labor

FIRST DIVISION [G.R. No. 165550, October 08, 2008] STANDARD CHARTERED BANK, PETITIONER, VS. STANDARD CHARTERED BANK EMPLOYEES UNION (SCBEU), RESPONDENT. DECISION LEONARDO-DE CASTRO, J.: Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of Court of Standard Chartered Bank assailing the Decision[1] dated July 1, 2004 as well as the Resolution[2] dated September 23, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 71448. The questioned Decision and Resolution of the appellate court affirmed the Orders[3] dated March 11, 2002 and April 29, 2002 of the Department of Labor and Employment (DOLE) which sustained the outpatient medicine reimbursements of the employees of petitioner as well as the maternity benefits of the spouses of its male employees. Respondent Standard Chartered Bank Employees Union (SCBEU) filed its Comment (to the petition)[4] on March 28, 2005 and petitioner filed its Reply[5]thereto on June 21, 2005. The facts are culled from the records of the case. On August 25, 1998, petitioner Standard Chartered Bank entered into a Collective Bargaining Agreement[6] (CBA) with respondent Standard Chartered Bank Employees Union (SCBEU), which provided, among others, for medical benefits. Under Article XI, Section 1 of the CBA, petitioner committed to "continue to cover all its employees with a group hospitalization and major surgical insurance plan including maternity benefits."[7] At the time of the signing of the said CBA, the group hospitalization insurance plan in force was Group Policy No. P-1620 issued by the Philippine American Life (Philamlife) Insurance Company with an effective date of March 3, 1977.[8] After the signing of the CBA, petitioner changed its insurance provider from Philamlife to Maxicare, a Health Maintenance Organization, to allegedly provide its employees with improved medical benefits under the CBA. Subsequently, respondent charged petitioner with unfair labor practice before the DOLE for alleged gross violation of the economic provisions of the CBA and diminution or removal of benefits. Respondent contested, among others, the exclusion of the outpatient medicine reimbursements of the employees and the maternity benefits granted to the spouses of the male employees of petitioner in the new insurance policy provided by Maxicare. In support of its allegations, respondent presented a letter addressed to petitioner's Personnel Manager from the Group

Marketing Officer of Philamlife and documents indicating reimbursements for outpatient services to prove that the petitioner's employees had been enjoying outpatient medicine reimbursements. Respondent also cited Schedule L of the CBA and affidavits of employees to prove that the spouses of the male employees of petitioner were entitled to maternity benefits. Petitioner, in turn, argued that there was no diminution of benefits as the insurance policy issued by Maxicare contained similar benefits to those contained in the previous Philamlife policy. Petitioner alleged that outpatient medicine reimbursement was not expressly provided for in the Philamlife insurance policy and that this was precisely the reason petitioner's employees were provided with a medicine allowance under the CBA. Petitioner also contended that the maternity benefits as provided in the CBA were exclusive to its female employees and that the past practices cited by the respondent were "malpractices" which it seeks to curtail and correct. In a Decision dated May 31, 2001, the DOLE gave credit to the claims of respondent. It ruled that the "outpatient benefit [had] been a regular feature of the [petitioner's] medical coverage and as a regular feature, cannot be withdrawn unilaterally."[9] The insurance policy issued by Philamlife allowed outpatient benefits as claims against maximum disablement, notwithstanding the lack of an express provision regarding outpatient benefits. Moreover, the DOLE found that petitioner acknowledged, without disapproval or objection, employees' requests for reimbursement of outpatient medical expenses under the old insurance plan. The DOLE also held that the spouses of the male employees of petitioner were entitled to maternity benefits as a matter of practice. This finding was supported by the claims for reimbursement of maternity expenses of the spouses of bank employees covering the period from 1984 to 1998. The 1984 claims indicated that the same were approved by petitioner and that there was no showing that it disapproved or challenged the other claims. The DOLE said that these circumstances negated petitioner's contention that there was a mistake in the processing of claims for the said maternity benefits. In an Order[10]dated October 5, 2001, the DOLE acted on the separate motions for reconsideration of the parties and sustained its earlier findings but reversed its ruling that the maternity benefits granted by petitioner extend to the spouses of its male employees. Respondent allegedly failed to dispute the assertion of petitioner that there were only three out of four claims covering the period of twenty years that were processed by Philamlife. The DOLE was convinced that there was no voluntary practice of giving said maternity benefits to spouses of male employees. Respondent filed a second motion for reconsideration[11] and contended that it submitted documentary evidence showing that there were nine claims of the subject maternity benefits that were processed and approved. These were in addition to the four affidavits of bank employees attesting to the fact that the medical

hospitalization plan of Philamlife included such maternity benefits. Respondent further pointed out that these benefits were even integrated in the CBA. In the assailed Order dated March 11, 2002, the DOLE reverted to its original ruling that the spouses of male employees of petitioner were entitled to maternity benefits. Petitioner disagreed and filed a second motion for reconsideration to this ruling and a motion for clarification regarding the grant of "outpatient benefits" to the employees. In a subsequent Order dated April 29, 2002, the DOLE denied the said motion and clarified that the grant of outpatient benefits includes medicine reimbursements. Petitioner elevated this case before the appellate court through a special civil action for certiorari under Rule 65 of the Rules of Court. The said court dismissed the petition and affirmed the assailed Orders dated March 11, 2002 and April 29, 2002 of the DOLE and held that the basis for the grant of the subject maternity benefits was Schedule L of the CBA of the parties. The appellate court likewise denied petitioner's motion for reconsideration thereto for lack of merit. Hence, the instant petition for review on certiorari. Petitioner assails the rulings of the appellate court on the ground that the same are not in accord with evidence, law, and the applicable decisions of this Court and raises the following issues: ISSUES A. Whether or not, on the basis of evidence on record, the appellate court is correct in ruling that spouses of male employees are entitled to maternity benefits despite its own finding that there was no established company practice of granting maternity benefits to male employees' spouses; and Whether or not, on the basis of the evidence on record, the appellate court is correct in ruling that there is an established company practice of granting outpatient medicine reimbursements to petitioner's employees.

B.

Anent the first issue, petitioner claims that the spouses of its male employees are not entitled to maternity benefits as these are exclusively intended for its female employees. It is petitioner's view that the CA erred in finding that Schedule L of the CBA obligates it to pay maternity benefits to spouses of its male employees, despite ruling that there is no company practice granting maternity benefits to such persons. According to petitioner, the literal interpretation of Schedule L of the CBA is not the real intention of the parties to the contract. Such an interpretation is purportedly iniquitous to the bank as the same will also mean (a) that the children of married employees and the mothers of single employees will enjoy the same benefits and (b)

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that the spouses of the male employees who also happen to be employed in the bank or any other company will benefit twice. Schedule L of the CBA should instead be read compatibly with the provisions of the contract itself to determine the real intention of the parties thereto. Petitioner points out Section 1 of Article XI of the CBA and claims that this provision shows that the maternity benefits provided in Schedule L extend only to its employees, thus, the spouses of its male employees are not entitled to these benefits. Petitioner asserts that the CBA would have stated expressly that spouses of male employees are entitled to the said benefit had this been the intention of the parties, similar to the provision granting of advances and medicine allowances to the employees and their dependents. Moreover, the CA allegedly erred in applying Article 4 of the Labor Code in interpreting Schedule L of the CBA instead of Articles 1370-1379 of the Civil Code. Petitioner adds that its previous medical insurance policy which was provided by Philamlife granted insurance benefits only to its "regular, full-time employees" and that there is nothing in the said policy granting maternity benefits to the spouses of its male employees. Hence, petitioner asserts that the CA, having correctly ruled that petitioner had no company practice of extending such benefits to the spouses of its male employees, should not have granted such benefits on the basis of Schedule L of the CBA. Anent the second issue, petitioner claims that the appellate court erred in ruling that its employees are entitled to "outpatient medicine reimbursements" distinct and separate from the "medicine allowances" granted in the CBA. This would allegedly result in the unjust enrichment of the employees at the expense of petitioner. In its Comment, respondent contends that the instant petition must fail as it raises questions of fact when it should be limited to questions of law. Respondent adds that there is no real and material conflict between the findings of fact of the DOLE and the appellate court so as to claim that this case is an exception to the rule that only questions of law are elevated to this Court under Rule 45 of the Rules of Court. The appellate court allegedly shares the conclusion of the DOLE that the maternity benefits granted to the employees extend to the spouses of the male employees of petitioner although the basis for the ruling is not anchored on an established company practice but rather on the basis of Schedule L of the CBA. In its Reply, petitioner claims that "when the facts are undisputed, then the question of whether or not the conclusion drawn therefrom by the Court of Appeals is correct is a question of law." [12] The issues before this Court are thus questions of law because petitioner seeks the review of the "evidence on record and the conclusion drawn by the appellate court." In the alternative, petitioner further asserts that assuming the

issues raised are questions of fact, this Court is still not precluded from taking cognizance of the case as the same falls within the exceptions laid in the case of Fuentes v. Court of Appeals.[13] The factual findings of the CA may be reviewed by this Court (i) when the appellate court fails to notice certain relevant facts which will justify a different conclusion; and (ii) when the findings of fact are conflicting. Petitioner points out that the appellate court erroneously concluded that the spouses of its male employees are entitled to maternity benefits on the basis of Schedule L of the CBA despite finding that there is no company practice of granting the said benefit. Petitioner adds that this finding is consistent with the finding of the DOLE that the said company practice does not exist. The petition is bereft of merit. With respect to the procedural issue, we agree with respondent that the issues raised by the bank are essentially questions of fact that cannot be the subject of this petition for review on certiorari. Section 1 of Rule 45 of the Rules of Court provides that only questions of law may be raised on appeal by certiorari. Well-settled in our jurisprudence is the principle that this Court is not a trier of facts and that it is neither the function of this Court to analyze or weigh the evidence of the parties all over again.[14] The ruling in Microsoft Corporation v. Maxicorp, Inc.[15] elucidates the distinction of a question of law and a question of fact as follows: ... A question of law exists when the doubt or difference centers on what the law is on a certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of the alleged facts. xxxxxxxxx There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of the evidence. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation to each other, the issue in that query is factual. Our ruling in Paterno v. Paternois illustrative on this point: Such questions as whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are without doubt questions of fact. Whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by adverse party, may be said to be strong, clear and convincing; whether or not certain documents presented by one side should be accorded full faith and credit in the face of protests as to their spurious character by the other side; whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight - all these are issues of fact. [Emphasis supplied]

