Eastern Telecommunications Philippines, Inc. vs.

Eastern Telecoms Employees Union

G.R. No. 185665
February 8, 2012

Doctrine: By virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th
month bonuses has become more than just an act of generosity on the part of Eastern but a contractual
obligation it has undertaken.

Recit-ready: Petitioner Eastern decided to postpone the payment of the 2003 14th, 15th, and 16th month
bonuses to April 2004. Due to this, the respondent Union filed a Notice of Strike which eventually reached
the courts, assailing such postponement and claiming that it constitutes ULP as it is against the existing
CBA Side Agreement provision. Eastern alleges that it cannot be forced to pay the bonuses because it
suffered financial difficulties and that the bonus provision in the CBA Side Agreement was a mere
affirmation that the distribution of bonuses was discretionary to the company, premised and conditioned on
the success of the business and availability of cash. The Union claims that the grant of the subject bonuses
is not only a company practice but also a contractual obligation of Eastern to the union members. The SC
held that Eastern is liable for the payment of the bonuses because it is a contractual obligation. By virtue
of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and 16th month bonuses has
become more than just an act of generosity on the part of Eastern but a contractual obligation it has
undertaken. Granting arguendo that the CBA Side Agreement does not contractually bind Eastern to give
the subject bonuses, nevertheless, the Court finds that its act of granting the same has become an established
company practice.

Facts:
 Eastern Telecommunications Phils., Inc. (Eastern), a corporation engaged in the business of providing
telecommunications facilities, has 400 employees.
 Eastern Telecoms Employees Union (Union) is the certified exclusive bargaining agent of Eastern’s
rank and file employees.
o It has147 regular members.
o It has an existing CBA with Eastern to expire in 2004 with a Side Agreement signed in 2001.
 The labor dispute arose from Eastern’s plan to defer the payment of the 2003 14th, 15th, and 16th month
bonuses to April 2004.
o Eastern’s main ground for postponing the payment is the continuing deterioration of the
company’s financial position. It said that the payment of the bonuses would depend on the
availability of funds.
 The Union opposed the deferment and invoked the Side Agreement of the existing CBA for the period
of 2001-2004 which “confirms that the 14th, 15th, and 16th month bonuses (other than 13th month pay)
are granted.”
 The Union filed a preventive mediation complaint with the NCMB to determine the date when the
bonus should be paid.
 In the conference, there was a Memorandum of Agreement proposed by Eastern which stood its ground
to pay the bonuses on April 2004.
 o The company later changed its position when the Union President refused to sign. Eastern
stated that they will pay the bonuses ONLY after the issue is resolved through compulsory
arbitration.
 The Union filed a Notice of Strike on the ground of ULP for Eastern’s failure to pay the bonuses in
gross violation of the economic provision of the existing CBA.
 Secretary of Labor and Employment: it ruled that Eastern is engaged in an industry considered vital
to the economy and any work disruption will adversely affect not only its operation but also that of the
other business relying on its services, THUS the SOLE certified the labor dispute for compulsory
arbitration.
 In its position paper, the Union claimed that Eastern had consistently and voluntarily been giving out
14th month bonus during the month of April, and 15th and 16th month bonuses every December of
each year to its employees from 1975 to 2002, even when it did not realize any net profits.
o The Union posited that by reason of its long and regular concession, the payment of these
monetary benefits had ripened into a company practice which could no longer be unilaterally
withdrawn by Eastern.
o The Union added that this long-standing company practice had been expressly confirmed
in the Side Agreements of the 1998-2001 and 2001-2004 CBA which provided for the
continuous grant of these bonuses in no uncertain terms. HENCE, the Union theorized
that the grant of the subject bonuses is not only a company practice but also a contractual
obligation of Eastern to the union members.
o The Union contended that the unjustified and malicious refusal of the company to pay the
subject bonuses was a clear violation of the economic provision of the CBA and constitutes
ULP.
 Eastern in its position paper, questioned the authority of the NLRC to take cognizance of the case
contending that it had no jurisdiction over the issue which merely involved the interpretation of the
economic provision of the 2001-2004 CBA Side Agreement.
o Nonetheless, it averred that the subject bonuses were not part of the legally demandable wage
and the grant thereof to its employees was an act of pure gratuity and generosity on its part,
involving the exercise of management prerogative and always dependent on the financial
performance and realization of profits.
o It posited that it resorted to the discontinuance of payment of the bonuses due to the unabated
huge losses that the company had continuously experienced.
o Eastern argued that the bonus provision in the 2001-2004 CBA Side Agreement was a mere
affirmation that the distribution of bonuses was discretionary to the company, premised and
conditioned on the success of the business and availability of cash.
o It submitted that said bonus provision partook of the nature of a “one­time” grant which the
employees may demand only during the year when the Side Agreement was executed and was
never intended to cover the entire term of the CBA.
o Eastern emphasized that even if it had an unconditional obligation to grant bonuses to its
employees, the drastic decline in its financial condition had already legally released it therefrom
pursuant to Article 1267 of the Civil Code.
 NLRC: dismissed the Union’s complaint and held that Eastern could not be forced to pay the union
members the 14th, 15th and 16th month bonuses for the year 2003 and the 14th month bonus for the
year 2004 inasmuch as the payment of these additional benefits was basically a management
 prerogative, being an act of generosity and munificence on the part of the company and contingent upon
the realization of profits.
o The NLRC pronounced that Eastern may not be obliged to pay these extra compensations in
view of the substantial decline in its financial condition. Likewise, the NLRC found that
Eastern was not guilty of the ULP charge elaborating that no sufficient and substantial evidence
was adduced to attribute malice to the company for its refusal to pay the subject bonuses.
 Aggrieved, the Union filed a petition for certiorari before the CA.
 CA: declared that the Side Agreements of the 1998 and 2001 CBA created a contractual obligation on
Eastern to confer the subject bonuses to its employees without qualification or condition.
o It also found that the grant of said bonuses has already ripened into a company practice and
their denial would amount to diminution of the employees’ benefits.
o It held that Eastern could not seek refuge under Article 1267 of the Civil Code because this
provision would apply only when the difficulty in fulfilling the contractual obligation was
manifestly beyond the contemplation of the parties, which was not the case therein.
o The CA, however, sustained the NLRC finding that the allegation of ULP was devoid of merit.

