07. Central Azucarera de Tarlac v.

Central Azucarera de AUTHOR: Concepcion/Pineda

Tarlac Labor Union Notes:
G.R. NO. 188949; 26 July 2010 CAT is ER
TOPIC: company practice CATLU is LLO of EEs
PONENTE: Nachura, J.
CASE LAW/ DOCTRINE:
• There is company practice when such practice has been done over a long period of time and the practice is
consistent and deliberate. There is no company practice when such is due to error in the construction or
application of a doubtful or difficult question of law. But even in case of error, it should be shown that the
correction is done soon after discovery of the error. Company practice cannot be unilaterally withdrawn, in light of
the Non-Diminution Rule (Article 100, LC) - benefits given to EEs cannot be withdrawn or reduced unilaterally.

EMERGENCY RECIT:
CAT and CATLU disagreed on computation of 13th month pay. In 2006, CAT wanted to change the computation it had
been using for the past thirty years as it argues to have erroneously included overtime pay, holiday pay, leave credits,
etc. as part of the basic pay used in computing the 13th month pay. CATLU argues that CAT is bound to follow the
computation as such has ripened into company practice over the past thirty years. SC eventually ruled in favor of
CATLU, as it acknowledged company practice. The computational “error” of CAT is not due to an error in
interpretation of a difficult provision of law, hence its act of consistently using the old computation had ripened into
company practice. CAT ordered to pay 13th month pay based on its old computation.
FACTS:
• CAT is a sugar manufacturing company. CATLU is the SEBA of rank and file EEs of CAT.
• For around thirty years, CAT applied this formula for the computation of the 13th month pay: total basic annual
salary divided by twelve. Total basic annual salary included: basic monthly salary, overtime pay, holiday pay, night
premium pay, and vacation/sick leaves.
• However on 2006, things had gone awry. CATLU staged a strike, causing CAT to declare a temporary cessation of
operations in November 2006. Subsequently, CAT declared temporary cessation of operations in April-May 2006.
• In December 2006, CAT changed its computation of holiday pay… after thirty years. Holiday pay for 2006 was based
on employee’s total earnings during the year divided by 12. CATLU assailed such computation, and argued that the
divisor should have been 8 instead of 12 because the employees only worked for eight months in 2006. Further,
CATLU argues it is company practice for CAT to pay a guaranteed amount equivalent to one month’s pay, should
the computation yield a lower pay.
• CAT and CATLU attempted to settle the dispute through the grievance machinery. During the grievance meeting,
CAT explained that its change in computation was effected in order to rectify its 30-year error of expanding the
basic monthly pay (the one used as basis in computing 13th month pay) by including overtime, holiday pay, etc.
when it was under no obligation to do so under law.
• Grievance failed. CATLU filed a complaint before the LA for a money claim against CAT for proper payment of 13th
month pay based on the thirty-year computation that is company practice.
• LA ruled in favor of CAT, stating that CAT has the right to rectify its computational errors.
• NLRC reversed LA, recognizing company practice of computation of 13th month pay.
• This prompted CAT to file a Petition for Certiorari before the CA. The CA affirmed the NLRC.
• CAT then filed a Petition for Review before the SC. CAT argues that company practice could not ripen from acts that
are involuntary, as the computation was based on an error and not on deliberate intent. In order for company
practice to ripen, CAT argues that it must be shown that the ER had freely, voluntarily, and continuously performed
the act with full knowledge of an obligation to do so.

ISSUE(S):
Issue: W/N CAT’s computation of 13th month pay has ripened into company practice
Held: Yes! CAT was ordered to pay the 13th month pay based on the formula it used for the last thirty years.
RATIO:
• 13th month pay is an additional income based on wage but not part of the wage. It is equivalent to 1/12 of the total
 basic salary earned by an EE within a calendar year. All rank and file EEs are entitled to this benefit, provided that
the EE has worked at least one month. Should the EE work less than a year, 13th month pay is computed pro rata.
• The Revised Guidelines on the Implementation of the 13th Month Pay Law provides that the “basic salary” (from
which 13th month pay is computed) includes all remuneration paid by the ER (excluding allowances and monetary
benefits such as leave credits, holiday pay, overtime, night shift, COLA, etc.). However the said exclusions are
included in the basic salary if by agreement, company practice or policy, the same are treated as part of the basic
salary.
• The CA was correct in recognizing that the computation of CAT ripened into company practice, in light of the fact
that it has been consciously applying such computation for thirty years and only changed its computation when
things gone awry.
• There is company practice when such practice has been done over a long period of time and the practice is
consistent and deliberate. There is no company practice when such is due to error in the construction or
application of a doubtful or difficult question of law. But even in case of error, it should be shown that the
correction is done soon after discovery of the error. Company practice cannot be unilaterally withdrawn, in light of
the Non-Diminution Rule (Article 100, LC) - benefits given to EEs cannot be withdrawn or reduced unilaterally.
• In this case, there is no doubtful or difficult question of law that caused the alleged error on CAT’s computation.
The guidelines set by law are not difficult to decipher. Thus, there is company practice.
• Furthermore… CAT cannot claim financial losses to claim exemption from its obligation to pay 13th month pay
based on the computation. Under the IRR, only ERs who seek prior authorization from SOLE can claim such
exemption. CAT failed to do this.