Caltex Regular Employees vs. Caltex (Philippines), Inc.

A CBA's body provision expressly stipulating one day of rest prevails over an annex containing compensation formulae referencing "First Day-off" and "Second Day-off" rates, where the annex is a company-wide computation guide applicable to different classes of employees and not a modification of the body's terms. An annex is subordinate to the principal agreement and cannot be construed as altering the terms expressed in the body of the contract.

Petitioner Union represented regular employees at Caltex's Manila Office, as well as employees similarly situated at the Legazpi and Marinduque Bulk Depots. Private respondent Caltex (Philippines), Inc. was the employer. The parties had a long history of collective bargaining, with successive CBAs executed in 1970, 1973, 1976, 1979, 1982, and 1985. The 1970 CBA contained a proviso expressly scheduling "two consecutive days off" for employees; all subsequent CBAs from 1973 onward deleted that proviso, retaining only language referring to the employee's "one Day of Rest." The 1985 CBA, executed on 12 December 1985, was effective until midnight of 31 December 1988 and included Article III on Hours of Work and Annex "B," which set forth mathematical formulae for computing various types of compensation.

On 12 December 1985, petitioner Union and private respondent Caltex entered into a Collective Bargaining Agreement ("1985 CBA") effective until midnight of 31 December 1988. Article III of the CBA, captioned "Hours of Work," provided that the regular work week would consist of eight hours per day, seven days, Monday through Sunday, at regular rates of pay, and that work on the employee's "one Day of Rest" would be considered a special work day compensated at "Day of Rest" rates as provided in Annex "B." Daily working schedules were to be established by management on the basis of eight hours per day for any five days, with employees required to work in excess of forty hours in any week to be compensated pursuant to Annex "B." Annex "B" set forth detailed mathematical formulae for computing regular pay, overtime pay, night shift differential pay, day off pay, excess of forty hours within a calendar week, Sunday premium pay, and holiday premium pay. Among these formulae were separate computations for "Regular First Day Off" and "Regular Second Day Off" rates, each with progressively higher premium percentages — the first day off computed at the basic hourly rate plus 50%, and the second day off at the basic hourly rate plus 100%.

Sometime in August 1986, the Union called Caltex's attention to alleged violations of Annex "B," including non-payment of night-shift differential, non-payment of overtime pay, and non-payment at "first day-off rates" for work performed on a Saturday. Caltex's Industrial Relations manager evaluated the claims and informed the Union that differential payments would be implemented. In the implementation, however, no differential payment was made with respect to work performed on the first two and one-half hours on a Saturday.

On 7 July 1987, the Union instituted a complaint for unfair labor practice against Caltex, alleging that Caltex shortchanged its employees by compensating work performed on the first two and one-half hours of Saturday — which the Union characterized as an employee's day of rest — at regular rates instead of "day off" rates. Caltex denied the accusations, averring that Saturday was never designated as a day of rest or "day-off" and that the 1985 CBA provided only one day of rest for employees at the Manila Office and those similarly situated at the Legazpi and Marinduque Bulk Depots, which day was Sunday.

Labor Arbiter Valentin C. Guanio ruled in favor of the Union, interpreting Article III and Annex "B" as providing employees with two days of rest, with the result that work performed on the employee's first day of rest — Saturday — should be compensated at "First day-off" rates. The Labor Arbiter surmised that the references to "First Day-off Rates" and "Second Day-off Rates" in Annex "B" expressed an agreement to provide two days of rest, and declared that Annex "B" should prevail over Article III because the former was a more specific provision. He further suspected that the parties had agreed to two days of rest based on a proviso found in the 1970 CBA scheduling "two consecutive days off." On appeal, the NLRC set aside the Labor Arbiter's decision, finding that the 1985 CBA granted only one day of rest — Sunday — and that the Labor Arbiter's conclusions were unsupported by the evidence. The Union's motion for reconsideration was denied on 9 June 1993.

• Two Days of Rest under the CBA: Petitioner Union argued that Annex "B" of the 1985 CBA, by referencing "First Day-off Rates" and "Second Day-off Rates," expressed the parties' intention to provide employees with two days of rest, and that Annex "B" should prevail over Article III as the more specific provision.
• Statutory Prohibition Against Offsetting Undertime: Petitioner contended that Caltex was violating Article 88 of the Labor Code, which prohibits offsetting undertime work on one day with overtime work on another day, by requiring employees to render "overtime work" on Saturday but compensating it at regular rates because they had not completed the eight-hour work period daily from Monday through Friday.
• Completion of 40-Hour Work Week on Saturday: Petitioner insisted that Caltex could not require employees to complete the 40-hour regular work week on a Saturday after allowing them to render only 37½ hours of work, and that all hours worked on Saturday should be compensated at premium rates regardless of the number of hours actually worked earlier during the week.