Petitioner wants this Court to determine if (i) the maternity benefits provided to its female employees extend to the spouses of its male employees and if (ii) its employees are entitled to "outpatient medicine reimbursements" as a matter of company practice. Indeed, petitioner, in phrasing the issues in this Petition, urges this Court to scrutinize the "evidence based on record." Such language militates against petitioner's contention that the Petition involves purely questions of law. We disagree with petitioner that the conclusion drawn by the appellate court from the "evidence based on record" is a question of law. This is the opposite definition of a question of law. Petitioner's reliance on the ruling in Commissioner of Immigration v. Garcia[16]that "when the facts are undisputed, then the question of whether or not the conclusion drawn therefrom by the Court of Appeals is correct is a question of law" is misplaced. In the present case, the facts are disputed. Respondent claims that there is an existing company practice entitling petitioner's employees to "outpatient medicine reimbursements" and entitling the spouses of its male employees to maternity benefits. Petitioner persistently argues the contrary. Both parties point to their CBA and various documents inclined to prove or disprove their respective factual contentions. This case likewise does not fall within any of exceptions to the rule that only questions of law are proper in a petition for review on certiorari under Rule 45 of the Rules of Court. The findings and conclusions of the appellate court show that the evidence and the arguments of the parties had all been carefully considered and passed upon. There are no "relevant facts" that will justify a different conclusion which the said court failed to consider. There are likewise no factual conclusions of the CA and the DOLE which are in conflict. In any event, even if this Court evaluates petitioner's arguments on the merits, we still find no reason to disturb the findings of the CA on the basis of the records of this case, particularly the attachments to the Petition. With respect to the first issue, the CA ruled in this wise: xxx Indeed, it has been held that for benefits to be considered as voluntary employer practice which cannot later on be unilaterally withdrawn by the employer under Article 100, Labor Code, it must be shown that the practice has been, for a long period of time, consistently and deliberately made by the employer. The Court finds that the element of consistency in the alleged practice of giving maternity benefits to spouses of petitioner's male employees is lacking in this case. In its motion for reconsideration of public respondent's Order dated March 11, 2002, petitioner enumerated names of twenty (20) male employees whose spouses gave birth during the alleged period

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of entitlement (1984-1998) but who did not avail of maternity benefits. In its comment on the motion for reconsideration, while private respondent disputed the names of ten (10) employees, it did not contest the rest of the names mentioned in the list. This only shows that the granting of maternity benefits to spouses of male employees was not consistently practiced by petitioner. Nonetheless, the Court still sustains the grant of maternity benefits to spouses of male employees on the basis of Schedule L of the 1998-2000 CBA, explicitly providing the coverage of the "Group Hospitalization Benefits" (which include maternity benefits), to include married staff and spouses and eligible children. Schedule L, referred to in Article XI of the CBA, provides: Basic Medical PHP Room & Board 750 (31) Hospital Service 7,500 Surgical Benefit 15,000 Doctor's Call (31) 600 Maternity Benefits Normal Delivery 10,000 Miscarriage 10,000 Caesarian 20,000 xxxxxxxxx Coverage Married staff and spouse and eligible children as defined in the plan. Single staff and one parent who has not reached 65 year of age. Petitioner, however, gives a different interpretation of the foregoing provision and claims that "the persons enumerated in Schedule L refer only to those who are covered by the insurance in case of hospitalization due to ill health considering that in such a circumstance, immediate dependents are likewise covered." The claim cannot prevail over the specific provision of said coverage of benefits. If ever the provision is capable of two interpretations, the same must be resolved in favor of labor. Nonetheless, since the grant of maternity benefits to spouses of male employees of petitioner is premised on the CBA, the same may be the subject of future renegotiation. As held in "Globe Mackay Cable and Radio Corp. vs. NLRC", 163 SCRA 71 (1988), "the CBA is the law between the parties and, if not acceptable, can be the subject of future renegotiation."[17] (emphasis and underscoring supplied) xxx Petitioner exhorts this Court to interpret Schedule L of the CBA in relation to Section 1, Article XI of the CBA which provides: Section 1.Group Hospitalization Insurance The BANK shall continue to cover all its employees with a group hospitalization and major surgical insurance plan including maternity benefits with a disablement maximum amount of

PHP100,000.00 per illness per year. All employees will be furnished with a copy of the booklet explaining the coverage of the Plan (See Schedule L). The BANK shall continue extending advances to staff members (or their dependents as defined in the insurance plan), who have been hospitalized due to ill health. The amount advanced will be the amount fully reimbursable under the Group Hospitalization Plan less Medicare but including the twenty percent (20%) deductible under the plan which absorbed by the BANK. Any shortfall is to be met by the employee.[18] Petitioner argues that the above-quoted provision expressly limits the grant of benefits, specifically maternity benefits, under the group hospitalization insurance plan to its own employees and that dependents of employees are only entitled to benefits for hospitalization due to ill-health. In addition, petitioner stresses that there is nothing in the group hospitalization insurance plan which expressly provides for maternity benefits for spouses of its male employees. Thus, petitioner asserts that maternity benefits under the CBA should be deemed granted only to petitioner's female employees. We are unconvinced by petitioner's reasoning. A reading of Section 1, Article XI of the CBA shows that at the time the CBA was signed there was already an existing group hospitalization insurance plan and petitioner was committing under the CBA to "continue" the same. It is undisputed that the plan referred to in said provision is Philamlife's Group Policy No. P-1620, a copy of which was attached to the Petition as Annex "O." In determining the coverage of the benefits under the said plan, it is the provisions of the plan itself that govern. In the said plan, the term "dependent" includes "a member's spouse who is not more than 65 years of age."[19] The plan further provides that "[u]nless dependents are excluded in any particular Insurance Schedule the term `insured person' shall be deemed to include any dependent insured under the Policy."[20] In other words, dependents enjoy the same benefits as the insured person unless they are expressly excluded in the Insurance Schedules of benefits. This Court notes thatthere is nothing in the Insurance Schedules or the plan itself which excludes dependents from availing of the maternity benefits granted under the plan. Thus, Schedule L appears to accurately summarize the provisions of the existing group hospitalization insurance plan with respect to the types of benefits under the plan and the persons who may avail them. The CA did not err in relying on Schedule L in finding that the spouses of petitioner's male employees may avail of maternity benefits. Neither can petitioner believably claim that it had no intention to extend maternity benefits to the spouses of its male employees under the CBA. Under the same Section 1, Article XI of the CBA, petitioner also committed to furnish all employees with a booklet explaining the coverage of the group hospitalization insurance plan. A copy of that booklet called the "Standard Chartered Bank Employee Medical Insurance Plan" was attached to the Petition as Annex "P."[21] Petitioner points to the following passage in

Appendix B of the booklet to bolster its position that only female employees can avail of maternity benefits: Do I qualify for Maternity Benefits even if I am pregnant at the time I become eligible? If you are a female employee and your pregnancy commences prior to your eligibility date for this insurance, you can claim for the benefits stated in the Schedule of Medical Insurance Benefits provided you apply for this insurance within 31 days from the date you become eligible for this insurance. However, the dependent of an insured employee can only claim under this benefit after the insured dependent has been continuously insured for a period of 9 months. (emphasis supplied) In its pleadings, petitioner conveniently omits the second sentence of the foregoing quote but this Court is not misled by such dissembling tactic. It is undeniable from the full text of petitioner's explanation of maternity benefits that the dependent of an insured employee can claim maternity benefits subject only to the condition that she has been continuously insured for a period of nine months. This booklet appears to be a publication solely of petitioner and it is clear evidence that petitioner itself interprets Philamlife Group Policy No. P-1620 as authorizing the grant of maternity benefits to dependents of its employees. Having knowingly and voluntarily incorporated by reference the provisions of its Philamlife group hospitalization insurance plan in the CBA (as can be seen in Article XI, Section 1 thereof in relation to Schedule L), petitioner cannot now assert that it never intended to extend maternity benefits to the spouses of its male employees under the CBA. Anent the second issue, the Court likewise finds no reason to deviate from the factual finding of both the DOLE and the CA that there is an established company practice of reimbursement of outpatient services, including medicine reimbursement, despite the absence of a provision in the group hospitalization insurance plan regarding outpatient benefits. Petitioner admits that outpatient benefits, as a matter of practice, were paid by Philamlife as claims against the "disablement maximum." However, petitioner is not assailing the payment of outpatient benefits in the present case but only assailing the inclusion of "outpatient medicine reimbursements" in the term "outpatient benefits." In this regard, we find well-taken the following excerpt from the DOLE's Order[22] dated April 29, 2002, attached as Annex "N" of the Petition: xxx Insofar as the outpatient benefit is concerned, it must be stressed that this Office directed the Bank to continue with the outpatient benefit under the old insurance plan and to carry it over to the new health care plan. This means that the components of the old health insurance scheme on this particular benefit should be the same component under the new health plan. In the Decision dated 31 May 2001, this Office made particular mention of the claims for

