Mercury Drug Co., Inc. vs. Nardo Dayao

Contracts of employment that waive or exclude the statutory 25% additional compensation for work done on Sundays and legal holidays are null and void as contrary to public policy, and employees are not barred from claiming what is due them even if they agreed to work on such days without further consideration than their monthly salaries. Additional compensation for nighttime work is founded on public policy and, therefore, cannot be waived.

Mercury Drug Co., Inc. is a corporation engaged in the pharmaceutical retail business, maintaining a chain of drugstores open every day of the week and, for some stores, up to very late at night. The respondent employees were hired under standard-form employment contracts that set their compensation on an annual basis and included an express waiver of extra compensation for work on Sundays and holidays. The case was governed by Commonwealth Act No. 444, as amended, known as the Eight-Hour Labor Law, which mandates additional compensation for work on Sundays and legal holidays, and by Republic Act No. 875, which was claimed to have curtailed the jurisdiction of the Court of Industrial Relations.

Mercury Drug Co., Inc. is a corporation engaged in the pharmaceutical retail business, maintaining a chain of drugstores open every day of the week and, for some stores, up to very late at night. The private respondents were employees of the company who signed standard-form contracts of employment. A representative contract, that of Nardo Dayao dated October 30, 1959, appointed him as Checker effective July 1, 1959 with an annual compensation of P2,400.00, which the contract stated "includes the additional compensation for work on Sundays and legal holidays." The contract required him to work eight hours on regular days and all special holidays with 25% additional compensation, and four hours on every other Sunday, with 25% additional compensation for work in excess of the stated hours.

On March 17, 1964, Nardo Dayao and 70 others filed a verified petition, subsequently amended on July 31, 1964, against Mercury Drug Co., Inc., Mariano Que as President and General Manager, and the Mercury Drug Co., Inc. Employees Association. The petitioners sought payment of unpaid back wages for work done on Sundays and legal holidays plus 25% additional compensation from the date of their employment up to June 30, 1962, payment of extra compensation for nighttime work, and reinstatement of Januario Referente and Oscar Echalar with back salaries. The respondent management moved to dismiss on grounds of lack of cause of action, lack of jurisdiction over the claims of Referente and Echalar, and the pendency of another action. The respondent union moved to dismiss for lack of jurisdiction over the acts complained of against it.

The CIR resolved the motions to dismiss on March 24, 1965, denying management's ground on lack of cause of action, dropping Referente and Echalar as party petitioners, denying the ground on another pending action, holding that claims had not prescribed, and dismissing the cause of action against the union without prejudice to refiling as an unfair labor practice case. Management's motion for reconsideration was denied on August 26, 1965, and management submitted an amended answer on January 6, 1966, alleging as affirmative defenses that Mariano Que had no liability as a separate corporate personality, that the company as a service enterprise was excluded from the Eight-Hour Labor Law, that no court could disregard the agreement between the company and petitioners, that petitioners were fully paid, that the petition was improperly verified, that there was no employer-employee relationship with Nardo Dayao, and that claims accruing before March 20, 1961 had prescribed.

After hearing on the merits, the CIR rendered its decision on March 30, 1968. The CIR denied the claim for back wages for the first four hours of work on every other Sunday and legal holidays, but ordered Mercury Drug to pay the sixty-nine petitioners an additional sum equivalent to 25% of their basic or regular salaries for services rendered on Sundays and legal holidays and another 25% premium for nighttime services, both for the period from March 20, 1961 to June 30, 1962. The CIR denied the petition to convert employees to monthly employees and absolved Mariano Que from money claims, finding he acted only as an agent of the corporation. The CIR directed its Chief Court Examiner to compute the money awards using the company's records.

The CIR found that the contracts of employment were not declared null and void in their entirety, but only the objectionable features violative of law were nullified. The CIR rejected the company's theory that the 25% additional compensation was included in the monthly salaries, gave credence to the testimonies of Nardo Dayao, Ernesto Talampas, and Josias Federico that the additional compensation was not included, and ruled that any agreement excluding the 25% additional compensation for Sunday and holiday work is null and void as mandated by law. The company's computations, supposedly patterned after the WAS Interpretative Bulletin No. 2 of the Department of Labor, failed to show the exact and correct annual salary as stated in the contracts, with differences varying from P1.20 to P14.40 always against the interest of the employees.

