Our Haus Realty Development Corporation vs. Parian

There is no substantial distinction between "deducting" and "charging" a facility's value against an employee's wages; both require compliance with the three statutory requisites for deductibility — that the facility is customarily furnished by the trade, voluntarily accepted in writing by the employee, and charged at fair and reasonable value — and a benefit provided primarily for the employer's convenience is a supplement, not a facility, and cannot be credited toward minimum wage compliance.

Our Haus Realty Development Corporation is a company engaged in the construction business. The five respondents — Alexander Parian, Jay Erinco, Alexander Canlas, Jerry Sabulao, and Bernardo Tenedero — were laborers who worked for Our Haus at various construction projects, with years of service ranging from five to sixteen years and daily wage rates between ₱312.00 and ₱383.50. The construction industry is subject to specific occupational safety and health regulations under DOLE Department Order No. 13, series of 1998, and its implementing guidelines under DOLE DO No. 56, series of 2005, which mandate employers to provide suitable living accommodation for workers and integrate the cost thereof into the overall project cost. Minimum wage rates in the National Capital Region during the relevant period were prescribed by Wage Order No. NCR-13 (₱362.00, effective August 28, 2007 to June 13, 2008) and Wage Order No. NCR-14 (₱382.00, effective June 14, 2008 to June 30, 2010).

Our Haus Realty Development Corporation, a company engaged in the construction business, employed the five respondents as laborers at various construction projects, primarily in Quezon City and Antipolo, from 2007 to 2010. The respondents had between five and sixteen years of service, with daily wage rates ranging from ₱312.00 to ₱383.50. Sometime in May 2010, Our Haus experienced financial distress and, to alleviate its condition, suspended some of its construction projects and asked the affected workers, including the respondents, to take vacation leaves. Eventually, the respondents were asked to report back to work, but instead of doing so, they filed a complaint with the Labor Arbiter for underpayment of daily wages, claiming that — except for Tenedero — their wages fell below the minimum rates prescribed by Wage Order No. NCR-13 (₱362.00 for the non-agriculture sector, effective August 28, 2007 to June 13, 2008) and Wage Order No. NCR-14 (₱382.00, effective June 14, 2008 to June 30, 2010). They also alleged that Our Haus failed to pay them holiday pay, service incentive leave pay, 13th month pay, and overtime pay.

Before the Labor Arbiter, Our Haus argued that its payment of wages complied with the law's minimum requirement because, aside from the monetary wages, it subsidized the respondents' meals three times a day and provided free lodging near the construction sites to which they were assigned. Our Haus contended that the value of these benefits should be considered in determining total wages, pursuant to Article 97(f) of the Labor Code. The respondents countered that the value of meals should not be included because Our Haus never presented proof of their written agreement to the inclusion, failed to prove that the value of the facilities was fair and reasonable, and actually withheld the full value of the meals (₱290.00 per week per employee) rather than the maximum 70% allowed by the rules. The Labor Arbiter ruled in favor of Our Haus, holding that the reasonable values of board and lodging, when taken into account, brought the respondents' daily wages up to the prescribed minimum; the LA also denied the other monetary claims for lack of substantiation.

The respondents appealed to the NLRC, which reversed the LA. Citing Mayon Hotel & Restaurant vs. Adana, the NLRC held that the respondents did not authorize Our Haus in writing to charge the values of board and lodging to their wages, and thus the same could not be credited. The NLRC awarded proportionate 13th month pay for 2010 and service incentive leave pay for at least three years immediately preceding May 31, 2010, but sustained the denial of overtime pay for failure to prove exact dates and times. Our Haus moved for reconsideration and belatedly submitted five undated kasunduans purportedly executed by the respondents, containing their conformity to the inclusion of meal and housing values in their total wages. The NLRC denied the motion. Our Haus then filed a Rule 65 petition with the Court of Appeals, where it propounded a new theory distinguishing "deduction" from "charging," arguing that written authorization is necessary only for deduction, not for mere inclusion in the computation of wages. The CA dismissed the petition, finding no real distinction between deduction and charging, and ruling that Our Haus failed to comply with any of the requirements laid down in Mabeza vs. National Labor Relations Commission. Our Haus' motion for reconsideration was denied, prompting the present Rule 45 petition.