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reimbursement appearing as Annex "O" of the Union's Position Paper as basis for its directive to the Bank to continue with the outpatient benefits. These claims refer not only to x-ray services but also to reimbursement of prescription drugs. The existence of these benefits were further buttressed in the Union's "Reply to SCB's Motion for Reconsideration" (dated 11 July 2001) where the Union submitted copies of claims for doctor's fees, prescription drugs and laboratory fees processed, approved and paid. These should provide ample guidance to the parties in the grant of outpatient benefits, which includes medicine reimbursements as earlier practised [sic]. In making this clarification, we are not unaware of the Bank's position that medicine reimbursement is not part of the HMO package but was unilaterally granted by the service provider. Even if this were so, however, we do not believe that the grant by the service provider was without the conformity of the Bank in light of the exhibits submitted by the Union in its "Reply to the SCB's Motion for Reconsideration" (dated 11 July 2001, Annexes "B-861" to "B-99-1," covering the period 1986 to 1999). Thus, viewed from another angle, a conclusion similar to the spousal maternity benefit obtains, i.e., that a practice on medicine reimbursement has similarly developed which the Bank cannot now unilaterally withdraw. (emphasis supplied) xxx We see no reversible error in the CA's adoption of said findings of the DOLE. It is elementary that factual findings of labor officials, who are deemed to have acquired expertise in matters within their jurisdiction, are accorded not only respect but finality.[23] In a recent case, it was similarly held that where the factual findings of the labor tribunals or agencies conform to, and are affirmed by, the CA, the same are accorded respect and finality, and are binding upon this Court.[24] WHEREFORE, in view of the foregoing, the instant petition is hereby DENIED for lack of merit and the Decision dated July 1, 2004 of the Court of Appeals in CA-G.R. SP No. 71448 is hereby AFFIRMED. Costs against petitioner. SO ORDERED. Puno, C.J., (Chairperson), Carpio, Azcunaand Reyes*, JJ., concur. COCA-COLA BOTTLERS PHILS., INC. vs. ALAN M. AGITO, et al GR No. 179546 February 13, 2009FACTS: Petitioner (Coke) is a domestic corporation engaged in manufacturing, bottling and distributing soft drink beverages and other allied products. Respondents were salesmen assigned at Coke

Lagro Sales Office for years but were not regularized. Coke averred that respondents were employees of Interserve who were tasked to perform contracted services in accordance with the provisions of the Contract of Services executed between Coke and Interserve on 23 March 2002. Said Contract constituted legitimate job contracting, given that the latter was a bona fide independent contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business. To prove the status of Interserve as an independent contractor, petitioner presented the following pieces of evidence: (1) the Articles of Incorporation of Interserve; (2) the Certificate of Registration of Interserve with the Bureau of Internal Revenue; (3) the Income Tax Return, with Audited Financial Statements, of Interserve for 2001; and (4) the Certificate of Registration of Interserve as an independent job contractor, issued by the Department of Labor and Employment (DOLE). As a result, petitioner asserted that respondents were employees of Interserve, since it was the latter which hired them, paid their wages, and supervised their work, as proven by: (1) respondents¶ Personal Data Files in the records of Interserve; (2) respondents¶ Contract of Temporary Employment with Interserve; and (3) the payroll records of Interserve. ISSUES: 1. Whether or not Inteserve is a labor-only contractor; 2. Whether or not an employer-employee relationship exists between petitioner Coca-Cola Bottlers Phils. Inc. and respondents. RULING: At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an absolute figure for what it considers substantial capital for an independent job contractor, but it measures the same against the type of work which the contractor is obligated to perform for the principal. However, this is rendered impossible in this case since the Contract between petitioner and Interserve does not even specify the work or the project that needs to be performed or completed by the latter¶s employees, and uses the dubious phrase ³tasks and activities that are considered contractible under existing laws and regulations.´ Even in its pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the services that Interserve was obligated to render to petitioner. The importance of identifying with particularity the work or task which Interserve was supposed to accomplish for petitioner becomes even more evident, considering

that the Articles of Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain the business of janitorial and allied services. But respondents were hired as salesmen and leadman for petitioner. The Court cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had substantial capital or investment to undertake the job it was contracting with petitioner. [In] Vinoya v. NLRC, we clarified that it was not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises, etc., to be considered an independent contractor. In fact, jurisprudential holdings were to the effect that in determining the existence of an independent contractor relationship, several factors may be considered, such as, but not necessarily confined to, whether the contractor was carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment. In sum, Interserve did not have substantial capital or investment in the form of tools, equipment, machineries, and work premises; and respondents, its supposed employees, performed work which was directly related to the principal business of petitioner. It is, thus, evident that Interserve falls under the definition of a ³labor-only´ contractor, under Article 106 of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the Labor Code, as amended. It is also apparent that Interserve is a labor-only contractor under Section 5(ii) of the Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did not exercise the right to control the performance of the work of respondents. The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT). The Contract of Services between Interserve and petitioner did not identify the work needed to be performed and the final result required to be accomplished. Instead, the Contract specified the type of workers Interserve must provide petitioner (³Route Helpers, Salesmen, Drivers, Clericals, Encoders& PD´) and their qualifications (technical/vocational course graduates, physically fit, of good moral character, and have not been convicted of any crime). The Contract also states that, ³to carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel,´ thus, acknowledging that Interserve did not yet have in its employ the personnel needed by petitioner and would still pick out such personnel based on the criteria provided by petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work, or service for petitioner, but merely bound itself to provide the latter with

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specific types of employees. These contractual provisions strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with workers performing tasks directly related to the latter¶s principal business. The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway this Court to take it at face value, since the primary purpose stated in the Articles of Incorporation of Interserve is misleading. According to its Articles of Incorporation, the principal business of Interserve is to provide janitorial and allied services. The delivery and distribution of Coca-Cola products, the work for which respondents were employed and assigned to petitioner, were in no way allied to janitorial services. While the DOLE may have found that the capital and/or investments in tools and equipment of Interserve were sufficient for an independent contractor for janitorial services, this does not mean that such capital and/or investments were likewise sufficient to maintain an independent contracting business for the delivery and distribution of Coca-Cola products. With the finding that Interserve was engaged in prohibited laboronly contracting, petitioner shall be deemed the true employer of respondents. As regular employees of petitioner, respondents cannot be dismissed except for just or authorized causes, none of which were alleged or proven to exist in this case, the only defense of petitioner against the charge of illegal dismissal being that respondents were not its employees. Records also failed to show that petitioner afforded respondents the twin requirements of procedural due process, i.e., notice and hearing, prior to their dismissal. Respondents were not served notices informing them of the particular acts for which their dismissal was sought. Nor were they required to give their side regarding the charges made against them. Certainly, the respondents¶ dismissal was not carried out in accordance with law and, therefore, illegal. We are already on the month of October and after a few months, Christmas season is here again. For employees, that season sounds delightful. Aside from the enjoyable Christmas party and the series of vacations, the long awaiting 13th Month pay will finally land in our hands. For employers, this extra month pay is an additional mandated expense given to employees once or twice (installment) a year. However, some good business owners and employers see the giving of this added remuneration to employees as an appreciation and gratitude for their valuable contribution to their companies. An employer must know how to compute the lawful amount of 13th month pays to be distributed to his employees. On the other hand, it is clever for an employee to know the computation of his thirteenth month paycheck to ensure that he is receiving it in the right amount of money. So to know what must be known, the following guidelines are presented below. How to compute?

Section 2(a) of PD No. 851, which was issued by former president Ferdinand E. Marcos on December 16, 1975, stated that: ³thirteenth-month pay´ shall mean one twelfth (1/12) of the basic salary of an employee within a calendar year. According to the Revised Guidelines on the Implementation of the 13th Month Law issued on November 16, 1987 by then Labor Secretary Franklin Drilon: the ³basic salary´ of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, nigh differential and holiday pay, and cost-of-living allowances. However these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual r collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. Based on the foregoing information, we can arrive with the following formula in computing 13th month pay: 13monthpay = total basic salary within the calendar year / 12 Is it taxable? Thirteenth month pay and other benefits amounting to P 30,000 and below are not subject to income tax. This means, if you receive P 40,000, the P10,000 excess is already taxable. Who are entitled? Memorandum Order No. 28, issued by former President Corazon C. Aquino on August 13, 1986, modified Section of PD No. 851 and provided that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year. Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status,

and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year. Who are considered rank-and-file employees? According to the Labor code, all employees not falling within the definition of a managerial employee are considered rank-and-file employees. A managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. How about resigned and separated employees? An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period. The payment of the 13th month pay may be demanded by the employee upon the cessation of employer-employee relationship. This is consistent with the principle of equity that as the employer can require the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship. When to pay? The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (½) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and the recognized/collective bargaining agent of the employees. Who are considered exempted employers? The following employers are still not covered by P.D. No. 851: a. The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those

