Notes on

Certain Doctrines & Principles

on Employment Benefits

There are principles in labor law that are not based on the Labor Code itself, but on
constitutional and civil law doctrines.

Constitutional guarantees are usually limitations on state/governmental rights, not

private rights. But the 1987 Constitution is unique in the sense that it elevated certain
statutory rights into constitutional rights (e.g, right to security of tenure and right to
strike).

Civil law principles which have crept into labor jurisprudence pertain mostly to
provisions on Human Relations, Obligations and Contracts, and Prescription.

I. No Work, No Pay / Fair day's wage for a fair day's work

There is no specific provision in the Labor Code mentioning this principle.But it is

presumed or implied.

In Odango vs NLRC (GR No. 147420, 10 June 2004), the employees demanded for
payment even for unworked rest days. The SC held:

"The basic rule in this jurisdiction is no work, no pay. The right to be paid for un-
worked days is generally limited to the ten legal holidays in a year".

Other instances of paid but unworked days would be: a) paid parental, paternity, VWC, &
gynecological surgery leaves; b) paid SIL ; c) payroll reisntatement in case the employer
extends a preventive suspension beyond 30 days; d) payroll reinsatement pending appeal of a
labor arbiter's judgment of illegal dismissal; and e) award of back wages upon a ruling of illegal
dismissal.

In Navarro vs PV. Pajarillo (GR No. 164681, 24 April 2009), the employee was deemed
constructively dismissed.

But he was not awarded back wages, because his failure to work (and earn wages)
was attributed to his own failure to secure a driver's license indispensable in the
pursuit of his occupationas bus driver. Said the Court:

"He never bothered to redeem his license at the soonest possible time when there was no showing
that he was unlawfully prevented by respondent from doing so. Thus, petitioner should not be paid
for the time he was not working.The Court has held that where the failure of employees to work was
not due to the employer's fault, the burden of economic loss suffered by the employees should not be
shifted to the employer. Each party must bear his own loss. It would be unfair to allow petitioner to
recover something he has not earned and could not have earned, since he could not discharge his
work as a driver without his driver's license. Respondent should be exempted from the burden of
paying backwages.

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The age-old rule governing the relation between labor and capital, or management and employee, of
a "fair day's wage for a fair day's labor" remains as the basic factor in determining employees'
wages. If there is no work performed by the employee, there can be no wage or pay -- unless, of
course, the laborer was able, willing and ready to work but was illegally locked out, suspended or
dismissed,or otherwise illegally prevented from working, a situation which we find is not present in
the instant case".

In Equitable Banking Corporation vs NLRC ( GR No. 102467, 13 June 1997), the employee was
held illegally dismissed. But reinstatement was not ordered because by the time the
decision became final, the employee has reached retirement age. The award of back
wages was therefore limited to the date of retirement, because it is only up to such date
could he have worked for the company ( and earn salaries). Note: The employee was also
awarded retirement benefits.

For similar reason, other supervening events ( eg. death of the employee;
disability/illness of the employee; valid closure of the company; loss of legal
qualification like work permit or professional license) would limit the award of back
wages.

II. Non-diminution of Benefits (Art. 100, Labor Code)

The principle is more expansive than what the Labor Code literally provides ( which
pertains only to benefits already enjoyed by employees prior to the promulgation of the
labor Code). Similar provisions exist in other special laws (e.g., 13th month pay).

This principle states in general that the employer may not unilaterally eliminate or
diminish benefits already enjoyed by the employees. What is prohibited is unilateral act
of the employer; the principle does not apply if the elimination or reduction is through an
agreement ( e.g, CBA).

The principle will also not apply if there is explicit stipulation that the benefit can be
removed or reduced by the employer as stated in the employment contract, CBA, or
company policy (e.g, travel allowance will be eliminated if the employee is no longer on
field assignment). It likewise does not find application if the grant of the benefit is
conditional (e.g., bonus is dependent on employee performance evaluation rating or
company realization of profit). It will also not apply if an alternative benefits is given
instead ( e.g, in lieu of gasoline allowance, a service vehicle will be provided to an
employee).

In Vergara, Jr. vs. Coca-cola Bottlers Philippines, Inc. (G.R. No. 176985, 1 April 2013),
it was held:

Generally, employees have a vested right over existing benefits voluntarily granted to them
by their employer. Thus, any benefit and supplement being enjoyed by the employees
cannot be reduced, diminished, discontinued or eliminated by the employer. The principle
of non-diminution of benefits is actually founded on the Constitutional mandate to
protect the rights of workers, to promote their welfare, and to afford them full
protection. In turn, said mandate 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.

