DAVAO FRUITS CORP. VS.

ASSOCIATED LABOR UNIONS (ALU)

Facts:

 Respondent Associated Labor Unions (ALU) filed a complaint before the Ministry of Labor and
Employment against petitioner for payment of the Thirteenth-Month Pay Differentials

 Petitioner claimed that it erroneously included items (such as payments for sick, vacation,
maternity leave) in the computation of the thirteenth month pay for the years prior to 1982, upon
a doubtful and difficult question of law. According to petitioner, this mistake was discovered only
in 1981 after the promulgation of the Supreme Court decision in the case of San Miguel
Corporation v. Inciong.

 The Labor Arbiter rendered a decision ordering Davao Fruits to pay the 1982 – 13 th month pay
differential.

 The NLRC affirmed the said decision and dismissed the appeal filed by Davao Fruits.

 Presidential Decree No. 851 mandates all employers to pay their employees a thirteenth month
pay. How this pay shall be computed is set forth in Section 2 of the Rules and Regulations
Implementing Presidential Decree No. 851

 "Basic Salary" shall include all renumerations or earnings paid by an employer to an

employee for services rendered but may not include cost of living allowances granted pursuant
to Presidential Decree No. 525 or Letter of Instructions No. 174, profit-sharing payments, and all
allowances and monetary benefits which are not considered or integrated as part of the regular or
basic salary of the employee at the time of the promulgation of the Decree on December 16,
1975.

 DOLE subsequently issued on January 16, 1976 the Supplementary Rules and Regulations
Implementing PD No. 851 which states that “Overtime pay, earnings and other renumerations
which are not part of the basic salary shall not be included in the computation of the 13th
month pay”

Issue:

 WON the computation of 13th month pay given by employers to their employees under PD 851,
payments for sick, vacation and maternity leaves, premiums for work done on rest days and
specials holidays, etc. are excluded in the computation and payment
Held:

 The term "basic salary" includes renumerations or earnings paid by the employer to employee,
but excludes cost-of-living allowances, profit-sharing payments, and all allowances and monetary
benefits.
 The intention of the law to exclude the said benefits in the computation of 13 th month is
emphasized in the catch all phrase "all allowances and monetary benefits which are not
considered or integrated as part of the basic salary."

 Basic salary, therefore does not merely exclude the benefits expressly mentioned but all
payments which may be in the form of "fringe" benefits or allowances

 Considering that petitioner had freely, voluntarily and continuously included in the computation
of its employees' thirteenth month pay, the payments for sick, vacation and maternity leaves,
premiums for work done on rest days and special holidays, the same has ripened into a company
practice favorable to the employees and cannot be reduced, diminished or discontinued or
eliminated by the employer.

 Petition is dismissed.