• Distinction Between Deduction and Charging: Our Haus argued that a substantial distinction exists between deducting and charging a facility's value to wages — in deduction, the wage amount is lessened by the facility's value, requiring the employee's consent, whereas in charging, there is no reduction of the wage since the facility's value is merely theoretically added for purposes of complying with the minimum wage requirement; thus, the written authorization requirement should not apply to charging.
• Compliance with Deductibility Requirements: Our Haus maintained that it complied with the requirements for deductibility: first, the five kasunduans executed by the respondents constitute the written authorization for inclusion of board and lodging values; second, it only withheld ₱290.00 representing the food's raw value, while the weekly cooking cost (cook's wage, LPG, water) at ₱239.40 per person was a separate expense not withheld from the respondents' wages, disproving the claim that it deducted the full amount of the meals' value.
• Service Incentive Leave Pay: Our Haus asserted that the respondents' claim for SIL pay should be denied because it was not included in their pro forma complaint.
• Attorney's Fees: Our Haus questioned the respondents' entitlement to attorney's fees on the ground that they were not represented by a private lawyer but by the Public Attorney's Office.

• Non-Deductibility of Board and Lodging: The respondents maintained that the CA did not err in ruling that the values of board and lodging cannot be deducted from their wages for failure to comply with the requirements set by law.
• Service Incentive Leave Pay: Though the SIL pay claim was not included in the pro forma complaint, the respondents raised it in their position paper, and Our Haus had the opportunity to contradict it in its pleadings.
• Attorney's Fees: Under the PAO law, the availment of PAO's legal services does not exempt its clients from an award of attorney's fees.

• Deduction vs. Charging: Whether there is a substantial distinction between "deducting" and "charging" a facility's value from an employee's wage such that the legal requirements for deductibility apply only to the former.
• Compliance with Deductibility Requirements: Whether Our Haus complied with the three legal requirements for crediting the value of facilities — that the facility is customarily furnished by the trade, voluntarily accepted in writing by the employee, and charged at fair and reasonable value.
• Characterization of Benefits: Whether the subsidized meals and free lodging provided by Our Haus are facilities or supplements under the purpose test.
• Service Incentive Leave Pay: Whether a claim for SIL pay may still be granted despite not being raised in the pro forma complaint but raised in the position paper.
• Attorney's Fees: Whether respondents represented by the PAO are entitled to an award of attorney's fees.

• Deduction vs. Charging: No. There is no substantial distinction between deducting and charging a facility's value; both operate to lessen the actual take-home pay of an employee and are two sides of the same coin, so the legal requirements for deductibility apply to both.
• Compliance with Deductibility Requirements: No. Our Haus failed to satisfy all three requisites — it did not prove the facilities were customarily furnished by the trade, did not obtain written authorization from the respondents, and did not support its facility valuations with corroborative documentary evidence.
• Characterization of Benefits: The board and lodging are supplements, not facilities. Under the purpose test, they were given primarily for Our Haus' convenience and advantage in a labor-intensive construction business, and their values cannot be credited toward minimum wage compliance.
• Service Incentive Leave Pay: Yes. A claim not raised in the pro forma complaint may still be raised and adjudicated if it was alleged in the position paper and the opposing party had the opportunity to contest it.
• Attorney's Fees: Yes. The respondents' availment of PAO's free legal services does not disqualify them from an award of attorney's fees, which under R.A. No. 9406 shall be paid to the PAO as trust fund.

• Deduction vs. Charging: Our Haus' argument that a distinction exists between deduction and charging was rejected as a vain attempt to circumvent the minimum wage law. In reality, both deduction and charging operate to lessen the actual take-home pay of an employee because, in both situations, the employee receives a reduced amount on the theory that the facility's value — which is part of the wage — has already been paid in kind. Since there is no substantial distinction between the two, the requirements set by law for deductibility must apply to both. The CA was therefore correct in so ruling, and the NLRC committed no grave abuse of discretion in applying those requirements.

• Compliance with Deductibility Requirements: The three requisites summarized in Mabeza vs. NLRC were examined seriatim. First, as to customary furnishing by the trade, Our Haus belatedly submitted a joint sinumpaang salaysay of four alleged employees, but this was self-serving, did not state whether the benefits were consistently enjoyed by all employees, and the board and lodging were given on a per-project basis without proof that they were provided in other projects. Moreover, under DOLE DO No. 13, series of 1998, and its implementing guidelines under DOLE DO No. 56, series of 2005, construction employers are mandated to provide suitable living accommodation for workers, and the cost thereof must be integrated into the overall project cost — meaning the employer cannot pass this OSH cost to employees by deducting it as facilities. Second, as to written authorization, the five undated kasunduans were belatedly submitted only after the NLRC had already ruled that no written authorization existed, and the earlier sinumpaang salaysay made no mention of any kasunduan, making the documents suspicious and self-serving. Third, as to fair and reasonable value, Our Haus never explained how it arrived at its assigned values and presented no supporting documents such as receipts or company records; the valuations were plucked out of thin air, and the additional expenses for the cook's salary, water, and LPG were unsubstantiated.