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There is diminution of benefits when the following requisites are present: (1) the grant or
benefit is founded on a policy or has ripened into a practice over a long period of time;
(2) the practice is consistent and deliberate; (3) the practice is not due to error in the
construction or application of a doubtful or difficult question of law; and (4) the
diminution or discontinuance is done unilaterally by the employer.”

In Metropolitan Bank and Trust Company vs. NLRC, et al.(G.R. No. 152928, 18 June
2009), the SC noted that there is no hard and fast rule in determining the practice over a
period of time, thus:

“With regard to the length of time the company practice should have been exercised to
constitute voluntary employer practice which cannot be unilaterally withdrawn by the
employer, jurisprudence has not laid down any hard and fast rule. x x x The common
denominator in these cases appears to be the regularity and deliberateness of the grant of
benefits over a significant period of time.”

In SamahangManggagawasa Top Form vs NLRC (GR No. 113856, 07 September

1998) the SC noted that adoption of an across-the-board salary increase for all
employees on an isolated instance would not constitute a practice.

Granting that the same is true, such isolated single act that respondents adopted would
definitely not ripen into a company practice. It has been said that `a sparrow or two
returning to Capistrano does not a summer make.

In Davao Integrated Port Stevedoring Services vs Abarquez, GR No. 102132, 19 March

1993, the company discontinued the privilege of commutation or conversion to
cash of the unenjoyed portion of the sick leave benefit to regular intermittent
workers which was previously recognized and extended to them during the
lifetime of the CBA until three (3) months from its renewal. The SC ruled:

Well-settled is it that the said privilege of commutation or conversion to cash, being an

existing benefit, the petitioner-company may not unilaterally withdraw, or diminish such
benefits. It is a fact that petitioner-company had, on several instances in the past, granted
and paid the cash equivalent of the unenjoyed portion of the sick leave benefits of some
intermittent workers. Under the circumstances, these may be deemed to have ripened into
company practice or policy which cannot be peremptorily withdrawn.

The case of Globe Mccay Cable vs NLRC (, GR No. 74156, 29 June 1988) set the rule
that if it a past error that is being corrected, no vested right may be said to have
arisen nor any diminution of benefit under Article 100 of the Labor Code 3 may be
said to have resulted by virtue of the correction.

In this case, a wage order created confusion in the computation of the COLA (cost of
living allowance). The company used factor 22, while the union insisted on factor 30
which it said the company has been using before. The SC said that absent clear
administrative guidelines, the company cannot be faulted for erroneous application of
the law. Payment may be said to have been made by reason of a mistake in the
construction or application of a "doubtful or difficult question of law." (Article 2155, in
relation to Article 2154 of the Civil Code).

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But in Sevilla Trading vs Semana (GR No. 152456, 28 April 2004), the SC did not allow
the company to claim error in the interpretation of the law because various DOLE
regulations and SC decisions have put to rest the legal issue of what constitutes "basic
salary" for purposes of computing the 13th month pay . When the company still
included over the years non-basic benefits of its employees, such as maternity
leave pay, cash equivalent of unused vacation and sick leave, among others in
the computation of the 13th-month pay (despite the clarity of the law) , this may
only be construed as a voluntary act on its part. The SC said that putting the blame
on the payroll personnel is inexcusable.[N.B. It may really happen that payroll
personnel may erroneusly interpret the law or deliberately misinterpert it since they
themselves may benefit from a favorable computation method . I have handled a case
involving such claimed error regrading paid leaves. I was not able to persuade the CA,
given the clear ruling in the Sevilla case.]

III. Unlawful Discrimination

The equal protection clause of the Constitution is a limitation on governmental acts.

There is no general provision on discrimination in the Labor Code. What instead
appears are specific prohibition on discrimination against women (Art.135); based on
age ( Art. 140); children (RA 7610); and handicapped workers ( Magna Carta for
Disabled Persons).

A specific case on discrimination is PT & T vs Guzman ( GR No, 118978, 23 May 1997),

where the termination of a female employee for contracting marriage was declared
illegal. The company policy was declared contrary to law and public policy. In Del Monte
vs Velasco ( GR No. 153477, 16 March 2007), the discharge of a female emplyee for
pregnancy-related absences was declared illegal.And in Bernardo vs NLRC ( GR No.
122917), the SC disallowed the bank's practice of not regularizing deaf-mutes hired
as money sorters on 6-month contracts.

Those cases howeever do not involve monetary benefits. The foregoing cases involve
labor standards.

