DAVAO FRUITS CORPORATION v.

ASSOCIATED LABOR UNION

August 24, 1993 | Quiason, J.
Past Practices
DLP

DOCTRINE: An established company practice which is favorable to the employees cannot be reduced, diminished, discontinued or eliminated
by the employer pursuant to provisions of law (see notes)
CASE SUMMARY: From 1975-1981, DFC has been including sick, vacation and maternity leaves, premium for work done on rest days and
special holidays, and pay for regular holidays (items subject of the complaint), in the computation of the 13th month pay. DFC did not include
these items in 1982. ALU sought to recover from DFC their 13th month pay differential for the year 1982. Labor Arbiter ruled in favor of ALU.
NLRC affirmed Labor Arbiter. SC affirmed NLRC.
FACTS:
1. R Associated Labor Union (ALU), for and in behalf of all the rank-and-file workers and employees of Petitioner Davao Fruits Corporation
(DFC), filed a complaint against DFC for Payment of Thirteenth Month Pay Differentials.

ALU alleged that it has been company practice (past practice!) since 1975 to include their sick, vacation and maternity leaves,
premium for work done on rest days and special holidays, and pay for regular holidays (items subject of the complaint), in the
computation of their 13th month pay since 1975. However, such were excluded in the year 1982. ALU sought to recover from DFC the
thirteenth month pay differential for the year 1982.
2. DFC claims that it erroneously included items subject of the complaint in the computation of the thirteenth month pay for the years prior to
1982; that they included them by mistake.
3. The Labor Arbiter ruled in favour of ALU, ordering DFC to pay the 13th month pay differential.
DFC appealed to the NLRC, which affirmed the Labor Arbiter decision.
Hence this petition.

ISSUE: WON sick, vacation and maternity leaves, premium 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. -- NO

RULING:
Provisions of law:
1. PD 851 1975, promulgated Dec 16, 1975 mandates all employers to pay their employees a 13th month pay. How this pay shall be computed
is set forth in SEC 2of the "Rules and Regulations Implementing PD 851"
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 renumerations or earnings paid by an employer to an employee for services rendered but may not
include cost of living allowances granted pursuant to PD 525 or LOI 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 Dec 16, 1975.

2. DOLE thereafter issued on Jan 16, 1976 the "Supplementary Rules and Regulations Implementing P.D. No. 851" which in
PARAGRAPH 4 thereof further defines the term "basic salary,"
PARAGRAPH 4 4. 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.

Courts interpretation of provisions

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 special holidays, as well as
pay for regular holidays, are likewise excluded in computing the basic salary for the purpose of determining the 13 th month pay.

Re: DFCs claim of mistake in paying

From 1975 to 1981, DFC had freely, voluntarily and continuously included in the computation of its employees' 13 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 P 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
benefits enjoyed by them. And any benefit 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 (see notes)
, and Article 100 of the Labor Code (see notes)of the Philippines, which prohibit the diminution or elimination by the employer of the
employees' existing benefits.

DISPOSITION: DFCs petition is dismissed. NLRC decision is affirmed.

NOTES: Section 10. Prohibition against reduction or elimination of benefits Nothing herein shall be construed to authorize any employer to
eliminate, or diminish in any way, supplements, or other employee benefits or favorable practice being enjoyed by the employee at the time of
promulgation of this issuance.

Art. 100. 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 the promulgation of this Code.