• Nullity of Contracts: Petitioner argued that the CIR erred in declaring the contracts of employment null and void as contrary to public policy and in sustaining the claims for 25% Sunday and legal holiday premiums, because such declaration and award were not supported by substantial evidence and because the validity of the contracts had not been raised as an issue.
• Inclusion of Premiums in Salaries: Petitioner contended that under the respective contracts of employment, the 25% additional compensation had already been included in the private respondents' monthly salaries, based on the testimony of its lone witness, Mr. Jacinto Concepcion, and pertinent exhibits showing computations of basic daily wages plus Sunday and legal holiday rates.
• Jurisdiction over Nighttime Work: Petitioner argued that the CIR had no jurisdiction to award additional compensation for nighttime work because of the declared policy on collective bargaining freedom expressed in Republic Act 875 and the express prohibition in Section 7 of said statute, citing Naric vs. Naric Workers Union and Philippine Engineers' Syndicate vs. Bautista.
• Lack of Substantial Evidence for Nighttime Premiums: Petitioner contended that the CIR's ruling on additional compensation for nighttime work was not supported by substantial evidence.
• Failure of Claimants to Testify: Petitioner argued that the CIR erred in making awards in favor of private respondents who neither gave evidence nor even appeared to show their interest, relying on the ruling in Dimayuga vs. Court of Industrial Relations.

• Entitlement to Sunday and Holiday Premiums: Respondents argued that they were entitled to the 25% additional compensation for work done on Sundays and legal holidays, as the same is mandated by law and any agreement to the contrary is null and void.
• Non-Inclusion of Premiums in Salaries: Respondents presented evidence through the testimonies of Nardo Dayao, Ernesto Talampas, and Josias Federico that their 25% additional compensation for work done on Sundays and legal holidays was not included in their respective monthly salaries.
• Entitlement to Nighttime Premiums: Respondents claimed that their nighttime services could be seen on their respective daily time records and that they were entitled to additional compensation for nighttime work.

• Nullity of Employment Contracts: Whether the Court of Industrial Relations erred in declaring the contracts of employment null and void as contrary to public policy and in sustaining the claims for 25% Sunday and legal holiday premiums.
• Inclusion of Premiums in Salaries: Whether the 25% additional compensation for Sunday and legal holiday work was already included in the private respondents' monthly salaries under their contracts of employment.
• Procedural Objection to Nullity Ruling: Whether the CIR should have refrained from ruling on the nullity of the contracts of employment because the question was not put in issue.
• Jurisdiction over Nighttime Work Premiums: Whether the CIR had jurisdiction to award additional compensation for nighttime work in light of Republic Act 875.
• Substantial Evidence for Nighttime Premiums: Whether the CIR's ruling on additional compensation for nighttime work was supported by substantial evidence.
• Failure of Claimants to Testify: Whether the CIR erred in making awards in favor of private respondents who did not testify or appear to show their interest.

• Nullity of Employment Contracts: No. The contracts of employment were not declared null and void in their entirety; only the objectionable features violative of law were nullified. Any agreement excluding the 25% additional compensation for Sunday and holiday work is null and void as mandated by Section 4 of C.A. No. 444.
• Inclusion of Premiums in Salaries: No. The petitioner's computations failed to show the exact and correct annual salary as stated in the contracts, with differences always against the interest of the employees, and the CIR's finding that the premiums were not included was supported by substantial evidence.
• Procedural Objection to Nullity Ruling: No. Even granting that the CIR declared the contracts wholly void, it could do so notwithstanding the procedural objection, as the CIR is mandated to act according to justice and equity and the substantial merits of the case without regard to technicalities.
• Jurisdiction over Nighttime Work Premiums: Yes. The CIR had jurisdiction to award additional compensation for nighttime work, as the Court found no cogent reason for concluding that a suit for extra compensation for night work falls outside the domain of the industrial court.
• Substantial Evidence for Nighttime Premiums: Yes. The CIR's ruling on additional compensation for nighttime work was supported by evidence, and the "waiver rule" is not applicable because additional compensation for nighttime work is founded on public policy and cannot be waived.
• Failure of Claimants to Testify: No. The ruling in Dimayuga vs. Court of Industrial Relations has been abandoned; quality and not quantity of witnesses should be the primordial consideration in the appraisal of evidence.

