Kamaya Point Hotel vs. NLRC

A 14th month pay is in nature a bonus—gratuitous and dependent on the profitability of company operations—and cannot be compelled as an enforceable company practice under Article 100 of the Labor Code where there is no legal or contractual basis for the benefit, and where the practice was extended only after the Labor Code's effectivity.

Kamaya Point Hotel employed hotel crew members, including Memia Quiambao and thirty others, who were members of the Federation of Free Workers (FFW), a legitimate labor organization. Based on the profitability of the company's business operations, management voluntarily granted a 14th month pay to its employees starting in 1979. The parties operated under a Collective Bargaining Agreement containing no stipulation for such extra remuneration, the omission reflecting that the benefit was contingent on profitability. The 13th month pay was separately mandated by Presidential Decree No. 851.

Kamaya Point Hotel employed hotel crew members, including Memia Quiambao and thirty others, who were members of the Federation of Free Workers (FFW). Based on the profitability of the company's business operations, management granted a 14th month pay to its employees starting in 1979. In January 1982, hotel operations ceased to give way to the property's conversion into a training center for Libyan scholars. Due to technical and financing problems, however, the Libyans pre-terminated the program on July 7, 1982, leaving the hotel without any business. Petitioner was not paid for the use of the premises and had to undertake repairs for damage caused by the Libyan students, allegedly suffering losses amounting to ₱2 million.

Although petitioner reopened the hotel to the public, it was unable to recover its lost patronage. Within a couple of months it effected a retrenchment program until finally, on January 7, 1984, it totally closed its business. On April 18, 1983, FFW filed a complaint with the Ministry of Labor and Employment for illegal suspension, violation of the CBA, and non-payment of the 14th month pay. The case was ultimately submitted for decision on the sole issue of alleged non-payment of the 14th month pay for the year 1982.

The Labor Arbiter ruled in favor of the employees, ordering payment of the 14th month pay for 1982 and certain CBA benefits. On appeal, the NLRC set aside the CBA award but affirmed the grant of the 14th month pay, finding that the benefit had ripened into a company practice that could not be unilaterally withdrawn without violating Article 100 of the Labor Code. The NLRC acknowledged that no law or CBA provision granted a 14th month pay, but nonetheless sustained the award on the theory that its withdrawal would amount to a diminution of existing benefits.

• Inapplicability of Article 100: Petitioner argued that the NLRC committed grave abuse of discretion in adopting the Labor Arbiter's reasoning that the 14th month pay could not be withdrawn without violating Article 100 of the Labor Code, since the benefit was extended beginning 1979—well after the Labor Code's effectivity on May 1, 1974—and the demand was for payment in 1982.
• Absence of Legal or Contractual Basis: Petitioner maintained that there was no law mandating a 14th month pay and no stipulation in the Collective Bargaining Agreement providing for such extra remuneration, making the benefit entirely contingent on the profitability of company operations and thus a management prerogative that could not be compelled.

• Applicability of Article 100: Whether Article 100 of the Labor Code, which prohibits the elimination or diminution of employee benefits, applies to the 14th month pay granted by petitioner.
• Company Practice: Whether the 14th month pay had ripened into a company practice that the employer could not unilaterally withdraw.
• Double Burden: Whether an employer may be compelled to pay a 14th month pay in addition to the 13th month pay mandated by Presidential Decree No. 851.

• Applicability of Article 100: No. Article 100 is inapplicable because the 14th month pay was first extended in 1979, after the Labor Code's effectivity on May 1, 1974, and the demand was for payment in 1982; the provision protects only benefits enjoyed at the time of the Code's promulgation.
• Company Practice: No. The 14th month pay is a bonus, gratuitous in nature and dependent on company profitability, and cannot be compelled solely because it was previously granted; having lost its catering business, the hotel should not be penalized for its previous liberality.
• Double Burden: No. An employer may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee's basic salaries or wages in addition to the required 13th month pay.

• Applicability of Article 100: Article 100 of the Labor Code provides that nothing in the Code shall be construed to eliminate or diminish supplements or other employee benefits being enjoyed at the time of promulgation of the Code. The provision's protective scope is limited to benefits existing as of May 1, 1974, the date of the Code's effectivity. Since petitioner extended the 14th month pay only beginning 1979, and the demand was for payment in 1982, the benefit did not exist at the time of the Code's promulgation. Article 100 is therefore clearly without applicability, notwithstanding the NLRC's and the Labor Arbiter's admission that the 14th month pay had no contractual or legal basis.