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corporations operating essentially as private subsidiaries of the Government; b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance; c. Employers of household helpers and persons in the personal service of another in relation to such workers; and d. Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piecerate basis in which case the employer shall grant the required 13th month pay to such workers. As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same. The term ³its equivalent´ as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments 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 required 1/12th of the employees basic salary, the employer shall pay the difference. G.R. No. 179546 February 13, 2009

declared that respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez were regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve Management & Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose presence was intended merely to preclude respondents from acquiring tenurial security. Petitioner is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and engaged in manufacturing, bottling and distributing soft drink beverages and other allied products. On 15 April 2002, respondents filed before the NLRC two complaints against petitioner, Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement with backwages, regularization, nonpayment of 13th month pay, and damages. The two cases, docketed as NLRC NCR Case No. 04-02345-2002 and NLRC NCR Case No. 05-03137-02, were consolidated. Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro Sales Office of petitioner. They had been in the employ of petitioner for years, but were not regularized. Their employment was terminated on 8 April 2002 without just cause and due process. However, they failed to state the reason/s for filing a complaint against Interserve; Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent Partners, Inc.3 Petitioner filed its Position Paper (with Motion to Dismiss),4 where it averred that respondents were employees of Interserve who were tasked to perform contracted services in accordance with the provisions of the Contract of Services5 executed between petitioner and Interserve on 23 March 2002. Said Contract between petitioner and Interserve, covering the period of 1 April 2002 to 30 September 2002, constituted legitimate job contracting, given that the latter was a bona fide independent contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business. To prove the status of Interserve as an independent contractor, petitioner presented the following pieces of evidence: (1) the Articles of Incorporation of Interserve;6 (2) the Certificate of Registration of Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax Return, with Audited Financial Statements, of Interserve for 2001;8 and (4) the Certificate of Registration of Interserve as an independent job contractor, issued by the Department of Labor and Employment (DOLE).9

As a result, petitioner asserted that respondents were employees of Interserve, since it was the latter which hired them, paid their wages, and supervised their work, as proven by: (1) respondents¶ Personal Data Files in the records of Interserve;10 (2) respondents¶ Contract of Temporary Employment with Interserve;11 and (3) the payroll records of Interserve.12 Petitioner, thus, sought the dismissal of respondents¶ complaint against it on the ground that the Labor Arbiter did not acquire jurisdiction over the same in the absence of an employer-employee relationship between petitioner and the respondents.13 In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were employees of Interserve and not of petitioner. She reasoned that the standard put forth in Article 280 of the Labor Code for determining regular employment (i.e., that the employee is performing activities that are necessary and desirable in the usual business of the employer) was not determinative of the issue of whether an employer-employee relationship existed between petitioner and respondents. While respondents performed activities that were necessary and desirable in the usual business or trade of petitioner, the Labor Arbiter underscored that respondents¶ functions were not indispensable to the principal business of petitioner, which was manufacturing and bottling soft drink beverages and similar products. The Labor Arbiter placed considerable weight on the fact that Interserve was registered with the DOLE as an independent job contractor, with total assets amounting to P1,439,785.00 as of 31 December 2001. It was Interserve that kept and maintained respondents¶ employee records, including their Personal Data Sheets; Contracts of Employment; and remittances to the Social Securities System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the Labor Arbiter¶s finding that respondents were employees of Interserve. She ruled that the circulars, rules and regulations which petitioner issued from time to time to respondents were not indicative of control as to make the latter its employees. Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th month benefits for the period of January 2002 until April 2002.14 In the end, the Labor Arbiter decreed: WHEREFORE, judgment is hereby rendered finding that [herein respondents] are employees of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly, respondent Interserve is further ordered to pay [respondents] their pro-rated 13th month pay.

COCA-COLA BOTTLERS PHILS., INC., Petitioner, vs. ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and EDWIN M. GOLEZ, Respondents. DECISION CHICO-NAZARIO, J.: This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision1 dated 19 February 2007, promulgated by the Court of Appeals in CA-G.R. SP No. 85320, reversing the Resolution2 rendered on 30 October 2003 by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of Appeals, in its assailed Decision,

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The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of merit. In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of complainants to pursue against them. Other claims are dismissed for lack of merit. The computation of the Computation and Examination Unit, this Commission if (sic) made part of this Decision.15 Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal with the NLRC, docketed as NLRC NCR CA No. 036494-03. In their Memorandum of Appeal,16 respondents maintained that contrary to the finding of the Labor Arbiter, their work was indispensable to the principal business of petitioner. Respondents supported their claim with copies of the Delivery Agreement17 between petitioner and TRMD Incorporated, stating that petitioner was "engaged in the manufacture, distribution and sale of soft drinks and other related products with various plants and sales offices and warehouses located all over the Philippines." Moreover, petitioner supplied the tools and equipment used by respondents in their jobs such as forklifts, pallet, etc. Respondents were also required to work in the warehouses, sales offices, and plants of petitioner. Respondents pointed out that, in contrast, Interserve did not own trucks, pallets cartillas, or any other equipment necessary in the sale of Coca-Cola products. Respondents further averred in their Memorandum of Appeal that petitioner exercised control over workers supplied by various contractors. Respondents cited as an example the case of Raul Arenajo (Arenajo), who, just like them, worked for petitioner, but was made to appear as an employee of the contractor Peerless Integrated Services, Inc. As proof of control by petitioner, respondents submitted copies of: (1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy), a supervisor of petitioner, addressed to Arenajo, suspending the latter from work until he explained his disrespectful acts toward the supervisor who caught him sleeping during work hours; (2) a Memorandum19 dated 12 August 1998 again issued by Dy to Arenajo, informing the latter that the company had taken a more lenient and tolerant position regarding his offense despite having found cause for his dismissal; (3) Memorandum20 issued by Dy to the personnel of Peerless Integrated Services, Inc., requiring the latter to present their timely request for leave or medical certificates for their absences; (4) Personnel Workers Schedules, 21 prepared by RB Chua, another supervisor of petitioner; (5) Daily Sales Monitoring Report

prepared by petitioner;22 and (6) the Conventional Route System Proposed Set-up of petitioner. 23 The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiter¶s Decision dated 28 May 2003 and pronounced that no employer-employee relationship existed between petitioner and respondents. It reiterated the findings of the Labor Arbiter that Interserve was an independent contractor as evidenced by its substantial assets and registration with the DOLE. In addition, it was Interserve which hired and paid respondents¶ wages, as well as paid and remitted their SSS, Medicare, and Pag-ibig contributions. Respondents likewise failed to convince the NLRC that the instructions issued and trainings conducted by petitioner proved that petitioner exercised control over respondents as their employer.24 The dispositive part of the NLRC Resolution states:25 WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However, respondent Interserve Management & Manpower Resources, Inc., is hereby ordered to pay the [herein respondents] their pro-rated 13th month pay. Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320. The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC Resolution dated 30 October 2003. The appellate court ruled that Interserve was a labor-only contractor, with insufficient capital and investments for the services which it was contracted to perform. With only P510,000.00 invested in its service vehicles and P200,000.00 in its machineries and equipment, Interserve would be hard-pressed to meet the demands of daily soft drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the respondents used the equipment, tools, and facilities of petitioner in the day-to-day sales operations. Additionally, the Court of Appeals determined that petitioner had effective control over the means and method of respondents¶ work as evidenced by the Daily Sales Monitoring Report, the Conventional Route System Proposed Set-up, and the memoranda issued by the supervisor of petitioner addressed to workers, who, like respondents, were supposedly supplied by contractors. The appellate court deemed that the respondents, who were tasked to deliver, distribute, and sell Coca-Cola products, carried out functions directly related and necessary to the main business of petitioner. The appellate court finally noted that certain provisions of the Contract of Service between petitioner and Interserve suggested that the latter¶s undertaking did not involve a specific job, but rather the supply of manpower. The decretal portion of the Decision of the Court of Appeals reads:26

WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC are REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings. Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution, dated 31 August 2007.27 Hence, the present Petition, in which the following issues are raised28: I WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY CONTRACTOR; II WHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER]; III WHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND IV WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY. The Court ascertains that the fundamental issue in this case is whether Interserve is a legitimate job contractor. Only by resolving such issue will the Court be able to determine whether an employer-employee relationship exists between petitioner and the respondents. To settle the same issue, however, the Court must necessarily review the factual findings of the Court of Appeals and look into the evidence presented by the parties on record.

