Framanlis Farms Vs MOLE: Substitute Payment

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 13th 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 13th 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 by NLRC 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 13th 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

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Framanlis Farms vs MOLE

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