Iran vs. NLRC

Commissions earned by employees compensated on a commission basis constitute part of their wages under Article 97(f) of the Labor Code and must be included in determining the employer's compliance with minimum wage requirements. The establishment of a minimum wage sets a floor below which remuneration cannot fall; it does not exclude commissions from the wage computation.

Petitioner Antonio W. Iran operated a softdrinks merchandising and distribution business in Mandaue City, Cebu, under the name and style "Tones Iran Enterprises." He employed truck drivers who doubled as salesmen, truck helpers, and non-field personnel. The private respondents — Godofredo Petralba, Moreno Cadalso, Celso Labiaga, and Fernando Colina as drivers/salesmen, and Pepito Tecson, Apolinario Gimena, Jesus Bandilao, Edwin Martin, and Diosdado Gonzalgo as truck helpers — were compensated partly through commissions pegged per case of softdrinks sold. Drivers/salesmen received ₱0.10 per case of regular softdrinks and ₱0.12 per case of family-size softdrinks, while truck helpers received ₱0.08 and ₱0.10 per case, respectively.

Petitioner Antonio W. Iran operated a softdrinks merchandising and distribution business in Mandaue City, Cebu, employing truck drivers who also served as salesmen, truck helpers, and non-field personnel. He hired private respondents Godofredo Petralba, Moreno Cadalso, Celso Labiaga, and Fernando Colina as drivers/salesmen, and Pepito Tecson, Apolinario Gimena, Jesus Bandilao, Edwin Martin, and Diosdado Gonzalgo as truck helpers. The drivers/salesmen drove petitioner's delivery trucks and promoted, sold, and delivered softdrinks to various outlets, while the truck helpers assisted in the deliveries. As part of their compensation, both groups received commissions per case of softdrinks sold — salesmen at ₱0.10 per case of regular and ₱0.12 per case of family-size softdrinks, and truck helpers at ₱0.08 and ₱0.10 per case, respectively.

Sometime in June 1991, petitioner conducted an audit of his operations and discovered cash shortages and irregularities allegedly committed by private respondents. Pending investigation, petitioner required private respondents to report for work daily but barred them from going on their respective delivery routes. A few days later, private respondents stopped reporting for work, which petitioner construed as abandonment. He thereupon terminated their services and, on November 7, 1991, filed a complaint for estafa against them.

Private respondents, for their part, filed complaints on December 5, 1991, charging petitioner with illegal dismissal, illegal deduction, underpayment of wages, premium pay for holiday and rest day, holiday pay, service incentive leave pay, 13th month pay, allowances, separation pay, recovery of cash bond, damages, and attorney's fees. The complaints were consolidated and assigned to Labor Arbiter Ernesto F. Carreon.

The Labor Arbiter found that petitioner had validly terminated private respondents for just cause but had failed to comply with minimum wage requirements and to pay 13th month pay. He awarded monetary claims totaling ₱81,528.29, including 10% attorney's fees. Both parties appealed to the NLRC. Petitioner contested the exclusion of commissions from the wage computation and, for the first time on appeal, presented vouchers evidencing 13th month pay already paid. Private respondents contested the finding of valid dismissal and pointed to mathematical errors in the computation of Jesus Bandilao's wage differentials. The NLRC affirmed the validity of the dismissal but found that procedural due process had not been observed, corrected Bandilao's wage differential from ₱154.00 to ₱4,550.00, and awarded ₱1,000.00 to each complainant as indemnity. Petitioner's motion for reconsideration was denied, leading to the present petition.

• Inclusion of Commissions in Wage Computation: Petitioner argued that commissions paid to private respondents should be included in determining compliance with the minimum wage requirement, citing Article 97(f) of the Labor Code, which expressly recognizes commission basis as a method of calculating wage.
• Procedural Due Process in Dismissal: Petitioner maintained that no procedural lapses attended the termination, contending that his instruction to private respondents to report back for work and settle their accountabilities served as the first notice apprising them of the acts for which dismissal was sought.
• Crediting of 13th Month Pay Vouchers: Petitioner argued that vouchers denominated as 13th month pay, signed by private respondents, should be credited as amounts already received, invoking Section 3(e) of the Rules and Regulations Implementing P.D. No. 851, which requires the employer to pay only the difference when less than 1/12th of the basic salary has been paid.

• Exclusion of Commissions from Wage Computation: The NLRC argued that commissions should not be included in computing wages for minimum wage compliance, asserting that an employee should receive the minimum wage as mandated by law independent of commissions earned, and that including commissions would negate the practice of granting commissions only after the minimum wage has been paid.
• Illegal Dismissal: Private respondents contested the Labor Arbiter's finding that they had been validly dismissed, maintaining that their termination was illegal.
• Mathematical Errors: Private respondents pointed to mathematical errors in the Labor Arbiter's computation of Jesus Bandilao's wage differentials.