• One Day of Rest: Respondent Caltex maintained that Saturday was never designated as a day of rest or "day-off," and that the 1985 CBA provided only one day of rest — Sunday — for employees at the Manila Office and those similarly situated.
• Annex "B" as Company-Wide Guide: Respondent argued that Annex "B" was intended to serve as a company-wide guide for computing compensation for all Caltex employees, not just Manila Office employees represented by the Union, and that the "First Day-off" and "Second Day-off" formulae were applicable only to operations personnel at the refinery and associated facilities requiring continuous 24-hour, seven-day operation, not to Manila Office personnel whose work did not require six consecutive days of duty.

• Number of Days of Rest: Whether the 1985 CBA provided for one or two days of rest for employees at the Manila Office and similarly situated employees.
• Status of Annex "B": Whether Annex "B" of the CBA could modify or override the express language of Article III regarding the number of days of rest.
• Saturday Compensation: Whether work performed on Saturday was compensable at premium "day off" rates or at regular rates of pay.
• Undertime-Overtime Offset: Whether Caltex's practice of allowing employees to leave 30 minutes early constituted an illegal offsetting of undertime against overtime under Article 88 of the Labor Code.

• Number of Days of Rest: One. The 1985 CBA provided for only one day of rest — Sunday — based on the plain and ordinary meaning of Article III, which used the word "one" to describe the employee's "Day of Rest."
• Status of Annex "B": No. Annex "B" could not modify or override Article III; an annex is subordinate to the principal agreement and has no independent significance separate from the body of the contract.
• Saturday Compensation: Regular rates, unless the employee had already rendered 40 hours in the calendar week, in which case premium rates applied under the CBA's excess-of-40-hours provision.
• Undertime-Overtime Offset: No. The practice of allowing employees to leave 30 minutes early for commuting convenience did not constitute illegal offsetting, as the shortened work period did not modify the CBA's requirements for determining overtime or premium pay.

• Number of Days of Rest: The plain and ordinary meaning of Article III's language — referring to "an employee's one Day of Rest" — emphasized that only a single day of rest was to be scheduled and provided. The use of the word "one" was deliberate and controlling. This interpretation was reinforced by the fact that all previous CBAs from 1973 through 1982 contained parallel if not identical language referring to "one Day of Rest," and the Union had never suggested that more than one day of rest had been agreed upon. The contemporaneous and subsequent conduct of the parties — Caltex never treating the CBA as providing two days of rest — further confirmed this understanding. The 1970 CBA had expressly provided for "two consecutive days off," but all subsequent CBAs deleted that proviso, indicating the parties' agreement to remove the stipulation. The Union could not unilaterally re-insert it by strained inference from Annex "B."

• Status of Annex "B": An annex, by definition, expresses the idea of joining a smaller or subordinate thing with another of larger or higher importance. It has a subordinate role without independent significance separate from the instrument to which it is attached. Annex "B" was not a memorandum of amendments or a codicil containing new terms; it could not be construed as modifying or altering the terms expressed in the body of the 1985 CBA. The purported intention inferred by the Labor Arbiter from Annex "B" was based on conjecture and speculation. Annex "B" was a company-wide computation guide applicable to all Caltex employees, and its formulae were not all applicable to all classes of employees. The "First Day-off" and "Second Day-off" rates applied only to operations personnel at the refinery and associated facilities requiring continuous 24-hour operation, not to Manila Office employees whose work did not require six consecutive days of duty.

• Saturday Compensation: Under the 1985 CBA, Saturday was not a rest day or "day off." Hours worked on Saturday did not, by that fact alone, constitute overtime work compensable at premium rates. Saturday work was compensable at regular rates as normal or regular work hours. It was only when an employee was required to render work on a Saturday in excess of the 40 hours constituting the regular work week that such work became payable at premium rates under the CBA's excess-of-40-hours provision. The employee must have in fact rendered the requisite 40 hours before subsequently worked hours became payable at premium rates.

• Undertime-Overtime Offset: Overtime work consists of hours worked on a given day in excess of the applicable eight-hour work period; it is not enough that the hours worked fall on disagreeable or inconvenient hours. The company practice of allowing employees to leave 30 minutes early was established for the convenience of employees who commuted and wished to avoid rush-hour traffic. There was no allegation that the practice was used to escape contractual obligations. While the practice effectively reduced to 37½ the hours actually worked by employees who opted to leave early, it did not modify the CBA's other terms. The shortened work period did not likewise shorten the work required for purposes of determining overtime pay or premium pay for work beyond 40 hours. An employee was entitled to premium rates only when the employee had in fact already rendered the requisite number of hours — 8 or 40 — prescribed in the CBA. The statutory prohibition against offsetting undertime with overtime under Article 88 had no application. The 22-year company practice of not paying premium rates on Saturday unless the 40-hour requirement had been completed constituted contemporaneous and practical construction consistent with the actual language of the CBA, which could not reasonably be disregarded.

