuities, etc. — A.) Retirement
benefits received by officials and employees of private firms whether individuals or corporate, in
accordance with a reasonable private benefit plan maintained by the employer: Provided, That
the retiring official or employee has been in the service of the same employer for at least ten (10)
years and is not less than fifty years of age at the time of his retirement: Provided, further, That
the benefits granted under this subparagraph shall be availed of by an official or employee only
once. For purposes of this subsection, the term "reasonable private benefit plan" means a
pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of
some or all of his officials or employees, where contributions are made by such employer for
officials or employees, or both, for the purpose of distributing to such officials and employees the
earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at
no time shall any part of the corpus or income of the fund be used for, or be diverted to, any
purpose other than for the exclusive benefit of the said official and employees.
Revenue Regulation No. 12-86, the implementing rules of the foregoing provisions, provides: (b)
Pensions, retirements and separation pay. — Pensions, retirement and separation pay constitute
compensation subject to withholding tax, except the following: (1) Retirement benefit received by
official and employees of private firms under a reasonable private benefit plan maintained by the
employer, if the following requirements are met: (i) The retirement plan must be approved by the
Bureau of Internal Revenue; (ii) The retiring official or employees must have been in the service
of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the
time of retirement; and (iii) The retiring official or employee shall not have previously availed of
the privilege under the retirement benefit plan of the same or another employer.
Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened
to prove the concurrence of the following elements: (1) a reasonable private benefit plan is
maintained by the employer; (2) the retiring official or employee has been in the service of the
same employer for at least 10 years; (3) the retiring official or employee is not less than 50 years
of age at the time of his retirement; and (4) the benefit had been availed of only once.
Article VIII of the 1993 CBA provides for two kinds of retirement plans - compulsory and optional.
Thus: ARTICLE VIII RETIREMENT
Section 1: Compulsory Retirement — Any employee who has reached the age of Fifty Five (55)
years shall be retired from the COMPANY and shall be paid a retirement pay in accordance with
the following schedule:
LENGTH OF SERVICE RETIREMENT BENEFITS=
1 year-below 5 yrs. 15 days for every year of service
5 years-9 years 30 days for every year of service
10 years-14 years 50 days for every year of service
15 years-19 years 65 days for every year of service
20 years or more 80 days for every year of service
A supervisor who reached the age of Fifty (50) may at his/her option retire with the same
retirement benefits provided above.
Section 2: Optional Retirement — Any covered employee, regardless of age, who has rendered
at least five (5) years of service to the COMPANY may voluntarily retire and the COMPANY
agrees to pay Long Service Pay to said covered employee in accordance with the following
schedule:
LENGTH OF SERVICE RETIREMENT BENEFITS
5-9 years 15 days for every year of service
10-14 years 30 days for every year of service
15-19 years 50 days for every year of service
20 years or more 60 days for every year of service
Section 3: Fraction of a Year — In computing the retirement under Section 1 and 2 of this Article,
a fraction of at least six (6) months shall be considered as one whole year. Moreover, the
COMPANY may exercise the option of extending the employment of an employee.
Section 4: Severance of Employment Due to Illness — When a supervisor suffers from disease
and/or permanent disability and her/his continued employment is prohibited by law or prejudicial
to her/his health of the health of his co-employees, the COMPANY shall not terminate the
employment of the subject supervisor unless there is a certification by a competent public health
authority that the disease is of such a nature or at such stage that it can not be cured within a
period of six (6) months even with proper medical treatment. The supervisor may be separated
upon payment by the COMPANY of separation pay pursuant to law, unless the supervisor falls
within the purview of either Sections 1 or 2 hereof. In which case, the retirement benefits
indicated therein shall apply, whichever is higher.
Section 5: Loyalty Recognition — The COMPANY shall recognize the services of the
supervisor/director who have reached the following number of years upon retirement by granting
him/her a plaque of appreciation and any lasting gift: 10 years but below 15 years (P3,000.00)
worth; 15 years but below 20 year (P7,000.00) worth; 20 years and more (P10,000.00) worth.
Respondents were qualified to retire optionally from their employment with petitioner. there is no
record that the 1993 CBA had been approved or was ever presented to the BIR. Hence, the
retirement benefits of respondents are taxable.
Under Section 80 of the NIRC, petitioner, as employer, was obliged to withhold the taxes on said
benefits and remit the same to the BIR. Section 80. Liability for Tax. — (A) Employer. — The
employer shall be liable for the withholding and remittance of the correct amount of tax required
to be deducted and withheld under this Chapter. If the employer fails to withhold and remit the
correct amount of tax as required to be withheld under the provision of this Chapter, such tax
shall be collected from the employer together with the penalties or additions to the tax otherwise
applicable in respect to such failure to withhold and remit.
REYES vs NLRC ET AL
GR 160233 August 08, 2007
Arco Metal vs. Products Co., Inc., et al., vs. Samahan ng Mga Manggagawa sa Arco-Metal-
NAFLU
[G.R. No. 170734, May 14, 2008]
Facts:
Petitioner is a company engaged in the manufacture of metal products, whereas respondent is
the labor union of petitioner’s rank and file employees. Sometime in December 2003, petitioner
paid the 13th month pay, bonus, and leave encashment of three union members in amounts
proportional to the service they actually rendered in a year, which is less than a full twelve (12)
months. Respondent protested the prorated scheme, claiming that on several occasions
petitioner did not prorate the payment of the same benefits to seven (7) employees who had not
served for the full 12 months. According to respondent, the prorated payment violates the rule
against diminution of benefits under Article 100 of the Labor Code. Thus, they filed a complaint
before the National Conciliation and Mediation Board (NCMB).
Issue:
Whether or not the grant of 13th month pay, bonus, and leave encashment in full regardless of
actual service rendered constitutes voluntary employer practice and, consequently, whether or
not the prorated payment of the said benefits constitute diminution of benefits under Article 100 of
the Labor Code.
SC Ruling:
Any benefit and supplement being enjoyed by employees cannot be reduced, diminished,
discontinued or eliminated by the employer. The principle of non-diminution of benefits is founded
on the Constitutional mandate to "protect the rights of workers and promote their welfare and to
afford labor full protection. Said mandate in turn 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.
Jurisprudence is replete with cases which recognize the right of employees to benefits which
were voluntarily given by the employer and which ripened into company practice. Thus in
DavaoFruits Corporation v. Associated Labor Unions, et al. where an employer had freely and
continuously included in the computation of the 13th month pay those items that were expressly
excluded by the law, we held that the act which was favorable to the employees though not
conforming to law had thus ripened into a practice and could not be withdrawn, reduced,
diminished, discontinued or eliminated. In Sevilla Trading Company v. Semana, we ruled that the
employer’s act of including non-basic benefits in the computation of the 13th month pay was a
voluntary act and had ripened into a company practice which cannot be peremptorily withdrawn.
In the years 1992, 1993, 1994, 1999, 2002 and 2003, petitioner had adopted a policy of freely,
voluntarily and consistently granting full benefits to its employees regardless of the length of
service rendered. True, there were only a total of seven employees who benefited from such a
practice, but it was an established practice nonetheless. Jurisprudence has not laid down any rule
specifying a minimum number of years within which a company practice must be exercised in
order to constitute voluntary company practice. Thus, it can be six (6) years, three (3) years, or
even as short as two (2) years. Petitioner cannot shirk away from its responsibility by merely
claiming that it was a mistake or an error, supported only by an affidavit of its manufacturing
group head. Hence, petition was denied.