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As a general rule, factual findings of the Court of Appeals are binding upon the Supreme Court. One exception to this rule is when the factual findings of the former are contrary to those of the trial court, or the lower administrative body, as the case may be. This Court is obliged to resolve an issue of fact herein due to the incongruent findings of the Labor Arbiter and the NLRC and those of the Court of Appeals. 29 The relations which may arise in a situation, where there is an employer, a contractor, and employees of the contractor, are identified and distinguished under Article 106 of the Labor Code: Article 106.Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the performance of the former¶s work, the employees of the contractor and of the latter¶s subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restriction, he may make appropriate distinctions between laboronly contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. There is "labor-only" contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. The afore-quoted provision recognizes two possible relations among the parties: (1) the permitted legitimate job contract, or (2) the prohibited labor-only contracting. A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance of the former¶s work, is permitted by law. Thus, the employer-employee

relationship between the job contractor and his employees is maintained. In legitimate job contracting, the law creates an employer-employee relationship between the employer and the contractor¶s employees only for a limited purpose, i.e., to ensure that the employees are paid their wages. The employer becomes jointly and severally liable with the job contractor only for the payment of the employees¶ wages whenever the contractor fails to pay the same. Other than that, the employer is not responsible for any claim made by the contractor¶s employees.30 On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in recruiting and supplying the principal employer with workers for the purpose of circumventing labor law provisions setting down the rights of employees. It is not condoned by law. A finding by the appropriate authorities that a contractor is a "labor-only" contractor establishes an employer-employee relationship between the principal employer and the contractor¶s employees and the former becomes solidarily liable for all the rightful claims of the employees. 31 Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines in determining whether labor-only contracting exists: Section 5.Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this purpose, laboronly contracting shall refer to an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work or service for a principal, and any of the following elements are [is] present: i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work, or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or ii) The contractor does not exercise the right to control the performance of the work of the contractual employee. The foregoing provisions shall be without prejudice to the application of Article 248(C) of the Labor Code, as amended. "Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools, equipment, implements, machineries and work premises, actually and directly used by the contractor or subcontractor in the performance or completion of the job, work, or service contracted out.

The "right to control" shall refer to the right reversed to the person for whom the services of the contractual workers are performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end. (Emphasis supplied.) When there is labor-only contracting, Section 7 of the same implementing rules, describes the consequences thereof: Section 7. Existence of an employer-employee relationship.²The contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code, including the failure to pay wages. The principal shall be deemed the employer of the contractual employee in any of the following case, as declared by a competent authority: a. where there is labor-only contracting; or b. where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof. According to the foregoing provision, labor-only contracting would give rise to: (1) the creation of an employer-employee relationship between the principal and the employees of the contractor or subcontractor; and (2) the solidary liability of the principal and the contractor to the employees in the event of any violation of the Labor Code. Petitioner argues that there could not have been labor-only contracting, since respondents did not perform activities that were indispensable to petitioner¶s principal business. And, even assuming that they did, such fact alone does not establish an employer-employee relationship between petitioner and the respondents, since respondents were unable to show that petitioner exercised the power to select and hire them, pay their wages, dismiss them, and control their conduct. The argument of petitioner is untenable. The law clearly establishes an employer-employee relationship between the principal employer and the contractor¶s employee upon a finding that the contractor is engaged in "labor-only" contracting. Article 106 of the Labor Code categorically states: "There is µlabor-only¶ contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work

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premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer." Thus, performing activities directly related to the principal business of the employer is only one of the two indicators that "labor-only" contracting exists; the other is lack of substantial capital or investment. The Court finds that both indicators exist in the case at bar. Respondents worked for petitioner as salesmen, with the exception of respondent Gil Francisco whose job was designated as leadman. In the Delivery Agreement32 between petitioner and TRMD Incorporated, it is stated that petitioner is engaged in the manufacture, distribution and sale of softdrinks and other related products. The work of respondents, constituting distribution and sale of Coca-Cola products, is clearly indispensable to the principal business of petitioner. The repeated re-hiring of some of the respondents supports this finding.33 Petitioner also does not contradict respondents¶ allegations that the former has Sales Departments and Sales Offices in its various offices, plants, and warehouses; and that petitioner hires Regional Sales Supervisors and District Sales Supervisors who supervise and control the salesmen and sales route helpers.34 As to the supposed substantial capital and investment required of an independent job contractor, petitioner calls the attention of the Court to the authorized capital stock of Interserve amounting to P2,000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp. v. National Labor Relations Commission36 and Frondozo v. National Labor Relations Commission,37 where the contractors¶ authorized capital stock of P1,600,000.00 and P2,000,000.00, respectively, were considered substantial for the purpose of concluding that they were legitimate job contractors. Petitioner also refers to Neri v. National Labor Relations Commission38 where it was held that a contractor ceases to be a labor-only contractor by having substantial capital alone, without investment in tools and equipment. This Court is unconvinced. At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting to P2,000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an absolute figure for what it considers substantial capital for an independent job contractor, but it measures the same against the type of work which the contractor is obligated to perform for the principal. However, this is rendered impossible in this case since the Contract between petitioner and Interserve does not even specify the work or the project that needs to be performed or completed by the latter¶s employees, and uses the dubious phrase "tasks and activities that are considered contractible under existing laws and regulations." Even in its pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the services that Interserve was obligated to

render to petitioner. The importance of identifying with particularity the work or task which Interserve was supposed to accomplish for petitioner becomes even more evident, considering that the Articles of Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain the business of janitorial and allied services.39 But respondents were hired as salesmen and leadman for petitioner. The Court cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had substantial capital or investment to undertake the job it was contracting with petitioner. Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in Neri, petitioner was unable to prove in the instant case that Interserve had substantial capitalization to be an independent job contractor. In San Miguel Corporation v. MAERC Integrated Services, Inc.,40 therein petitioner San Miguel Corporation similarly invoked Neri, but was rebuffed by the Court based on the following ratiocination41 : Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v. NLRC. In that case, it was held that the law did not require one to possess both substantial capital and investment in the form of tools, equipment, machinery, work premises, among others, to be considered a job contractor. The second condition to establish permissible job contracting was sufficiently met if one possessed either attribute. Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared MAERC a labor-only contractor despite the finding that MAERC had investments amounting to P4,608,080.00 consisting of buildings, machinery and equipment. However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises, etc., to be considered an independent contractor. In fact, jurisprudential holdings were to the effect that in determining the existence of an independent contractor relationship, several factors may be considered, such as, but not necessarily confined to, whether the contractor was carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment. In Neri, the Court considered not only the fact that respondent Building Care Corporation (BCC) had substantial capitalization but noted that BBC carried on an independent business and performed its contract according to its own manner and method, free from the control and supervision of its principal in all matters

except as to the results thereof. The Court likewise mentioned that the employees of BCC were engaged to perform specific special services for their principal. The status of BCC had also been passed upon by the Court in a previous case where it was found to be a qualified job contractor because it was a "big firm which services among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc." Furthermore, there were only two (2) complainants in that case who were not only selected and hired by the contractor before being assigned to work in the Cagayan de Oro branch of FEBTC but the Court also found that the contractor maintained effective supervision and control over them. Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the form of buildings, tools, and equipment of more than P4,000,000.00 did not impress the Court, which still declared MAERC to be a labor-only contractor. In another case, Dole Philippines, Inc. v. Esteva,42 the Court did not recognize the contractor therein as a legitimate job contractor, despite its paidup capital of over P4,000,000.00, in the absence of substantial investment in tools and equipment used in the services it was rendering. Insisting that Interserve had substantial investment, petitioner assails, for being purely speculative, the finding of the Court of Appeals that the service vehicles and equipment of Interserve, with the values of P510,000.00 and P200,000.00, respectively, could not have met the demands of the Coca-Cola deliveries in the Lagro area. Yet again, petitioner fails to persuade. The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and tool to engage in job contracting.43 Although not the contractor itself (since Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking the supposed status of Interserve as an independent job contractor. Noticeably, petitioner failed to submit evidence to establish that the service vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00, respectively, were sufficient to carry out its service contract with petitioner. Certainly, petitioner could have simply provided the courts with records showing the deliveries that were undertaken by Interserve for the Lagro area, the type and number of equipment necessary for such task, and the valuation of such equipment. Absent evidence which a legally compliant company could have easily provided, the Court will not presume that Interserve had sufficient investment in service vehicles and equipment, especially since respondents¶ allegation ± that they were using equipment, such as forklifts and pallets belonging to petitioner, to carry out their jobs ± was uncontroverted.

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In sum, Interserve did not have substantial capital or investment in the form of tools, equipment, machineries, and work premises; and respondents, its supposed employees, performed work which was directly related to the principal business of petitioner. It is, thus, evident that Interserve falls under the definition of a "labor-only" contractor, under Article 106 of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the Labor Code, as amended. The Court, however, does not stop at this finding. It is also apparent that Interserve is a labor-only contractor under Section 5(ii)44 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did not exercise the right to control the performance of the work of respondents. The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of which are reproduced below: WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing and/or undertaking, managing for consideration, varied projects, jobs and other related managementoriented services; WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical know-how and a team of professional management group and personnel to undertake and assume the responsibility to carry out the above mentioned project and services; WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR for emergency needs, rush jobs, peak product loads, temporary, seasonal and other special project requirements the extent that the available work of the CLIENT can properly be done by an independent CONTRACTOR permissible under existing laws and regulations; WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as stated heretofore, under the terms and conditions herein stated, and the CLIENT has accepted the offer. NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual covenants and stipulations hereinafter set forth, the parties have hereto have stated and the CLIENT has accepted the offer: 1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on a nonexclusive basis for tasks or activities that are considered

contractible under existing laws and regulations, as may be needed by the CLIENT from time to time. 2. To carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD who are at least Technical/Vocational courses graduates provided with adequate uniforms and appropriate identification cards, who are warranted by the CONTRACTOR to be so trained as to efficiently, fully and speedily accomplish the work and services undertaken herein by the CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such number as will be sufficient to cope with the requirements of the services and work herein undertaken and that such personnel shall be physically fit, of good moral character and has not been convicted of any crime. The CLIENT, however, may request for the replacement of the CONTRACTOR¶S personnel if from its judgment, the jobs or the projects being done could not be completed within the time specified or that the quality of the desired result is not being achieved. 3. It is agreed and understood that the CONTRACTOR¶S personnel will comply with CLIENT, CLIENT¶S policies, rules and regulations and will be subjected on-the-spot search by CLIENT, CLIENT¶S duly authorized guards or security men on duty every time the assigned personnel enter and leave the premises during the entire duration of this agreement. 4. The CONTRACTOR further warrants to make available at times relievers and/or replacements to ensure continuous and uninterrupted service as in the case of absences of any personnel above mentioned, and to exercise the necessary and due supervision over the work of its personnel.45 Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which included the respondents, would comply with "CLIENT" as well as "CLIENT¶s policies, rules and regulations." It even required Interserve personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized guards or security men on duty every time the said personnel entered and left the premises of petitioner. Said paragraph explicitly established the control of petitioner over the conduct of respondents. Although under paragraph 4 of the same Contract, Interserve warranted that it would exercise the necessary and due supervision of the work of its personnel, there is a dearth of evidence to demonstrate the extent or degree of supervision exercised by Interserve over respondents or the manner in which it was actually exercised. There is even no showing that