• Contemporaneous and Subsequent Construction of Contracts — The contemporaneous and subsequent conduct of the parties may be taken into account by a court called upon to interpret and apply a contract entered into by them. Long continued practice constitutes contemporaneous and practical construction which throws light upon the parties' own understanding of their mutual intent, especially when such practice is wholly consistent with the actual language of the provision. In this case, Caltex's 22-year practice of not paying premium rates on Saturday unless the 40-hour requirement had been completed was consistent with the CBA's language and could not be disregarded by the Labor Arbiter.

• Subordinate Nature of an Annex — An annex expresses the idea of joining a smaller or subordinate thing with another, larger or of higher importance. An annex has a subordinate role, without any independent significance separate from that to which it is tacked on. It cannot be construed as modifying or altering the terms expressed in the body of the agreement. In this case, Annex "B" could not override Article III's stipulation of one day of rest, as it was merely a computation guide attached to and subordinate to the CBA's body.

• Definition of Overtime Work — Overtime work consists of hours worked on a given day in excess of the applicable work period (here, eight hours). It is not enough that the hours worked fall on disagreeable or inconvenient hours. The hours worked must be in excess of and in addition to the eight hours worked during the prescribed daily work period, or the 40 hours worked during the regular work week Monday through Friday, to be considered overtime work compensable at premium rates.

• "An annex expresses the idea of joining a smaller or subordinate thing with another, larger or of higher importance. An annex has a subordinate role, without any independent significance separate from that to which it is tacked on." — This passage articulates the doctrinal basis for holding that Annex "B" could not override Article III of the CBA, establishing the principle that annexes are subordinate to and cannot modify the body of the principal agreement.

• "To the Court's mind, the use of the word 'one' describing the phrase 'day of rest [of an employee]' emphasizes the fact that the parties had agreed that only a single day of rest shall be scheduled and shall be provided to the employee." — This passage states the ratio decidendi for interpreting the CBA as providing only one day of rest, grounded in the plain and ordinary meaning of the contractual language.

• "Long continued practice constitutes contemporaneous and practical construction which inevitably throws light upon the parties' own understanding of their mutual intent, which would seem a more reliable guide to the parties' intention, especially when such practice is wholly consistent with the actual language of the provision, as in the present case." — This passage defines the doctrine of contemporaneous and practical construction and explains why the company's 22-year practice could not be disregarded by the Labor Arbiter.

• Universal Textile Mills vs. National Labor Relations Commission, 184 SCRA 273 (1990) — Cited as authority for the principle that the contemporaneous and subsequent conduct of the parties may be taken into account in interpreting a contract. The Court relied on this proposition to uphold the significance of Caltex's 22-year practice of not paying premium rates on Saturday unless the 40-hour requirement had been met.

• Bay Ridge Operating Co. vs. Aaron, 334 US 446, 92 L ed 1502 (1948) — Cited in relation to the definition of overtime work under Article 87 of the Labor Code, supporting the proposition that overtime work consists of hours worked in excess of the prescribed daily work period.

• Article III, 1985 CBA (Hours of Work) — Provided the regular work week of eight hours per day, seven days, Monday through Sunday, with work on the employee's "one Day of Rest" compensated at "Day of Rest" rates. The Court interpreted this provision as stipulating only one day of rest, based on the use of the word "one."

• Annex "B," 1985 CBA — Contained mathematical formulae for computing various types of compensation, including "Regular First Day Off" and "Regular Second Day Off" rates. The Court held that Annex "B" was a subordinate company-wide computation guide that could not modify Article III, and that the "First Day-off" and "Second Day-off" formulae applied only to operations personnel at the refinery and associated facilities, not to Manila Office employees.

• Article 87, Labor Code (Overtime Work) — Provides that work may be performed beyond eight hours a day provided the employee is paid additional compensation equivalent to regular wage plus at least 25% thereof. The Court applied this provision to define overtime work as hours worked in excess of the eight-hour daily work period or the 40-hour weekly work period.

• Article 88, Labor Code (Undertime not offset by overtime) — Provides that undertime work on any particular day shall not be offset by overtime work on any other day. The Court held that this provision had no application to the case because Caltex's practice of allowing employees to leave 30 minutes early did not constitute illegal offsetting; the shortened work period did not modify the CBA's requirements for determining overtime or premium pay.

Romero, Melo, and Vitug, JJ., concurred.