Petitioner Vs Vs Respondent Dominguez & Paderna Law Offices The Solicitor General

FIRST DIVISION
[G.R. No. 85073. August 24, 1993.]
DAVAO FRUITS CORPORATION , petitioner, vs . ASSOCIATED LABOR

UNIONS (ALU) for and in behalf of all the rank-and-file
workers/employees of DAVAO FRUITS CORPORATION and
NATIONAL LABOR RELATIONS COMMISSION , respondent.
Dominguez & Paderna Law Offices for petitioners.

The Solicitor General for public respondents.
SYLLABUS
1. LABOR LAW; PRESIDENTIAL DECREE NO. 851; "BASIC SALARY", DEFINED;

ANY COMPENSATION OR ENUMERATION OTHER THAN THE DAILY WAGE, EXCLUDED
FROM BASIC SALARY FOR THE PURPOSE OF DETERMINING THE THIRTEENTH MONTH
PAY. — The term "basic salary" includes all remunerations or earnings paid by the
employer to the employee, but excludes cost-of-living allowances, pro t-sharing
payments, and all allowances and monetary bene ts which have not been considered
as part of the basic salary of the employee as of December 16, 1975. The exclusion of
cost-of-living allowances and pro t sharing payments shows the intention to strip
"basic salary" of payments which are otherwise considered as "fringe" bene ts. This
intention is emphasized in the catch-all phrase "all allowances and monetary bene ts
which are not considered or integrated as part of the basic salary." Basic salary,
therefore does not merely exclude the bene ts expressly mentioned but all payments
which may be in the form of "fringe" bene ts or allowances (San Miguel Corporation v.
Inciong, supra, at 143-144). In fact, the Supplementary Rules and Regulations
Implementing P.D. No. 851 are very emphatic in declaring that overtime pay, earnings
and other remunerations shall be excluded in computing the thirteenth month pay. In
other words, whatever compensation an employee receives for an eight-hour work daily
or the daily wage rate is the basic salary. Any compensation or remuneration other than
the daily wage rate is excluded. It follows therefore, that payments for sick, vacation
and maternity leaves, premium for work done on rest days and special holidays, as well
as pay for regular holidays, are likewise excluded in computing the basic salary for the
purpose of determining the thirteenth month pay.
2. ID.; ID.; INTERPRETATION THEREOF CLARIFIED IN SAN MIGUEL
CORPORATION VS. INCIONG (103 SCRA 139). — whatever doubt arose in the
interpretation of P.D. No. 851 was erased by the Supplementary Rules and Regulations
which clari ed the de nition of "basic salary." As pointed out in San Miguel Corporation
v. Inciong, (supra): "While doubt may have been created by the prior Rules and
Regulations Implementing Presidential Decree 851 which de nes basic salary to
include all remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and Regulations which
categorically, exclude from the de nition of basic salary earnings and other
remunerations paid by employer to an employee . . . The all-embracing phrase 'earnings
and other remunerations' which are deemed not part of the basic salary includes within
its meaning payments for sick, vacation, or maternity leaves, premium for work
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performed on rest days and special holidays, pay for regular holidays and night
differentials. As such they are deemed not part of the basic salary and shall not be
considered in the computation of the 13th-month pay. If they were not so excluded, it is
hard to nd any 'earnings and other remunerations' expressly excluded in the
computation of the 13th-month pay. Then the exclusionary provision would prove to be
idle and with no purpose."
3. ID.; SEC. 10, RULES AND REGULATIONS IMPLEMENTING P.D. 851;
DIMINUTION OR ELIMINATION OF EMPLOYEES' EXISTING BENEFITS, PROHIBITED. —
From 1975 to 1981, 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, and
pay for regular holidays. The considerable length of time the questioned items had
been included by petitioner indicates a unilateral and voluntary act on its part, su cient
in itself to negate any claim of mistake. A company practice favorable to the employees
had indeed been established and the payments made pursuant thereto, ripened into
bene ts enjoyed by them. And any bene t and supplement being enjoyed by the
employees cannot be reduced, diminished, discontinued or eliminated by the employer,
by virtue of Section 10 of the Rules and Regulations Implementing P.D. No. 851, and
Article 100 of the Labor Code of the Philippines, which prohibit the diminution or
elimination by the employer of the employees' existing bene ts (Tiangco v. Leogardo,
Jr., 122 SCRA 267, [1983]).
4. CIVIL LAW; OBLIGATION AND CONTRACT; PRINCIPLE OF SOLUTIO
INDEBITI, NOT APPLICABLE IN LABOR LAW. — Petitioner cannot invoke the principle of
solutio indebiti which is a civil law concept that is not applicable in Labor Law. Besides,
in solutio indebiti, the obligee is required to return to the obligor whatever he received
from the latter (Civil Code of the Philippines, Arts. 2154 and 2155). Petitioner in the
instant case, does not demand the return of what it paid respondent ALU from 1975