• Commissions as Part of Wages: Whether commissions received by private respondents should be included in determining petitioner's compliance with the minimum wage requirement.
• Procedural Due Process in Dismissal: Whether petitioner observed procedural due process in terminating private respondents, and whether the award of indemnity for procedural lapses was proper.
• 13th Month Pay Vouchers: Whether the NLRC gravely erred in not crediting the advance amounts received by private respondents as part of their 13th month pay, notwithstanding that the vouchers were presented only on appeal.

• Commissions as Part of Wages: Yes. Commissions earned by private respondents constitute part of wages under Article 97(f) of the Labor Code and must be included in determining compliance with minimum wage requirements.
• Procedural Due Process in Dismissal: No. Petitioner failed to observe procedural due process; the return-to-work order did not satisfy the first-notice requirement because it never apprised private respondents that their dismissal was being sought. Nominal damages of P5,000.00 each were awarded.
• 13th Month Pay Vouchers: Yes, in part. The vouchers should have been credited, as technical rules of evidence are not binding in labor cases, but only for the particular year covered by the vouchers.

• Commissions as Part of Wages: Article 97(f) of the Labor Code defines wage as remuneration or earnings "whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same," payable under a contract of employment for work done or services rendered. This definition explicitly includes commissions as part of wages. While commissions serve as incentives to encourage greater industry, they are nonetheless direct remunerations for services rendered. Commissions have been defined as the recompense or compensation of an agent or salesman calculated as a percentage on the amount of his transactions or on the profit to the principal. The nature of a salesman's work and the rationale for commission-based remuneration demonstrate that commissions are part of a salesman's wage. The NLRC's assertion that including commissions would negate the practice of paying commissions only after the minimum wage has been met was rejected: the universality of such practice is questionable, and no law mandates that commissions be paid only after the minimum wage. The minimum wage sets a floor below which remuneration cannot fall; it does not exclude commissions from the wage computation. This conclusion was bolstered by Philippine Agricultural Commercial and Industrial Workers Union vs. NLRC, where the Court acknowledged that drivers and conductors compensated purely on commission basis are entitled to the basic minimum pay should commissions fall below the minimum — implying that where commissions equal or exceed the minimum wage, the employer need not pay additional basic minimum pay.

• Procedural Due Process in Dismissal: It is settled that termination of employees requires two written notices: (a) a notice apprising the employee of the particular acts or omissions for which his dismissal is sought, and (b) a subsequent notice informing the employee of the employer's decision to dismiss. Petitioner's return-to-work order, by his own admission, was issued for the purpose of recovering misappropriated funds, not for effecting dismissal. Petitioner explicitly stated that "at the time the misappropriation was discovered and subsequently thereafter, the petitioner's first concern was not effecting the dismissal of private respondents but the recovery of the misappropriated funds." The first notice must inform the employee that dismissal is being sought; its absence renders the termination procedurally defective. Petitioner's claim of abandonment was likewise unavailing, because Section 2 of Book V, Rule XIV of the Omnibus Rules Implementing the Labor Code requires that notice be sent to the worker's last known address in cases of abandonment — a requirement petitioner failed to satisfy. Nominal damages of P5,000.00 each were awarded in accordance with recent jurisprudence to vindicate the violated right to procedural due process.

• 13th Month Pay Vouchers: While the vouchers evidencing 13th month pay were submitted only on appeal, Article 221 of the Labor Code directs that technical rules of evidence are not controlling in labor proceedings, and labor officials should use all reasonable means to ascertain the facts speedily and objectively without regard to technicalities. The intent of P.D. No. 851 is to grant additional income to employees not yet receiving the same, not to impose a double burden on employers already paying 13th month pay or its equivalent. An employer who pays less than 1/12th of the basic salary is required only to pay the difference. However, the vouchers covered only a particular year and did not cover amounts for other years claimed by private respondents. It cannot be presumed that the same amounts were given in other years. Petitioner is therefore entitled to credit only the amounts paid for the year covered by the vouchers.

• Commissions as Part of Wages — Commissions earned by employees compensated on a commission basis are direct remunerations for services rendered and form part of wages under Article 97(f) of the Labor Code. They must be included in determining the employer's compliance with minimum wage requirements. The minimum wage law sets a floor below which remuneration cannot fall; it does not operate to exclude commissions from the wage computation. Where commissions equal or exceed the statutory minimum, the employer need not pay additional basic minimum pay.