Interservehad representatives who supervised respondents¶ work while they were in the premises of petitioner. Also significant was the right of petitioner under paragraph 2 of the Contract to "request the replacement of the CONTRACTOR¶S personnel." True, this right was conveniently qualified by the phrase "if from its judgment, the jobs or the projects being done could not be completed within the time specified or that the quality of the desired result is not being achieved," but such qualification was rendered meaningless by the fact that the Contract did not stipulate what work or job the personnel needed to complete, the time for its completion, or the results desired. The said provision left a gap which could enable petitioner to demand the removal or replacement of any employee in the guise of his or her inability to complete a project in time or to deliver the desired result. The power to recommend penalties or dismiss workers is the strongest indication of a company¶s right of control as direct employer.461avvphil.zw+ Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former would provide relievers and replacements in case of absences of its personnel, raises another red flag. An independent job contractor, who is answerable to the principal only for the results of a certain work, job, or service need not guarantee to said principal the daily attendance of the workers assigned to the latter. An independent job contractor would surely have the discretion over the pace at which the work is performed, the number of employees required to complete the same, and the work schedule which its employees need to follow. As the Court previously observed, the Contract of Services between Interserve and petitioner did not identify the work needed to be performed and the final result required to be accomplished. Instead, the Contract specified the type of workers Interserve must provide petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders& PD") and their qualifications (technical/vocational course graduates, physically fit, of good moral character, and have not been convicted of any crime). The Contract also states that, "to carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel," thus, acknowledging that Interserve did not yet have in its employ the personnel needed by petitioner and would still pick out such personnel based on the criteria provided by petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work, or service for petitioner, but merely bound itself to provide the latter with specific types of employees. These contractual provisions strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with workers performing tasks directly related to the latter¶s principal business. The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway this Court to take it at

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face value, since the primary purpose stated in the Articles of Incorporation47 of Interserve is misleading. According to its Articles of Incorporation, the principal business of Interserve is to provide janitorial and allied services. The delivery and distribution of Coca-Cola products, the work for which respondents were employed and assigned to petitioner, were in no way allied to janitorial services. While the DOLE may have found that the capital and/or investments in tools and equipment of Interserve were sufficient for an independent contractor for janitorial services, this does not mean that such capital and/or investments were likewise sufficient to maintain an independent contracting business for the delivery and distribution of Coca-Cola products. With the finding that Interserve was engaged in prohibited laboronly contracting, petitioner shall be deemed the true employer of respondents. As regular employees of petitioner, respondents cannot be dismissed except for just or authorized causes, none of which were alleged or proven to exist in this case, the only defense of petitioner against the charge of illegal dismissal being that respondents were not its employees. Records also failed to show that petitioner afforded respondents the twin requirements of procedural due process, i.e., notice and hearing, prior to their dismissal. Respondents were not served notices informing them of the particular acts for which their dismissal was sought. Nor were they required to give their side regarding the charges made against them. Certainly, the respondents¶ dismissal was not carried out in accordance with law and, therefore, illegal.48 Given that respondents were illegally dismissed by petitioner, they are entitled to reinstatement, full backwages, inclusive of allowances, and to their other benefits or the monetary equivalents thereof computed from the time their compensations were withheld from them up to the time of their actual reinstatement, as mandated under Article 279 of the Labor Code,. IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES that respondents were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of seniority rights, and to pay them full back wages computed from the time their compensation was withheld up to their actual reinstatement. Costs against the petitioner. SO ORDERED. MINITA V. CHICO-NAZARIO Associate Justice Employee benefits; 13th month pay; definition of basic salary. The term ³basic salary´ of an employee for the purpose of computing the thirteenth-month pay was interpreted to include all

remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-ofliving allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the thirteenth-month pay if, by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. Central Azucarera De Tarlac vs. Central Azucarera De Tarlac Labor Union-NLU, G.R. No. 188949, July 26, 2010 Employee benefits; 13th month pay; company policy or practice. The practice of petitioner in giving 13th-month pay based on the employees¶ gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn. The petitioner cannot claim that the practice arose from an erroneous application of the law since no doubtful or difficult question of law is involved in this case. The guidelines set by the law are not difficult to decipher. Central Azucarera De Tarlac vs. Central Azucarera De Tarlac Labor Union-NLU, G.R. No. 188949, July 26, 2010 G.R. No. 188949 July 26, 2010

The facts of this case are not in dispute. In compliance with Presidential Decree (P.D.) No. 851, petitioner granted its employees the mandatory thirteenth (13th) - month pay since 1975. The formula used by petitioner in computing the 13th-month pay was: Total Basic Annual Salary divided by twelve (12). Included in petitioner¶s computation of the Total Basic Annual Salary were the following: basic monthly salary; first eight (8) hours overtime pay on Sunday and legal/special holiday; night premium pay; and vacation and sick leaves for each year. Throughout the years, petitioner used this computation until 2006.3 On November 6, 2004, respondent staged a strike. During the pendency of the strike, petitioner declared a temporary cessation of operations. In December 2005, all the striking union members were allowed to return to work. Subsequently, petitioner declared another temporary cessation of operations for the months of April and May 2006. The suspension of operation was lifted on June 2006, but the rank-and-file employees were allowed to report for work on a fifteen (15) day-per-month rotation basis that lasted until September 2006. In December 2006, petitioner gave the employees their 13th-month pay based on the employee¶s total earnings during the year divided by 12.4 Respondent objected to this computation. It averred that petitioner did not adhere to the usual computation of the 13th-month pay. It claimed that the divisor should have been eight (8) instead of 12, because the employees worked for only 8 months in 2006. It likewise asserted that petitioner did not observe the company practice of giving its employees the guaranteed amount equivalent to their one month pay, in instances where the computed 13thmonth pay was less than their basic monthly pay.5 Petitioner and respondent tried to thresh out their differences in accordance with the grievance procedure as provided in their collective bargaining agreement. During the grievance meeting, the representative of petitioner explained that the change in the computation of the 13th-month pay was intended to rectify an error in the computation, particularly the concept of basic pay which should have included only the basic monthly pay of the employees.6 For failure of the parties to arrive at a settlement, respondent applied for preventive mediation before the National Conciliation and Mediation Board. However, despite four (4) conciliatory meetings, the parties still failed to settle the dispute. On March 29, 2007, respondent filed a complaint against petitioner for money claims based on the alleged diminution of benefits/erroneous computation of 13th-month pay before the Regional Arbitration Branch of the National Labor Relations Commission (NLRC).7 On October 31, 2007, the Labor Arbiter rendered a Decision8 dismissing the complaint and declaring that the petitioner had the

CENTRAL AZUCARERA DE TARLAC, Petitioner, vs. CENTRAL AZUCARERA DE TARLAC LABOR UNION-NLU, Respondent. DECISION NACHURA, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the Decision1 dated May 28, 2009, and the Resolution2 dated July 28, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 106657. The factual antecedents of the case are as follows: Petitioner is a domestic corporation engaged in the business of sugar manufacturing, while respondent is a legitimate labor organization which serves as the exclusive bargaining representative of petitioner¶s rank-and-file employees. The controversy stems from the interpretation of the term "basic pay," essential in the computation of the 13th-month pay.

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right to rectify the error in the computation of the 13th-month pay of its employees.9 The fallo of the Decision reads: WHEREFORE, premises considered, the complaint filed by the complainants against the respondents should be DISMISSED with prejudice for utter lack of merit. SO ORDERED.10 Respondents filed an appeal. On August 14, 2008, the NLRC rendered a Decision11 reversing the Labor Arbiter. The dispositive portion of the Decision reads: WHEREFORE, the decision appealed is reversed and set aside and respondent-appellee Central Azucarera de Tarlac is hereby ordered to adhere to its established practice of granting 13th[-] month pay on the basis of gross annual basic which includes basic pay, premium pay for work in rest days and special holidays, night shift differential and paid vacation and sick leaves for each year. Additionally, respondent-appellee is ordered to observe the guaranteed one[-]month pay by way of 13th month pay. SO ORDERED.12 Petitioner filed a motion for reconsideration. However, the same was denied in a Resolution dated November 27, 2008. Petitioner then filed a petition for certiorari under Rule 65 of the Rules of Court before the CA.13 On May 28, 2009, the CA rendered a Decision14 dismissing the petition, and affirming the decision and resolution of the NLRC, viz.: WHEREFORE, the foregoing considered, the petition is hereby DISMISSED and the assailed August 14, 2008 Decision and November 27, 2008 Resolution of the NLRC, are hereby AFFIRMED. No costs. SO ORDERED.15 Aggrieved, petitioner filed the instant petition, alleging that the CA committed a reversible error in affirming the Decision of the NLRC, and praying that the Decision of the Labor Arbiter be reinstated. The petition is denied for lack of merit.