until 1981; it merely wants to "rectify" the error it made over these years by excluding
unilaterally from the thirteenth month pay in 1982 the items subject of litigation. Solutio
indebiti, therefore, is not applicable to the instant case.
DECISION
QUIASON , J : p
This is a petition for certiorari to set aside the resolution of the National Labor
Relations Commission (NLRC), dismissing for lack of merit petitioner's appeal from the
decision of the Labor Arbiter in NLRC Case No. 1791-MC-X1-82.
On December 28, 1982, respondent Associated Labor Unions (ALU), for and in
behalf of all the rank-and- le workers and employees of petitioner, led a complaint
(NLRC Case No. 1791-MC-XI-82) before the Ministry of Labor and Employment,
Regional Arbitration Branch XI, Davao City, against petitioner, for "Payment of the
Thirteenth-Month Pay Differentials." Respondent ALU sought to recover from petitioner
the thirteenth month pay differential for 1982 of its rank-and- le employees, equivalent
to their sick, vacation and maternity leaves, premium for work done on rest days and
special holidays, and pay for regular holidays which petitioner, allegedly in disregard of
company practice since 1975, excluded from the computation of the thirteenth month
pay for 1982.
In its answer, petitioner claimed that it erroneously included items subject of the
complaint in the computation of the thirteenth month pay for the years prior to 1982,
upon a doubtful and di cult 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 (103 SCRA 139).
A decision was rendered on March 7, 1984 by Labor Arbiter Pedro C. Ramos, in
favor of respondent ALU. The dispositive portion of the decision reads as follows:
"WHEREFORE, in view of all the foregoing considerations, judgment is
hereby rendered ordering respondent to pay the 1982 — 13th month pay
differential to all its rank-and- le workers/employees herein represented by
complainant Union" (Rollo, p. 32).
Cdpr
Petitioner appealed the decision of the Labor Arbiter to the NLRC, which a rmed
the said decision and accordingly dismissed the appeal for lack of merit.
Petitioner elevated the matter to this Court in a petition for review under Rule 45
of the Revised Rules of Court. This error notwithstanding and in the interest of justice,
this Court resolved to treat the instant petition as a special civil action for certiorari
under Rule 65 of the Revised Rules of Court (P.D. No. 1391, Sec. 5; Rules Implementing
P.D. No. 1391, Rule II, Sec. 7; Cando v. National Labor Relations Commission, 189 SCRA
666 [1990]; Pearl S. Buck Foundation, Inc. v. National Labor Relations Commission, 182
SCRA 446 [1990]).
The crux of the present controversy is whether in the computation of the
thirteenth month pay given by employers to their employees under P.D. No. 851,
payments for sick, vacation and maternity leaves, premiums for work done on rest days
and special holidays, and pay for regular holidays may be excluded in the computation
and payment thereof, regardless of long-standing company practice.
Presidential Decree No. 851, promulgated on December 16, 1975, 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," thus:
"SECTION 2. ...
(a) 'Thirteenth-month pay' shall mean one twelfth (1/12) of the basic
salary of an employee within a calendar year.
(b) 'Basic Salary' shall include all remunerations 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, pro t-sharing payments, and all allowances and monetary
bene ts 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."
The Department of Labor and Employment issued on January 16, 1976 the
"Supplementary Rules and Regulations Implementing P.D. No. 851" which in paragraph
4 thereof further defines the term "basic salary," thus:
"4. Overtime pay, earnings and other remunerations which are not
part of the basic salary shall not be included in the computation of the 13-
month pay."
Clearly, the term "basic salary" includes all remunerations or earnings paid by the
employer to the employee, but excludes cost-of-living allowances, pro t-sharing
payments, and all allowances and monetary bene ts which have not been considered
as part of the basic salary of the employee as of December 16, 1975. The exclusion of
cost-of-living allowances and pro t sharing payments shows the intention to strip
"basic salary" of payments which are otherwise considered as "fringe" bene ts. This
intention is emphasized in the catch-all phrase "all allowances and monetary bene ts
which are not considered or integrated as part of the basic salary." Basic salary,
therefore does not merely exclude the bene ts expressly mentioned but all payments
which may be in the form of "fringe" bene ts or allowances (San Miguel Corporation v.
Inciong, supra, at 143-144). In fact, the Supplementary Rules and Regulations
Implementing P.D. No. 851 are very emphatic in declaring that overtime pay, earnings
and other remunerations shall be excluded in computing the thirteenth month pay. cdphil
In other words, whatever compensation an employee receives for an eight-hour