• Twin-Notice Requirement in Termination — Lawful dismissal requires two written notices: (a) a notice apprising the employee of the particular acts or omissions for which dismissal is sought, and (b) a notice informing the employee of the decision to dismiss. The first notice must specifically state that dismissal is being sought; a return-to-work order or demand to settle accountabilities does not satisfy this requirement. Failure to comply entitles the employee to nominal damages. In cases of alleged abandonment, the employer must additionally send notice to the worker's last known address pursuant to Section 2, Book V, Rule XIV of the Omnibus Rules Implementing the Labor Code.

• Technical Rules Not Binding in Labor Proceedings — Pursuant to Article 221 of the Labor Code, technical rules of evidence prevailing in courts of law or equity are not controlling in proceedings before the NLRC or Labor Arbiters. Labor officials must use every reasonable means to ascertain the facts speedily and objectively without regard to technicalities of law or procedure. Evidence may be submitted on appeal, and such evidence should be considered in the interest of due process.

• "This definition explicitly includes commissions as part of wages. While commissions are, indeed, incentives or forms of encouragement to inspire employees to put a little more industry on the jobs particularly assigned to them, still these commissions are direct remunerations for services rendered." — This passage articulates the ratio decidendi on the principal issue: commissions, though incentive in character, remain direct remuneration and thus fall within the statutory definition of wage.

• "the establishment of a minimum wage only sets a floor below which an employee's remuneration cannot fall, not that commissions are excluded from wages in determining compliance with the minimum wage law." — This clarifies the relationship between minimum wage law and commission-based compensation, rejecting the NLRC's position that commissions are excluded from the wage computation.

• "the first notice should inform the employee that his dismissal is being sought. Its absence in the present case makes the termination of private respondents defective, for which petitioner must be sanctioned for his non-compliance with the requirements of or for failure to observe due process." — This defines the essential content of the first notice in the twin-notice doctrine and establishes the consequence of its absence.

• Philippine Duplicator's, Inc. vs. NLRC, 227 SCRA 747 (1993) — Cited for the definition of commissions as recompense or compensation of an agent or salesman calculated as a percentage on the amount of transactions or profit to the principal, supporting the conclusion that commissions are part of a salesman's wage.

• Songco vs. NLRC, 183 SCRA 610 (1990) — Cited for the proposition that some salesmen do not receive any basic salary but depend entirely on commissions and allowances, or commissions alone, notwithstanding the existence of an employer-employee relationship.

• Philippine Agricultural Commercial and Industrial Workers Union vs. NLRC, 247 SCRA 256 (1995) — Cited as controlling authority for the principle that drivers and conductors compensated purely on commission basis are entitled to the basic minimum pay if commissions fall below the minimum, from which it was inferred that commissions are included in determining minimum wage compliance.

• Malaya Shipping vs. NLRC, G.R. No. 121698, March 26, 1998 — Cited for the twin-notice requirement in terminating employees: a first notice apprising the employee of the acts or omissions for which dismissal is sought, and a second notice informing the employee of the decision to dismiss.

• Better Buildings, Inc. vs. NLRC, G.R. No. 109714, December 15, 1997 — Cited as recent jurisprudence supporting the award of P5,000.00 each as nominal damages for violation of procedural due process in employee dismissal.

• Article 97(f), Labor Code — Defines "wage" as remuneration or earnings capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, payable by an employer to an employee for work done or services rendered. The Court relied on the explicit inclusion of "commission basis" to hold that commissions form part of wages for minimum wage compliance purposes.

• Article 221, Labor Code — Provides that technical rules of evidence prevailing in courts of law or equity shall not be controlling in proceedings before the NLRC or Labor Arbiters, and that all reasonable means shall be used to ascertain facts speedily and objectively without regard to technicalities. Applied to justify the admission and consideration of 13th month pay vouchers presented for the first time on appeal.

• Section 3(e), Rules and Regulations Implementing P.D. No. 851 — Defines "its equivalent" for 13th month pay purposes and provides that where an employer pays less than 1/12th of the employee's basic salary, the employer shall pay the difference. Applied to hold that petitioner is entitled to credit amounts already paid as 13th month pay, but only for the year covered by the vouchers.

• Section 2, Book V, Rule XIV, Omnibus Rules Implementing the Labor Code — Requires that in cases of abandonment of work, notice should be sent to the worker's last known address. Applied to reject petitioner's claim of abandonment, as no such notice was sent.

Narvasa, C.J., Kapunan, J., and Purisima, J., concurred.