The 13th-month pay mandated by Presidential Decree (P.D.) No. 851 represents an additional income based on wage but not part of the wage. It is equivalent to one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year. All rankand-file employees, regardless of their designation or employment status and irrespective of the method by which their wages are paid, are entitled to this benefit, provided that they have worked for at least one month during the calendar year. If the employee worked for only a portion of the year, the 13th-month pay is computed pro rata.16 Petitioner argues that there was an error in the computation of the 13th-month pay of its employees as a result of its mistake in implementing P.D. No. 851, an error that was discovered by the management only when respondent raised a question concerning the computation of the employees¶ 13th-month pay for 2006. Admittedly, it was an error that was repeatedly committed for almost thirty (30) years. Petitioner insists that the length of time during which an employer has performed a certain act beneficial to the employees, does not prove that such an act was not done in error. It maintains that for the claim of mistake to be negated, there must be a clear showing that the employer had freely, voluntarily, and continuously performed the act, knowing that he is under no obligation to do so. Petitioner asserts that such voluntariness was absent in this case.17 The Rules and Regulations Implementing P.D. No. 851, promulgated on December 22, 1975, defines 13th-month pay and basic salary as follows: Sec. 2.Definition of certain terms.- As used in this issuance: (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. On January 16, 1976, the Supplementary Rules and Regulations Implementing P.D. No. 851 was issued. The Supplementary Rules clarifies that overtime pay, earnings, and other remuneration that are not part of the basic salary shall not be included in the computation of the 13th-month pay.

On November 16, 1987, the Revised Guidelines on the Implementation of the 13th-Month Pay Law was issued. Significantly, under this Revised Guidelines, it was specifically stated that the minimum 13th-month pay required by law shall not be less than one-twelfth (1/12) of the total basic salary earned by an employee within a calendar year.1avvphi1 Furthermore, the term "basic salary" of an employee for the purpose of computing the 13th-month pay was interpreted to include all remuneration or earnings paid by the employer for services rendered, but does not include allowances and monetary benefits which are not integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th-month pay if, by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. Based on the foregoing, it is clear that there could have no erroneous interpretation or application of what is included in the term "basic salary" for purposes of computing the 13th-month pay of employees. From the inception of P.D. No. 851 on December 16, 1975, clear-cut administrative guidelines have been issued to insure uniformity in the interpretation, application, and enforcement of the provisions of P.D. No. 851 and its implementing regulations. As correctly ruled by the CA, the practice of petitioner in giving 13th-month pay based on the employees¶ gross annual earnings which included the basic monthly salary, premium pay for work on rest days and special holidays, night shift differential pay and holiday pay continued for almost thirty (30) years and has ripened into a company policy or practice which cannot be unilaterally withdrawn. Article 100 of the Labor Code, otherwise known as the NonDiminution 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. 18 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.19 The argument of petitioner that the grant of the benefit was not voluntary and was due to error in the interpretation of what is included in the basic salary deserves scant consideration. No doubtful or difficult question of law is involved in this case. The

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guidelines set by the law are not difficult to decipher. The voluntariness of the grant of the benefit was manifested by the number of years the employer had paid the benefit to its employees. Petitioner only changed the formula in the computation of the 13th-month pay after almost 30 years and only after the dispute between the management and employees erupted. This act of petitioner in changing the formula at this time cannot be sanctioned, as it indicates a badge of bad faith. Furthermore, petitioner cannot use the argument that it is suffering from financial losses to claim exemption from the coverage of the law on 13th-month pay, or to spare it from its erroneous unilateral computation of the 13th-month pay of its employees. Under Section 7 of the Rules and Regulations Implementing P.D. No. 851, distressed employers shall qualify for exemption from the requirement of the Decree only upon prior authorization by the Secretary of Labor.20 In this case, no such prior authorization has been obtained by petitioner; thus, it is not entitled to claim such exemption. WHEREFORE, the Decision dated May 28, 2009 and the Resolution dated July 28, 2009 of the Court of Appeals in CA-G.R. SP No. 106657 are hereby AFFIRMED. Costs against petitioner. SO ORDERED. ANTONIO EDUARDO B. NACHURA Associate Justice PRESIDENTIAL DECREE NO. 851 REQUIRING ALL EMPLOYERS TO PAY THEIR EMPLOYEES A 13th-MONTH PAY

than P1,000 a month, regardless of the nature of their employment, a 13th-month pay not later than December 24 of every year. Sec. 2. Employers already paying their employees a 13th-month pay or its equivalent are not covered by this Decree. Sec. 3. This Decree shall take effect immediately. Done in the City of Manila, this 16th day of December 1975. RESIDENTIAL DECREE NO. 851 RULES AND REGULATIONS IMPLEMENTING PRESIDENTIAL DECREE NO. 851

institutions and organizations, where their income, whether from donations, contributions, grants and other earnings from any source, has consistently declined by more than forty (40%) percent of their normal income for the last two (2) years, subject to the provision of Section 7 of this issuance; (b) The Government and any of its political subdivisions, including government-owned and controlled corporations, except those corporations operating essentially as private subsidiaries of the Government; (c) Employers already paying their employees 13-month pay or more in a calendar year or its equivalent at the time of this issuance; (d) Employers of household helpers and persons in the personal service of another in relation to such workers; and (e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piecerate basis in which case the employer shall be covered by this issuance insofar as such workers are concerned. As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same. 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 1/12th 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 1/12th of the employees basic salary, the employer shall pay the difference. Sec. 4.Employees covered. - Except as provided in Section 3 of this issuance, all employees of covered employers shall be entitled to benefit provided under the Decree who are receiving not more than P1,000 a month, regardless of their position, designation or employment status, and irrespective of the method by

By virtue of the powers vested in me by law, the following rules and regulations implementing Presidential Decree No. 851 are hereby issued for the guidance of all concerned. Section 1.Payment of 13th-month Pay. - All employers covered by Presidential Decree No. 851, hereinafter referred to as the "Decree", shall pay to all their employees receiving a basic salary of not more than P1,000 a month a thirteenth-month pay not later than December 24 of every year. Sec. 2.Definition of certain terms.- As used in this issuance: (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. Sec. 3.Employers covered. - The Decree shall apply to all employers except to: (a) Distressed employers, such as (1) those which are currently incurring substantial losses or (2) in the case of non-profit

WHEREAS, it is necessary to further protect the level of real wages from the ravage of worldwide inflation; WHEREAS, there has been no increase in the legal minimum wage rates since 1970; WHEREAS, the Christmas season is an opportune time for society to show its concern for the plight of the working masses so they may properly celebrate Christmas and New Year. NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested in me by the Constitution, do hereby decree as follows: Section 1. All employers are hereby required to pay all their employees receiving a basic salary of not more

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which their wages are paid, provided that they have worked for at least one month during the calendar year. Sec. 5.Option of covered employers. - A covered employer may pay one-half of the 13th-month pay required by the Decree before the opening of the regular school year and the other half on or before the 24th day of December of every year. In any establishment where a union has been recognized or certified as the collective bargaining agent of the employees therein, the periodicity or frequency of payment of the 13th-month pay may be the subject of agreement. Nothing herein shall prevent employers from giving the benefits provided in the Decree to their employees who are receiving more than One Thousand (P1,000) Pesos a month or benefits higher than those provided by the Decree. Sec. 6.Special feature of benefit.- The benefits granted under this issuance shall not be credited as part of the regular wage of the employees for purposes of determining overtime and premium pay, fringe benefits, as well as premium contributions to the State Insurance Fund, social security, medicare and private welfare and retirement plans. Sec. 7.Exemption of Distressed employers. Distressed employers shall qualify for exemption from the requirement of the Decree upon prior authorization by the Secretary of Labor. Petitions for exemptions may be filed within the nearest regional office having jurisdiction over the employer not later than January 15, 1976. The regional offices shall transmit the petitions to the Secretary of Labor within 24 hours from receipt thereof. Sec. 8.Report of compliance.- Every covered employer shall make a report of his compliance with the Decree to the nearest regional labor office not later than January 15 of each year. The report shall conform substantially with the following form: REPORT ON COMPLIANCE WITH P.D. NO. 851 1. Name of establishment 2. Address 3. Principal product or business 4.Total employment 5. Total number of workers benefited

6. Amount granted per employee 7. Total amount of benefits granted 8. Name, position and tel. no. of person giving information Sec. 9.Adjudication of claims.- Non-payment of the thirteenth-month pay provided by the Decree and these rules shall be treated as money claims cases and shall be processed in accordance with the Rules Implementing the Labor Code of the Philippines and the Rules of the National Labor Relations Commission. Sec. 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. Sec. 11.Transitory Provision. - These rules and regulations shall take effect immediately and for purposes of the 13th-month pay for 1975, the same shall apply only to those who are employees as of December 16, 1975. Manila, Philippines, 22 December 1975. PRESIDENTIAL DECREE NO. 851 SUPPLEMENTARY RULES AND REGULATIONS IMPLEMENTING P.D. NO. 851

