University of the Philippines College of Law

J00D – E2023
Wage – Wage Increase – Effects on Benefits

DAVAO FRUITS CORPORATION, petitioner,

vs .
ASSOCIATED LABOR
Case Name
UNIONS (ALU) for and in behalf of all the rank-and-file
workers/employees of DAVAO FRUITS CORPORATION and
NATIONAL LABOR RELATIONS COMMISSION, respondent
DN | Date [G.R. No. 85073. August 24, 1993.]
Ponente J. Quiason
Petitioner/s Davao Fruits Corporation – Recruiting Agency
Unions (ALU) – representing rank and file workers/employees of Davao
Respondent/s
NLRC – ruled in favor of unions
Petitioner, Davao Fruits Corporation included benefits other than daily wage rate
in the computation of 13th month pay to its employees. This was pursuant to
the initial IRRs of PD 851 (law implementing 13th month pay) that included
sick leave pay, etc. to the items in the enumeration. They paid 13 th month pay
according tot his computation from 1975 – 1982 but later realized that they
didn’t need to. Wanted to fix this by fixing payment scheme from 1982
onwards.
This led to respondent Unions filing a case before the LA and the NLRC to stop
Case the company from removing the benefits in the computation. LA and NLRC
Summary ruled in favor of the unions.

SC affirmed the NLRC, ruling that while as a rule 13 th month pay should not
include benefits in the computation, the fact that the company has continually
included the benefits in the computation for a long period led to it ripening
into a longstanding company practice. Thus, the company cannot now remove
the benefits under LC 100 or the rule on non-diminution of benefits.

Nothing explicit sa case about wage increase and effects on benefits but from
what I understand, because the computation of 13 th month pay is based solely on
daily wage rate any increase in wage rate also increases 13 th month pay (a
benefit).
Doctrine
Alternatively, 13th month pay computation if based on benefits other than the
mandatory daily wage rate if done voluntarily and continuously for a period of
time cannot then be removed by the employer under the principle of non-
diminution of benefits as mandated by LC 100.
RELEVANT FACTS
1. Present Case – Certiorari, assailing decision of CA which affirmed NLRC decision which
found petitioner guilty of illegal dismissal.
2. Dec. 28 1982 – respondent, Associated Labor Unions (ALU) filed a case for payment of
“13th month pay differentials”, in behalf of the rank and file employees of petitioner.
Seeking the recovery of the following sums that Davao allegedly left out of the
computation for the 13th month pay for 1982; contrary to company practice that has been
in place since 1975.
a. 13th month pay differential for the year 1982 – equivalent to sick, vacation and
maternity laves.
b. Premium for work done on rest days, special holidays.
c. Pay for regular holidays.
i. Defense:
1. That it erroneously included the items that were subject of the
complaint in the computation of 13th month pay for the years prior
to 1982. That this erroneous payment was only corrected in 1982
due to the 1981 ruling in San Miguel v. Inciong that clarified that
such benefits were not included in the computation for 13th month
pay.

3. March 7 1984 – Labor Arbiter Pedro Ramos – ruled in favor of respondent ALU,
ordering Davao to pay the 1982 – 13 th month pay differential to all of its rank and file
employees.
a. NLRC – affirmed the decision of the Labor Arbiter.
4. Led to the current petition.1

Issue/s Ratio Decidendi

1. W/N the  Law – PD 851 is the implementing law. It mandates all employers to pay
computatio their employees a 13th month pay. Computation is determined by Sec. 2
n of the 13th of the IRR of PD 851 (Dec. 16 1975) i which was later qualified by a
month pay
supplementary IRR issued on Jan 16 1976ii
may
exclude o Basically, 13th month pay is 1/12 of the basic salary of an
sick, employee within the calendar year. Includes all earnings paid to
vacation, an employee for services rendered but NOT earnings that are not
maternity part of the basic salary such as overtime pay, etc.
leaves + o Intent to remove fringe-benefits from basic salary signified by
other
removal of cost-of-living allowances and profit-sharing payments
1
Initial complaint was certiorari via Rule 45 which SC points out as wrong, but they decided to treat it as a Rule
65 Certiorari instead.
 benefits?2 in the IRR.
 Therefore, basic salary refers only to daily wage rate. Any compensation
or remuneration OTHER than daily wage rate is excluded for the
purposes of the computation of the 13th month pay.
 Defense that Acting Labor Sec. Amado Inciong including the subject
items in the computation for 13th month pay via his opinions, orders and
rulings – SC says that PD 851 is still the governing law. Thus, labor sec.
cannot include items that are clearly beyond the scope of the law.
 San Miguel Corporation v. Inciong – while Inciong’s initial rulings may
have created doubt as to the inclusion of the premiums in the
computation this was clarified by the promulgation of the supplementary
IRRs issued in January 1976, which was only a month after the release
of the initial IRRs.
 Long-standing tradition – the fact that petitioner continued to include the
benefits for the computation of 13th month pay from 1975-1981 freely,
voluntarily and continuously led to such practice ripening into a
longstanding company practice. The considerable length of time
indicates a unilateral and voluntary act on the part of the company,
which defeats any claim of mistake.
o As held in Tiangco v. Leogardo – a company practice favourable
to the employee cannot be reduced, diminished, discontinued or
eliminated by the employer by virtue of Sec. 10 of the IRR of PD
851 and Art. 100 of the LCiii which prohibits the diminution or
elimination by the employer of the employee’s existing benefits.
 Solutio Indebiti – not applicable as it is a civil law concept. Here, labor
law. Similarly, even if it was applied Solutio indebiti requires the oblige
to return to the obligor whatever was received. Here, petitioner doesn’t
want to demand what was paid since 1975, only that they want to fix the
payment scheme from 1982 onwards.

RULING

WHEREFORE, finding 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

Notes

2
Sick, vacation, maternity leaves + premiums for special holiday and rest day work + regular holiday pay
i
Sec. 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, 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."
ii
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."

iii
Labor Code - 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
promulgation of this Code.