work daily or the daily wage rate is the basic salary. Any compensation or remuneration
other than the daily wage rate is excluded. It follows therefore, that payments for sick,
vacation and maternity leaves, premium for work done on rest days and special
holidays, as well as pay for regular holidays, are likewise excluded in computing the
basic salary for the purpose of determining the thirteenth month pay.
Petitioner claims that the mistake in the interpretation of "basic salary" was
caused by the opinions, orders and rulings rendered by then Acting Labor Secretary
Amado G. Inciong, expressly including the subject items in computing the thirteenth
month pay. The inclusion of these items is clearly not sanctioned under P.D. No. 851,
the governing law and its implementing rules, which speak only of "basic salary" as the
basis for determining the thirteenth month pay.
Moreover, whatever doubt arose in the interpretation of P.D. No. 851 was erased
by the Supplementary Rules and Regulations which clari ed the de nition of "basic
salary."
As pointed out in San Miguel Corporation v. Inciong, (supra):
"While doubt may have been created by the prior Rules and Regulations
Implementing Presidential Decree 851 which de nes basic salary to include all
remunerations or earnings paid by an employer to an employee, this cloud is
dissipated in the later and more controlling Supplementary Rules and
Regulations which categorically, exclude from the de nition of basic salary
earnings and other remunerations paid by employer to an employee. A cursory
perusal of the two sets of Rules indicates that what has hitherto been the
subject of a broad inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the seeming tendency of the former
rules to include all remunerations and earnings within the de nition of basic
salary.
The all-embracing phrase 'earnings and other remunerations' which are
deemed not part of the basic salary includes within its meaning payments for
sick, vacation, or maternity leaves, premium for work performed on rest days
and special holidays, pay for regular holidays and night differentials. As such
they are deemed not part of the basic salary and shall not be considered in the
computation of the 13th-month pay. If they were not so excluded, it is hard to
nd any 'earnings and other remunerations' expressly excluded in the
computation of the 13th-month pay. Then the exclusionary provision would
prove to be idle and with no purpose."
The "Supplementary Rules and Regulations Implementing P.D. No. 851," which
put to rest all doubts in the computation of the thirteenth month pay, was issued by the
Secretary of Labor as early as January 16, 1976, barely one month after the effectivity
of P.D. No. 851 and its Implementing Rules. And yet, petitioner computed and paid the
thirteenth month pay, without excluding the subject item therein until 1981. Petitioner
continued its practice in December 1981, after promulgation of the afore-quoted San
Miguel decision on February 24, 1981, when petitioner purportedly "discovered" its
mistake. llcd
From 1975 to 1981, 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, and pay for regular holidays. The considerable length of time the questioned
items had been included by petitioner indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed been established
and the payments made pursuant thereto, ripened into bene ts enjoyed by them. And
any bene t and supplement being enjoyed by the employees cannot be reduced,
diminished, discontinued or eliminated by the employer, by virtue of Section 10 of the
Rules and Regulations Implementing P.D. No. 851, and Article 100 of the Labor Code of
the Philippines, which prohibit the diminution or elimination by the employer of the
employees' existing benefits (Tiangco v. Leogardo, Jr., 122 SCRA 267, [1983]).
Petitioner cannot invoke the principle of solutio indebiti which is a civil law
concept that is not applicable in Labor Law. Besides, in solutio indebiti, the obligee is
required to return to the obligor whatever he received from the latter (Civil Code of the
Philippines, Arts. 2154 and 2155). Petitioner in the instant case, does not demand the
return of what it paid respondent ALU from 1975 until 1981; it merely wants to "rectify"
the error it made over these years by excluding unilaterally from the thirteenth month
pay in 1982 the items subject of litigation. Solutio indebiti, therefore, is not applicable
to the instant case. LLjur
WHEREFORE, nding no grave abuse of discretion on the part of the NLRC, the
petition is hereby DISMISSED, and the questioned decision of respondent NLRC is
AFFIRMED accordingly.
Cruz, Griño-Aquino, Davide, Jr. and Bellosillo, JJ., concur.

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FIRST DIVISION

[G.R. No. 85073. August 24, 1993.]

DAVAO FRUITS CORPORATION , petitioner, vs . ASSOCIATED LABOR

Dominguez & Paderna Law Offices for petitioners.

1. LABOR LAW; PRESIDENTIAL DECREE NO. 851; "BASIC SALARY", DEFINED;

In other words, whatever compensation an employee receives for an eight-hour

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