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 13th 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 the
company from removing the benefits in the computation. LA and NLRC ruled in
Case favor of the unions.
Summary
SC affirmed the NLRC, ruling that while as a rule 13th 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 13th month pay is based solely on daily wage
rate any increase in wage rate also increases 13th 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 – 13th 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
computation their employees a 13th month pay. Computation is determined by Sec. 2 of
of the 13th the IRR of PD 851 (Dec. 16 1975) i which was later qualified by a
month pay
may exclude supplementary IRR issued on Jan 16 1976 ii
sick, o Basically, 13th month pay is 1/12 of the basic salary of an employee
vacation, within the calendar year. Includes all earnings paid to an employee
maternity for services rendered but NOT earnings that are not part of the basic
leaves + salary such as overtime pay, etc.
other
benefits? 2

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.
2
Sick, vacation, maternity leaves + premiums for special holiday and rest day work + regular holiday pay
 o Intent to remove fringe-benefits from basic salary signified by
removal of cost-of-living allowances and profit-sharing payments 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 LC iii 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
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.