• Characterization of Benefits: Under the purpose test, the distinction between facilities and supplements lies not in the kind of benefit but in the purpose for which it is given. If primarily for the employee's gain, it is a facility; if mainly for the employer's advantage, it is a supplement. Our Haus is engaged in the construction business, a labor-intensive enterprise whose success depends on the physical strength, vitality, and efficiency of its laborers. Ensuring workers are adequately fed is an investment in the business. Moreover, construction work often requires continuous day-and-night labor to meet deadlines, making it more convenient for the employer to house workers near the site to ensure ready availability and minimize tardiness and absences — particularly significant here since three respondents were not residents of the NCR. The balance tilts toward Our Haus' side, making the meals and lodging supplements whose values cannot be included in computing total wages. The respondents' daily wages were therefore below the prescribed minimum wage rates for 2007-2010.

• Service Incentive Leave Pay: Citing Samar-Med Distribution vs. NLRC, the Court held that the pro forma complaint is a mere checklist of possible causes of action designed to facilitate filing by employees; the non-inclusion of a claim in the complaint does not bar its adjudication if it was raised in the position paper and the opposing party had the opportunity to contest it. The respondents alleged non-payment of SIL in their position paper, and Our Haus opposed it in its pleadings, so the NLRC properly considered it part of the respondents' causes of action.

• Attorney's Fees: In actions for recovery of wages or where an employee was forced to litigate to protect his rights, the award of attorney's fees is legally and morally justifiable. Under R.A. No. 9406, the costs of suit, attorney's fees, and contingent fees imposed upon the adversary of PAO clients after successful litigation shall be deposited in the National Treasury as a trust fund for special allowances of PAO officials and lawyers. Thus, the respondents remain entitled to attorney's fees, which shall be paid to the PAO as token recompense for its free legal services.

• Facilities vs. Supplements (Purpose Test) — Facilities are items of expense necessary for the laborer's and his family's existence and subsistence, forming part of the wage and deductible therefrom when furnished by the employer. Supplements constitute extra remuneration or special privileges given above and over ordinary earnings or wages, are free of charge, and do not form part of the wage. The distinction lies not in the kind of benefit but in the purpose for which it is given: if primarily for the employee's gain, it is a facility; if mainly for the employer's advantage, it is a supplement. In this case, the Court applied the purpose test to the construction industry context and concluded that subsidized meals and free lodging were supplements because they primarily served the employer's convenience — maintaining worker health and efficiency in a labor-intensive business and ensuring worker availability near construction sites.

• Three Requisites for Deductibility of Facilities (Mabeza Test) — Before the value of a facility may be credited or deducted from an employee's wages, the employer must prove: (a) the facility is customarily furnished by the trade; (b) the provision of the facility is voluntarily accepted in writing by the employee; and (c) the facility is charged at fair and reasonable value. The Court found Our Haus failed all three: it could not prove customary furnishing (the benefits were per-project and OSH-mandated costs already integrated into project cost); it produced only belated, undated, self-serving kasunduans; and it assigned valuations without any corroborative documentary evidence such as receipts or payroll records.

• No Distinction Between Deduction and Charging — Deduction and charging both operate to lessen the actual take-home pay of an employee and are two sides of the same coin; the legal requirements for deductibility apply equally to both. An employer cannot avoid the written authorization requirement by characterizing the inclusion of facility values as mere "charging" rather than "deduction."

• Pro Forma Complaint as Mere Checklist — A pro forma complaint in labor cases is a mere checklist of possible causes of action designed to facilitate filing; the non-inclusion of a claim therein does not bar its adjudication if the claim is raised in the position paper and the opposing party had the opportunity to contest it. The employee's cause of action should be ascertained from both the complaint and the position paper, not from the complaint alone.

• Attorney's Fees for PAO-Represented Clients — The availment of PAO's free legal services does not disqualify a client from an award of attorney's fees. Under R.A. No. 9406, attorney's fees imposed upon the adversary of PAO clients after successful litigation shall be deposited in the National Treasury as a trust fund for special allowances of PAO officials and lawyers.

• "In reality, deduction and charging both operate to lessen the actual take-home pay of an employee; they are two sides of the same coin. In both, the employee receives a lessened amount because supposedly, the facility's value, which is part of his wage, had already been paid to him in kind. As there is no substantial distinction between the two, the requirements set by law must apply to both." — This passage articulates the ratio decidendi on the deduction-versus-charging issue, rejecting the employer's attempt to create a distinction to circumvent the minimum wage law.