• Company Practice: The 14th month pay is a misnomer because it is basically a bonus and therefore gratuitous in nature. It is something given in addition to what is ordinarily received or strictly due the recipient—a gratuity to which the recipient has no right to make a demand. The granting of the 14th month pay is a management prerogative which cannot be forced upon the employer. The absence of any stipulation in the CBA for such extra remuneration is an acknowledgment that the benefit is entirely contingent on the profitability of the company's operations. Having lost its catering business derived from Libyan students and suffered substantial losses, the hotel should not be penalized for its previous liberality. The Court was not prepared to compel payment solely because the benefit had allegedly ripened into a company practice.

• Double Burden: Presidential Decree No. 851 (the 13th Month Pay Law) mandates only the 13th month pay, and employers already paying a 13th month pay or its equivalent are exempt. Having already enjoyed the additional income from the mandated 13th month pay, the employees' insistence on a 14th month pay constitutes an unwarranted expansion of the liberality of the law. An employer may not be obliged to assume a double burden of paying the 13th month pay in addition to bonuses or other benefits aside from the employee's basic salaries or wages.

• Nature of Bonus — A bonus is something given in addition to what is ordinarily received by or strictly due the recipient; it is a gratuity to which the recipient has no right to make a demand. The granting of a bonus is a management prerogative which cannot be forced upon the employer. In this case, the 14th month pay was held to be in nature a bonus, gratuitous and dependent on company profitability, and thus not demandable as a matter of right.

• Non-Diminution Principle (Article 100, Labor Code) — Article 100 prohibits the elimination or diminution of supplements or other employee benefits being enjoyed at the time of promulgation of the Labor Code (May 1, 1974). The provision applies only to benefits existing as of the Code's effectivity. A benefit first granted in 1979 does not fall within its protective scope, and its withdrawal cannot constitute a prohibited diminution under Article 100.

• Contingency of Profitability-Based Benefits — Where a benefit is granted based on the profitability of company operations and there is no legal or contractual stipulation mandating it, the benefit is entirely contingent on profitability and may be withdrawn when the employer ceases to be profitable. The employer should not be penalized for its previous liberality.

• "Verily, a 14th month pay is a misnomer because it is basically a bonus and, therefore, gratuitous in nature. The granting of the 14th month pay is a management prerogative which cannot be forced upon the employer." — This passage articulates the ratio decidendi: the 14th month pay is a bonus, gratuitous and not demandable, and its grant is a management prerogative.

• "It is something given in addition to what is ordinarily received by or strictly due the recipient. It is a gratuity to which the recipient has no right to make a demand." — This defines the canonical formulation of a bonus as a gratuity, frequently cited in subsequent labor jurisprudence on the nature of bonuses.

• "This Court is not prepared to compel petitioner to grant the 14th month pay solely because it has allegedly ripened into a company practice as the labor arbiter has put it. Having lost its catering business derived from Libyan students, Kamaya Hotel should not be penalized for its previous liberality." — This passage establishes that profitability-based bonuses do not ripen into enforceable company practices where the employer has ceased to be profitable.

• National Federation of Sugar Workers (NFSW) vs. Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354 — Cited in support of the proposition that an employer may not be obliged to assume a double burden of paying the 13th month pay in addition to bonuses or other benefits aside from employees' basic salaries or wages.
• Brokenshire Memorial Hospital, Inc. vs. NLRC, G.R. No. 69741, August 19, 1986, 143 SCRA 564 — Cited alongside NFSW vs. Ovejera for the same proposition regarding the double burden of paying mandated benefits plus bonuses.

• Article 100, Labor Code — Prohibits the elimination or diminution of supplements or other employee benefits being enjoyed at the time of promulgation of the Code. The Court held this provision inapplicable because the 14th month pay was first granted in 1979, after the Code's effectivity on May 1, 1974, and the demand was for 1982 payment.
• Presidential Decree No. 851 (13th Month Pay Law) — Mandates the payment of a 13th month pay and exempts employers already paying a 13th month pay or its equivalent. The Court cited its exemption clause to emphasize that only the 13th month pay is mandated by law, and the employees' insistence on a 14th month pay constitutes an unwarranted expansion of the law's liberality.

Gutierrez, Jr., Feliciano, Bidin, and Cortes, JJ., concurred.