Issues: W/N the bonuses can be considered part of the wage, salary, or compensation making them
enforceable obligations?

Held: YES.
 In the case at bench, it is indubitable that Eastern and the Union agreed on the inclusion of a provision
for the grant of 14th, 15th and 16th month bonuses in the 1998-2001 CBA Side Agreement, as well as
in the 2001-2004 CBA Side Agreement.
 A reading the CBA provision reveals that it provides for the giving of 14th, 15th and 16th month
bonuses without qualification.
o The wording of the provision does not allow any other interpretation. There were no conditions
specified in the CBA Side Agreements for the grant of the benefits contrary to the claim of
Eastern that the same is justified only when there are profits earned by the company.
o Terse and clear, the said provision does not state that the subject bonuses shall be made to
depend on Eastern’s financial standing or that their payment was contingent upon the
realization of profits.
o Neither does it state that if the company derives no profits, no bonuses are to be given to the
employees. In fine, the payment of these bonuses was not related to the profitability of business
operations.
 In the absence of any proof that Eastern’s consent was vitiated by fraud, mistake or duress, it is
presumed that it entered into the Side Agreements voluntarily, that it had full knowledge of the contents
thereof and that it was aware of its commitment under the contract.
 Verily, by virtue of its incorporation in the CBA Side Agreements, the grant of 14th, 15th and
16th month bonuses has become more than just an act of generosity on the part of Eastern but a
contractual obligation it has undertaken.
 Moreover, the continuous conferment of bonuses by Eastern to the union members from 1998 to 2002
by virtue of the Side Agreements evidently negates its argument that the giving of the subject bonuses
is a management prerogative.
o Although it incurred business losses of P149,068,063.00 in the year 2000, it continued to
 distribute 14th, 15th and 16th month bonuses for said year.
o Notwithstanding such huge losses, Eastern entered into the 2001-2004 CBA Side Agreement
whereby it contracted to grant the subject bonuses to the Union in no uncertain terms.
o All given, business losses could not be cited as grounds for Eastern to repudiate its obligation
under the 2001-2004 CBA Side Agreement.
 The parties to the contract must be presumed to have assumed the risks of unfavorable developments.
It is, therefore, only in absolutely exceptional changes of circumstances that equity demands assistance
for the debtor. In the case at bench, the Court determines that Eastern’s claimed depressed financial
state will not release it from the binding effect of the 2001-2004 CBA Side Agreement.
 Granting arguendo that the CBA Side Agreement does not contractually bind Eastern to give the subject
bonuses, nevertheless, the Court finds that its act of granting the same has become an established
company practice such that it has virtually become part of the employees’ salary or wage.
o The records show that Eastern, aside from complying with the regular 13th month bonus, has
been further giving its employees 14th month bonus every April as well as 15th and 16th month
bonuses every December of the year, without fail, from 1975 to 2002 or for 27 years whether
it earned profits or not.
o The considerable length of time ETPI has been giving the special grants to its employees
indicates a unilateral and voluntary act on its part to continue giving said benefits knowing that
such act was not required by law.
o Accordingly, a company practice in favor of the employees has been established and the
payments made by ETPI pursuant thereto ripened into benefits enjoyed by the employees.