In International School Alliance of Educators" vs Quisumbing ( GR No. 128845, 01

June 2000), the SC nullified the schools policy of giving higher wage rates to "foreign-
hires" compared to "local hires". It ruled that there is no reasonable distinction
between the services rendered by foreign-hires and local-hires and the school's
contravenes public policy.

Yet, at the same time, the SC held that that "foreign-hires" do not belong to the same
bargaining unit as the "local-hires". If so, the school should be allowed to treat them
differently.

In PAL vs NLRC (GR No. 114280/115224, 26 July 1996), the SC held that:

"There is no rational basis for withholding from the members of ALPAP the benefit of a
year-end bonus in addition to the thirteenth month pay, while the same is being granted to
the other rank and file employees of PAL. PAL's failure to extend the same benefits to its
pilots is a blatant act of discriminationand is grossly unfair to the latter considering the
heavy and delicate responsibilities that they bear in the airline business, particularly in
ensuring the safety and comfort of thousands of passengers. In fact, it cannot be discounted

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that pilots are the lifeblood of every airline company. This makes it imperative that due
regard must be exercised in safeguarding their rights and welfare as employees. Finally, it
is worth mentioning that herein pilots of ALPAP are not even seeking more benefits than
what the other employees of PAL are already enjoying, rather, they simply seek to be
accorded the same benefits and treatment already being extended by PAL's management to
the other employees. In this regard, we must therefore uphold their claims".

Again the SC seemed to have disregarded the circumstance that the pilots constitute a
separate bargaining unit and therefore could be treated differently from employees
belonging to different bargaining units. Besides, the issue could be the subject of
collective bargaining and the SC should not unduly intrude into the negotiations.

N.B.

An appropriate bargaining unit is defined as a group of employees of a given

employer, comprised of all or less than all of the entire body of employees, which the
collective interest of all the employees, consistent with equity to the employer, indicate
to be best suited to serve the reciprocal rights and duties of the parties under the
collective bargaining provisions of the law (San Miguel Foods vs SMC Supervisors and
Exempt Union ( GR No. 146206, 01 August 2011).

A more understandable definition would be " a bargaining unit, in labor relations, is a

group of employees with a clear and identifiable community of interests who are
represented by a single labor union in collective bargaining and other dealings with
management (Wikipedia).

In Davao Integrated Port Stevedoring Services vs Abarquez ( GR No. 102132, 19

March 1993), the company discontinued the privilege of commutation or
conversion to cash of the unenjoyed portion of the sick leave benefit to regular
intermittent workers while retaining the benefits for regular non-intermittent
employees. The SC ruled that the management action was not only tainted with
arbitrariness but likewise discriminatory in nature.

In Marcos vs NLRC & Insular ( GR No. 111744, 08 Sept 1995), the SC nullified a
company policy which discriminated against certain employees in the grant of
anniversary bonus and performance bonus

"We cannot see any cogent reason why an anniversary bonus which respondent gives
only once in every five years were given to all employees of respondent as of 15
November 1990 (pro rata even to probationary employees) and not to complainants
who have rendered service to respondent for most of the five year cycle. This is also
true in the case of performance bonus which were given to permanent employees of
respondent as of 30 March 1991 and not to employees who have been connected with
respondent for most of 1990 but were separated prior to 30 March 1991".

We believe that the prerogative of the employer to determine who among its employee shall be
entitled to receive bonuses which are, as a matter of practice, given periodically cannot be
exercised arbitrarily.

In Business Day Information System vs NLRC (GR No. 1035757 05 April 1993), the
employees who were retrenched in the first tranche succesfully sued to recover the
difference between the separation benefits they received (1/2 month salary for every

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year of service) and the higher separation benefits ( one month salary for every year of
service) received by those retrenched in the second and third tranche.

"Granting that the 16 May 1988 termination was a retrenchment scheme, and the 31 July
1988 and the 28 February 1989 were due to closure, the law requires the granting of the
same amount of separation benefits to the affected employees in any of the cases. The
respondent argued that the giving of more separation benefit to the second and third
batches of employees separated was their expression of gratitude and benevolence to the
remaining employees who have tried to save and make the company viable in the
remaining days of operations. This justification is not plausible. There are workers in the
first batch who have rendered more years of service and could even be said to be more
efficient than those separated subsequently, yet they did not receive the same recognition.
Understandably, their being retained longer in their job and be not included in the batch
that was first terminated, was a concession enough and may already be considered as favor
granted by the respondents to the prejudice of the complainants. As it happened, there are
workers in the first batch who have rendered more years in service but received lesser
separation pay, because of that arrangement made by the respondents in paying their
termination benefits . . ."

