Millares vs. NLRC

Allowances that are contingency-based, temporary, and granted primarily for the employer's benefit and convenience do not form part of the employee's wage and are excluded from the computation of separation pay. Because the subject allowances ceased upon the occurrence of certain conditions (e.g., availability of company housing, transfer out of Bislig, discontinuance of personal vehicle use for work) and were designed to ensure quality performance rather than subsistence, the Court ruled they were not "facilities customarily furnished" under Article 97(f) of the Labor Code.

One hundred sixteen supervisory and managerial employees of respondent Paper Industries Corporation of the Philippines (PICOP) assigned at the mill site in Bislig, Surigao del Sur, were separated from service in 1992. PICOP implemented a retrenchment program to avert further losses allegedly caused by restrictive government logging regulations and an economic crisis. The retrenched employees received separation pay computed at one month basic pay for every year of service. Claiming that the Staff/Manager's, Transportation, and Bislig allowances they regularly received should have been included in the computation, petitioners demanded separation pay differentials.

• Nature of Employment: Petitioners occupied supervisory and managerial positions (Technical Staff to Vice President) at PICOP's mill site in Bislig, Surigao del Sur.
• The Retrenchment: In 1992, PICOP suffered a major financial setback due to restrictive logging regulations and economic crisis. To avert further losses, PICOP undertook a retrenchment program and terminated the services of the petitioners. Petitioners received separation pay computed at one month basic pay for every year of service.
• The Disputed Allowances: Petitioners claimed separation pay differentials, asserting that three allowances regularly received should be included in the salary base:
  • Staff/Manager's Allowance: PICOP provided free housing, water, and electricity to supervisory and managerial employees. Due to a shortage of company housing, an equivalent cash allowance was given to those renting outside the mill site. The allowance ceased when a company housing vacancy occurred, at which point the employee was required to transfer. An additional Manager's allowance was given to Unit, Section, and Department Managers for the same expenses.
  • Transportation Allowance: Granted to key officers and Managers who used their personal vehicles for work duties to relieve the company motor pool of excessive requests. The allowance was conditional, required liquidation through detailed expense reports, and was discontinued when the conditions for its availment no longer obtained.
  • Bislig Allowance: Granted to Division Managers and corporate officers assigned to Bislig on account of the hostile environment prevailing there. The allowance ceased upon the recipient's transfer outside Bislig.

• Petitioners argued that their allowances fall under the definition of "facilities" in Article 97(f) of the Labor Code because they are necessary and indispensable for their existence and subsistence.
• Petitioners maintained that their monthly receipt of the monetary equivalent of these facilities was characterized by permanency, regularity, and customariness.
• Petitioners invoked Santos v. NLRC, Soriano v. NLRC, The Insular Life Assurance Company, Planters Products, Inc., and Songco, arguing that established jurisprudence dictates that the salary base for computing separation pay includes not just basic salary but also regular allowances.

• Respondent NLRC, affirming PICOP's position, countered that the allowances were contingency-based and therefore not included in salaries.
• Respondent relied on Estate of the late Eugene J. Kneebone v. NLRC, where representation and transportation allowances were excluded from the computation of separation benefits.
• Respondent asserted that the allowances were granted for the benefit and convenience of the employer, noting they were not subjected to withholding tax.

• Procedural Issues: Whether the NLRC committed grave abuse of discretion in ruling that the subject allowances did not form part of the salary base for computing separation pay.
• Substantive Issues: Whether the Staff/Manager's, Transportation, and Bislig allowances form part of the employees' "wage" under Article 97(f) of the Labor Code and must be included in the computation of separation pay.