• Nullity of Employment Contracts: The Court found that the CIR did not declare the contracts null and void in their entirety but only nullified the objectionable features violative of law. Under Section 4 of C.A. No. 444, no person, firm, or corporation shall compel an employee to work during Sundays and legal holidays unless paid an additional sum of at least 25% of his regular remuneration. The statutory provision further declares that any agreement or contract between employer and laborer contrary to the provisions of the Act shall be null and void ab initio. Even assuming the employees agreed to work on Sundays and legal holidays without further consideration than their monthly salaries, they are not barred from claiming what is due them because such agreement is contrary to public policy and declared null and void by law.
• Inclusion of Premiums in Salaries: The Court found that the petitioner's computations, supposedly patterned after the WAS Interpretative Bulletin No. 2 of the Department of Labor, miserably failed to show the exact and correct annual salary as stated in the respective contracts of employment. The figures arrived at in each case did not tally with the annual salaries in the contracts, the difference varying from P1.20 to as much as P14.40 always against the interest of the employees. The Court characterized the petitioner's defense as "mathematical computations made after the filing of the case in order to explain a clear attempt to make its employees work without the extra compensation provided by law on Sundays and legal holidays." The CIR's conclusion was supported by substantial evidence, and no grave abuse of discretion was shown to warrant disturbing the CIR's findings.
• Procedural Objection to Nullity Ruling: The Court cited Sanchez vs. Court of Industrial Relations for the proposition that the CIR, in the hearing, investigation, and determination of any question or controversy, is to act "according to justice and equity and substantial merits of the case, without regard to technicalities or legal forms" and shall not be bound by technical rules of legal evidence. The Court has invariably accorded the most hospitable scope to the breadth and amplitude with which such provision is couched.
• Jurisdiction over Nighttime Work Premiums: The Court discussed Rheem of the Philippines, Inc. vs. Ferrer at length, which examined the earliest cases cited by the petitioner, Naric vs. Naric Workers Union and Philippine Engineers' Syndicate vs. Bautista. The Court held that while the broad powers conferred by Commonwealth Act 103 on the CIR may have been curtailed by Republic Act 875, which limited them to four categories, there was no cogent reason for concluding that a suit for extra compensation for night work falls outside the domain of the industrial court. The Court noted that after the passage of Republic Act 875, it has upheld the industrial court's assumption of jurisdiction over cases for salary differentials, overtime pay, and additional compensation for work rendered on Sundays and holidays and for night work. To hold that the case for extra compensation falls beyond the powers of the industrial court would amount to a further curtailment of jurisdiction to an extent which may defeat the purpose of the Magna Carta to the prejudice of labor.
• Substantial Evidence for Nighttime Premiums: The Court found that the CIR's ruling was not without evidence, as the witnesses declared they worked on regular days and on every other Sunday and during all holidays, and that their nighttime services could be seen on their respective daily time records. The petitioner-company did not deny that the private respondents rendered nighttime work. The Court held that the "waiver rule" is not applicable because additional compensation for nighttime work is founded on public policy and cannot be waived under Article 6 of the Civil Code.
• Failure of Claimants to Testify: The Court held that the fact that only three of the private respondents testified does not adversely affect the interests of the other respondents. The ruling in Dimayuga vs. Court of Industrial Relations has been abandoned in later rulings. In Philippine Land Air-Sea Labor Union (PLASLU) vs. Sy Indong Company Rice and Corn Mill, the Court rejected as untenable the theory concerning the imperative need of all claimants to testify personally and prove their charges in the complaint. The Court cited Ormoc Sugar Co., Inc. vs. OSCO Workers Fraternity Labor Union for the proposition that "quality and not quantity of witnesses should be the primordial consideration in the appraisal of evidence."

• Nullity of contracts contrary to the Eight-Hour Labor Law — Any agreement or contract between employer and laborer contrary to the provisions of C.A. No. 444 shall be null and void ab initio. The Court applied this doctrine to nullify the provisions of the employment contracts that excluded the 25% additional compensation for Sunday and legal holiday work, holding that employees are not barred from claiming what is due them even if they agreed to work without further consideration than their monthly salaries.
• Non-waivability of nighttime work premiums — Additional compensation for nighttime work is founded on public policy and, therefore, cannot be waived. The Court applied this doctrine to reject the petitioner's "waiver rule" defense, holding that the employees' agreement to work at night without additional compensation is contrary to public policy.
• CIR jurisdiction over nighttime work premiums after R.A. 875 — The broad powers conferred by Commonwealth Act 103 on the CIR may have been curtailed by Republic Act 875, which limited them to four categories, but a suit for extra compensation for night work does not fall outside the domain of the industrial court. The Court applied this doctrine to uphold the CIR's jurisdiction over the nighttime work premium claims.
• Quality over quantity of witnesses — Quality and not quantity of witnesses should be the primordial consideration in the appraisal of evidence. The Court applied this doctrine to reject the petitioner's contention that the CIR erred in making awards in favor of respondents who did not testify, holding that the ruling in Dimayuga requiring all claimants to testify personally has been abandoned.
• Protection to labor and social justice — The Constitution embodies provisions on social justice (Section 6, Article II) and protection to labor (Section 9, Article II) in the Declaration of Principles and State Policies. The Court applied these constitutional mandates to protect the rights of workers who are placed in contractually disadvantageous positions and who sign waivers or provisions contrary to law and public policy.