Clearly, there was impermissible discrimination against the private respondents in

the payment of their separation benefits. The law requires an employer to extend
equal treatment to its employees. It may not, in the guise of exercising management
prerogatives, grant greater benefits to some and less to others. Management
prerogatives are not absolute prerogatives but are subject to legal limits, collective
bargaining agreements, or general principles of fair play and justice (UST vs. NLRC, 190
SCRA 758). Article 283 of the Labor Code, as amended, protects workers whose
employment is terminated because of closure of the establishment or reduction of
personnel (Abella vs. NLRC, 152 SCRA 141, 145).

But in North Davao Mining Corp. vs NLRC(GR No. 112546, 13 March 1996), the SC
reached a different conclusion. It upheld the company's decision not to grant
separation benefits when it closed operations due to serious business losses,
although it had previously granted separation benefits to employees who were
earlier retenched also for business losses.

In resolving the present case, it bears keeping in mind at the outset that the factual
circumstances of BISSI are quite different from the current case. The Court noted that BISSI
continued to suffer losses even after the retrenchment of the first batch of employees;
clearly, business did not improve despite such drastic measure. That notwithstanding,
when BISSI finally shut down, it could well afford to (and actually did) pay off its remaining
employees with MORE separation benefits as compared with those earlier laid off;
obviously, then, there was no reason for BISSI to skimp on separation pay for the first batch
of discharged employees. That it was able to pay one-month separation benefit for
employees at the time of closure of its business meant that it must have been also in a
position to pay the same amount to those who were separated prior to closure. That it did
not do so was a wrongful exercise of management prerogatives. That is why the Court
correctly faulted it with impermissible discrimination. Clearly, it exercised its management
prerogatives contrary to general principles of fair play and justice.

In the instant case however, the companys practice of giving one month's pay for every
year of service could no longer be continued precisely because the company could
not afford it anymore. It was forced to close down on account of accumulated losses of
over P20 billion. This could not be said of BISSI. In the case of North Davao, it gave 30-days
separation pay to its employees when it was still a going concern even if it was already
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losing heavily. As a going concern, its cash flow could still have sustained the payment of
such separation benefits. But when a business enterprise completely ceases operations, i.e.,
upon its death as a going business concern, its vital lifeblood -its cashflow - literally dries
up. Therefore, the fact that less separation benefits were granted when the company
finally met its business death cannot be characterized as discrimination.Such action
was dictated not by a discriminatory management option but by its complete
inability to continue its business life due to accumulated losses. Indeed, one cannot
squeeze blood out of a dry stone. Nor water out of parched land.

As already stated, Art. 283 of the Labor Code does not obligate an employer to pay
separation benefits when the closure is due to losses. In the case before us, the basis for the
claim of the additional separation benefit of 17.5 days is alleged discrimination, i.e.,
unequal treatment of employees, which is proscribed as an unfair labor practice by Art. 248
(e) of said Code. Under the facts and circumstances of the present case, the grant of a lesser
amount of separation pay to private respondent was done, not by reason of discrimination,
but rather, out of sheer financial bankruptcy - a fact that is not controlled by management
prerogatives. Stated differently, the total cessation of operation due to mind-boggling
losses was a supervening fact that prevented the company from continuing to grant the
more generous amount of separation pay. The fact that North Davao at the point of its
forced closure voluntarily paid any separation benefits at all - although not required by law
- and 12.5-days worth at that, should have elicited admiration instead of condemnation. But
to require it to continue being generous when it is no longer in a position to do so would
certainly be unduly oppressive, unfair and most revolting to the conscience. As this Court
held in Manila Trading & Supply Co. vs. Zulueta,[11] and reiterated in San Miguel Corporation
vs. NLRC and later, in Allied Banking Corporation vs. Castro, (t)he law, in protecting the
rights of the laborer, authorizes neither oppression nor self-destruction of the employer.
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IV. Forfeiture of Benefit

In Republic Planters Bank vs NLRC (GR No. 117469, 06 January 1997), the SC
sustained the company policy prescribing forfeiture of mid-year and year-end bonus
in case the employee is found guity of a disciplinary offense.

It is doubful if such policy could extend to statutory benefits (e.g., 13th month pay, leave
crdits) which are legally demandable as a matter of right (unlike bonuses, which are
subject to management discretion).

V. Unjust Enrichment

The principle that no person may unjustly enrich oneself at the expense of another is
embodied in Article 22 of the Civil Code, to wit:

Art. 22. Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense
of the latter without just or legal ground, shall return the same to him.