• "Ultimately, the real difference lies not on the kind of the benefit but on the purpose why it was given by the employer. If it is primarily for the employee's gain, then the benefit is a facility; if its provision is mainly for the employer's advantage, then it is a supplement." — This is the canonical formulation of the purpose test distinguishing facilities from supplements, frequently cited in subsequent labor jurisprudence.

• "As part of the project cost that construction companies already charge to their clients, the value of the housing of their workers cannot be charged again to their employees' salaries. Our Haus cannot pass the burden of the OSH costs of its construction projects to its employees by deducting it as facilities. This is Our Haus' obligation under the law." — This passage establishes that OSH-mandated living accommodations in the construction industry, whose costs are integrated into the overall project cost, cannot be charged to employees as deductible facilities.

• "The complaint of Gutang was a mere checklist of possible causes of action that he might have against Roleda. Such manner of preparing the complaint was obviously designed to facilitate the filing of complaints by employees and laborers who are thereby enabled to expediently set forth their grievances in a general manner." — This quotation, adopted from Samar-Med Distribution vs. NLRC, defines the nature and function of the pro forma complaint in labor proceedings and supports the rule that causes of action are determined from both the complaint and the position paper.

• Mabeza vs. National Labor Relations Commission, 338 Phil. 386 (1997) — Controlling precedent establishing the three requisites for deductibility of facility values from wages: (a) customarily furnished by the trade, (b) voluntarily accepted in writing, and (c) charged at fair and reasonable value. The Court applied this framework and found Our Haus failed all three.

• Mayon Hotel & Restaurant vs. Adana, 497 Phil. 892 (2005) — Cited for the rule that a facility may only be deducted from wages if the employer was authorized in writing by the employee, as deduction diminishes take-home pay and requires express consent. The NLRC relied on this case in reversing the Labor Arbiter.

• SLL International Cables Specialist vs. National Labor Relations Commission, G.R. No. 172161, March 2, 2011, 644 SCRA 411 — Followed for the distinction between facilities and supplements and the articulation of the purpose test. The Court quoted extensively from this case in characterizing Our Haus' board and lodging as supplements.

• Atok-Big Wedge Assn. vs. Atok-Big Wedge Co., 97 Phil. 294 (1955) — Cited through SLL International for the original distinction between "facilities" and "supplements" — facilities being items necessary for the laborer's existence that form part of the wage, and supplements being extra remuneration above ordinary wages.

• Samar-Med Distribution vs. National Labor Relations Commission, G.R. No. 162385, July 15, 2013, 701 SCRA 148 — Followed for the rule that a pro forma complaint is a mere checklist and that causes of action should be ascertained from both the complaint and the position paper, not from the complaint alone.

• Aliling vs. Feliciano, G.R. No. 185829, April 25, 2012, 671 SCRA 186 — Cited for the principle that in actions for recovery of wages or where an employee was forced to litigate to protect his rights, the award of attorney's fees is legally and morally justifiable.

• Article 97(f), Labor Code — Defines "wage" as remuneration or earnings payable by an employer to an employee, including 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. Our Haus invoked this provision to argue that the value of board and lodging should be included in computing total wages, but the Court found the requisites for deductibility unmet.

• Section 4, DOLE Memorandum Circular No. 2 (Book III, Rule VII-A, IRR of the Labor Code) — Provides that minimum wage rates shall be basic cash wages, without deducting whatever benefits, supplements, or allowances given free of charge aside from basic pay; allows deduction of not more than 70% of the value of meals and snacks, provided such deduction is with the written authorization of the employees concerned. The Court applied this provision in finding that Our Haus failed to secure the respondents' written authorization.

• Section 2, DOLE Memorandum Circular No. 2 — Defines facilities as articles or services for the benefit of the employee or his family, excluding tools of the trade or articles primarily for the benefit of the employer. The Court used this definition in applying the purpose test.

• Section 16, DOLE Department Order No. 13, series of 1998 — Requires employers in the construction industry to provide welfare amenities including suitable living accommodation for workers. The Court held that since this is a mandatory OSH requirement, the cost of which is integrated into the overall project cost under DOLE DO No. 56, series of 2005, the employer cannot pass this cost to employees by deducting it as facilities.

• Section 6, Republic Act No. 9406 (PAO Law) — Provides that costs of suit, attorney's fees, and contingent fees imposed upon the adversary of PAO clients after successful litigation shall be deposited in the National Treasury as trust fund for special allowances of PAO officials and lawyers. The Court applied this provision in sustaining the award of attorney's fees payable to the PAO.

Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Portugal Perez, and Estela M. Perlas-Bernabe concurred. No separate concurring opinions were noted.