SUBSTITUTE PAYMENT

Framanlis Farms vs MOLE

Facts: Eighteen (18) employees, private respondents, of petitioner Framanlis Farms filed a
complaint against the petitioner of non-payment of their emergency cost of living allowance
(ECOLA), minimum wage, 13th month pay, holiday pay and service incentive leave pay. The
petitioner alleged that the private respondents are not regular workers because they were hired
seasonally or only during milling season to do piece-work on the farm and hence they are not
entitled for the benefits they claim. The Deputy of Minister of Labor required the petitioners to
pay the private respondents of their 13th month pay. However, the petitioner alleged that the 13 th
month pay of the workers are complied with since they are given a weekly subsidy of choice pork
meat, free choice pork meat in May and December every year, and free light or electricity and they
were given year-end rewards for loyalty and service

Issue: Whether or not there is a valid payment of 13 th month pay by the petitioner.

Ruling: None. Under Section 3 of PD No. 851, such benefits in the form of food or free electricity,
assuming they were given, were not a proper substitute for the 13th month pay required by law.
PD 851 provides:

Section 3. Employees covered — The Decree shall apply to all employees except to:

The term 'its equivalent' as used in paragraph (c) hereof shall include Christmas
bonus, mid-year bonus, profit-sharing payments and other cash bonuses
amounting to not less than 1/12 of the basic salary but shall not include cash and
stock dividends, cost of living allowances and all other allowances regularly enjoyed
by the employee, as well as non-monetary benefits.

Where an employer pays less than 1/12 of the employee's basic salary, the employer
shall pay the difference."

Neither may year-end rewards for loyalty and service be considered in lieu of 13th month pay.
Section 10 of the Rules and Regulations Implementing Presidential Decree No. 851 provides:

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."

14TH MONTH PAY

Kamaya Point Hotel vs NLRC

Facts: Respondent Memia Quiambao with thirty others who are members of private respondent
Federation of Free Workers (FFW) were employed by petitioner as hotel crew. On the basis of the
profitability of the company's business operations, management granted a 14th month pay to its
employees starting in 1979. In January 1982, operations ceased to give way to the hotel's
conversion into a training center for Libyan scholars. However, due to technical and financing
problems, the Libyans pre-terminated the program on July 7, 1982, leaving petitioner without any
business, aside from the fact that it was not paid for the use of the hotel premises and in addition
had to undertake repairs of the premises damaged by the Libyan students. All in all petitioner
allegedly suffered losses amounting to P2 million. Although petitioner reopened the hotel premises
to the public, it was not able to pick-up its lost patronage. In a couple of months it effected a
retrenchment program until finally on January 7, 1984, it totally closed its business.
The private respondents filed a complaint against petitioner for non-payment of their 14th month
pay in the year 1982. The NLRC ruled in favour of private respondents.

Issue: Whether or not the grant of 14th month pay is proper.

Ruling: No. There is no law that mandates the payment of the 14th month pay. This is emphasized
in the grant of exemption under Presidential Decree 851 (13th Month Pay Law) which states:
"Employers already paying their employees a 13th month pay or its equivalent are not covered by
this Decree." Necessarily then, only the 13th month pay is mandated. Having enjoyed the
additional income in the form of the 13th month pay, private respondents' insistence on the 14th
month pay for 1982 is already an unwarranted expansion of the liberality of the law.

Also contractually, as gleaned from the collective bargaining agreement between management and
the union, there is no stipulation as to such extra remuneration. Evidently, this omission is an
acknowledgment that such benefit is entirely contingent or dependent on the profitability of the
company's operations.

Verily, a 14th month pay is a misnomer because it is basically a bonus and, therefore, gratuitous
in nature. The granting of the 14th month pay is a management prerogative which cannot be forced
upon the employer. It is something given in addition to what is ordinarily received by or strictly
due the recipient. It is a gratuity to which the recipient has no right to make a demand.

The Supreme Court ruled that an employer may not be obliged to assume the onerous burden of
granting bonuses or other benefits aside from the employee's basic salaries or wages in addition to
the required 13th month pay.

DIMUNITION

Davao Fruits Corporation vs ALU

Facts: On December 28, 1982 respondent Associated Labor Unions (ALU), for and in behalf of all
the rank-and-file workers and employees of petitioner, filed a complaint 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-file 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. 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 C. 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 "basis salary" as the basis for
determining the thirteenth month pay.

Issue: Whether or not the act of not granting the 13th month pay differential is tenable.

Ruling: No. Following the ruling of San Miguel Corporation vs Inciong, the petitioner is correct in
its contention that sick, vacation and maternity leaves, premium for work done on rest days and
special holidays, and pay for regular holidays should be excluded from 13 th month pay. However,
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 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, and
Article 100 of the labor of the Philippines, which prohibit the diminution or elimination by the
employer of the employees' existing benefits