There is unjust enrichment when: (1) a person is unjustly benefited, and (2) such benefit
is derived at the expense of or with damages to another. The main objective of the
principle against unjust enrichment is to prevent one from enriching himself at the expense
of another without just cause or consideration.. It is commonly accepted that this doctrine
simply means that a person shall not be allowed to profit or enrich himself inequitably at
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anothers expense. One condition for invoking this principle is that the aggrieved party
has no other action based on a contract, quasi-contract, crime, quasi-delict, or any other
provision of law.

The principle has been used in labor cases.

In Isliz Trading vs Capada (GR No. 168601, 31 Janaury 2011), the SC limited th eaward
of accrued salaries to the period computed from the date of the Labor Arbiter's Decision
holding the dsimissal illegal (and ordering the employee's reinstatement, either
pohysically or on payroll) up to the dsate o the reversal of said decsion by the NLRC.
Beyond that point, accrued salaries could not be granted as such would impose unjust
enrichment on the employee at the expense of the employer. Since the properties of
the emplyer have been levied and sold at execution with the proceeds going to the
employee, the latter was ordered to effect restitution of the excess amount,

In Grandteq Ind. Steel vs Gonzales ( GR No. 181393, 28 July 2009), the SC nullified
down the provision in the car loan aggreement between the employer and the emplyee
which states that "In case of resignation of the personnel from the company, all
payments made by the personnel shall be forfeited in favor of the company" and
that "the company hall have the right to regain the possession of the car before
the expiration of the term of the loan""

The SC ruled that provisions plainly are contrary to the fundamental principles of justice
and fairness since the employee paid for the down payment and her share in the
monthly amortization of the car. The SC ordered the company to refund to the
employee the car loan payments she had made since she has not actually
acquired the car. It explained that:

"The Court rigorously disapproves contracts that demonstrate a clear attempt to exploit
the employee and deprive him of the protection sanctioned by both the Constitution and
the Labor Code.

The Constitution and the Labor Code mandate the protection of labor. Hence, as a matter of
judicial policy, this Court has, in a number of instances, leaned backwards to protect labor
and the working class against the machinations and incursions of their more financially
entrenched employers

Although not strictly a labor contract, the car loan agreement herein involves a
benefit extended by the employers, Grandteq and Gonzales, to their employee,
Margallo. It should benefit, and not unduly burden, Margallo. The Court cannot, in any way,
uphold a car loan agreement that threatens the employee with the forfeiture of all the car
loan payments he/she had previously made, plus loss of the possession of the car, should
the employee wish to resign; otherwise, said agreement can then be used by the employer
as an instrument to either hold said employee hostage to the job or punish him/her for
resigning

In Locsin vs Mekeni Food (GR No. 192105, 09 December 2013), the SC also ordered
the refund to the employee of the installment payments she made to a company car
plan which the company contended should be treated as her rentals and need not be
returned. The use of the vehicle was mainly for the benefit of the company, as it was
used by the employee as service vehicle to cover the sales area.Held the SC:

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... it is unfair to deny petitioner a refund of all his contributions to the car plan. Under
Article 22 of the Civil Code, "[e]very person who through an act of performance by another,
or any other means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him." Article 214227of the
same Code likewise clarifies that there are certain lawful, voluntary and unilateral acts
which give rise to the juridical relation of quasi-contract, to the end that no one shall be
unjustly enriched or benefited at the expense of another. In the absence of specific terms
and conditions governing the car plan arrangement between the petitioner and
Mekeni, a quasi-contractual relation was created between them. Consequently,
Mekeni may not enrich itself by charging petitioner for the use of its vehicle which is
otherwise absolutely necessaryto the full and effective promotion of its business. It
may not, under the claim that petitioner’s payments constitute rents for the use of
the company vehicle, refuse to refund what petitioner had paid, for the reasons that
the car plan did not carry such a condition; the subject vehicle is an old car that is
substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni for the
most part; and any personal benefit obtained by petitioner from using the vehicle was
merely incidental.

Conversely, petitioner cannot recover the monetary value of Mekeni’s counterpart

contribution to the cost of the vehicle; that is not property or money that belongs to him,
nor was it intended to be given to him in lieu of the car plan. In other words, Mekeni’s share
of the vehicle’s cost was not part of petitioner’s compensation package. To start with, the
vehicle is an asset that belonged to Mekeni. Just as Mekeni is unjustly enriched by failing to
refund petitioner’s payments, so should petitioner not be awarded the value of Mekeni’s
counter part contribution to the car plan, as this would unjustly enrich him at Mekeni’s
expense. PFFALLAR JR SSCRCL