Philippine Bar Exam: Non-diminution of Benefits

June 20, 2024

FROM THE 2019 LABOR BAR EXAM:

D, one of the sales representatives of OP, Inc., was receiving a basic pay of ₱50,000.00 a month, plus a 1% overriding commission on his actual sales transactions. In addition, beginning three (3) months ago, or in August 2019, D was able to receive a monthly gas and transportation allowance of ₱5,000.00 despite the lack of any company policy thereof.

In November 2019, D approached his manager and asked for his gas and transportation allowance for the month. The manager declined his request, saying that the company had decided to discontinue the aforementioned allowance considering the increased costs of its overhead expenses. In response, D argued that OP, Inc.’s removal of the gas and transportation allowance amounted to a violation of the rule on non-diminution of benefits.

Is the argument of D tenable? Explain. (2.5%)

POSSIBLE ANSWER BASED ON LAW AS OF JUNE 20, 2024

Is the argument of D tenable? Explain. (2.5%)

No, it is not tenable. There is a violation of non-diminution of benefits under Art. 100 of the Labor Code if a grant of benefit aside from wages has ripened into company practice or was included in an express policy and the employer unilaterally takes the grant of benefit back. While there is no rule as to the length of time required in order for a grant of benefit to ripen into company practice, the Supreme Court explained in Metropolitan Bank and Trust Co. v. NLRC how it ruled in a long line of cases that there is company practice if it has been implemented for years. Applying these to the facts, the gas and transportation allowance cannot be considered a company practice since it only lasted for 3 months. For lack of express policy and company practice, D’s argument that there was a violation of the rule on non-diminution of benefits is untenable.

NNOTES

The important legal bases with excerpts for this question are the following:

[1] Labor Code, Art. 100.

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.

[2] Vergara, Jr. vs. Coca-Cola Bottlers Philippines, Inc., G.R. No. 176985, April 1, 2013.

RE: Constitutional Mandate; Elements; Regular Company Practice.

Generally, employees have a vested right over existing benefits voluntarily granted to them by their employer. Thus, any benefit and supplement being enjoyed by the employees cannot be reduced, diminished, discontinued or eliminated by the employer. The principle of non-diminution of benefits is actually founded on the Constitutional mandate to protect the rights of workers, to promote their welfare, and to afford them full protection. In turn, said mandate is the basis of Article 4 of the Labor Code which states that “all doubts in the implementation and interpretation of this Code, including its implementing rules and regulations, shall be rendered in favor of labor."

There is diminution of benefits when the following requisites are present: (1) the grant or benefit is founded on a policy or has ripened into a practice over a long period of time; (2) the practice is consistent and deliberate; (3) the practice is not due to error in the construction or application of a doubtful or difficult question of law; and (4) the diminution or discontinuance is done unilaterally by the employer.

To be considered as a regular company practice, the employee must prove by substantial evidence that the giving of the benefit is done over a long period of time, and that it has been made consistently and deliberately. Jurisprudence has not laid down any hard-and-fast rule as to the length of time that company practice should have been exercised in order to constitute voluntary employer practice. The common denominator in previously decided cases appears to be the regularity and deliberateness of the grant of benefits over a significant period of time. It requires an indubitable showing that the employer agreed to continue giving the benefit knowing fully well that the employees are not covered by any provision of the law or agreement requiring payment thereof. In sum, the benefit must be characterized by regularity, voluntary and deliberate intent of the employer to grant the benefit over a considerable period of time.

[3] Metropolitan Bank and Trust Co. v NLRC, G.R. No. 152928, June 18, 2009.

RE: Length of time for a grant to ripen into a company practice.

With regard to the length of time the company practice should have been exercised to constitute voluntary employer practice which cannot be unilaterally withdrawn by the employer, jurisprudence has not laid down any hard and fast rule. In the case of Davao Fruits Corporation v. Associated Labor Unions, the company practice of including in the computation of the 13th-month pay the maternity leave pay and cash equivalent of unused vacation and sick leave lasted for six (6) years. In another case, Tiangco v. Leogardo, Jr.,the employer carried on the practice of giving a fixed monthly emergency allowance from November 1976 to February 1980, or three (3) years and four (4) months. While in Sevilla Trading v. Semana, the employer kept the practice of including non-basic benefits such as paid leaves for unused sick leave and vacation leave in the computation of their 13th-month pay for at least two (2) years. In all these cases, this Court held that the grant of these benefits has ripened into company practice or policy which cannot be peremptorily withdrawn. The common denominator in these cases appears to be the regularity and deliberateness of the grant of benefits over a significant period of time.

[4] Netlink Computer Incorporated vs. Delmo, G.R. No. 160827, June 18, 2014.

RE: Benefits covered under Non-Diminution Rule.

The principle of non-diminution of benefits, which has been incorporated in Article 10013 of the Labor Code, forbade Netlink from unilaterally reducing, diminishing, discontinuing or eliminating the practice. Verily, the phrase “supplements, or other employee benefits” in Article 100 is construed to mean the compensation and privileges received by an employee aside from regular salaries or wages.

[5] Central Azucarera de Tarlac vs. Central Azucarera de Tarlac Labor Union-NLU, G.R. No. 188949, July 26, 2010.

RE: Non-Diminution Rule; When the non-diminution may not apply.

Article 100 of the Labor Code, otherwise known as the Non-Diminution Rule, mandates that benefits given to employees cannot be taken back or reduced unilaterally by the employer because the benefit has become part of the employment contract, written or unwritten. The rule against diminution of benefits applies if it is shown that the grant of the benefit is based on an express policy or has ripened into a practice over a long period of time and that the practice is consistent and deliberate.

Nevertheless, the rule will not apply if the practice is due to error in the construction or application of a doubtful or difficult question of law. But even in cases of error, it should be shown that the correction is done soon after discovery of the error.