• "No person, firm or corporation, business establishment or place of center of labor shall compel an employee or laborer to work during Sundays and legal holidays unless he is paid an additional sum of at least twenty-five per centum of his regular remuneration: PROVIDED, HOWEVER, That this prohibition shall not apply to public utilities performing some public service such as supplying gas, electricity, power, water, or providing means of transportation or communication." — This passage quotes Section 4 of C.A. No. 444, the statutory basis for the 25% Sunday and legal holiday premium awarded to the employees.
• "Even assuming that the petitioners had agreed to work on Sundays and legal holidays without any further consideration than their monthly salaries, they are not barred nevertheless from claiming what is due them, because such agreement is contrary to public policy and is declared null and void by law." — This passage states the CIR's reasoning, adopted by the Court, that waivers of the statutory Sunday and holiday premium are void as contrary to public policy.
• "The petitioner's contention that its employees fully understood what they signed when they entered into the contracts of employment and that they should be bound by their voluntary commitments is anachronistic in this time and age." — This passage expresses the Court's rejection of the petitioner's argument that employees should be bound by their contractual waivers, given the disadvantageous position of workers in contractual relationships.
• "It is precisely because of this situation that the framers of the Constitution embodied the provisions on social justice (Section 6, Article 11) and protection to labor (Section 9, Article I I) in the Declaration of Principles And State Policies." — This passage grounds the Court's ruling in the constitutional mandates of social justice and protection to labor, justifying the vigilant protection of workers' rights.

• Sanchez vs. Court of Industrial Relations, 27 SCRA 490 — Controlling precedent cited for the propositions that a grave abuse of discretion must be shown to warrant disturbing the CIR's findings, and that the CIR is to act according to justice and equity and the substantial merits of the case without regard to technicalities or legal forms.
• Rheem of the Philippines, Inc. vs. Ferrer, 19 SCRA 130 — Controlling precedent on the question of nighttime pay differential, which examined the earliest cases cited by the petitioner, Naric vs. Naric Workers Union and Philippine Engineers' Syndicate vs. Bautista, and upheld the CIR's jurisdiction over nighttime work premium claims.
• Philippine Engineers' Syndicate vs. Bautista, L-16440, February 29, 1964 — Controlling precedent cited for the proposition that the CIR retained jurisdiction over claims for additional compensation for regular night work despite the enactment of Republic Act 875.
• Naric vs. Naric Workers Union, L-12075, May 29, 1959 — Followed for the ruling that work done at night can also be overtime work and that the industrial court has the power to determine the wages that night workers should receive under Commonwealth Act No. 103.
• Philippine Land Air-Sea Labor Union (PLASLU) vs. Sy Indong Company Rice and Corn Mill, 11 SCRA 277 — Followed for the abandonment of the Dimayuga ruling requiring all claimants to testify personally, holding that quality and not quantity of witnesses should be the primordial consideration in the appraisal of evidence.
• Dimayuga vs. Court of Industrial Relations, G.R. No. L-0213, May 27, 1957 — Distinguished and abandoned in later rulings, specifically the theory that all claimants must personally testify and prove the charges in the complaint.
• Ormoc Sugar Co., Inc. vs. OSCO Workers Fraternity Labor Union — Cited for the proposition that quality and not quantity of witnesses should be the primordial consideration in the appraisal of evidence.

• Section 4, Commonwealth Act No. 444 — The Eight-Hour Labor Law provision requiring that no person, firm, or corporation shall compel an employee to work during Sundays and legal holidays unless paid an additional sum of at least 25% of his regular remuneration. The Court applied this provision to uphold the award of 25% additional compensation for Sunday and legal holiday work.
• Section 2, Commonwealth Act No. 444 — The provision defining the coverage of the Eight-Hour Labor Law. The Court applied this provision to hold that the respondent company's employees, although in a service enterprise, are within the coverage of the law as they do not fall within the category or class of employees or laborers excluded from its provisions.
• Section 7-A, Commonwealth Act No. 444, as amended by R.A. No. 1993 — The provision on the three-year prescriptive period for claims. The CIR applied this provision to hold that all of petitioners' claims had not yet prescribed, counting backward three years from the date of filing the petition.
• Section 7, Republic Act No. 875 — The provision cited by the petitioner as an express prohibition allegedly divesting the CIR of jurisdiction over nighttime work premiums. The Court rejected this argument, holding that the CIR retained jurisdiction over such claims.
• Article 6, Civil Code — The provision stating that rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law. The Court applied this provision to hold that additional compensation for nighttime work, being founded on public policy, cannot be waived.
• Section 6, Article II, 1987 Constitution — The provision on social justice in the Declaration of Principles and State Policies. The Court cited this provision as a constitutional mandate for protecting the rights of workers placed in contractually disadvantageous positions.
• Section 9, Article II, 1987 Constitution — The provision on protection to labor in the Declaration of Principles and State Policies. The Court cited this provision as a constitutional mandate for the vigilant protection of workers' rights.

Teehankee (Chairman), Makasiar, Melencio-Herrera, Plana, Vasquez, and Relova, JJ., concurred.