On the diminution of employee benefits

"Article 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." 

The basic principle under this provision is that where the employer practice or usage
confers greater benefits than what the law actually provides, its validity is not affected by
law and, more importantly, the employer may not cite the law as an excuse or justification
for reducing the benefits under such contract or practice. 

Jurisprudence, however, has expanded the scope of Article 100. In a long line of cases, the
Supreme Court has liberally interpreted said article to be a general prohibition on
employers against the elimination of employee supplements and benefits. The essence of
the rule, as developed by the Supreme Court, is that when the grant to employees of
certain benefits has evolved into company practice, said benefits cannot unilaterally be
withdrawn or reduced by the employer. The employees have a vested and demandable
right over them (Nestle Phils., Inc. v. NLRC, 193 SCRA 504). 

To be considered as a company practice which cannot subsequently be withdrawn by the

employer, the grant of the benefit must be shown to have been: 

a. Practised over a long period of time (Davao Integrated Ports Stevedoring Services vs.
Abarquez, et. al., 220 SCRA 197); 

b. Done consistently and deliberately (Globe Mackay Cable v. NLRC, 163 SCRA 71); and 

c. Not a product of erroneous interpretation or construction of a doubtful or difficult

question of law (Globe Mackay Cable v. NLRC, et al., supra). 

It must be mentioned, however, that the rule against the non-diminution of benefits is not
an absolute one. There are also Supreme Court decisions that have carved out exceptions
to this principle, to wit: 

a. The elimination of an existing benefit in exchange for an equal or better one is not in
violation of Article 100 (Asis v. v Minister of Labor, 171 SCRA 237). 
b. The rule does not apply where the grant of the benefit is conditional (Lexal
Laboratories, Inc. vs. Court of Industrial Relations, et al., 25 SCRA 668; Asis vs. Minister of
Labor, et al., supra). Note that there are certain benefits that are granted only under
certain specified circumstances. Examples of these would be per diems, relocation
allowances, dislocation pay, gasoline allowances, and similar supplements. 

c. There is also no violation of the rule against non-diminution of benefits where the
benefits had been granted by the employer because of an erroneous application of the
law, and were subsequently withdrawn to correct the mistake (Globe Mackay Cable,
ibid). 

It follows then that under the above rules, employers have the option of substituting an
existing benefit with another of substantially the same value. Thus, an employee’s loss of
his monthly ration of fuel may be compensated by his employer’s reimbursement of his
actual monthly fuel consumption. But from the typical employer’s view, substitution may
not be a solution to his economic woes. The answer may be in securing the consent of the
employees to a revision of the terms and conditions of his employment such that the
subject benefit will no longer be part of his benefit package. Since the rule is that there
cannot be a unilateral withdrawal or reduction by the employer, it follows that the
employer and the employee can agree on the same. If an employer can effectively
communicate to his employees his economic difficulties, such that as part of a
comprehensive cost cutting program to save the business and as many jobs as possible,
the employer may have to reduce or withdraw certain benefits, the employees might just
be willing to listen to him. 
Read more at https://www.philstar.com/business/2004/03/02/241022/diminution-
employee-benefits#OycfwwCkcYdM7meK.99

The rule on non-diminution of benefits

By
 Atty. Lorna Patajo-Kapunan
 -
December 4, 2016
7528
 THE Christmas season is fast approaching. While
children are often excited for their presents from Santa Claus for being nice the whole year,
employees, on the other hand, also look forward to their presents from their own Santa
Clauses, i.e. their generous employers. These presents or rewards comprise the gratuitous
benefits given by the employers to their employees for the unsurpassed services they
rendered. Under our labor laws, it is axiomatic that the practice of providing benefits
greater than those which are mandated by law remain valid for being favorable to the
employees.

In Arco Metal Products Co. Inc. v. SAMARM-NAFLU (GR  170734, May 14, 2008), the
Honorable Supreme Court ruled that “any benefit and supplement being enjoyed by
employees cannot be reduced, diminished, discontinued or eliminated by the employer. The
principle of non-diminution of benefits is founded on the Constitutional mandate to
“protect the rights of workers and promote their welfare,” and “to afford labor full
protection.” Though voluntarily given, these benefits provided by the employers may not
be unilaterally withdrawn even if later on, they could no longer afford providing for such. It
must be noted that such incident occurs whenever the giving of benefits ripens into
company practice.

To constitute as company practice, it must be shown that the giving of benefits by

employers to employees: (1) has been done for a considerable long period of time; (2) has
been consistently and intentionally done; and (3) has not been a product of erroneous
interpretation or construction of a doubtful or difficult question of law (Vergara v. Coca
Cola Bottlers Philippines, GR 176985, April 1, 2013). Once such giving of benefits attains
the status of a company practice, the employees can demand these benefits as a matter of
right.

The element of considerable long period of time, however, varies. In Davao Fruits
Corp. v. Associated Labor Unions (225 SCRA 562, 1993), the Honorable Supreme Court
ruled that the act of including in the employees’ 13th-month pay, items which are expressly
excluded by law, for at least six years, was considered considerably long and hence, a
company practice. In Sevilla Trading Co. v. Semana (438 SCRA 239, 2004), the Honorable
Supreme Court held that the act of giving benefits in addition to the requirement of the law
for at least two years, likewise, constituted a company practice.

Considering the above-mentioned rules, employers granting 14th-month pays, emergency

allowances, and performance and Christmas bonuses to employees, which has already
ripened to a company practice, becomes immediately demandable. Employers, therefore,
could not unilaterally withdraw nor reduce these grants without violating the prohibition on
non-diminution of benefits.

Employers are therefore reminded that, before changing your existing company policies
and benefits, consider at all times whether such change will lead to reduction, diminution or
withdrawal of benefits already enjoyed by the employees, more so if such grants are
already considered company practice. This is to ensure that no violation on the rule of non-
diminution of benefits will ever take place.