• Procedural: The Court found no grave abuse of discretion on the part of the NLRC, affirming the labor tribunal's findings on the nature of the allowances.
• Substantive: The Court ruled that the subject allowances did not form part of petitioners' wages and were properly excluded from the separation pay computation. The Court analyzed the allowances under the three criteria derived from Article 97(f) of the Labor Code:
  • "Customarily furnished": While "customary" connotes regularity, the receipt of an allowance on a monthly basis does not ipso facto characterize it as regular. The nature of the grant must be considered. Because the allowances were contingent on specific conditions (e.g., lack of company housing, use of personal vehicles, assignment to a hostile area), they were temporarily, not regularly, received. When the conditions ceased, the allowance was discontinued.
  • "Board, lodging, or other facilities": Under the Implementing Rules, "facilities" include articles or services for the benefit of the employee or his family, excluding those primarily for the benefit of the employer. The criterion is the purpose of the privilege, not its kind. The Staff/Manager's, Transportation, and Bislig allowances were granted to ensure quality performance, relieve the motor pool, and compensate for a hostile environment—all primarily for the employer's benefit and convenience. This was corroborated by the fact that the allowances were not subjected to withholding tax, as they constituted expenses for the employer's business.
  • "Fair and reasonable value as determined by the Secretary of Labor": The allowances did not represent such fair and reasonable value because they were monetary substitutes given in lieu of actual provisions for housing and transportation needs, or for being assigned to a hostile environment.
  • The Court distinguished the cases cited by petitioners (Santos, Soriano, Insular Life, Planters Products, Songco), clarifying that those rulings involved regular allowances. Because the allowances in the present case were not regularly received, the precedents were inapplicable. The Court also distinguished Kneebone, noting it rested on a specific exclusion in the company retirement plan, but agreed with the NLRC's ultimate conclusion.

• Criterion for Determining "Facilities" Under Article 97(f) of the Labor Code — In determining whether a privilege constitutes a "facility" that is included in the concept of wage, the criterion is not so much the kind of privilege but its purpose. Articles or services primarily for the benefit of the employer or necessary to the conduct of the employer's business are excluded from the definition of facilities.
• Regularity of Allowances — The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary. The nature of the grant is a determinative factor; contingency-based allowances that cease upon the occurrence or non-occurrence of specific conditions are not regular.

• "In determining whether a privilege is a facility, the criterion is not so much its kind but its purpose."
• "The receipt of an allowance on a monthly basis does not ipso facto characterize it as regular and forming part of salary because the nature of the grant is a factor worth considering."

• Santos v. NLRC, G.R. No. 76721, 21 September 1987, 154 SCRA 166 — Distinguished. The Court held that in illegal dismissal cases where separation pay is awarded in lieu of reinstatement, regular transportation and emergency living allowances are included in the salary base. The present case involves allowances that were not regular.
• Soriano v. NLRC, G.R. No. 75510, 27 October 1987, 155 SCRA 124 — Distinguished. The Court held the salary base for separation pay should include regular allowances. Distinguished here on the ground that the subject allowances were contingency-based, not regular.
• Estate of the late Eugene J. Kneebone v. NLRC, G.R. No. 77109, 8 November 1988, 167 SCRA 99 — Distinguished. The Court excluded representation and transportation allowances from retirement benefits because the company plan expressly excluded them. The present case does not involve a company plan exclusion, but the ruling on non-inclusion was affirmed on different grounds.
• States Marine Corporation v. Cebu Seamen's Association, Inc., No. L-12444, 28 February 1963, 7 SCRA 294 — Followed. Cited for the doctrine that the criterion for determining whether a privilege is a facility is its purpose, not its kind.

• Article 97(f), Labor Code — Defines "wage" as the remuneration or earnings capable of being expressed in terms of money, and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee. Applied to determine whether the subject allowances formed part of the wage base for separation pay.
• Article 283, Labor Code — Imposes on the employer the obligation to grant separation pay equivalent to one month pay or at least one-half month pay for every year of service in cases of retrenchment to prevent losses. Interpreted in conjunction with Article 97(f) to define "pay."
• Section 5, Rule VII, Book III, Rules Implementing the Labor Code — Defines "facilities" as including articles or services for the benefit of the employee or his family but excluding tools of the trade or articles or services primarily for the benefit of the employer. Applied to exclude the allowances, which were for the employer's benefit.
• Revenue Audit Memo Order No. 1-87 — Provides that transportation, representation, or entertainment expenses do not constitute taxable compensation if incurred in pursuit of the employer's business and properly liquidated. Cited to support the finding that the allowances were for the employer's convenience.

Puno, Mendoza, Quisumbing, and Buena, JJ.