This exemption is without prejudice on the part of the workers to negotiate with their employers or to seek payment thereof by filing appropriate complaints with the Regional Offices of the Department of Labor. 2. Private school teachers, including faculty members of colleges and universities, are entitled to 1/12 of their annual basic pay regardless of the number of months they teach or are paid within a year. 3. New establishments operating for less than one year are not covered except subsidiaries or branches of foreign and domestic corporations. 4. Overtime pay, earnings and other remunerations which are not part of the basic salary shall not be included in the computation of the 13th-month pay. 5. In view of the lack of sufficient time for the dissemination of the provisions of P.D. No. 851 and its Rules and the unavailability of adequate cash flow due to the long holiday season, compliance and reporting of compliance with this Decree are hereby extended up to March 31, 1976 except in private schools where compliance for 1975 may be made not later than 30 June 1976. 6. Nothing herein shall sanction the withdrawal or diminution of any compensation, benefits or any supplements being enjoyed by the employees on the effective date of this issuance. Manila, January 16, 1976 RESIDENTIAL DECREE NO. 851 ADMINISTRATIVE ORDER NO. 2, SERIES OF 1976

To insure uniformity in the interpretation, application and enforcement of the provisions of Presidential Decree No. 851 and its implementing regulations, the following clarifications are hereby made for the information and guidance of all concerned: 1. Contractors and Subcontractors, including Security and Watchman Agencies, are exempt for the year 1975 subject to the following conditions: (a) that the contracts of such enterprises were entered into before December 16, 1975; (b) that such enterprises have complied with all labor standards laws during the year; (c) that the contract cannot really accomodate 13-month pay or its equivalent; and (d) that the contract does not provide for cost escalation clause.

In the interest of public service and efficiency, more particularly to facilitate the disposition of cases involving petitions for exemption, complaints, enforcement and implementation of P.D. No. 851 and its implementing rules and regulations, the following guidelines shall be followed: I. Petition for exemption 1. The Regional Office concerned shall transmit immediately the petition for exemption to the Chairman, Wage Commission with comments and recommendations, if any. The petition shall contain a sworn statement on the

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inability to implement the Decree and the reasons, therefore, and shall be accompanied by the following documents and statements: (a) A certified true copy of the income tax returns for the last two (2) years; (b) A certified copy of the financial reports for the last two (2) years filed with the Government entities, such as the Securities and Exchange Commission, Department of Trade, Department of Industries and Board of Investments; (c) A detailed sworn statement of the actual monthly losses not covered by the report required under paragraph (b) above and such other proofs or documents as may be required by the Chairman, Wage Commission to establish such exemption. 2. The Chairman, Wage Commission and the duly designated staff, shall evaluate all petitions for exemption and make appropriate recommendations within 20 working days from receipt of the petition to the Secretary of Labor. 3. Whenever a petition for exemption has been filed, and complaint for non-compliance shall be held in abeyance pending the disposition or resolution of the petition for exemption. II. Complaint, enforcement and/or implementation 1. All complaints for non-payment of the 13th-month pay shall be filed with the Field Services Division of the Regional Office concerned. The Regional Director shall direct the said Division to conduct an inspection and investigation in connection with the complaint filed. 2. The Field Service Division of the Regional Office concerned shall see to it that all covered employees comply with P.D. No. 851. The Regional Director shall submit a monthly progress report of compliance with the Decree. The reports of the Regional Offices shall be submitted to the LSS and BLS, and shall contain the following: (a) The total number of establishments; (b) total number of workers benefited; and (c) total amount of benefits paid. 3. The Regional Office shall compile, analyze and evaluate compliance reports and update the listing of establishments on the basis of the reports submitted.

Any prior order, circular, instruction or memorandum or parts thereof, inconsistent herewith are hereby revoked. This Order shall take effect immediately. Manila, 9 January 1976. REVISED GUIDELINES ON THE IMPLEMENTATION OF THE 13TH MONTH PAY LAW. 1. Removal of Salary Ceiling. On August 13, 1986, President Corazon C. Aquino issued Memorandum Order No. 28 which provides as follows: "Section 1 of Presidential Decree No. 851 is hereby modified to the extent that all employers are hereby required to pay all their rank-and-file employees a 13th month pay not later than December 24 of every year."chan robles virtual law library Before its modification by the aforecited Memorandum Order, P.D. No. 851 excludes from entitlement to the 13th month pay those employees who were receiving a basic salary of more than P1,000.00 a month. With the removal of the salary ceiling of P1,000.00, all rank and file employees are now entitled to a 13th month pay regardless of the amount of basic salary that they receive in a month if their employers are not otherwise exempted from the application of P.D. No. 851. Such employees are entitled to the benefit regardless of their designation or employment status, and irrespective of the method by which their wages are paid, provided that they have worked for at least one (1) month during a calendar year. 2. Exempted Employers. The following employers are still not covered by P.D. No. 851: a. The Government and any of its political subdivisions, including government-owned and controlled corporations, excepts those corporations operating essentially as private subsidiaries of the Government;

b. Employers already paying their employees a 13th month pay or more in a calendar year or its equivalent at the time of this issuance; c. Employers of household helpers and persons in the personal service of another in relation to such workers; and d. Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piecerate basis in which case the employer shall grant the required 13th month pay to such workers. As used herein, workers paid on piece-rate basis shall refer to those who are paid a standard amount for every piece or unit of work produced that is more or less regularly replicated, without regard to the time spent in producing the same. The term "its equivalent" as used on paragraph (b) hereof shall include Christmas bonus, mid-year bonus, cash bonuses and other payments 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 required 1/12th of the employees basic salary, the employer shall pay the difference.chan robles virtual law library 3. Who are Rank-and File Employees. The Labor Code distinguishes a rank-and-file employee from a managerial employee. It provides that a managerial employee is one who is vested with powers of prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall discharge, assign or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees. The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the mandated 13th month pay. 4. Amount and payment of 13th Month Pay

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(a) Minimum of the Amount. ³ The minimum 13th month pay required by law shall not be less than onetwelfth of the total basic salary earned by an employee within a calendar year. For the year 1987, the computation of the 13th month pay shall include the cost of living allowances (COLA) integrated into the basic salary of a covered employee pursuant to Executive Order 178. E.O. No. 178 provides, among other things, that the P9.00 of the daily COLA of P17.00 for non-agricultural workers shall be integrated into the basic pay of covered employees effective 1 May 1987, and the remaining P8.00 effective 1 October 1987. For establishments with less than 30 employees and paidup capital of P500,000 or less, the integration of COLAs shall be as follows: P4.50 effective on 1 May 1987; P4.50 on 1 October 1987; and P8.00 effective 1 January 1988. Thus, in the computation of the 13th month pay for 1987, the COLAs integrated into the basic pay shall be included as of the date of their integration. Where the total P17.00 daily COLA was integrated effective 1 May 1987 or earlier the inclusion of said COLA as part of the of the basic pay for the purpose of computing the 13th month pay shall be reckoned from the date of actual integration. The "basic salary" of an employee for the purpose of computing the 13th month pay shall include all remunerations or earning paid by this employer for services rendered but does not include allowances and monetary benefits which are not considered or integrated as part of the regular or basic salary, such as the cash equivalent of unused vacation and sick leave credits, overtime, premium, night differential and holiday pay, and cost-of-living allowances. However, these salary-related benefits should be included as part of the basic salary in the computation of the 13th month pay if by individual or collective agreement, company practice or policy, the same are treated as part of the basic salary of the employees. (b) Time of Payment. ³ The required 13th month pay shall be paid not later than December 24 of each year. An employer, however, may give to his employees one half (½) of the required 13th month pay before the opening of the regular school year and the other half on before the 24th of December of every year. The frequency of payment of this monetary benefit may be the subject of agreement between the employer and

the recognized/collective bargaining agent of the employees. 5. 13th Month Pay for Certain Types of Employees. (a) Employees Paid by Results. ³ Employees who are paid on piece work basis are by law entitled to the 13th month pay. Employees who are paid a fixed or guaranteed wage plus commission are also entitled to the mandated 13th month pay, based on their total earnings during the calendar year, i.e., on both their fixed or guaranteed wage and commission. (b) Those with Multiple Employers. ³ Government employees working part time in a private enterprise, including private educational institutions, as well as employees working in two or more private firms, whether on full or part time basis, are entitled to the required 13th month pay from all their private employers regardless of their total earnings from each or all their employers.chan robles virtual law library (c) Private School Teachers. ³ Private school teachers, including faculty members of universities and colleges, are entitled to the required 13th month pay, regardless of the number of months they teach or are paid within a year, if they have rendered service for at least one (1) month within a year. 6. 13th Month Pay of Resigned or Separated Employee. An employee who has resigned or whose services were terminated at any time before the time for payment of the 13th month pay is entitled to this monetary benefit in proportion to the length of time he worked during the year, reckoned from the time he started working during the calendar year up to the time of his resignation or termination from the service. Thus, if he worked only from January up to September his proportionate 13th month pay should be equivalent of 1/12 his total basic salary he earned during that period. The payment of the 13th month pay may be demanded by the employee upon the cessation of employeremployee relationship. This is consistent with the principle of equity that as the employer can require

the employee to clear himself of all liabilities and property accountability, so can the employee demand the payment of all benefits due him upon the termination of the relationship. 7. Non-inclusion in Regular Wage. The mandated 13th month pay need not be credited as part of regular wage of employees for purposes of determining overtime and premium pays, fringe benefits insurance fund, Social Security, Medicare and private retirement plans. 8. Prohibitions against reduction or elimination of benefits. chan robles virtual law library 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.

(Sgd.) FRANKLIN M. DRILON Secretary

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